Nadler: Reforming set-asides

Contracting advantages do not prepare Alaska firms for future competition

Transportation Security Administration officials recently decided not to award a sole-source contract to an Alaska Native Corp. (ANC) and put the contract out for bid instead. The decision highlights concerns about the Small Business Administration's ANC program and the need to reform it.

ANCs enjoy special contracting preferences based on the unique government-to-government relationship tribes have with federal agencies. The program's goal is to promote the economic development of Alaska tribes and their villages, where unemployment is rampant.

Unlike other minority contractors in SBA's 8(a) program, ANCs can receive sole-source contracts regardless of the dollar amount. Moreover, parent companies and subsidiaries of ANCs are not considered affiliates, so the revenues and employee counts of related companies are not included in an ANC's size determination.

These and other advantages are unparalleled in government contracting and have raised questions about whether the program truly benefits tribes and is in taxpayers' best interests.

The ability to receive unlimited sole-source contracts has resulted in dramatic growth for many ANCs. However, it can also reduce the incentive to develop the skills, infrastructure and core competencies that are necessary to become a viable business in a competitive market.

Viewed in this light, those contracting advantages do a disservice to ANCs because the companies' next generation will not be prepared for the day when ANCs no longer receive special treatment or must compete with hungrier firms. That is why the government encourages other minority-led businesses to become less reliant on set-aside contracts as they progress toward graduation from the 8(a) program. There is no graduation from the ANC program.

Serious questions exist about whether the program's underlying policy is being circumvented and to what extent the money ANCs make is benefiting the tribes. In almost all instances, ANCs are run by people who are not Alaska natives and whose goal is to maximize revenues rather than help the tribes develop economically.

The ANC program is important, but it must be reformed. The ANCs' boards of directors must be integrated into the companies' day-to-day management to ensure that the tribes' interests are paramount. A mentoring program should be established to train native shareholders so they can participate in managing and operating their companies, and ANCs should require that a certain percentage of work be targeted to competitive contracts.

Finally, an economic development fund should be created with contributions tied to concrete metrics, such as return on sales, to increase the amount of money that is returned to tribes.

Such reforms would go a long way toward ensuring that the tribes receive the economic benefits the program's creators envisioned and that taxpayers' interests are protected.

Nadler is a partner in the law firm of Dickstein Shapiro Morin & Oshinsky, where he specializes in government contract matters. He can be reached at (202) 828-2281 or NadlerD@dsmo.com.

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