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Investigating 8(a) contracting

McCaskill open to other ideas for reforming 8(a) program

  • Author: Alex DeMarban
  • Updated: July 7, 2016
  • Published December 16, 2010

Sen. Claire McCaskill, foe of federal-contracting exemptions enjoyed by Alaska Native corporations, said she'll consider other ideas for reforming the program.

Missouri's Democratic senator has crafted a bill that, among other things, would remove the benefit that allows Alaska Native corporations to win noncompetitive contracts of unlimited size.

The exemptions -- under the Small Business Administration's 8(a) program -- have allowed some Native corporations to win blockbuster deals worth hundreds of millions of dollars.

McCaskill wants Alaska Natives, like most other 8(a) minority participants, limited to sole-source contracts valued at no more than $3.5 million for services or $5.5 million for goods.

She said the program has enriched non-Native consultants and subcontractors, not the Alaska Natives it was designed to help.

The Alaska Native Claims Settlement Act, passed by Congress in 1971, led to the creation of the 13 regional Alaska Native corporations and scores of village corporations in part to help combat high poverty among Natives. Years later, they received the SBA exemptions.

Under the program, Native corporations can team up with more experienced subcontractors that aren't disadvantaged. The partners show them the ropes while doing a minority share of the work.

But in some cases, subcontractors have used the Native corporations as fronts to win huge federal contracts without competing for them, said McCaskill. The subcontractors did most of the work and returned little of the profit to Alaska.

Lower 48 American Indian tribes can also win contracts of any size without competing for them. They're currently not part of McCaskill's bill, but she'll likely propose the same limitations for them, she said.

She's focused on Alaska Native corporations because she hasn't found the same evidence of abuse among the Indian tribes.

She said she's open to hearing reform ideas from Alaska Natives, and wants to work with Alaska senators to ensure her proposed bill doesn't hurt Alaskans. She said she and Sen. Mark Begich, D-Alaska, must do an "exchange program" to witness poverty in each other's states.

Our conversation touched on a report by the U.S. Senate Subcommittee on Contracting Oversight, which she chairs.

It estimated that federal contracts helped Alaska Native corporations pay $720 million from 2000 to 2008 to more than 100,000 Native shareholders or descendants.

The payouts accounted for 44 percent of the benefits -- dividends and scholarships primarily -- that Alaska Native corporations provided to shareholders during that period.

McCaskill's bill would sharply reduce Native involvement in the program.

Below is a condensed version of the interview.

TD: It looks like your proposed bill would result in 44 percent of the benefits being removed. And to me that's just a huge hit. How can you morally stomach that?

CM: Well, what I think is most immoral about what is going on now is how these Alaska Natives are being used and frankly abused by these companies. These companies are fronting for major corporations with executives and people that are getting rich off no-bid contracts and the people in Alaska are just getting the crumbs off the table.

Now the sad thing is those crumbs are so meaningful. But it seems to me that the way to do this is to put Alaska Native corporations in the same category as other minority programs and as they succeed they will no longer need a sole-source contract, they can compete.

In fact, a lot of these companies can compete now. They just don't have to. They are major corporations. And I would hope that this would, one, invigorate the Alaska Native communities to drive for a better bargain with the companies they work with, and secondly, save taxpayers money by forcing these companies to compete like every other company has to do.

And if at the end of the day there are needs that these tribes have then we need to be honest about addressing those.

But to address them in this back-handed way where we're giving huge benefits to these multinational corporations, and they're getting fabulously wealthy, and throwing Alaska literally a bone, that's offensive to me.

TD: Why not take smaller steps to make sure that abuse is not occurring and to make sure that it's more than crumbs, perhaps like a shareholder hire minimum, or some sort of educational scholarship minimum?

CM: There's nothing to keep the Alaska Native corporations from doing that now. Why haven't they done it?

TD: It seems they are to some extent.

CM: They get a very small percentage of the profit.

TD: It'd be nice to have it (improve), I agree with you there, to have more benefits.

CM: But they clearly have not been able to, for whatever reason, which I do not understand. They have not driven a very good bargain.

TD: It seems they've gotten better at doing it over time, and a lot of this is a learning process. I think your report mentioned 5 percent of the jobs went to (shareholders). (Why not) set a minimum of 10 or 15 or 20 percent or more and if that can't be met, then that company can't be an 8a. Why not a reform like that?

CM: Well, I am open to any ideas of reform. I know what's going on right now stinks. It stinks for the United States taxpayer, and it stinks for the Alaska Native corporations, and it's really good for Northern Virginia. And so I'm not saying my way is the only way to reform this.

I'm saying I think there is not a good rational basis to treat an Alaska Native minority corporation any differently than any other minority corporation. This is supposed to be about giving them the ability to grow their companies, grow jobs, and then, when they're stabilized, get out there and compete with every other business. I have a hard time understanding why is it that these minority corporations get treated differently than any other minority corporation. This doesn't make sense to me.

TD: So you would be open to some changes to your bill?

CM: I would be open if the people from Alaska would take up the mantle of reform instead of accusing people who are trying to reform it of ulterior, immoral motives. It would be much more productive.

TD: How should they go about that?

CM: They should work with their elected senators. I think they have fought any change. And they had the ability to do that when Ted Stevens was in charge. And they can't do that any more because Ted Stevens is no longer in charge. So I'm hopeful that they come with reforms. I remain committed to the idea that if there is a social problem that needs to be addressed in Alaska, we should do that openly and up front. Not under the guise of noncompetitive, huge multimillion dollar contracts.

TD: So how would you do that openly and up front?

CM: We do it like we do it anywhere else in the country. We have safety net programs. We have health care programs. For poor people all over our country, we're trying to address the needs of poverty. Alaska is the only one that's gotten the whip cream with the cherry on top in terms of the way that this problem has been addressed, and it's not right, the way it's been done. It's just flat wrong.

TD: It's not the perfect program, that's true. It does provide a business development incentive which is pretty nice and that's different than you'd get in traditional programs that some would call handouts.

CM: That's what the 8a program is designed to do, to allow businesses that are small to build their capacity and not have to compete. But once that capacity is built, once they get to a certain level, they age out of the program. Not so with ANCs (Alaska Native corporations). They never age out of the program.

TD: But you'd be interested in some middle-of-the-road reform steps?

CM: I'm going to support any reform. I'm going to advocate that they not be treated differently than any other minority corporations. That they be treated the same. That's what I'm going to advocate. But I am open to any reform that gets us away from, I mean I'm not even sure people in Alaska really understand what's going on here. Do you think they really understand what's going on here?

TD: I think they do.

CM: OK, because I'm not sure they do from what I've read.

TD: What do you mean?

CM: I don't think they understand that what really happens here is some corporation decides they want to do business with the Department of Defense, and they don't want to have to compete for it. They go find an Alaska Native corporation to pay a few bucks to front for them, which is perfectly legal, and they get this huge contract and they just give a few dollars to the ANCs on the side. They hire no Alaskans. They build no job capacity in Alaska. They do nothing in Alaska except send a check.

TD: So why not more regulatory oversight or penalties so those things don't happen?

CM: Why not do that? I mean that's not the right way to spend public money. You know, the irony of this is this is the home of Sarah Palin. What nerve she has running around the country lecturing us on liberty and freedom and unhooking from the federal government when Alaska, by far, has been the beneficiary of more federal dollars per capita than any other state in the union. Alaska would be in big trouble if it wasn't for Washington, D.C.

TD: So does your bill just deal with Alaska Natives? From what I've read ... the Indian tribes would still get the unlimited, sole-source benefits.

CM: First of all, I think there's been some confusion. ANCs had some benefits the Lower 48 (Indian tribes) didn't have. They were not equal before.

TD:Like what?

CM: They are automatically permanently considered eligible in terms of economic status. The Lower 48 aren't. So, really my goal is to bring them all to the level of 8(a). Now, we don't have the evidence of abuse. Our hearing focused on the abuse of 8(a) programs as it related to ANCs. We are expanding our investigation and if we find the same kind of abuses we found in that, my goal would be to reduce all of them to the standard 8(a) status.

TD: But right now it only deals with Alaska Natives.

CM: That's correct.

TD: So Indian tribes would still be eligible for the unlimited soul-source benefits, which is the key issue here.

CM: Yes, and I'm very open to including everyone because I can certainly see that argument. The problem is you haven't seen the kind of multi-hundred-million dollar contracts that have been going to the Lower 48s like you have the ANCs.

TD: So you're open to limiting the Indian tribes so they don't get the sole-source benefits?

CM: Absolutely. It's the right thing to do.

TD: Then how come you didn't do that?

CM: I think because we didn't have the documentation that we have for the abuses in the Lower 48 (like we had in Alaska). But we're looking at that now and I think that it's only a matter of time before that becomes part of the proposal too.

TD: (The program) has done a lot of good things. ... Above $700 million over a nine-year period in terms of benefits. That's pretty significant. It'd be nice to have it a lot more. Be nice to have more jobs out there.

CM: It would be great to build the jobs because then it'd be less about a federal handout.

TD: I was coming down on the plane and told a whaling co-captain, Charlie Brower from Barrow, that I'd have a chance to talk with you and I said what would you ask her if you could ask her anything and he said, 'Why can't you understand how economically disadvantaged our communities are?' And would you entertain the thought of coming to Alaska or trying to find a way to speak with Alaskans on a more ground level?

CM: I've talked to Mark. First of all, let me just say, Mark Begich is an amazing senator. He has been really responsible about this and he is so loyal to Alaska and the needs of Alaska, and he has been very effective in terms of sitting down and trying to find common ground. I think he continues to try to do that.

So I'm optimistic that we will move toward reform in a way that will not be hurtful to the people of Alaska. But I've told him, we need to both do an exchange program. I'd like him to come see parts of the Delta Bootheel and how incredibly impoverished (it is). We still have cardboard windows. We have many houses that still have outhouses. We have people that have great poverty in parts of my state. They unfortunately don't get programs like this.

So poverty is all over our country. And I'm not saying it's not in Alaska. It is. The question is how do you deal with poverty? Do you deal with it by fronting big corporations for no-bid contracts at the Department of Defense? I don't think so. There are better ways to deal with it that build more capacity in neighborhoods. And I would like us to do that as opposed to continuing this scam that's been going on for decades.

TD: The unfortunate thing is you're talking about the Alaska Natives are victims, but they're going to be punished if you're bill becomes law.

CM: I am painfully aware of that and I stand ready to work with the senators from Alaska to find ways that this is not painful to the people of Alaska. That's not my goal. My goal is to clean up a massive contracting abuse.

TD: So you want to end all sole-source?

CM: Absolutely. We need to get rid of as much of it as we possibly can. Is there some place ever for sole source? There might be. But not to the extent it has occurred over the last decade in the federal government. Especially in the Department of Defense. It has really become rampant. And, frankly, Alaska is down the list. It feels like it's at the top of the list to Alaskans, but I've been much more focused on hundreds and billions of dollars that have been wasted from bad contract performance with sole source noncompetitive bids in Afghan and Iraq.

This story is published with the permission of Alaska Newspapers Inc., a Native-owned 8(a) company owned by Calista Corp.

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