THE SPECIAL RIGHTS OF INDIAN TRIBES

**AND ALASKA NATIVE CORPORATIONS**

**UNDER THE SBA 8(a) PROGRAM**

*Prepared by*

*Daniel S. Press Esq., Van Ness Feldman, P.C., Law Firm, Washington,
D.C.*

Indian reservations and Alaska Native Villages suffer from some of the
worst poverty in this country, with unemployment levels in excess of
60%. For example, a recent federal study found that the area of the
country with the lowest life expectance in the country was not an urban
ghetto but an Indian reservation. Because of the lack of resources,
there is little individual entrepreneurship on reservations. Instead,
the Indian tribal governments and Alaska Native Corporations (the Alaska
equivalent of tribes) have the primary responsibility for promoting
economic development. On the premise that it is both appropriate and
necessary to use the Federal governments massive procurement activity to
help jump-start reservation economies, Congress has given tribes and
Alaska Native Corporations (ANCs) unique rights in the Federal
procurement process. These rights provide the Federal agencies and
federal contractors with strong incentives to contract with tribal and
ANC firms. (All of these special provisions are contingent upon the
tribal and ANC-owned firms providing quality services and supplies to
the Federal agencies and performing 51% of the labor hours with their
own forces.)

**I. OVERVIEW**

There are three different procurement areas in which tribal and
ANC-owned firms have special rights:

> \(a\) Special Rights Under the SBA 8(a) Program.
>
> Tribal and ANC 8(a) firms are eligible to receive sole source 8(a)
> contracts regardless of dollar size, with no upper limit, while all
> other 8(a) firms may not receive sole source contracts in excess of
> \$3 million. Congress provided this opportunity because it recognized
> that tribes and ANCs have the large responsibility of trying to pull
> their entire tribal membership up from poverty and need larger
> contracts to be able to do so. For the same reason, they permitted
> tribes and ANCs to have as many 8(a) firms as they wish, so long as
> each is in a different primary NAICS Code. Also, the affiliation rules
> are applied more favorably to tribes and ANCs. Another special right
> is that the CEO of an ANC or tribally-owned 8(a) does not have to be a
> member of the tribe or of a minority group. In sum, to enable tribes
> and ANCs to build their communities, Congress has permitted a tribal
> or ANC 8(a) firm to have many of the attributes of a large company to
> enable them to perform large and complex contracts, while still having
> preferential procurement rights under the 8(a) program.
>
> \(b\) Special Rights Under the A-76 Program
>
> The A-76 program ("A-76\" refers to the number of the implementing OMB
> Circular) imposes a long and cumbersome procedure for any government
> facility that wishes to contract out (i.e.; commercialize, outsource,
> privatize) an activity that employs ten or more civilian government
> employees. (The average A-76 study takes 23 months.) One of the few
> options open to a DOD command that wants to contract out a function
> but avoid the cumbersome A-76 process is to award the contract to a
> tribal or ANC 8(a) firm. Language in the Defense Appropriations Acts
> provides that a DOD command or office does not have to go through the
> A-76 process but may do a direct conversion of that function to a
> private contractor, regardless of the number of civilian employees, if
> the command contracts with a firm that is 51% or more tribally owned,
> so long as the conversion is cost effective.
>
> \(c\) The 5% Subcontracting Bonus
>
> Pursuant to statutory language and implementing regulations, a DOD
> prime that subcontracts with a firm that is 51% or more Native
> American owned is entitled to receive a bonus equal to 5% of the
> amount of the subcontract award. While this provision is theoretically
> available to all agencies, Congress has provided appropriations to
> implement it only to DOD. Defense Appropriations Act annually provides
> \$8 million for this program.

**II. LEGAL ANALYSIS OF THE THREE UNIQUE PROCUREMENT RIGHTS OF
TRIBALLY-OWNED COMPANIES**

Following is a more detailed description of the three sets of unique
rights of tribal and ANC-owned firms summarized above, with citations to
the applicable statutory and regulatory provisions.

A.  The SBA 8(a) Program

> 1\. 8(a) firms owned by tribes and ANCs may receive sole source
> contracts regardless of dollar amount. They are not subject to the \$3
> million limitation on sole source contracts. The applicable regulation
> is 13 C.F.R. 124.507(b), which reads as follows: "SBA may award a sole
> source 8(a) subcontract to a Participant concern owned and controlled
> by an Indian tribe or ANC where the anticipated value of the
> procurement exceeds the applicable competitive threshold if SBA has
> not accepted the requirement into the 8(a) BD program as a competitive
> procurement."
>
> 2\. Sole-source procurements to tribes and ANC 8(a)s may not be
> protested, because there is no injured party. The applicable
> regulation is 13 C.F.R. 124.517(a). "The eligibility of a Participant
> for a sole source or competitive 8(a) contract may not be challenged
> by another Participant or any other party, either before SBA or any
> administrative forum as part of a bid or other contract protest."
>
> 3\. Tribes and ANCs may have as many 8(a) companies as they wish, so
> long as each firm is in a different primary SIC Code. The applicable
> regulations are 13 C.F.R. 124.109(c)(3)(iii) and 105(h).
>
> 4\. When determining the size of a firm owned by a tribe or ANC, SBA
> will not affiliate the parent entity or any other subsidiaries owned
> by that tribe or ANC. SBA will consider only the size of the
> particular tribal/ANC subsidiary at issue, unless SBA determines that
> such firm, as a result of assistance from the parent or other
> subsidiaries, has or is likely to obtain a substantial unfair
> competitive advantage within an industry category. The applicable
> regulation is 13 C.F.R. 124.109(c)(2)(iii).
>
> 5\. SBA does not require that the CEO of an ANC be a member of a
> disadvantaged tribe or ANC and or to be personally socially or
> economically disadvantaged. 13 C.F.R. 124.109(a)(4). The CEO of a
> tribally-owned 8(a) firm may be a non-tribal member if SBA determines
> that such management is required to assist the concern=s development
> and the board of directors is majority controlled by tribal members.
> 13 C.F.R. 124.109(c)(4)(B)

B. The A-76 Program

> 1\. Section 8014 of the FY 98 Defense Appropriations Act, 105-56,
> (copy attached) requires the A-76 procedure to be followed before
> contracting out any DOD activity performed by more than ten DOD
> civilian employees. It then goes on to provide that this requirement
> shall not apply to a commercial or industrial type function that is
> contracted to the blind or handicapped, or is planned to be converted
> to performance by a qualified firm under 51% tribal ownership. This
> provision, which was sponsored by Senators Stevens and Inouye, has
> been included in all subsequent DOD Appropriations Acts, including the
> FY 03 Act.
>
> Because there is no authority that would permit a command to issue a
> competitive bid with competition limited to tribal owned firms, the
> only way a command may use this authority is by awarding an 8(a) sole
> source contract to such a firm. As indicated above, only 8(a) firms
> owned by tribes and ANCs are eligible for sole source awards in excess
> of \$3 million.
>
> Under this provision, a DOD office may privatize a function without
> going through the laborious A-76 contract. Instead, it simply
> initiates negotiations with the tribal or ANC 8(a) firm and awards a
> contract to assume the function it is seeking to privatize, so long as
> it can demonstrate that the contract is cost-effective and the price
> reasonable, the same process an agency must go through anytime it
> awards a sole-source contract. The Air Force has already awarded a
> \$500 million base operations procurement under this authority to an
> ANC owned 8(a) firm and the National Imaging and Mapping Agency has
> awarded a \$1.5 billion contract to a joint venture between two
> ANC-owned 8(a) firms. A lawsuit challenging the constitutionality of
> this special A-76 provision for tribal firms was rejected by the
> Federal District Court in the District of Columbia (it is now on
> appeal to the Federal Circuit Court).

C.  The 5% Subcontracting Indian Incentive Program

> Section 505 of the Indian Finance Act (25 U.S.C. 1544) provides that a
> contractor subcontracting with a firm that is 51% or more owned by a
> Native American individual, tribe or ANC may receive an additional
> amount of compensation, above the amount of the prime contract, equal
> to 5% of the amount of the subcontract with the Native American-owned
> entity. While this authority is applicable government-wide, agencies
> have been unwilling to implement this provision without specific
> appropriations to pay for the bonus, since they are unwilling to take
> the 5% out of the contract or other budget items. Since FY 97, the
> Defense Appropriations Act has contained \$8 million for DOD to
> implement this program. As a result, DOD is the only agency now
> implementing the 5% bonus program.
>
> The regulations implementing this provision are contained at 48 C.F.R.
> 26.101. The applicable clause is at 48 C.R.F. 52.226-1. The clause is
> now a required clause in all DOD contracts that contain a requirement
> that the contractor develop a Small, Small Disadvantaged and
> Women-owned Small Business Plan.
>
> The DOD procedure for tapping the bonus is relatively simple. After a
> DOD contractor awards a subcontract to a 51% or more Native
> American-owned firm, it submits an invoice to its contracting officer,
> along with a copy of the subcontract and proof that the subcontractor
> is 51% or more Native American-owned. The invoice is routed through
> the DOD Office of Small and Disadvantaged Business Utilization and
> then to the Comptroller, who authorizes payment.