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Contracting Reform Needed for Alaska Native Corporations

McCaskill sends letter to government watchdog requesting independent report on program abuses

October 8, 2010

WASHINGTON, D.C. - U.S. Senator Claire McCaskill is continuing her efforts to crack down on waste and abuse in contracting by announcing that she will introduce legislation to eliminate the unique government contracting preferences and loopholes for Alaska Native Corporations (ANCs). McCaskill is also asking an independent government watchdog to investigate problems uncovered in a recent Washington Post series about Alaska Native Corporations and to refer their findings to the Department of Justice if necessary. McCaskill's legislation would return ANCs to equal footing with other small, disadvantaged businesses seeking government contracts.

McCaskill, as chairman of the Subcommittee on Contracting Oversight, investigated Alaska Native Corporations in 2009 and found evidence of abuses in a government small business program that allows these frequently large organizations to receive unlimited, high-value government contracts without competition.

"We've seen that a very small portion of these companies' profits are reaching native Alaskans, so it's time to acknowledge the fact that this program is not effective for either native Alaskans or taxpayers," McCaskill said.

As part of their investigation, the subcommittee released two reports which can be accessed here and here. McCaskill found that ANC recipients of these contracts failed to employ Alaska Natives to work on the contracts and returned minimal benefits from the businesses to Alaska Natives. A recent series of articles in the Washington Post about the ANCs confirmed McCaskill's findings and also reported that the ANCs passed the work on to traditional, large defense contractors while non-Native ANC executives living near Washington, D.C. pocketed millions of taxpayer dollars.

The legislation McCaskill plans to introduce would remove the loopholes that allow Alaska native corporations to circumvent the normal rules of the federal government's 8(a) program, which is designed to help small and disadvantaged businesses access government contracts. While most 8(a) participants have to meet strict requirements to qualify for the program, ANCs are exempt from the normal rules. Additionally, they are allowed to receive contracts of any size without competition, while other companies in the 8(a) program are limited to small contracts.

Specifically, the legislation would:

· Eliminate the ability of ANCs to receive sole-source contracts exceeding the caps applicable for other 8(a) participants of $3.5 million for services or $5.5 million for goods;

· Eliminate the automatic designation of ANCs as socially disadvantaged business enterprises, requiring ANCs to demonstrate their social disadvantage by providing evidence of "racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups";

· Eliminate the automatic designation of ANCs as economically disadvantaged, requiring any ANC seeking to participate in the 8(a) program to demonstrate that corporation's economic disadvantage upon entering the program;

· Require ANCs to count all affiliates and subsidiaries in size determinations for 8(a) eligibility, which shall be limited to no longer than nine years, as is required for other 8(a) participants;

· Require ANCs who choose to participate in the 8(a) program to own a majority interest in only one 8(a) subsidiary at any one time;

· Require ANCs who choose to participate in the 8(a) program to be managed by individuals who qualify as socially and economically disadvantaged under the program, as other 8(a) participants must do; and

· Prohibit ANCs who chose to participate in the 8(a) program from operating as pass-throughs to non-Native companies that do not qualify under the 8(a) program.

Following the Washington Post's investigative series last week which uncovered new information about potential abuses by ANCs, McCaskill also called on the Small Business Administration's inspector general, the agency's independent auditor, to investigate the findings of the articles. Of specific concern is an apparent pattern of lax oversight by the Small Business Administration which has allowed the ANCs to award pass-through contracts to large corporations. McCaskill asked that the inspector general report back to Congress and if necessary, refer their findings to the Department of Justice.

A copy of the letter is available here. Additional information about the legislation is available here.

Additional background information about Alaska Native Corporations

Alaska Native Corporations were created by a 1971 law that aimed to foster economic development in Alaska, and in 1986, Congress made ANCs eligible to participate in the Small Business Administration's 8(a) program. Generally, to qualify for the 8(a) program a business must be socially and economically disadvantaged, and must be relatively small. These eligible businesses can then be awarded small federal contracts on a sole-source basis, but those contracts must be under $5.5 million for goods or $3.5 million for services. In the 1980s and early 1990s, however, Congress carved out several exemptions for ANCs, deeming them to automatically qualify as both socially and economically disadvantaged and giving them the ability to receive no-bid contracts of any size under the 8(a) program. As a result, ANCs are uniquely eligible to receive huge federal contracts without having to compete with other bidders.

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