Do Alaskan companies freeze out competitors?

The Alaska Native Corporation (ANC) program came under renewed fire recently at a joint congressional committee hearing on the benefits designated companies get and the degree to which fraud and abuse have undermined the program’s goals.

According to critics, the program gives the companies an unfair advantage even over those in other set-aside designations, and ANCs often are loosely connected, at best, to Alaska natives. Defenders, however, insist that the program is fulfilling its purpose of channeling contracting dollars to impoverished native populations in America’s 49th state.

A Government Accountability Office report released in April, which Rep. Tom Davis (R-Va.) cited at the hearing, found the value of contracts awarded to ANCs jumped from $265 million in 2000 to $1.1 billion in 2004.

“I worry about the impact of this program on our already overburdened competitive acquisition system,” said Davis, chairman of the House Government Reform Committee. His committee and the Small Business Committee were involved in the hearing in late June.

The government designed its acquisition system, including the Small Business Administration’s 8(a) program for small businesses, so that all segments of the market could contend for government contracts. Despite putting additional limits on certain competitions, small-business programs are intended to keep larger firms from overrunning small players.

Congress created the ANC designation through the Alaska Native Claims Settlement Act, passed in 1971. Its primary purpose was to resolve land claims and aid the economic development of Alaska native communities. Congress chose the ANC designation instead of a reservation system. ANCs fall under SBA’s 8(a) program. Initially, ANCs could only receive contracts worth up to $5 million, but that limit was eliminated in 1986.

“While these various restrictions often have laudable social goals, they all come at a price,” Davis said.

“[Contract] bundling and a runaway freight train known as the ANCs is [are] wreaking havoc on 8(a) firms and the African-American, Hispanic, Asian and, yes, the Native American communities,” said Harry Alford, president of the National Black Chamber of Commerce.

He said billion-dollar corporations have swooped in to reap the benefits of the special designation. “Very little of the revenue obtained through federal contracting finds its way to Alaska natives,” Alford said.

Rep. Don Manzullo (R-Ill.), chairman of the Small Business Committee, said his manufacturing-based congressional district has felt the impact of ANCs. Companies that lose contracts to ANCs hire fewer of his constituents, he said.

Rep. Don Young (R-Alaska) spoke in support of the program.

“These folks are doing right by the federal government,” said Young, who appeared as a witness at the hearing. “They’re doing right by the American taxpayer, and most importantly, they’re doing right by their impoverished communities back in Alaska.”

Finding fault with the system and criticizing ANCs because of some corporations’ success are disguised attacks on the Alaska native population, Young said.

Helvi Sandvik, president of NANA Development, said the perception that outside executives with exorbitant salaries run ANCs “is just a sham.”

One of NANA’s aims is to bring revenue to Alaska. It is a diverse holding company, owning businesses in mining, management services, engineering and government contracting, according to its Web site.

The GAO report, however, confirmed the perception that large businesses can and do exploit ANCs to reap some of the benefits of the designation. Officials from one ANC firm told GAO that its large-business mentor firm deserted it when it lost a contract bid. The report stated that the program needs more SBA oversight.

SBA agreed with GAO that some improvements to the program are needed but disagreed with the overall tone and said GAO relied too much on isolated anecdotes to conclude that SBA’s oversight is lax.

The committee members and most witnesses raised concerns about awarding contracts without competition. ANCs are allowed to get some contracts as sole-source providers.

Rep. Henry Waxman (D-Calif.), ranking member of the Government Reform Committee, said the ANC provision has been costly to taxpayers. He cited a State Department no-bid contract awarded to an ANC that GAO found was twice the price of the government’s cost estimate.

Sandvik said an unqualified company cannot get an advantage in government contracting through the 8(a) program.

He emphasized that sole-source contracts go only to companies that meet the stated requirements for a project. Then the company and contracting officers negotiate pricing and fees. He said NANA negotiated with the State Department for nine months about a contract.

“There are no surprises for the customer or the contractor,” Sandvik said.

David Cooper, acquisition and sourcing management director at GAO, said contracting officers do not always comply with certain requirements, such as notifying SBA of contract modifications. They also fail to monitor how much of the contracting work is subcontracted.

Contracting officers need more guidance from Congress, and SBA needs to increase its oversight to avoid abuses, Cooper said.

Ann Sullivan, president of Madison Services Group, testifying at the hearing as a representative of Women Impacting Public Policy, said 8(a) firms and ANCs have different goals. While most 8(a) firms are interested in developing their own businesses, ANC companies are concerned about economic development in their home state. Those goals are not always in accord, she said.

“The challenge,” she added, “is to find a way whereby the ANCs and tribes can coexist with the other women- and minority-owned small businesses.”

SBA: ANC works as it should

The Small Business Administration disagreed with the Government Accountability Office’s April report critical of the Alaska Native Corporation (ANC) program. Responding to the draft report, SBA said it was following Congress’ intent for the program and overseeing it effectively.

The GAO report criticizes SBA for inadequate oversight of business relationships involving ANCs and larger companies, and a recent surge in the use of the special 8(a) provision that gives small businesses an advantage over large companies in winning government contracts.

GAO said SBA is not ensuring that partnerships between ANCs and large firms meet its own regulations. It recommended that SBA increase its oversight and that procuring agencies give additional guidance to contracting officers who deal with ANCs.

Calvin Jenkins, SBA’s deputy to the associate deputy administrator for government contracting and business development, said SBA is clarifying its role in working with other procuring agencies to monitor ANC compliance. He testified at a joint congressional hearing of the House Government Reform and the Small Business committees in June.

SBA has increased training for agency employees who handle 8(a)-related issues, and a new management team is overseeing the program. In addition, SBA is considering regulatory changes to increase its oversight capabilities, Jenkins said.

In SBA’s response to the April report, officials agreed that improvements are needed. They said policy revisions would come. Nevertheless, they disagreed with portions of the report.

“The tone of the report is unsettling,” Jenkins wrote in the agency’s response. “The ANCs are utilizing the statute to bring resources back to improve their native Alaskan communities.… The tone of the report could lead one to conclude that GAO has concerns with this result.”

Jenkins said GAO’s analysis relied too heavily on isolated anecdotes to argue that SBA’s oversight is lacking.

— Matthew Weigelt

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