GAO criticizes oversight of contracts to Alaska Native firms

In a long-awaited report, the Government Accountability Office criticized the Small Business Administration and other federal agencies for failing to ensure that contracts to Alaska Native corporations comply with procurement law.

The report (GAO-06-399) stated that Alaska Native firms often receive no-bid contracts through the 8(a) program for small and disadvantaged business because their special status in the program allows contracting officers to make large awards more quickly than they could otherwise. GAO also found that contracting officers often failed to comply with requirements to monitor the contracts, and SBA did not collect enough information on work awarded to Alaska Native companies.

Awards to such firms through the 8(a) program have skyrocketed: In fiscal 2000, Alaska Native corporations won $265 million worth of contracts, and in fiscal 2004 they received $1.1 billion, which was 13 percent of total 8(a) awards. More than three-quarters of those awards were made without competition, GAO reported.

Alaska Native corporations, which were created by the 1971 Alaska Native Claims Settlement Act with the intent of helping native communities, are exempt from the standard limit of $3 million -- or $5 million for manufacturing -- on no-bid contracts awarded through the 8(a) program. This has caused some resentment in the small business community.

The report found that contracting officers were sometimes confused about whose job it was to monitor subcontracting relationships and that they had no planned response for contractors that violated subcontracting rules. In fall 2004, the Los Angeles Times, The New York Times and The Washington Post reported that the Defense and Homeland Security departments awarded large contracts to Alaska Native corporations, which then subcontracted sizable chunks of the work to other companies, many of them large federal contractors.

GAO reserved its most pointed criticism for SBA, stating the agency's policies and procedures were not tailored to address Alaska Native corporations' unique status. The agency has not, for example, determined whether other small businesses have lost contracting opportunities to Alaska Native corporations, or whether the tribally owned companies have an unfair competitive advantage. The report added that SBA failed to collect adequate information on the corporations' activity in the 8(a) program and that SBA's Alaska regional office was unable to keep up with its heavy workload.

When GAO investigators first began their work, the report said, SBA officials did not even seem to be aware of the growth of Alaska Native corporations in the 8(a) program.

SBA responded that GAO's report "relies far too heavily on isolated individual anecdotes," adding that the "tone of the report is unsettling. The tribally owned corporations are using 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."

The GAO report did outline the benefits Alaska Native corporations provide to their communities, such as investments in low-cost Internet service for remote villages, investments in insurance for local communities, subsidies for heating oil for a remote community, shareholder payments ranging from $1.71 to $171 per share, and jobs, scholarships and internships for members of the Native community.

The Native American Contractors Association, a Washington-based group that represents tribally owned corporations, said Thursday that the report demonstrates the success of the program for Alaska Native corporations. "We are not surprised, but are nonetheless gratified with the key findings," said Chris McNeil, chairman of NACA and president and chief executive officer of Sealaska Corp.

Tribally owned companies, he added, improve "the dismal socioeconomic environment" of Alaska Native communities.

At the same time, McNeil said, NACA agrees with GAO's suggestion that there should be more administrative oversight.

NACA said in a letter to GAO that the report "implies that [Alaska Native corporations] antagonize small businesses." The association said many other problems, including bundled contracts and the increasing dollar size of contracts, are the cause of contracting challenges for small businesses.

In February, Government Executive reported that Alaska Native corporations received large, no-bid contracts worth up to $700 million from the Interior Department's procurement center in 2003 and 2004.