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Investigating 8(a) contracting

Nuclear deal blows up

  • Author: Craig Medred
  • Updated: July 7, 2016
  • Published February 1, 2010

When the National Nuclear Security Administration found itself up against a deadline for continuing a multimillion-dollar agreement to keep one of the feds' biggest contractors monitoring nuclear materials abroad in 2004, it came up with a novel solution in the form of a small Alaska Native corporation.

Little could anyone imagine then that the marriage the government was about to arrange between a subsidiary of Ahtna Inc. and Tetra Tech EC Inc. -- a New Jersey-based company with employees scattered worldwide -- would five years later blow up into a major federal lawsuit with hundreds of millions of dollars at stake.

Tetra Tech, or TtEC as it is called in court documents, claims Ahtna Government Services Corp., a subsidiary of the regional Native corporation, swindled it out of almost $182 million in business. Ahtna denies the allegation, adding that if it did do any sneaking around behind the back of its partner it was only following orders from the government.

Glennallen-based Ahtna represents about 1,200 Native shareholders scattered across the north. Before it took advantage of a U.S. Small Business Administration program designed to steer government contracts to Alaska Native corporations, it was struggling. The company reported a $7.5 million loss in 2004. It took advantage of the SBA's 8(a) program the next year and subsequently reported a profit of about $2.5 million. By 2007, it was reporting a $6.3 million annual profit that enabled it to pay shareholders a dividend of $2.79 a share.

TtEC is one of the top-100 American firms doing business with the federal government. At the moment, it ranks 56th on the list, with $353 million of income from government contracts. It has about 8,500 employees -- nearly seven-times as many workers as there are Ahtna shareholders. TtEC boasts expertise in engineering, construction, environmental cleanup and nuclear monitoring.

Alaska's Institute of Social and Economic Research has concluded 8(a) contracting provides a huge boost to Alaska Native corporations, but the program has come under fire from some in Congress. U.S. Sen. Claire McCaskill, D-Mo., has been pushing a probe into waste and fraud in the program.

The dispute between Ahtna and TtEC dates back to 2004 when the U.S. nuke-monitoring agency was nearing the end of a deal with TtEC to "provide throughout the world rapid, integrated, sustainable nuclear material detection and monitoring systems to minimize the risk of nuclear proliferation and terrorism,'' according to a lawsuit now pending in U.S. District Court for the Central District of California. Under the terms of what was called the Second Line of Defense Program, TtEC had in 2002 been contracted to track nuclear materials in the former Soviet Union, Eastern and Southern Europe, and Central and Southeast Asia.

Two years on, however, there was a problem. The sole-source, $9.5 million contract the government had signed with TtEC -- a contract that had subsequently grown to $41.4 million -- was expiring. The Nuclear Security Administration was now looking at the possibility of putting out to bid a new contract. That can be a long and complicated federal process, but the agency had a solution.

If the agency could arrange a partnership between TtEC and Ahtna Government Services, it might preserve the sole-source contract under the terms of the SBA's 8(a) program. The 8(a) program was established largely at the behest of former Alaska Republican Sen. Ted Stevens to aid struggling, 49th state corporations established under the terms of the Alaska Native Claims Settlement Act. Ahtna, the parent of Ahtna Government Services, is one of those Native corporations.

The Nuclear Security Administration apparently saw Ahtna Government Services as its best opportunity to keep TtEC on contract to monitor nuclear materials, according to documents filed in the case. The Nuclear Security Administration summoned Ahtna to Albuquerque, N.M., in March 2004 to ask the company about its interest of going nuclear, so to speak, in the business world. Ahtna, according to court filings, was asked if it would be willing to team with "another directed larger business." It was subsequently referred to TtEC.

The two companies met. A deal was struck. And, according to court documents, TtEC and Ahnta were to form a "teaming agreement," with Ahtna getting 15 percent of the business generated by the team and TtEC 84 percent. Ahtna, the agreement stipulated, would "have lead responsibility for program management, including financial management, project controls, quality assurance and health and safety oversight," while TtEC would take "the lead responsibility for engineering surveys, installation design, and construction management and field engineering activities necessary to support system installation and testing.''

With these arrangements made, TtEC and Ahtna entered into what the government calls a mentor-protégé agreement, "to which TtEC agreed to provide mentoring services to" Ahtna Government Services, according to the company's court brief. "Said agreement provided, among other things, that TtEC would assist (Ahtna Government Services to) restructure its cost accounting and cost estimating to satisfy U.S. government requirements'' and much more.

In September 2004, TtEC-Ahtna signed an $8 million contract with the government as the first in what were expected to be a series of contracts capped at $80 million. What happened next is the subject of considerable debate.

TtEC claims Ahtna at some point teamed with secret partners to siphon off $227 million in business over the next four years. The company is suing for breach of contract, breach of good faith, and violation of fair dealing. It wants a jury trial and is seeking damages that could be in the tens millions of dollars.

Ahtna denies that it did anything illegal. What it did do, it claims, was follow "directives from the (government) on how the prime contract would be performed including, without limitation, utilization of local construction subcontracts, field engineering services, communication and equipment suppliers.'' TtEC, it argues in court filings, knew of this or should have known after everyone involved with the nuclear contract was called to Washington, D.C., in 2006 to discuss how to cut costs.

"TtEC was an active participant in revising the business model to comply with NNSA's directives,'' according to Ahtna's court brief, "and it did this knowing the result would be a reduction in TtECs scope of work and contract revenues."

Left unexplained is how -- in the course of cutting costs -- what began as one $8 million contract, incorporated in a program with an $80 million spending cap, grew into $241 million in government contracts funneled through Ahtna Government Services.

TtEC states in court filings that not only was it not informed of this growth in business, but that its requests to Ahtna for information were ignored. The company said it finally resorted to filing a Freedom of Information Act (FOIA) request with the Nuclear Security Agency (NNSA) in September 2008 to try to figure out what was going on.

The documents obtained under the FOIA, according to a TtEC brief, "disclose that unknown to TtEC the prime contract had been modified 38 times by NNSA, increasing the amount obligated from $8,486,870 to $241,250,000 ... TtEC also learned from these documents that (Ahtna Government Services) has been awarded 44 task orders totaling $227,1110,868 ... TtEC (estimates it) was deprived of the opportunity to participate in at least $181,680,0409" worth of business.

TtEC attorneys based in Los Angeles and Washington, D.C., did not return phone calls for this story. Anchorage attorney Michael Geraghty, one of the lawyers representing Ahtna, said he didn't have the authority to talk for the company. "This case is in its pretty early stages," he added.

Ahtna has countersued TtEC for breach of contract, failure of good faith, and breach of fiduciary duty. Among other things, Ahtna charges TtEC got a "kickback'' as part of its agreement for teaming with the Native corporation on federal contracts, and that it failed in a contractual responsibility to find work for Ahtna outside of exclusive 8(a) contracts with the government.

"As a result of TtEC's breach,'' Ahtna argues in its countersuit, Ahtna Government Services "was not able to obtain sufficient non-8(a) work to maintain its 8(a) eligibility for sole-source contracting....because it had not generated a sufficient amount of non-8(a) revenue, it was not eligible for sole-source contracting'' and lost money.

Companies enrolled in the 8(a) program are required to do at least 15 percent of their business with non-governmental entities in their first year. The percentage requirement then climbs every year until it reaches the maximum requirement of 55 percent after five years.

Unclear in the briefs is whether Ahtna Government Services expected TtEC to come up with enough federal business to offset the $241 million in government contracts that TtEC claims it was unaware Ahtna was receiving through the nuclear monitoring program.

Contact Craig Medred at craig(at)

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