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Feds reach $940M settlement with tribes over contract underpayments

  • Author: Erica Martinson
  • Updated: September 28, 2016
  • Published September 18, 2015

The federal government on Thursday announced a $940 million nationwide settlement with Native American tribes over contracting disputes, with roughly 15 percent of the net proceeds going to Alaska Native groups.

The settlement was a quarter-century in the making, the last of four lawsuits related to the government shortchanging tribes on administrative costs related to federal contracts.

The deal is aimed at rectifying a practice from 1994 to 2013 where the Bureau of Indian Affairs would say its budget simply wasn't large enough to pay the full costs of its contracts with the Native American groups. The contracts were for services otherwise provided by the federal government under its constitutionally, treaty and congressionally mandated duties, such as education, local courts and land management.

"Going forward, it has been a game changer in the world of government contracting with Indian tribes," said Lloyd Miller, an Anchorage attorney with Sonosky Chambers Sachse LLP, who worked on the case. Contract payments have increased by more than $300 million in just the last two years, he said.

The tribes won't get the full $940 million -- some of the funds will pay for administrative costs in distributing the money, and others to pay the tribal attorneys for their decades of work on the case. Attorneys plan to file a request for 8.5 percent of the payout, an amount the government considers "fair and reasonable," according to the settlement.

Miller said he expects the final payout to be about $865 million. That will mean more than $130 million for more than 180 Alaska Native organizations.

The largest slices of the pie in Alaska will go to Nome-based Kawerak Inc.; the Bristol Bay Native Corp.; the Fairbanks-based Tanana Chiefs Conference Inc.; the Central Council of Tlingit-Haida in Juneau; and the Association of Village Council Presidents in Bethel, according to the appendix filed with the court.

Those groups will each receive between $8 million and $16 million from the settlement.

Each of the 645 tribes and tribal organizations had a contract with the Bureau of Indian Affairs for at least one of the 20 years included in the settlement, Miller said. The minimum payout for the lawsuit is $8,000 per year.

The largest payment, about $58 million, will go to the Navajo Nation in the Southwest, Miller said.

The federal government didn't give up the fight easily.

The lawsuit dragged on until June 2012, when the U.S. Supreme Court ruled that the government had to pay the full cost of its contracts with tribes.

The court pointed to briefs filed in the Natives' favor by major government defense contractors who didn't want to bear the same fate, Miller said.

The settlement marks the end of years of federal government finger-pointing. The BIA would sign contracts that included funds to cover administrative costs, such as workers' compensation for tribal employees, but didn't have the money to pay out those amounts. BIA officials pointed to Congress, which would cap appropriated funds short of what was needed to pay. Congress, in turn, would say that the funds weren't included in the president's annual budget request.

Every year, the BIA awarded thousands of contracts to tribes and every year underpaid them "as if they were discretionary grants" to a government agency, Miller said. "The government insisted it had no liability."

After the Supreme Court ruled that the federal government must repay the tribes, Justice Department and tribal attorneys "met in person at least 24 times, engaged in dozens of phone calls and exchanged hundreds of emails and spreadsheets. The parties each retained auditing and statistical experts to assist them with valuing plaintiffs' claims in the course of these negotiations," the settlement said.

"Since 2012, we've been in intensive negotiations with the government over how to arrive at a damage amount that would be fair for those 20 years of underpayments," Miller said.

The government can no longer "deal with tribes as if tribes are another (federal) program you have to balance against" other priorities, Miller said.

"This landmark settlement represents another important step in the Obama administration's efforts to turn the page on past challenges in our government-to-government relationship with tribes," Interior Secretary Sally Jewell said.

"Time and again, we have seen that when a tribal government runs a federal program, the program is more successful and more responsive to the tribal community," said Assistant Secretary for Indian Affairs Kevin Washburn. "Tribes can now be confident that the federal government will pay sufficient costs to allow them to be successful in running federal programs."

Sen. Lisa Murkowski, R-Alaska, welcomed the announcement.

"For over 30 years, the federal government continuously shortchanged tribes who provide federal Indian programs and critical health services throughout the nation, including in rural Alaska," Murkowski said. "Our First Peoples deserve better. They deserve to have the nation's trust responsibility fulfilled. Tribal self-governance is a model that must be supported and expanded, and the outcome of this case is an important step in that direction."

Murkowski, who chairs the Interior Appropriations Subcommittee, included a provision in the fiscal year 2016 appropriations bill to ensure contract support costs are fully funded. Congress is not expected to pass a funding bill, however, before the end of the fiscal year in the coming weeks.

The practice ended in 2014, "and now even the president asks for sufficient funds to pay the contracts," Miller said.

The settlement, which must be approved by the court, was filed this week in U.S. District Court in Albuquerque, New Mexico.

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