United States Government Accountability Office

GAO Testimony before the Committees on 

Government Reform and Small Business, 

House of Representatives 

ALASKA NATIVE 

CORPORATIONS 

Increased Use of Special 

8(a) Provisions Calls for 

Tailored Oversight 

Statement of David E. Cooper, Director 

Acquisition and Sourcing Management 

For Release on Delivery

Expected at 1:00 p.m. EDT

Wednesday, June 21, 2006 

 

GAO-06-874T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-06-874T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David Cooper 

at (202) 512-4841 or cooperd@gao.gov. 

Highlights of GAO-06-874T, a testimony 

before the Committees on Government 

Reform and Small Business, House of 

Representatives 

June 21, 2006

ALASKA NATIVE CORPORATIONS

Increased Use of Special 8(a) Provisions 

Calls for Tailored Oversight 

While representing a small amount of total federal procurement spending, 

obligations for 8(a) contracts to ANC firms increased from $265 million in 

fiscal year 2000 to $1.1 billion in 2004. Over the 5-year period, agencies 

obligated $4.6 billion to ANC firms, of which $2.9 billion, or 63 percent, went 

through the 8(a) program. During this period, six federal agencies—the 

departments of Defense, Energy, the Interior, State, and Transportation and 

the National Aeronautics and Space Administration—accounted for over 

85 percent of 8(a) contracting activity. Obligations for 8(a) sole source 

contracts by these agencies to ANC firms increased from about $180 million 

in fiscal year 2000 to about $876 million in fiscal year 2004. 

ANCs use the 8(a) program as one of many tools to generate revenue with 

the goal of providing benefits to their shareholders. Some ANCs are heavily 

reliant on the 8(a) program for revenues, while others approach the program 

as one of many revenue-generating opportunities. GAO found that some 

ANCs have increasingly made use of the congressionally authorized 

advantages afforded to them. One of the key practices is the creation of 

multiple 8(a) subsidiaries, sometimes in highly diversified lines of business. 

From fiscal year 1988 to 2005, ANC 8(a) subsidiaries increased from one 

subsidiary owned by one ANC to 154 subsidiaries owned by 49 ANCs. 

In general, acquisition officials at the agencies reviewed told GAO that the 

option of using ANC firms under the 8(a) program allows them to quickly, 

easily, and legally award contracts for any value. They also noted that these 

contracts help them meet small business goals. In reviewing selected large 

sole-source 8(a) contracts awarded to ANC firms, GAO found that 

contracting officials had not always complied with certain requirements, 

such as notifying SBA of contract modifications and monitoring the 

percentage of work that is subcontracted. 

SBA, which is primarily responsible for implementing the 8(a) program, has 

not tailored its policies and practices to account for ANCs’ unique status and 

growth in the 8(a) program, even though SBA officials recognize that ANCs 

enter into more complex business relationships than other 8(a) participants. 

Areas where SBA’s oversight has fallen short include determining whether 

more than one subsidiary of the same ANC is generating a majority of its 

revenue in the same primary industry, consistently determining whether 

awards to 8(a) ANC firms have resulted in other small businesses losing 

contract opportunities, and ensuring that the partnerships between 8(a) 

ANC firms and large firms are functioning in the way they were intended. 

Alaska Native corporations (ANC) 

were created to settle land claims 

with Alaska Natives and foster 

economic development. In 1986, 

legislation passed that allowed 

ANCs to participate in the Small 

Business Administration’s (SBA) 

8(a) program. Since then, Congress 

has extended special procurement 

advantages to 8(a) ANC firms, such 

as the ability to receive sole-source 

contracts for any dollar amount 

and to own multiple subsidiaries in 

the 8(a) program. We were asked 

to testify on an earlier report where 

we identified (1) trends in the 

government’s 8(a) contracting with 

ANC firms, (2) the reasons 

agencies have awarded 8(a) solesource contracts to ANC firms and 

the facts and circumstances behind 

some of these contracts, and (3) 

how ANCs are using the 8(a) 

program. GAO also evaluated 

SBA’s oversight of 8(a) ANC firms. 

GAO made recommendations 

aimed at improving SBA’s oversight 

of 8(a) ANC contracting activity 

and ensuring that procuring 

agencies properly oversee 8(a) 

contracts they award to ANC firms. 

The procuring agencies generally 

agreed with our recommendation. 

SBA expressed concern with 

aspects of the report and disagreed 

with several of our 

recommendations. 

We believe implementation of our 

recommendations would provide 

better oversight of 8(a) ANC 

contracting activity and provide 

decision makers with information 

to know whether the program is 

operating as intended. 
Alaska Native Corporations

Mr. Chairmen and Members of the Committees: 

I am pleased to be here today to discuss our work on Alaska Native 

Corporation (ANC) 8(a) firms. In December 1971, Congress enacted the 

Alaska Native Claims Settlement Act to resolve long-standing aboriginal 

land claims and to foster economic development for Alaska Natives. This 

legislation created ANCs, which would become the vehicle for distributing 

land and monetary benefits to Alaska Natives in lieu of a reservation 

system. As of December 2005, there were 13 regional ANCs and 

182 village, urban, and group corporations. 

In 1986, legislation was enacted that allowed ANC-owned firms to 

participate in the Small Business Administration’s (SBA) 8(a) program—

one of the federal government’s primary means for developing small 

businesses owned by socially and economically disadvantaged individuals. 

Since then, Congress has extended special procurement advantages to 

ANC firms. For example, ANC firms are permitted to receive 

noncompetitive contracts for any amount, whereas other 8(a) companies 

are subject to competitive thresholds of $3 million or $5 million for 

manufacturing contracts. ANCs can also own multiple subsidiaries 

participating in the 8(a) program, 1 unlike other 8(a) firms that may own 

only one and no more than 20 percent of another 8(a) firm. 

I want to make it clear up front that we are not challenging the policies or 

legislation that provided ANCs with their special advantages. Congress 

made the advantages available, and it will be a congressional decision 

about what, if any, changes should be made. 

Our recent report on 8(a) ANC contracting identified (1) trends in 

contracting with ANC firms, (2) the reasons agencies have awarded 

8(a) sole-source contracts to ANC firms and the facts and circumstances 

behind some of these contracts, and (3) how ANCs are using the 

8(a) program. 2 We also evaluated SBA’s oversight of 8(a) ANC firms. 

Today I will discuss some of the information in our report and needed 

improvements in SBA’s oversight of ANC 8(a) contracting activity. 

 1

Each 8(a) ANC firm must be in a different primary industry. 

2

GAO, Contract Management: Increased Use of Alaska Native Corporations’ Special 8(a)

Provisions Calls for Tailored Oversight, GAO-06-399, (Washington, D.C.: Apr. 27, 2006).

Page 1 GAO-06-874T
Alaska Native Corporations

To address the objectives of our recent report, we obtained data on federal 

8(a) contracting with ANCs from the Federal Procurement Data System 

and agencies. We also analyzed 16 sole-source 8(a) contracts awarded to 

ANC firms from the departments of Defense, Energy, the Interior, State, 

Transportation, Homeland Security and National Aeronautics and Space 

Administration (NASA). We met with executives of 13 regional ANCs and 

17 village or urban corporations. Our April 2006 report, on which this 

testimony is based, was prepared in accordance with generally accepted 

government auditing standards. 

While 8(a) ANC contracting represents a small amount of total federal 

procurement spending—which totaled more than $341 billion in fiscal year 

2004—dollars obligated for ANC firms’ contracts through the 8(a) program 

grew from $265 million in fiscal year 2000 to $1.1 billion in 2004. Overall,

during the 5-year period, the government obligated $4.6 billion for ANC 

firms’ contracts, of which $2.9 billion, or 63 percent, went through the 8(a) 

program. 

ANC Trends in and 

Use of 8(a) 

Contracting 

During this period, six federal agencies—the departments of Defense, 

Energy, the Interior, State, and Transportation and the National 

Aeronautics and Space Administration—accounted for over 85 percent of 

8(a) ANC contracting activity. Obligations for 8(a) sole source contracts by 

these agencies to ANC firms increased from about $180 million in fiscal year 

2000 to about $876 million in fiscal year 2004.

ANCs use the 8(a) program as one of many tools to generate revenue with 

the goal of benefiting their shareholders. Some ANCs are heavily reliant on

the 8(a) program for revenues, while others approach the program as one 

of many revenue-generating opportunities, such as investments in stocks 

or real estate. ANCs are using the congressionally authorized advantages 

afforded to them, such as ownership of multiple 8(a) subsidiaries3

, 

sometimes in diversified lines of business. From fiscal year 1988 to 2005, 

numbers increased from one 8(a) subsidiary owned by one ANC to 154 

subsidiaries owned by 49 ANCs. Figure 1 shows the recent growth in 

ANCs’ 8(a) subsidiaries. 

 3

 In this testimony, “ANC” refers to the parent corporation. The term “ANC firm” denotes a

business owned by an ANC. We use the term “ANC firm” and “subsidiary” interchangeably. 

Page 2 GAO-06-874T
Alaska Native Corporations

Figure 1: Number of ANC Parent Corporations and Subsidiaries Active in the 8(a) Program, 1988 to 2005 

0

20

40

60

80

100

120

140

160

199

1999

2000

2001

2002

2003

2004

2005

8

19

1990

1991

1992

1993

1994

1995

1996

1997

89

1988

Source: GAO analysis of SBA data.

Year

Number of ANCs owning subsidiaries in 8(a) program

Number of ANC subsidiaries in 8(a) program

Number

ANCs use their ability to own multiple businesses in the 8(a) program, as 

allowed by law, in different ways. For example, some ANCs 

• have created a second subsidiary to win follow-on work from a 

graduating subsidiary;4

• wholly own their 8(a) subsidiaries, while others invest in partiallyowned subsidiaries; and

• diversify their subsidiaries’ capabilities to increase opportunities to 

win government contracts in various industries. 

 4

 There is a 9-year limit to participation in the 8(a) program; firms could graduate earlier if 

they outgrow the industry size standards. 

Page 3 GAO-06-874T
Our review of 16 large sole-source contracts awarded by 7 agencies found 

that agency officials view contracting with 8(a) ANC firms as a quick, easy, 

and legal way to award contracts while at the same time helping their 

agencies meet small business goals.5

Contract Execution 

Issues 

SBA delegates the contract execution function to federal agencies, 

although SBA remains primarily responsible for implementing the 8(a) 

program. We found that contracting officials had not always complied with 

requirements to notify SBA when modifying contracts, such as increasing 

the scope of work or the dollar value, and to monitor the percentage of the 

work performed by 8(a) firms versus their subcontractors. For example:

• Federal regulation requires that when 8(a) firms subcontract under 

an 8(a) service contract, they incur at least 50 percent of the

personnel costs with their own employees.6

 The purpose of this 

provision, which limits the amount of work that can be performed 

by the subcontractor, is to insure that small businesses do not pass 

along the benefits of their contracts to their subcontractors. For the 

16 files we reviewed, we found almost no evidence that the agencies 

are effectively monitoring compliance with this requirement. In 

general, the contracting officers we spoke with were confused 

about whose responsibility it is. 

• Agencies are also required to notify SBA of all 8(a) contract awards, 

modifications, and exercised options. We found that not all 

contracting officers were doing so. In one case, the Department of 

Energy contracting officer had broadened the scope of a contract a 

year after award, adding 10 additional lines of business that almost 

tripled the value of the contract. These changes were not 

coordinated with SBA. 

Two reports we recently issued further illustrate the need for diligence on 

the part of contracting officers when considering 8(a) awards to ANC 

firms. One report addressed the Army’s three-phased approach for hiring 

contract security guards. In the first phase, the Army awarded 

noncompetitive 8(a) contracts to two ANC firms; these firms in turn 

 5

ANC firms in the 8(a) program are deemed by law or statute as socially and economically 

disadvantaged. Awards to these firms are credited to agencies’ small business goals. 

6

For general construction, the 8(a) firm is required to incur at least 15 percent of the

personnel costs.

Page 4 GAO-06-874T Alaska Native Corporations
Alaska Native Corporations

subcontracted with large security guard companies.7 In the second phase, 

the Army obtained guards under full and open competition, but turned 

again to the 8(a) noncompetitive contracts for the third phase, despite 

knowing that it was paying about 25 percent more for these contracts than 

for the competitively awarded ones. The total value of the contracts with 

the ANC firms is almost $495 million, accounting for about two-thirds of 

the Army’s total procurement activity for security guards. 

In response to a tip we received on our fraud hotline about potentially 

inflated prices for temporary Mississippi school classrooms after 

Hurricane Katrina, we looked into the facts and circumstances of the 

contract award.8

 We found that the Army Corps of Engineers (the Corps), 

faced with a compressed time frame for acquiring classrooms and no prior

knowledge about the acquisition, had turned to an 8(a) ANC firm. The 

Corps accepted the firm’s proposed price of $39.5 million, even though it 

had information that the cost for the classrooms was significantly less 

than what the firm was charging. 

SBA has not tailored its policies and practices to account for ANCs’ unique 

status and growth in the 8(a) program, even though officials recognize that 

ANC firms enter into more complex business relationships than other 8(a) 

participants. SBA officials told us that they have faced a challenge in

overseeing the activity of the 8(a) ANC firms because ANCs’ charter under 

the Alaska Native Claims Settlement Act is not always consistent with the 

business development intent of the 8(a) program. The officials noted that 

the goal of ANCs—economic development for Alaska Natives from a 

community standpoint—can be in conflict with the primary purpose of the 

8(a) program, which is business development for individual small, 

disadvantaged businesses. 

SBA Lacks Oversight 

of 8(a) ANC Activity 

SBA’s oversight has fallen short in that it does not: 

• track the business industries in which ANC subsidiaries have 8(a) 

contracts to ensure that more than one subsidiary of the same ANC 

 7

GAO, Contract Security Guards: Army’s Guard Program Requires Greater Oversight 

and Reassessment of Acquisition Approach, GAO-06-284, (Washington, D.C.: Apr. 3, 2006). 

8

GAO, Hurricane Katrina: Army Corps of Engineers Contract for Mississippi 

Classrooms, GAO-06-454,(Washington, D.C.: May 1, 2006). 

Page 5 GAO-06-874T
Alaska Native Corporations

is not generating the majority of its revenue under the same primary 

industry code; 

• consistently determine whether other small businesses are losing 

contracting opportunities when large sole-source contracts are 

awarded to 8(a) ANC firms; 

• adhere to a statutory and regulatory requirement to ascertain

whether 8(a) ANC firms, when entering the 8(a) program or for 

each contract award, have, or are likely to obtain, a substantial 

unfair competitive advantage within an industry; 9

• ensure that partnerships between 8(a) ANC firms and large 

firms are functioning in the way they were intended under the 

8(a) program; and 

• maintain information on ANC 8(a) activity. 

SBA officials from the Alaska district office reported to headquarters 

in the most recent quality service review that the makeup of their 

8(a) portfolio is challenging and requires more contracting knowledge and

business savvy than usual because the majority of the firms they oversee 

are owned by ANCs and tribal entities. The officials commented that these 

firms tend to pursue complex business relationships and tend to be 

awarded large and often complex contracts. We found that the district 

office officials were having difficulty managing their large volume and the

unique type of work in their 8(a) portfolio. When we began our review, 

SBA headquarters officials responsible for overseeing the 8(a) program did 

not seem aware of the growth in the ANC 8(a) portfolio and had not taken

steps to address the increased volume of work in their Alaska office. 

ANCs are increasingly using the contracting advantages Congress has 

provided them. Our work shows that procuring agencies’ contracting 

officers are in need of guidance on how to use these flexible contracting 

methods while exercising diligence to ensure that taxpayer dollars are 

spent effectively. Equally important, significant improvements are needed 

in SBA’s oversight of the program. Without stronger oversight, there is the 

potential for abuse and unintended consequences. 

Conclusion and 

Recommendations 

We made recommendations to SBA on actions that can be taken in 

revising its regulations and policies as well as ways to improve practices 

pertaining to its oversight of ANC 8(a) procurements. We also

 9

 This requirement is set forth in the Small Business Act (15 U.S.C. § 636(j)(10)(J)(ii)(II)). 

Page 6 GAO-06-874T
Alaska Native Corporations

recommended that procuring agencies provide guidance to contracting 

officers to ensure proper oversight of ANC contracts. The procuring 

agencies generally agreed with the recommendation. SBA took issue with 

some aspects of the report and disagreed with several of our 

recommendations. We believe implementation of our recommendations 

would provide better oversight of ANC 8(a) activity and provide 

information that would allow decision makers to know whether the 

program is operating as intended. 

This concludes my testimony. I would be happy to answer any questions

you may have. 

For further information regarding this testimony, please contact David E. 

Cooper at (202) 512-4841 or cooperd@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this statement. Key contributors were Michele Mackin, Sylvia

Schatz, and Tatiana Winger. 

Contacts and Staff 

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