Sole-Source Awards To Alaska Firms Are Questioned Executives of Alaska Native Corporations defended their federal procurement preferences before skeptical members of Congress and other small business groups, who questioned whether the companies should be eligible for 8(a) contracts. Unlike other small businesses, ANCs “benefit hundreds or thousands of tribal members” who are their shareholders, said Chris McNeil Jr., CEO of Sealaska Corp. and chairman of the Native American Contractors Association. But Rep. Henry Waxman (D-CA) said the ANCs are “a convenient vehicle for circumventing competition requirements at the expense of the taxpayers.” The forum was a joint hearing by the House Government Reform Committee and the Small Business Committee on June 21. At issue was the law permitting ANCs to receive sole-source contracts in unlimited amounts through the 8(a) program. Sole-source awards to other 8(a) firms cannot exceed $3 million, or $5 million for manufacturing. ANCs have received sole-source awards worth hundreds of millions of dollars for reconstruction in Iraq, hurricane recovery on the Gulf Coast and security at Army installations. Unlike other companies, ANCs are permitted to create an unlimited number of 8(a) subsidiaries; they own 154 such subsidiaries, according to the Government Accountability Office. Several Congress members suggested ANCs should be removed from the 8(a) program and given a separate preference vehicle. Under current law, “It’s not just 8(a) versus 8(a). It’s ANC 8(a) versus other small businesses,” Small Business Committee Chairman Donald Manzullo (R-IL) said. “There’s a question of whether or not there’s an over-emphasis on helping out Alaska over the rest of the country.” GAO found that ANCs received about 13% of 8(a) contract dollars in fiscal 2004, a total of $1.1 billion. The report said ANC awards through the 8(a) program had quadrupled in five years. “Agencies’ officials told us they have turned to 8(a) ANC firms as a quick, easy and legal method of awarding contracts for any value,” GAO said. (SAA, 5/5) Rep. Manzullo said the widespread use of sole-source contracts was a sign of “laziness” among contracting officers: “The ANCs come in and say, ‘Hey, we’re gonna make this real easy for you.’ There’s no talk about best value” for the taxpayer. But ANC executives and their congressman, Don Young (R-AK), bristled at being singled out for criticism. Testifying before the committees, Young declared that attacks on ANCs are “a thinly disguised attack on Native Alaskan people and corporations because a few of them enjoy great success.” “Nobody complained when we were simply getting contracts to perform maintenance at federal facilities,” said Charles Totemoff, CEO of Chenega Corp. “But now that we’ve grown, gained expertise, and are actually succeeding in getting federal contracts in substantive areas, people don’t want to see Natives at the table.” Government Reform Chairman Tom Davis (R-VA) responded: “I want you at the table. I just don’t want you to have your own table. I want you to be out there competing.” Chenega, owned by residents of a tiny island village, doubled its revenue to $481 million in 2004, making it the third-largest Alaska-based, Alaskan-owned business, according to the Anchorage Daily News. But under the law it is eligible for small business and 8(a) preferences. Manzullo said Chenega Corp. has 2,300 employees, but only 33 are Alaska Natives. Executives of Chenega and two other ANCs, NANA Development Corp. and Tyonek Native Corp., emphasized that a portion of their profits goes to Native shareholders as dividends and another portion funds improvements in Native communities. Helvi Sandvik, president of NANA Development, said “very close to 100%” of the company’s profit goes to shareholders. But Manzullo replied: “We’re talking about two [different] things here. Eight-A was not set up to be a community development program. It was set up to be a helping hand to a small, struggling business.” Davis and Waxman, the Government Reform Committee’s ranking Democrat, said they object to sole-source contracts because they believe competition leads to lower costs for the government. Rep. Young emphasized that the GAO auditors found no evidence of wrongdoing in the ANC contracting program. “These companies are doing right by the government. They are doing right by the taxpayers, and they are doing right by impoverished people back home in Alaska.” But Rep. Waxman pointed to GAO’s findings that the government could have saved money on several ANC contracts if the work had been competed. “The State Department awarded a no-bid contract to an ANC, even though its initial proposed price was double the government’s cost estimate,” he said. “When an ANC was used to provide emergency classrooms after Hurricane Katrina, prices again doubled.” The hearing highlighted the sometimes-bitter competition for contracts between the Alaska firms and other small businesses. Harry Alford, president of the National Black Chamber of Commerce, denounced the ANC program as “an abomination.” He said, “ANCs, in effect, have become predators on the minority business community.” He urged Congress to separate ANCs from the 8(a) program, saying that 8(a) contract awards have “been decreasing steadily” except for the awards to ANCs. Ann Sullivan, legislative counsel for Women Impacting Public Policy, said woman-owned businesses have also lost contract opportunities to ANCs. Without criticizing the Alaska companies, she said, “Trying to fit them into the 8(a) program is like trying to fit a square peg in a round hole.” Madeleine Bordallo, the congressional delegate from Guam, said ANCs are taking business away from Native-owned firms on that island. But any attempt to change the ANC preference faces formidable obstacles: Alaska’s powerful members of Congress. The state’s only House member, Rep. Young, is chairman of the Transportation and Infrastructure Committee, which authorizes federal construction projects in all congressional districts. The senior senator, Republican Ted Stevens, is chairman of the Commerce, Science, and Transportation Committee and chairman of the Defense Appropriations Subcommittee, which writes the Pentagon budget. Stevens sponsored the ANC program in 1986.