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Diminishing federal contract program has Native corporations diversifying

Alaska Native regional corporations are drawing a decreasing amount of their revenue from a controversial government contracting program that gives preferential treatment to minority-owned businesses, financial reports show.

Federal budget cuts, a temporary government shutdown and reform legislation spurred by Congressional critics and government watchdogs has made obtaining contracts through what's known as the 8(a) program more difficult and costly.

"They see the writing on the wall," Kim Reitmeier, executive director of the Alaska Native Claims Settlement Act Regional Association, said at a recent Anchorage Chamber of Commerce lunch at the Egan Center. "And so the regional corporations have diversified."

At Calista Corp., management "continues to take steps to lessen its dependence on government contracting by expanding its investments in real estate," the company's 2014 annual report said. Between 2012 and 2014, the majority of Calista's revenue came from contracts or subcontracts with federal government agencies. Of those contracts, a significant portion came from the 8(a) program.

Total revenue earned through the 8(a) contracting program by the 12 regional corporations, which comprise the membership of the ANCSA Regional Association, was $2.4 billion in 2014, down from $3.6 billion in 2010, the association's most recent annual report said.

In 2014 the preferential, noncompetitive contracts made up 28.5 percent of the corporations' total revenue. In 2010 that figure was 43 percent.

The program's pivotal role in the corporations' success is well known. The Small Business Administration program lowers the barriers for businesses owned by socially or economically disadvantaged individuals to win what are often lucrative federal government contracts.

As benefits from the program accrued to Alaska Native corporations in the 2000s it drew scrutiny from key members of Congress and the nonpartisan Government Accountability Office, which tracks the spending of taxpayer dollars on Congress's behalf.

Within the program, tribal entities, a category including Alaska Native corporations, had advantages even over other minority-owned or disadvantaged businesses. They could be awarded no-bid 8(a) contracts for any amount of money, whereas the value of noncompetitive bids other 8(a) firms could win were capped. And the amount of actual work performed by the Native companies themselves, rather than their non-Native subcontractors, was not well-monitored.

Despite resistance from Alaska's Congressional delegation, federal legislation has since curbed the value and number of sole-source contracts awarded to Alaska Native and other tribal entities, according to the Government Accountability Office.

The National Defense Authorization Act of Fiscal Year 2010 included a new requirement of a written justification for 8(a) sole-source awards over $20 million.

"This justification requirement brings more attention to large-dollar-value, sole-source contracts awarded through the 8(a) program," GAO said in a 2014 report. "The number and value of these contracts at the Department of Defense and other federal agencies have declined since enactment of the requirement."

Additional reports on the program are scheduled for next year, said Michele Mackin, director of acquisition and sourcing management at GAO.

The ANCSA Regional Association did not report the share of 8(a) contracts that went to Alaska Native village corporations. Some, including Ukpea?vik Iñupiat Corp., also participate heavily in the program. And the report did not break down financial information by individual corporation.

The regional corporation annual reports do not show what share of revenue came from 8(a) awards, but all emphasize the importance of federal contracts, some of which are awarded outside the 8(a) program. Arctic Slope Regional Corp. and NANA Regional Corp. are among the top 100 federal contractors, ranked in 2014 at 73rd and 83rd respectively, in terms of dollars awarded.

Moves by some companies to diversify away from the 8(a) program do not mean Alaska Native and other tribal entities throughout the country would be content to see the benefits disappear.

"I think it's something we'll continue to fight for in the coming years," Reitmeier said.

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