Congress, administration move into protected territory

The governmnent is having an ongoing debate about certain small businesses with big advantages

Congress and the Obama administration have stepped into a well-guarded territory of small-business contracting: special advantages.

Hitting the jackpot

Agencies have awarded Alaska Native Corporations in the Small Business Administration’s 8(a) program much more money each year, primarily through sole-source contracts. However, many officials say the rules governing the corporations give ANCs too much of an advantage over other 8(a) companies, as ANCs make up 2 percent of 8(a) small business but raked in 26 percent of the dollars in 2008.

Fiscal 2000: $265 million
Fiscal 2004: $1.1 billion
Fiscal 2008: $3.9 billion

Source: SBA IG

The Senate Homeland Security and Governmental Affairs Committee’s ad hoc Contracting Oversight Subcommittee has questioned whether the explosive growth in Alaska Native Corporations’ (ANCs) contracting dollars in the last eight years through unique set-aside rules has given ANCs too much of an advantage. The subcommittee held a hearing July 16 that has become part of an ongoing debate about some categories of small businesses that live by special rules.

“The current situation is out of balance, and it may be time to swing the pendulum back the other way,” said Mark Lumber, senior vice president for federal program for Cirrus Technology, a historically underutilized business zone (HUBZone) small business in Huntsville, Ala.

Sen. Claire McCaskill (D-Mo.), the subcommittee chairwoman, asked several representatives for ANCs if they would agree with changes to make ANCs abide by the same rules as Indian tribes and other socially and economically disadvantaged companies.

If there is no difference between them, she said, “Then I hope that you would accept a change in the law that would make sure that you are on completely equal footing."

The ANC representatives at the hearing remained neutral. “We are not in a position today, through our organizations, to negotiate on behalf of our people. We need to go through an extensive tribal consultant process,” said Susan Lukin, executive director of Native American Contractors Association.

Officials believe ANCs are getting a disproportionate amount of money compared to other small businesses, according to reports. Because of ANCs’ rules, the amount of contracting dollars going to ANCs have grown by 1,386 percent since fiscal 2000 and have tripled from $1.1 billion in 2004 to $3.9 billion in 2008, according to the Small Business Administration’s inspector general. In SBA’s 8(a) small business program in 2008, ANCs were awarded 26 percent of the total dollars flowing into the program, although they are only 2 percent of the total number of companies in the program, according the IG’s July 10 report.

Similarly, McCaskill’s subcommittee analyzed information from 19 ANCs and found similar results. ANCs received $6.6 billion in 8(a) multi-million-dollar sole-source contracts between 2000 and 2008, according to its report.

The increases are a result of agencies’ small-business contracting goals and, more importantly, a quick way to award a contract, officials say. Rules that are unique to only ANCs allow agencies to award them sole-source contracts of any size without competition, and no fear of bid protests.

Sen. Susan Collins (R-Maine), the subcommittee’s ranking member, said Congress needs to carefully consider whether the 8(a) program rules offer too many benefits to ANCs at the expense of the others.

In the private sector, many business owners are upset by the set-aside partiality ANCs receive. Lumber said few people would object to ANCs having some type of procurement preference, but not that allows for this much advantage.

At the same time, HUBZone businesses get a deal that upsets many other business owners and the Obama administration. It’s a difference of a word: "Shall" versus "may."

Office of Management and Budget Director Peter Orszag on July 10 told agencies to disregard the Government Accountability Office’s (GAO) May 4 bid protest ruling that said HUBZone small businesses get first crack at a contract set-aside. GAO rejected SBA's request to reconsider its rulings.

Because of language in a 1997 authorization law, GAO sustained two bid protests in favor of HUBZone businesses. As a result, GAO ruled that those companies get priority over all 8(a) small businesses and companies owned by service-disabled veterans.

“You’ve got to live by the ‘shall,’ ” said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy and now a partner at the Venable law firm.

While GAO believes the “shall” in the law is a mandate, SBA officials said the 8(a) companies, service-disabled veterans, and HUBZone companies should all be equal to each other.

John Moliere, an advocate service-disabled veteran contractors and president of Standard Communications, said, "I envision the lawyers at GAO smugly pleased with their decision."

Meanwhile, the HUBZone Contractors National Council isn't talking about the disagreement between GAO and OMB.

If Congress or the administration tries to make any changes to these sensitive areas, Burton said it won’t be an easy legislative fix. There are members of Congress who will fight to keep things as they are. Both of Alaska’s senators, who weren't members of McCaskill's subcommittee, took advantage of the special privilege to question witnesses at the ANC hearing. They both also thrust their strong support behind the Alaska Natives.

Over all, Moliere said, “This is not the end of this skirmish. It will erupt in a full-fledged battle.”

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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