PARTICIPATION IN THE 8(A) 

PROGRAM BY FIRMS OWNED BY 

ALASKA NATIVE CORPORATIONS 

Report Number: 9-15 

Date Issued: July 10, 2009 

Prepared by the 

Office of Inspector General 

U. S. Small Business Administration 

This September 9, 2009 revised version of the Report is the same as the one publicly 

released on July 10, 2009 except that we have corrected contract information on page 

10 and in Appendix II. 
“DRAFT 

U.S. Small Business Administration 

Office Inspector General

 

 Memorandum

Joseph G. Jordan July 10, 2009 To: Date: 

Associate Administrator, Government Contracting 

and Business Development 

Jess. B. Knox 

Associate Administrator, Office of Field Operations 

Debra S. Ritt From: 

Assistant Inspector General for Auditing 

Participation in the 8(a) Program by Firms Owned by 

Alaska Native Corporations, Report No. 9-15 

Subject: 

This is the second report resulting from our audit of Alaska Native Corporation 

(ANC)-owned participants (ANC participants) in the 8(a) program. Our audit 

objectives were to: (1) identify 8(a) contracting trends relative to ANC-owned 

firms; (2) determine whether 8(a) contracting advantages have improved economic 

opportunities for Alaska Natives; and (3) assess SBA’s ability to effectively 

monitor ANC compliance with program rules. 

1 To identify 8(a) contracting trends, we reviewed Federal 8(a) obligations made to 

ANC participants for fiscal years (FY) 2007 and 2008 that were reported in the 

Federal Procurement Data System (FPDS). At the time of the audit, all Federal 

procuring agencies had not yet certified to the accuracy of the FY 2008 data. We 

compared the FY 2007 and FY 2008 obligations to those reported for FY 2004 by 

the Government Accountability Office (GAO) We also reviewed contract 

obligations to ANC participants reported by SBA in its Fiscal Year 2007 Report to 

the U.S. Congress on Minority Small Business and Capital Ownership 

Development to identify the firms receiving the majority of obligations This was 

the latest available report and contained information only for active participants

 

2

.

. 

. 

 

1

 The term “obligation” refers to the annual expenditure for a particular contract, and not the total award amount. 2

 GAO-06-399, Increased Use of Alaska Native Corporations’ Special 8(a) Provisions Calls for Tailored Oversight, 

 April 2006. 

1
 2

Because SBA does not track the volume of sole-source awards, we identified solesource awards for 11 companies that collectively comprised 50 percent of the total 

Federal 8(a) obligations that went to ANC-owned firms participating in the 

program in FY 2007 We identified these awards by analyzing information in 

FPDS and SBA 8(a) files.

. 

 

We interviewed officials from the parent companies of these 11 ANC participants 

to determine how 8(a) revenues were benefitting Alaska Natives and the extent to 

which the parent companies were involved in managing the ANC firms and 

overseeing compliance with 8(a) program rules. We also reviewed profit and 

dividend information in the Alaska Native Claims Settlement Act (ANCSA) 

Regional Association’s Alaska Native Corporations 2006 Economic Data Report

and the Alaska Economic Performance Report for 2007—the two latest reports—

that were issued by the Governor of Alaska. 

To determine the extent of oversight provided to ANC firms in the 8(a) program, 

we reviewed SBA policies and regulations governing the 8(a) program and 

interviewed officials in SBA’s Alaska District Office, Office of Government 

Contracting and Business Development, and Office of Business Development. 

We also followed up on prior Office of Inspector General (OIG) and GAO audit 

recommendations related to improvements needed in SBA’s oversight of ANC 

participants. Detailed information concerning our audit scope and methodology 

can be found in Appendix I. We performed our audit between July 2008 and May 

2009 in accordance with Government Auditing Standards prescribed by the 

Comptroller General of the United States.

BACKGROUND 

The Small Business Act (the Act) gives SBA authority to oversee and administer 

the 8(a) program, which was created to help small-disadvantaged businesses 

compete in the marketplace and to assist them in gaining access to Federal and 

private procurement markets. To be admitted to the program, a company must 

meet the eligibility criteria set out in 13 CFR Part 124, including (1) the size 

criteria to be a small business established in SBA regulations, and (2) the 

requirement that majority owners be economically and socially disadvantaged 

individuals. 

Participants in the 8(a) program receive special consideration for Federal 

contracts. For example, the Small Business Act sets a goal for Federal agencies 

to award 5 percent of all contracting dollars to small-disadvantaged businesses, of 

which 8(a) firms are a subset. To meet this goal, procuring agencies can award 

contracts to 8(a) firms competitively or on a sole-source basis up to $5.5 million 

for contracts involving manufacturing and up to $3.5 million for other contracts. 
 3

With SBA approval, program participants may also enter into joint venture 

arrangements with one or more small business concerns for the purpose of 

performing 8(a) contracts or with large businesses under SBA-approved 

mentor/protégé agreements. In either case, under SBA regulations, the 8(a) 

participant must be designated as the managing partner and receive at least 

51 percent of the net profits of the venture. 

Since 1986, Congress has authorized ANC-owned businesses to participate in the 

8(a) program. ANCs were created by ANCSA as the mechanism for distributing 

land and monetary benefits to Alaska Natives. With ANCSA’s passage, Alaska 

Natives relinquished their land claims for the return promise of the establishment 

of ANCs, which are state-chartered for-profit corporations, with the ability and 

resources to advance the real economic and social needs of Alaska Natives. Under 

ANCSA, an ANC is considered to be owned and controlled by Alaska Natives and 

to be a minority and economically disadvantaged business enterprise as long as the 

stock that is held by Natives and their descendants represents a majority of both 

the total equity of the corporation and the total voting power of the corporation for 

electing directors. If similar standards are met, subsidiary corporations, joint 

ventures and partnerships of ANCs are also considered to be native-owned, 

minority, and economically disadvantaged businesses. Contract awards to these 

entities may be credited towards Federal goals for small and small-disadvantaged 

business procurement. 

By statute and/or SBA regulation, ANC participants enjoy special procurement 

advantages beyond those afforded to most other 8(a) businesses.3

 These 

advantages include exemptions from: 

• Limits on the number of firms that ANCs can own as long as each 

business is in a different primary industry. 

• The $5.5 million and $3.5 million competitive thresholds on the value 

of individual sole-source contracts an 8(a) firm can receive, which 

allows ANC participants to receive sole-source awards of any value.

• The cap on sole-source awards for each 8(a) contractor that has received 

a combined total of Federal 8(a) competitive and sole-source contracts 

in excess of $100 million.4

 

3

 Most of these advantages are also available to Indian tribes and Native Hawaiian Organizations. 

4

 13 CFR 124.519. 
 4

• The requirement that 8(a) firms be managed by socially and 

economically disadvantaged owners.5

Although the ANCSA assigned responsibility for general oversight of ANCs to the 

Secretary of the Interior, 6 under the Small Business Act SBA has oversight 

responsibility for contracts awarded through the 8(a) program, including those 

awarded to ANC-owned firms. SBA’s Office of Business Development generally 

oversees the 8(a) program, and SBA’s Alaska District Office has primary 

responsibility for overseeing the ANC-owned businesses that participate in the 

8(a) program. As of April 2009, there were 203 ANC participants in the 8(a) 

program.

 

 

 

7 In April 2006, GAO issued a report on SBA’s oversight of ANC 8(a) participants. 

GAO reported that SBA had not tailored its policies and oversight practices to 

account for ANCs’ unique status and growth in the program, even though Agency 

officials recognized that ANCs typically enter into more complex business 

relationships than other 8(a) participants. The primary areas where SBA’s 

oversight was cited as falling short involved its monitoring of: (1) secondary lines 

of business for multiple 8(a) participants owned by a single ANC; (2) changes in 

ownership of ANC participants and the holding companies that manage them; (3) 

whether ANC-owned firms have a substantial unfair competitive advantage within 

an industry; and (4) partnerships between ANC participants and large firms to 

ensure that they are functioning as intended.

 

 

In August 2008, we reported that non-native managers of two 8(a) ANC-owned 

firms had secured millions of dollars of 8(a) revenue for companies they owned 

through unapproved management agreements. We also reported that SBA’s 

Alaska District Office did not perform adequate reviews of ANC participants’ 

financial statements and lacked sufficient staff to handle the volume of contract 

actions and annual reviews for the current number of ANC participants. 

RESULTS IN BRIEF

Based on data reported in FPDS, Federal 8(a) obligations to current and former 

ANC participants have grown by 1,386 percent since FY 2000, and have more 

than tripled in recent years, from $1.1 billion in FY 2004 to $3.9 billion in FY 

2008. In FY 2008, obligations to ANC participants represented 26 percent of total 

8(a) dollars—an increase from about 13 percent in FY 2004—although ANC 

 

5

 ANC-owned firms do not have to prove that they are “economically disadvantaged” because ANCSA conveys this 

status on them. Note: The information was obtained from 13 CFR 124.109 (2), 2008 Edition 6

 15 U.S.C. 637(a). 

7

 GAO-06-399, Increased Use of Alaska Native Corporations’ Special 8(a) Provisions Calls for Tailored Oversight, 

April 2006. 
 5

participants constituted just 2 percent of companies in the 8(a) program and 

program graduates completing previously awarded 8(a) contracts. Approximately 

84 percent of the $3.9 billion in FY 2008 obligations went to current ANC 

participants, and 16 percent went to ANC firms that had graduated from the 

program. 

Although the percentage of 8(a) obligations made to ANC firms has increased, the 

majority of those obligations went to just a few ANC participants, primarily 

through sole source awards. For example, 50 percent of Federal 8(a) obligations 

made to current ANC participants in FY 2007 went to just 11 (or 6 percent) of the 

ANC firms reported by SBA to Congress that year. Further, the ability of ANC 

firms to obtain unlimited sole-source awards, which is arguably one of the most 

powerful contracting advantages that ANC firms enjoy, has contributed to the 

increase in such awards to ANC participants. The top 11 firms received 

82 percent of their 8(a) obligations non-competitively. 

Even if these ANC contracts had been awarded competitively, rather than on a 

sole-source basis, it is questionable whether other 8(a) firms could have 

successfully competed for them as the top 11 ANC participants had access to the 

resources of their large parent companies, which gave them a competitive 

advantage over other 8(a) firms. For example, the ANC-owned firms had access 

to capital, lines of credit, bonding capability, and administrative resources, as well 

as the management expertise of their parent companies. This may explain why 

63 percent of the ANC participants received obligations in FY 2007, while only 

44 percent of the non-ANC firms received obligations that year. 

As reported by GAO and others, Federal agencies favor sole-sourcing awards to 

ANC participants because it is a quick, easy, and legal method of meeting their 

small business goals. However, such awards may not result in the best value for 

the government and have been discouraged by a recent presidential memorandum 

unless their use can be fully justified and safeguards put in place to protect 

taxpayers. 

While the playing field is not level for all 8(a) participants, the program has helped 

ANCs fulfill a mission that is broader than the bottom line of the corporations—

namely, to help Alaska Natives achieve economic self-sufficiency. Unlike other 

8(a) businesses, whose profits generally go to one or two disadvantaged 

individuals, the profits from ANCs are shared by hundreds, and sometimes even 

thousands of tribal members or Native shareholders. A large number of ANC 

parent companies told us they derive most of their revenue from the 8(a) program, 

and that profits from those revenues have helped to pay shareholder dividends and 

fund cultural programs, employment assistance, jobs, scholarships, internships, 

subsistence activities and numerous other services to the communities where their 
 6

shareholders live and work. However, because such benefits are distributed from 

total ANC profits, which include non-8(a) revenue, they cannot be linked, dollar 

for dollar, to 8(a) revenue. 

The growth in 8(a) obligations to ANC firms and the complexities inherent in their 

business relationships have challenged SBA’s ability to provide effective 

oversight. For example, the number of ANC subsidiaries in the 8(a) program has 

grown from 1 subsidiary owned by a single ANC in 1988 to 203 subsidiaries 

owned by 58 ANCs in 2009. This has made it difficult for SBA to determine 

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

revenue in the same primary industry, and to monitor ownership changes to ensure 

that Alaska Natives maintain their majority ownership in the participant firms. 

Further, the growth in obligations has made it difficult to monitor ANC 

partnerships, such as joint ventures, to ensure that the partnerships are functioning 

as intended. SBA also does not have a management information system that 

collects all of the information needed to adequately manage ANC participant 

activity. 

Prior GAO and OIG reports have assessed SBA’s oversight of ANC participants, 

and recommended that the Agency revise its policies and procedures to tailor its 

oversight to account for ANCs’ unique status in the program and devote adequate 

resources to monitor ANC participant activity. However, in the 3 years since 

GAO issued its report, SBA has implemented only 2 of the 10 recommendations in 

the report. Also, while the Agency has taken steps to address staffing shortages in 

the Alaska District Office that were identified by the OIG’s previous report, 

current staffing levels remain insufficient to handle the growth and complexities in 

ANC participant activity. 

While continued contracting assistance may be needed to fulfill the economic 

goals of ANCSA, increases in 8(a) awards to ANC firms may have resulted in 

diminished opportunities for other 8(a) participants. For this reason, Congress 

may want to consider whether ANC-owned firms should continue to be exempt 

from competitive threshold limits on sole-source awards and whether such awards 

should be capped. Congress may also want to consider: legislatively clarifying 

that SBA must determine whether ANC-owned firms have a substantial unfair 

competitive advantage before exempting them from the size affiliation rules; 

requiring that ANC 8(a) firms report to SBA on how 8(a) revenues are benefiting 

Alaska Natives; and revising Federal agencies’ small-disadvantaged business 

procurements goals. 

Further, SBA should conduct a program review to evaluate the extent to which the 

growth in ANC 8(a) participation has or will adversely impact other 8(a) firms and 

the overall effectiveness of the 8(a) program, and whether firms owned by ANCs 
 7

and Indian tribes should continue to be exempt from the cap on total sole-source 

awards. SBA should also centrally track 8(a) awards to joint ventures involving 

ANC participants and awards that are sole sourced to ANC-owned firms. Finally, 

the Agency should: expedite completion of a management information system to 

increase its capability to oversee ANC participant activity; finalize policies and 

procedures needed to implement GAO’s recommendations; and fully staff the 

Alaska District Office, as recommended by the OIG. 

On July 2, 2009, the Associate Administrator for Government Contracting and 

Business Development and the Associate Administrator for Field Operations 

provided written comments, expressing concern with several aspects of the draft 

report. The Agency’s comments generally did not state either agreement or 

disagreement with the audit findings and recommendations, except that 

management reported it had implemented five of GAO’s recommendations, in 

contrast to the two we reported. Management also did not identify actions it 

would take to respond to the audit recommendations in the report. Consequently, 

we considered management’s comments to be non-responsive and have requested 

that management identify what, if any, steps it will take to implement our audit 

recommendations. If management is not responsive to our request or does not 

plan to take action, we plan to pursue implementation of the recommendations 

through the audit resolution process. Our assessment of management’s comments 

is provided on page 22 of this report. 

RESULTS 

 

8(a) Obligations to ANC Participants Have Significantly Increased 

Since 2000, with a Significant Percentage of the Obligations Being 

Sole Sourced to a Small Percentage of Firms 

Since 2000, Federal obligations to ANC participants have significantly increased, 

both in value and as a percentage of total obligations to 8(a) firms. These 

obligations have grown by 1,386 percent since FY 2000, and have more than 

tripled in recent years, from $1.1 billion in FY 2004 to $3.9 billion in FY 2008. In 

FY 2008, obligations to ANC participants represented 26 percent of total 8(a) 

dollars—an increase from about 13 percent in FY 2004—even though ANC firms 

comprised just 2 percent of companies currently in the 8(a) program and program 

graduates completing previously awarded 8(a) contracts. Of the $3.9 billion, 84 

percent went to current ANC participants, and 16 percent went to ANC firms that 

had graduated from the program. These trends show that ANC participants are 

receiving a disproportionate share of Federal obligations to 8(a) firms. 

Further, in FY 2007, a significant percentage of 8(a) obligations to ANC 

participants went to a small percentage of firms through sole-source contracts. 
 8

ANC-owned firms are exempt from the cap on sole-source awards that is triggered 

when total competitive and sole-source 8(a) awards exceed $100 million, and 

some of them would not have qualified for these awards without the exemption. 

While these contracts provided an expedient way for Federal procuring agencies to 

achieve their small business contracting goals, such awards may not have resulted 

in the best value for the government. 

A Small Percentage of Firms Received the Majority of Federal 8(a) 

Obligations to ANC Participants in FY 2007 

According to SBA’s FY 2007 Report to the U.S. Congress on Minority Small 

Business and Capital Ownership Development, approximately 50 percent of 

Federal 8(a) obligations made to ANC participants in the program that year went 

to 11 (or 6 percent) of the ANC firms in the program. For example, in FY 2007, 

$1 billion of the $2.2 billion obligated to current ANC participants went to 11 of 

the 193 ANC firms in the program that year. The top 4 firms, which received 

collectively about $600 million, accounted for less than 4 percent of the 109,210 

Alaska native shareholders represented by all of the ANC participant firms. 

As shown in Table 1 below, one firm accounted for nearly 20 percent of the total 

Federal 8(a) obligations made to active ANC firms in FY 2007. This firm had 750 

shareholders, or less than 1 percent of the total population of ANC shareholders. 

Table 1. 

Top 11 ANC Participants with Federal 8(a) Obligations in FY 2007 

Number of 

ANC Participant 8(a) Obligations Shareholders 

Alutiiq International Solutions, LLC $206,534,000 750 

Eyak Technology, LLC $159,419,000 409 

Ahtna Government Services Corp. $118,628,000 1,200 

Chugach Industries, Inc. $115,290,000 1,621a

APM, LLC $80,013,000 310 

Chenega Federal Systems, LLC $79,075,000 170 

SNC Telecommunications, LLC $69,880,000 2,783 

ASRC Management Services, Inc. $65,795,000 9,000 

Tyonek Manufacturing, LLC $62,419,000 600 

TKC Integration Services, LLC $56,849,000 12,000

Bristol Design Build Services, LLC $53,885,000 8,000

$1,067,787,000 36,843 a To avoid double counting, we reduced the 2,200 shareholders of Chugach by the 409 individuals who are 

 shareholders of both Eyak and Chugach and the 170 individuals who are shareholders of both Chenega and Chugach.

Source: SBA’s Fiscal Year 2007 Report to the U.S. Congress on Minority Small Business and Capital Ownership 

 Development and data provided by ANC parent companies.
 9

As shown in Figure 2 below, shareholders of the top four firms were primarily 

located in the southeastern territories of Alaska. 

Figure 2. 

Location of Top Four ANC Firms With Federal 8(a) Obligations in FY 2007

 Source: Generated by the SBA OIG based on data obtained from the ANCs and Alaska Department of Commerce.

A Large Percentage of 8(a) Funds Obligated to ANC Participants Were 

Sole Sourced 

In April 2006, GAO reported that over the 5-year period, from FY 2000 to FY 

2004, 77 percent of 6 agencies’ obligations to ANCs were sole-sourced. Our audit 

determined that since FY 2004, sole-source contracts have continued to be a major 

contracting mechanism for Federal obligations to ANC participants. Although 

SBA does not compile statistics on sole-source awards, our analysis of the top 11 

firms that received almost 50 percent of the 8(a) obligations in FY 2007 showed 

that 82 percent of their 8(a) obligations, totaling $847.9 million, were solesourced. 

As noted in GAO’s 2006 report, agencies have turned to ANC-owned 8(a) firms as 

a quick, easy, and legal method of awarding contracts for any value, which helped 

them meet their small business contracting goals. Agencies that GAO reviewed 

reported that they sole-sourced awards to ANCs because they: 

• Did not have the staff to administer contracts with full and open 

competition; 
 10

Had to meet time-sensitive or urgent requirements that were over the 

competitive limits for other 8(a) firms; or

•

 

Could take credit in more than one small business category in achieving 

their small business goals.

•

 

In February 2008, a report by the Department of Interior OIG reaffirmed that use 

of sole-source awards to ANC participants was the preferred method for obtaining 

small-disadvantaged business contracting goals at Interior, which was one of the 

agencies reviewed by GAO 8

. The report identified a culture at Interior that valued 

expediency fueled by a preference for sole-source contracts in meeting its small 

business contracting goals.

Further, unlike other 8(a) firms, ANC participants and Indian tribes are exempt 

from the cap on 8(a) sole-source awards that is triggered when total 8(a) awards 

reach a certain level. This cap, which is set forth in 13 CFR 124.519, precludes 

8(a) firms from receiving sole-source awards once they have received any 

combination of competitive and sole source 8(a) contracts totaling $100 million.9

 

However, when establishing the cap, SBA exempted firms owned by ANCs and 

Indian tribes from the $100 million cap. Consequently, ANC participants are not 

restricted in the total amount of 8(a) sole source awards they can receive relative 

to the total value of 8(a) contracts they are awarded. of the 11 

ANC participants we reviewed received contracts valued in excess of $100 million 

over just the 2-year period, FY 2007 to FY 2008. One ANC participant alone 

received approximately $531 million in contracts, of which $426 million was sole 

sourced. The regulatory exemption from the cap on sole-source awards allowed 

this ANC-owned firm to receive all but one of these awards non-competitively. A 

summary of contract awards made to the 11 ANC participants during FYs 2007 

and 2008 is provided in Appendix II.

 For example, 4

 

 

 

SBA issued the limits on sole-source awards in response to concerns that a small 

number of participating firms were receiving a disproportionate percentage of 8(a) 

contracts. In announcing the rule in a Federal Register notice, the Agency stated 

 

8

 Report No. W-EV-MOA-0001-2007, Sole Source Contracting: Culture of Expediency Curtails Competition in 

 Department of the Interior Contracting, February 2008. 9

 There are two caps on sole source awards. First, 48 CFR 19.805-1 caps individual sole-source 8(a) awards to 

$3.5 million for service contracts and $5.5 million for manufacturing contracts, unless the award has been accepted 

by SBA as a sole-source procurement on behalf of a tribally-owned or ANC-owned concern. Second, 13 CFR 

124.519 caps sole-source awards to all participants that are not owned by an ANC or Indian tribe once total 8(a) 

awards (including both sole-source and competitive awards) have reached a certain level. An 8(a) firm with a 

revenue-based size standard cannot receive additional 8(a) sole-source awards once it has obtained 8(a) awards of 

either 5 times the amount of its size standard or $100 million, whichever is less; firms with employee-based size 

standards are subject to a $100 million cap. 
 11

“the change was designed to promote the equitable distribution of 8(a) contracts to 

an increased number of 8(a) participants and to foster business development on a 

wider scale,” but did not explain its reasons for exempting firms owned by ANCs 

and Indian tribes. As demonstrated by recent contracting trends, the exemption 

extended to ANC-owned firms has had a paradoxical effect on the distribution of 

8(a) awards, as ANC-owned firms are receiving a disproportionate share of 8(a) 

contract awards. 

Further, while sole-sourcing contracts to ANC firms may provide an expedient 

means of meeting small business goals, due to the lack of competitive bidding, 

such awards often do not result in the best value for the government. Rather, 

competition is generally viewed as better protecting taxpayers by driving prices 

down and quality up. Reports by OIGs and GAO have shown that noncompetitive 

contracts have been misused, resulting in wasted taxpayer resources, poor 

contractor performance, and inadequate accountability for results. This was 

exemplified by a 2007 Department of Homeland Security OIG report, which found 

that a $475 million sole-source border security contract to Chenega Technology 

Services, an affiliate of Chenega Corporation, likely did not provide the 

government the best value. The contract was awarded under the wrong NAICS 

code, and 67 percent of the labor cost under the contract was subcontracted out by 

Chenega, in violation of 8(a) rules. 

ANC Participants Who Received the Majority of 8(a) ANC Obligations 

Had Substantial Advantages over Other 8(a) Firms 

The 8(a) program was originally intended to help small-disadvantaged businesses 

compete in the economy by providing them with business development assistance 

and Federal contracting preferences. Extending those same preferences to ANCowned firms, while exempting them from certain 8(a) eligibility and contracting 

requirements, has provided ANC participants with substantial advantages over 

other 8(a) firms. Essentially it has created a loophole through which corporate 

entities that would not otherwise qualify for small business assistance can, without 

competition, access contracts of unlimited value that have been set aside for small 

businesses. 

Generally, businesses must be small and owned and controlled by one or more 

socially and economically disadvantaged individuals to be admitted to the 8(a) 

program. To be considered economically disadvantaged, the owner’s ability to 

compete in the free enterprise system must be impaired due to diminished capital 

and credit opportunities when compared with others in the same or similar lines of 

business that are not socially disadvantaged. However, ANC-owned firms do not 

have to prove that they are “economically disadvantaged” because ANCSA 

conveys this status on them. 
 12

SBA’s size eligibility rules also provide ANC participants with a significant 

advantage over other 8(a) firms. When determining whether a company is 

“small,” under SBA’s size standards, the Agency typically considers the combined 

number of employees or revenues of the business concern and any other affiliated 

firms. However, the Small Business Act and SBA regulations contain an 

exemption for ANC participants, providing that a firm will not be considered to be 

affiliated with its parent ANC, or other business concerns owned by the ANC, 

unless the Administrator determines that the business concern has obtained, or is 

likely to obtain, a substantial unfair competitive advantage in an industry. 

Therefore, because the revenue and employees of the parent and affiliate 

companies are not included in the ANC participant’s size determination

10

, ANCowned firms that are large through affiliation are allowed to compete for 8(a) 

contracts against smaller firms.

Visits to the parent companies of the 11 ANC participants who received the most 

8(a) obligations in FY 2007 disclosed that they were predominantly large 

businesses with significant resources at their disposal. For example, between 2007 

and 2009, all 11 ANCs had reached annual revenues of over $32.5 million, and 7 

of the 11 had workforces of over 1,500, which would generally qualify them as 

large under SBA’s size standards. In fact, 6 of the 7 ANCs had revenues in excess 

of $500 million. Interviews with the parent corporations confirmed that the ANC 

participants also had access to the resources of their parents. For example, several 

of the parent companies told us that they had provided their 8(a) firms with: 

• Financial assistance, such as access to capital, lines of credit, and bonding 

capability; 

Administrative and financial reporting services, which were provided either 

directly by the parent company 

•

or through holding companies that had been 

established to oversee the ANC participants; and 

• Management expertise. 

The access that certain ANC participants have to their parent corporations’ 

resources places other 8(a) firms at a disadvantage for awards because they must 

essentially compete against the resources of the large parent corporations. 

Consequently, non-ANC 8(a) firms may be losing 8(a) contract opportunities to 

large ANC companies. This appears to be inconsistent with the original intent of 

the 8(a) program, which is to benefit small businesses. These disadvantages,

along with the growing number of awards to ANC-owned firms, which count 

 

10 15 U.S.C. 636(j)(10)(J)(ii)(II); 13 CFR 124.109(c)(2)(iii). 
 13

towards procuring agencies’ small business contracting goals, raise questions 

about the extent to which the program is achieving its intended purpose of helping 

small, disadvantaged businesses. 

SBA Has Not Evaluated How ANC Contracting Trends Have Impacted 

Other 8(a) Participants 

Small businesses have complained to SBA and to Congress that contracting 

advantages for ANC participants have curtailed their ability to compete for 

Federal contracts. Despite these complaints, SBA has not evaluated how ANC 

contracting trends have impacted other 8(a) firms, the overall effectiveness of the 

program, or the achievement of agency small-disadvantaged business procurement 

goals. 

For example, annually, SBA negotiates with Federal agencies concerning their 

prime contracting goals for small and disadvantaged businesses to ensure that 

small businesses have the maximum practicable opportunity for Federal contracts. 

In reporting goal achievement, however, awards made to 8(a) firms owned by 

ANCs are counted, although these firms are technically large through affiliation 

with their parent companies. Given the growth in ANC 8(a) activity, procuring 

agencies may be achieving their small-disadvantaged business goals largely 

through sole-source awards to ANC firms. However, SBA has not assessed the 

manner in which the goals are being met to ensure that other 8(a) companies are 

provided maximum opportunity to obtain 8(a) contracts. 

Additionally, the growing share of 8(a) obligations going to ANC participants, 

particularly in certain industry categories raises questions about how such growth 

has impacted other participants and the overall effectiveness of the 8(a) program. 

For example, in FY 2008, ANC participants received 66 percent of 8(a) 

obligations made under the “facilities support services” NAICS code,11 which was 

the second largest industry code for 8(a) purchasing in 2008. Despite these trends 

and other concerns, SBA has not conducted a study to determine whether the 

increase in ANC contracting activity has harmed other 8(a) firms and overall 

program performance.

Based on a 2005 Program Assessment Rating Tool (PART) evaluation of the 8(a) 

program by the Office of Management and Budget (OMB), which was updated in 

2008, the effectiveness of the 8(a) program was rated as adequate. An adequate 

rating indicates that the program is performing, but needs to set more ambitious 

goals, achieve better results, or strengthen its management practices. For example, 

only 8 percent of the over 9,500 small businesses participating in the program at 

 

11 NAICS 561210. 
 14

the end of FY 2007 were expected to get contracts. Moreover, the PART 

evaluation found that SBA had not undertaken independent evaluations of the 

program to measure its effectiveness and had not regularly collected timely and 

credible performance information needed for such evaluations. Given the growth 

in sole source awards to ANC participants, evaluations of whether such growth 

has impacted other participants, as well as the overall effectiveness of the 8(a) 

program, would provide SBA with critical information to help it administer the 

program.

ANCs Are Heavily Reliant on the 8(a) Program to Provide Economic 

Assistance to Alaska Natives 

According to the Association of ANCSA Regional Corporation Presidents, ANCs 

were established to build economic self-sufficiency, while addressing the social 

and cultural needs of Alaska Natives. Federal contracts awarded through the 8(a) 

program are one of a number of sources of revenue for ANC participants. Unlike 

other 8(a) businesses, whose profits generally go to one or two individuals, the 

profits from ANCs are shared by hundreds, and sometimes thousands, of tribal 

members or Native shareholders.

ANCs use their profits to fulfill a mission that is broader than the bottom line of 

the corporations. For example, in addition to paying dividends to shareholders, 

ANC profits fund cultural programs, employment assistance, jobs, scholarships, 

internships, subsistence activities, and numerous other services to the communities 

where shareholders live and work. ANCs must also fulfill ANCSA obligations 

that saddle them with expenses of land selection, land management, maintenance 

of shareholder records, and annual audits.

While not all ANCs have generated profits in the past, in recent years the overall 

financial performance of ANCs has significantly improved. According to the 

ANCSA Regional Association’s 2006 Report, in 2006 total revenues for 13 

regional ANCs grew 22 percent, from $4.4 billion in 2005 to $5.4 billion in 2006,

and profits increased by 75.6 percent, from $282.4 million in 2005 to 

$495.9 million in 2006. Approximately $1.8 billion of the revenues earned in 

2006 came from Federal 8(a) contracting preferences, which represented a 32-

percent growth in 8(a) revenue as compared to 2005. The regional corporations 

paid out $104.6 million in dividends to their shareholders—a 36.8 percent increase 

from the previous year. The ANCSA Regional Association’s report shows that 

some of the other profits were invested in scholarships and other assistance for 

Alaska Natives.

While the ANCSA Regional Association did not issue a similar report for 2007 or 

2008, the Alaska Governor issued the Alaska Economic Performance Report for 
 15

2007, which showed that revenues for 12 of the 13 regional corporations totaled 

$5.77 billion, with profits of $483.7 million. ANC shareholders were paid 

dividends from those profits ranging from $1.00 per share to $58.55 per share. 

The majority of the parent corporations of the 11 ANC participants receiving most 

of the 8(a) obligations in 2007 advised us that they continue to rely heavily on the 

8(a) program to fund shareholder benefits. Eight of the ANCs told us they derived 

at least 50 percent or more of their revenues from the 8(a) program, with two 

relying on the program for 90 percent or more of their revenues. These firms 

advised that they paid out the majority of their profits in dividends to shareholders. 

For example, in 2007, Bristol Bay paid $5.9 million in dividends to its 8,000 

shareholders, $235,000 for social and educational programs, and $2.7 million in 

shareholder wages. Another large ANC, the Northwest Alaska Native Association 

(NANA), paid $35 million in dividends to its 12,000 shareholders, $33 million to 

its elders’ trust fund, $8 million for social and educational programs, $1 million in 

shareholder development, and $41 million in wages to shareholders who worked 

for the ANC. Other ANCs, however, paid little or no dividends. While these 

numbers show that ANC participation in the 8(a) program has benefited certain 

Alaska Natives, dollar for dollar, it is difficult to link these benefits to revenues 

earned from the 8(a) program, as they are financed from profits that have been 

generated by different revenue sources. 

Growth in ANC Participation Has Created Oversight Challenges for 

SBA 

The growth in 8(a) awards to ANC firms and the complexities inherent in their 

business relationships have presented challenges for SBA in overseeing the 

activities of the ANC participants in the program. As highlighted in recent GAO 

and OIG reports, the practice of ANCs creating multiple subsidiaries has increased 

the volume of affiliate businesses that the Agency must monitor. Additionally, 

partnerships between ANCs and other individuals, as well as frequent changes in 

ownership, have challenged the Agency’s ability to ensure that benefits flow to the 

intended participants. Although SBA officials recognize that ANCs enter into 

more complex business relationships than other 8(a) participants, it has not 

tailored its oversight to account for the unique status enjoyed by ANC-owned 

firms and their growth in the program, or the role that ANC parent corporations 

play in ensuring compliance with 8(a) program rules. 

Some of the areas where GAO and/or the OIG have found SBA’s oversight to 

have fallen short include: 

Determining whether more than one subsidiary of the same ANC is 

operating in the same primary industry category

•

; 
 16

Identifying and approving changes in ownership of ANC participants and 

the holding companies that manage them

•

; 

Determining whether ANC firms, when entering the program or at the time 

of each contract award, have or are likely to have a substantial unfair 

competitive advantage within an industry

•

; 

Ensuring that partnerships between ANC participants and large firms are 

functioning as intended; and

•

Reviewing participant financial statements to determine whether they have 

entered into unapproved management agreements involving their 8(a) 

contracts

•

. 

Although SBA agreed to address most of these shortcomings in its responses to 

previous GAO and OIG reports, it has made few adjustments to its oversight 

activities to recognize that ANCs require special attention or that parent 

companies play a significant role in managing the participant firms. For example, 

in the 3 years since GAO issued its report, the Agency has implemented only 2 of 

the 10 recommendations made by GAO. Further, it has not fully addressed 

staffing shortages in its Alaska District Office, which is the office that has primary 

responsibility for overseeing ANC participants. SBA’s responses to the 

recommendations made by GAO and the OIG are discussed below. 

SBA is Not Tracking Secondary Lines of Business for Multiple 8(a) 

Participants Owned by a Single ANC 

SBA regulations limit the number of ANC participants owned by the same parent 

company that are allowed to operate in the same primary NAICS codes, 

representing the same line of business. However, as reported by GAO in 2006, 

one of the key practices of ANCs is the creation of multiple 8(a) subsidiaries. For 

example, GAO reported that from FY 1988 to 2005, ANC 8(a) subsidiaries 

increased from 1 subsidiary owned by a single ANC to 154 owned by 49 ANCs. 

Today, there are 203 subsidiaries owned by 58 ANCs. In addition, we found that 

many of the parent companies of the 11 ANC participants we reviewed routinely 

established new 8(a) firms when existing ANC firms graduated, as shown in Table 

2 below. 
 17

Table 2. 

Number of Graduated and Current ANC Participants in the 8(a) Program 

Since 2000 for the 11 ANCs Reviewed 

ANC Name As of 

12/31/99

2000 - 2005 2006 – 2008 As of 

12/31/08 

Active Entered Exited Entered Exited Active 

Afognak Native Corp. 0 6 2 3 1 6 

Ahtna, Inc. 4 2 2 3 2 5 

Arctic Slope Native Corp 5 5 2 3 4 7 

Bristol Bay Native Corp. 2 5 1 10 1 15 

Cape Fox Corporation 0 4 0 3 1 6 

Chenega Corp. 3 4 2 2 1 6 

Chugach Alaska Corp. 3 3 4 2 2 2 

Eyak Corporation 0 3 0 0 0 3 

NANA Regional Corp. 2 13 1 7 3 18 

Sitnasauk Native Corp. 2 1 2 1 0 2 

Tyonek Native Corp. 3 5 1 2 4 5 

 TOTAL 24 51 17 36 19 75 

 Source: Generated by the OIG based on data provided by SBA’s Alaska District Office. 

As shown in Figure 3 below, one of the 11 ANCs had as many as 18 subsidiaries 

in the 8(a) program. 
 18

Figure 3. Corporate Structure of NANA Regional Corporation 

as of 12/31/08 

NANA REGIONAL 

Source: Generated by SBA OIG using data obtained from SBA’s Alaska District Office and Audited Financial Statements of 

 NANA Regional Corporation. 

The growth in subsidiaries has made it difficult for SBA to monitor compliance 

with the regulatory restriction on the number of ANC subsidiaries that are certified 

in the 8(a) program under the same primary NAICS codes. GAO has reported that 

SBA’s oversight has fallen short in that it does not track the business industries in 

which ANC subsidiaries have 8(a) contracts. Thus, GAO reported that SBA is not 

ensuring that a firm’s secondary NAICS codes do not, in effect, become the 

primary business line by generating the majority of revenue. This situation could 

allow an ANC to have more than one 8(a) subsidiary perform most of its work 

under the same primary NAICS code, which SBA regulations limit. 

CORPORATION (NRC) 

 

NANA Development Corp. 

(NDC) (Holding Company) 

Subsidiaries of 

 NANA Development Corp. 

 1. KI Prof. Services Group, LLC Subsidiaries of KI Professional Services 

 2. ASCG Incorporated 1. Five Rivers Services, LLC (8a) 

 3. DOWL, LLC 2. KI, LLC (8a) 

 4. NANA/Colt Engineering, LLC 3. Wolverine Services, LLC (8a) 

5. NANA Management Services, 

 LLC 

 6. Qivliq, LLC (90% NDC) ** Subsidiaries of Qivliq, LLC 

 7. Courtyard by Marriott 1. TKC Communications, LLC *** 

 8. Residence Inn by Marriott 2. Truestone, LLC (8a) 

 9. Springhill Suites by Marriott 3. TKC Integration Services, LLC 

10. Nullagvik, LLC 4. Nakuuruq Solutions, LLC (8a) ** 

11. NANA Dynatec Mining, LLC 5. SAVA Workforce Solutions, LLC (8a) ** 

12. NANA/Lynden Logistics, LLC 6. Synteras, (8a) 

13. NANA Major Drilling, LLC 7. Cazador Apparel, LLC (8a) 

14. NANA Oilfield Services, Inc. 8. TKC Global Solutions, LLC (8a) 

15. WorkSafe, Inc 9. Portico Realty Services, LLC (8a) 

16. Akima Management Services, Subsidiaries of 

 Inc. (80% NDC)** Akima Management Services, Inc. 

17. Red Dog Mine 1. Akima Corporation 

18. Professional Services Group, 

 LLC 2. Akima Intra-Data, LLC (8a) 

Subsidiaries of Akmaaq, 

Inc. 19. Akmaaq, Inc. 3. Akima Construction Services, LLC (8a) 

1. NANA Pacific, LLC 

(8a)*** 

4. Akima Infrastructure Services, LLC 

 (8a) 

2. NANA Services, LLC 

(8a) 5. Akima Facilities Management, LLC (8a) 

3. Kisaq, LLC (8a) 6. Akima Logistics Services, LLC (8a) 

4. ASTS, Inc.

 

** Ownership shared with another ANC 

*** Majority owner of a joint venture firm 
 19

GAO recommended that SBA collect information on ANC participants as part of 

required overall 8(a) monitoring, to include tracking the primary sources of 

revenue for ANC participants to ensure that multiple subsidiaries under one ANC 

are not generating most of their revenue in the same primary industry. In 

responding to GAO, SBA indicated that it was developing a Business 

Development Management Information System (BDMIS) to electronically 

manage all aspects of the 8(a) program, which would have such tracking 

capability. This project was launched on July 28, 2008, but is not yet completed. 

Consequently, SBA still does not have an automated means of track primary 

revenue generators for ANC participants. SBA’s Director of Business 

Development also told us that the Agency identifies ANC participant revenue 

sources during the annual review process, but does not link those revenues back to 

industry codes to establish whether an ANC’s subsidiary firms are generating most 

of their revenue in the same primary industry. 

SBA Is Not Always Identifying Changes in Ownership of ANC Participants 

and Holding Companies 

SBA regulations require that ANC participants be majority-owned by an ANC or a 

wholly-owned entity of an ANC, such as a holding company 12

. ANCs must seek 

approval from SBA before changing ownership of the 8(a) participant. Ownership 

of the ANC subsidiaries and holding companies require constant monitoring by 

SBA to ensure that Alaska Natives continue to own the required share of these 

companies. However, the growth in ANC subsidiaries and creation of holding 

companies has strained SBA’s ability to adequately monitor ownership changes. 

According to the Director of SBA’s Alaska District Office, ownership changes 

occur so frequently that her staff has had difficulty keeping up with the volume of 

changes it must approve. She also told us that this activity consumes the majority 

of her staff’s time, precluding them from monitoring other aspects of ANC 

compliance with 8(a) rules. 

The large volume of ownership change requests requiring review and approval has 

also left little time for staff to monitor the ownership structure of ANC-owned 

firms to identify ownership changes that have not been reported to SBA, as 

required. For example, our last audit report identified an instance that had not 

been reported to SBA where an owner of a former 8(a) company had purchased a 

45-percent ownership interest in an ANC participant. This level of ownership was 

in violation of SBA’s regulation, which restricts former 8(a) participants from 

having more than a 20-percent equity ownership in a current 8(a) participant 13

. 

While this change of ownership was disclosed in notes to the participant’s 

 

12 13 CFR 124 105(i). 

13 13 CFR 124 105(h)(2). 
 20

financial statements, it went undetected because the district office did not 

thoroughly review this financial information as part of its annual review of the 

participant firm. 

The Agency Is Not Determining Whether ANC Firms Have or Are Likely to 

Have a Substantial Unfair Competitive Advantage within an Industry 

GAO reported that the Agency was not complying with statutory and regulatory 

requirements when evaluating the size of ANC-owned firms for entrance into the 

8(a) program and acceptance of 8(a) contracts

14

. The Small Business Act states that 

“in determining the size of a small business concern owned by a socially and 

economically disadvantaged Indian tribe (or wholly owned business entity of each 

tribe) each firm’s size shall be independently determined without regard to its 

affiliation with the tribe, any entity of the tribal government, or any other business 

enterprise owned by the tribe, unless the Administrator determines that one or 

more such tribally owned business concerns have obtained, or are likely to obtain, 

a substantial unfair competitive advantage within an industry category.” GAO 

found that, while SBA had incorporated this language into its 8(a) regulations, it 

was not making determinations as to whether these business concerns had 

obtained, or were likely to obtain, a substantial unfair competitive advantage. In 

fact, GAO found that the Agency had no policy or procedures in place to make 

these determinations. 

SBA officials told GAO that the statute was confusing and that they were not sure 

how to implement it. Further, they did not expect that an ANC would have a 

substantial unfair competitive advantage in one industry because the amount of 

ANC participation in Federal contracting was so minimal. GAO reported that it 

did not understand how SBA could ignore the fact that Congress had directed it to 

make such determinations specifically for ANC firms. GAO also recommended 

that SBA ascertain and clearly articulate in regulation how it would comply with 

existing law to determine whether and when one or more ANC firms were 

obtaining, or were likely to obtain, a substantial unfair competitive advantage in an 

industry. In initially responding to the recommendation, SBA wrote in June 2007 

that it was exploring possible regulatory changes that would address the issue of 

better controlling the award of sole-source 8(a) contracts over the competitive 

threshold dollar limitations to joint ventures between tribally and ANC-owned 8(a) 

firms and other business concerns. 

While SBA’s response would have closed a loophole that allows ANC participants 

to joint venture with large businesses on sole-source contracts of unlimited value, 

which potentially has given them a substantial unfair competitive advantage, it 

 

14 These requirements also apply to all Indian tribes. 
 21

was never implemented. Since that time, SBA has adopted a different approach, 

which involves training its Business Development Specialist (BDS) staff and 

Federal agencies to ensure that a previous procurement history is provided in offer 

letters to facilitate such determinations. However, this approach does not appear 

to address GAO’s recommendation that SBA should issue a regulation stating how 

it will determine substantial unfair competitive advantage. 

SBA Is Not Monitoring Partnerships between ANC Participants and Large 

Firms to Ensure that They Are Functioning as Intended 

As discussed previously, ANC 8(a) firms may create partnerships, such as joint 

ventures and mentor-protégé arrangements, with individuals or other businesses by 

entering into business agreements, which can complicate the oversight process. 

SBA is required to approve partnerships between the 8(a) and other firms to 

ensure the agreements will be of substantial benefit to the 8(a) concern. Under the 

8(a) program, the ANC participant must manage the joint venture and receive at 

least 51 percent of venture profits. SBA requires joint ventures to submit quarterly 

financial statements and a final report at the end of the venture’s term so that it can 

determine whether the required share of venture profits went to the ANC 

participant. 

GAO reported that it found indications that oversight of these partnerships may 

not be adequate, particularly in the context of ANCs’ unique provisions and large 

businesses wanting to take advantage of those provisions. GAO reported instances 

where mentors abandoned the ANC participant when a contract was not won or 

where the ANC participant believed the mentor firm exploited it for its 8(a) status. 

It also reported instances where SBA did not inquire as to whether partnerships 

were working as intended. SBA acknowledged that joint ventures between 

mentors and their protégés may be inappropriate for 8(a) sole source contracts 

above competitive thresholds set for other 8(a) firms. This acknowledgement was 

based on complaints that non-8(a) firms have received substantial benefits through 

the performance of large sole-source 8(a) contracts as joint venture partners with 

8(a) ANC participants. Further, where the joint venture involves a large business 

mentor, SBA recognized a perception that large businesses may be unduly 

benefitting from the 8(a) program. 

Despite these concerns, our audit revealed that neither SBA headquarters nor any 

of its other district offices were adequately monitoring the performance of joint 

venture contracts involving ANC participants and large businesses to ensure that 

they were functioning as intended. In addition, SBA headquarters was unable to 

identify the number of joint ventures that existed, including those involving ANC 

participants. Similarly, SBA headquarters did not have a central tracking system 

to identify which 8(a) sole source contracts involved joint venture partners. SBA 
 22

believes that BDMIS, once fully implemented, will provide the capability needed 

to oversee ANC program participation. 

SBA Did Not Identify Management Agreements Involving ANC Participant 

8(a) Contract Revenues 

Our August 2008 report on the oversight of two ANC participants highlighted 

weaknesses in SBA’s review of financial information reported annually by 

program participants. For example, because SBA was not carefully reviewing 

participant financial statements, it did not discover that non-native managers of 

two ANC firms received over $23 million out of $109 million in 8(a) revenues 

through business agreements that were not disclosed or approved by SBA. The 

financial statements that had been submitted to the Agency disclosed that firms 

had management agreements with their non-native managers. SBA should have 

detected and requested copies of these agreements to determine how they 

impacted the participants’ continued eligibility in the 8(a) program and eligibility 

for contract awards. 

Our report questioned whether the staffing of the Alaska District Office, which has 

oversight responsibility for the majority of ANC participants, was sufficient to 

handle the volume of contract actions and complexity of annual reviews for the 

current level of ANC participants. At the time of the audit, the office was staffed 

with only two full-time and one part-time BDS to oversee over 200 8(a) 

participants, of which 166 were ANC-owned firms. 

In responding to our report, SBA agreed to re-evaluate staffing needs for the 

Alaska District Office. Using a recent workforce analysis, SBA determined that 

each BDS in the Alaska District Office should manage a workload of no more than 

40 participants. According to the Director of Business Development, two new 

BDS positions have been approved for the Alaska District Office which, if 

implemented, should provide for more effective reviews.

CONCLUSIONS 

Long-term 8(a) contracting trends show a continued and significant increase in 

obligations to ANC-owned participants, many of which were made through solesource contracts. This growth suggests that the special advantages afforded ANC 

participants may be limiting the number of non-ANC disadvantaged firms that 

secure 8(a) contracts. In addition, while the 8(a) program is undeniably benefiting 

Alaska Natives, our audit showed that a few ANC participants received a 

disproportionate share of the 8(a) obligations. Further, because studies have 

shown that sole-source contracts do not always provide the Government with the 
 23

best value, it is questionable whether ANC contracting advantages under the 8(a) 

program are the most cost-effective way of assisting Alaska Natives. 

Although designated by statute as disadvantaged, many ANC firms have clear 

advantages over other 8(a) program participants when competing for contracts due 

to their association with their large parent corporations and affiliates, which often 

provide them access to capital and credit as well as management expertise. 

Requiring non-ANC small businesses to compete against these ANC participants 

appears to be inconsistent with the primary purpose of the 8(a) program of helping 

small-disadvantaged firms develop the skills needed to compete in the American 

economy. However, SBA has not undertaken a program review to determine 

whether ANC participation is adversely impacting other 8(a) participants. Further, 

the Agency has been slow to expand and fully staff its oversight capabilities to 

address the complex nature of ANC business relationships and ANC growth in the 

program. 

MATTERS FOR CONGRESSIONAL CONSIDERATION 

Congress may wish to consider whether: 

1. ANC-owned firms should continue to be exempt from the competitive 

threshold limits on the amount of individual sole-source awards, or 

whether there should be a statutory cap on the total amount of sole-source 

awards they may receive. 

2. The Small Business Act should be clarified to require SBA to determine 

that ANC-owned firms do not have a substantial unfair competitive 

advantage within an industry category before exempting ANC participants 

from size affiliation rules, or whether other limits should be placed on the 

affiliation rules applicable to ANC participants. 

3. ANCs should be required to submit regular reports to SBA identifying the 

percentage of its profits that are derived from 8(a) contracts, describing 

how the 8(a) share of its profits are being distributed in dividends or other 

support for Alaska Natives, and explaining how the distributed benefits 

assisted the Natives. 

4. The Small Business Act should be amended to either establish larger 

small-disadvantaged business contracting goals for procuring agencies that 

account for the growth in ANC 8(a) awards and; or establish a separate 

goal for awards to tribally-owned companies to ensure that other 8(a) 

companies are provided maximum opportunity to obtain 8(a) contracts. 
 24

RECOMMENDATIONS 

We recommend that the Associate Administrator for Government Contracting and 

Business Development take the appropriate steps to: 

1. Conduct a program review to evaluate whether the growth in ANC 8(a) 

obligations has adversely impacted, or will adversely impact, other 8(a) 

firms and the overall effectiveness of the 8(a) program and, if so, make 

programmatic revisions to minimize the adverse impact. 

2. As part of this program review, determine whether 8(a) firms owned by 

ANCs and tribes should continue to be exempt from the cap on total sole 

source awards in CFR 124.519 and, if not, remove the exemption from this 

regulation. 

3. Centrally track the award of 8(a) contracts to joint ventures involving ANC 

participants and the award of sole-source contracts to ANC participants. 

4. Expedite the implementation of BDMIS to ensure that the Agency has 

timely and credible performance information needed to oversee ANC 

participant activity. 

5. Finalize regulations and actions needed to fully implement GAO’s 

recommendations. 

We recommend that the Associate Administrator for Field Operations take the 

appropriate steps to: 

6. Fully staff the Alaska District Office to ensure that adequate oversight of 

ANC participants is provided. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

On June 8, 2009, we provided a draft of the report to SBA’s Office of Government 

Contracting and Business Development and Office of Field Operations for 

comment. On July 2, 2009, the Associate Administrator for Government 

Contracting and Business Development and the Associate Administrator for Field 

Operations provided written comments, which are contained in their entirety in 

Appendix III. 

The Agency neither expressed agreement or disagreement with the audit findings 

and recommendations, with one exception (see comment 8 below). Further, 
 25

management did not indicate whether or not it plans to implement the six audit 

recommendations from this report. Therefore, we do not consider management’s 

comments to be responsive to the recommendations, and have requested that the 

Agency identify the actions it plans to take on each audit recommendation. If the 

Agency is not responsive to our request or does not agree to take action, we plan 

to seek a decision on the recommendations through the audit resolution process. 

Finally, in its written comments, SBA took issue with several aspects of the report. 

SBA’s comments and our evaluation of them are summarized below. 

Management Comments 

Comment 1 – OIG Report Repeats Findings from GAO Report 

Management stated that the report is primarily repeating the GAO report from 

2006, the exception being a review of contracting activities of a small sample of 

11 ANCs. 

OIG Response 

Our audit was conducted in accordance with Government Auditing Standards, 

which provide that auditors should determine whether other auditors have 

completed work related to the objectives of the current audit.15 It also provides 

that prior audits conducted by others may be used to support findings or 

conclusions for the current audit. Consequently, we determined that GAO’s 2006 

report on Increased Use of Alaska Native Corporations’ Special 8(a) Provisions 

Calls for Tailored Oversight, which provided information on SBA’s oversight of 

ANC 8(a) activity, was relevant to our audit objectives. As a result, our audit 

appropriately followed-up on actions taken by SBA on GAO’s recommendations. 

In addition to the GAO information, the audit presents new information on recent 

obligations made to ANC 8(a) firms, the number of ANC 8(a) firms receiving the 

majority of obligations made to ANC participants, the percentage of obligations 

made to ANC participants through sole-source contracts, and the regulatory and 

statutory provisions that convey special contracting preferences on ANC 

participants. The report also provides new information on ANC participant 

reliance on the 8(a) program and how Alaska Natives have benefited from the 

special contracting advantages afforded ANC-owned firms under the 8(a) 

program. 

Comments 2 and 3 – Report Does Not Discuss Contract Activity of other Program 

Participant Groups or Indicate that All Had Increased Contracting Activity 

 

15 GAO-07-731G, Government Auditing Standards, Section 7.41 and 7.42, issued July 2007. 
 26

Management expressed concern that the report did not provide an analysis of 

contract activity of the other program participant groups within the 8(a) program 

or acknowledge that all groups had increased contract activity. 

OIG Response 

The scope of the audit was limited to ANC participants. While other participant 

groups may have had increased contract activity in terms of absolute dollars 

awarded, one of the key findings of this report was that the percentage of 8(a) 

contracts awarded to ANC-owned participants had gone up from 13 percent in 

2004 to 26 percent in 2008, a significant increase. Much of the increase was due 

to the use of large, sole-source contracts to ANC-owned companies. As more of 

the percentage of the small-disadvantaged business goal is attributed to ANCowned companies, there will be less contracting opportunities for other companies 

in the 8(a) program. Because of this, we have added as another matter for 

Congress to consider that it amend the small-disadvantaged business goal in the 

Small Business Act by either increasing the overall goal or establishing a separate 

goal for tribally-owned companies.

Comment 4 – Report Does Not Mention that Contracting Officers Must Certify 

that Awards Provide Best Value or Reasonable Price 

Management stated that the report did not mention that contracting officers must 

certify that any award, including those made to ANCs, represent a fair and 

reasonable price and/or best value to the Federal government. 

OIG Response 

While we agree that contracting officers must make such a certification for each 

award, other OIGs and GAO have reported that noncompetitive contracts have 

been misused, resulting in wasted taxpayer resources, poor contractor 

performance, and inadequate accountability for results. 

Comment 5 – Report Does Not Cite Any Contracts with ANC Firms that Did Not 

Meet the Government’s Expectations 

Management stated that not one contract awarded to an ANC was cited in the 

report for not meeting the government expectation. 

OIG Response 

We disagree with management’s assertion. The report discusses an award made 

by the Department of Homeland Security to Chenega Technology Services, which 

likely did not provide the government with the best value. The contract was 
 27

awarded under the wrong NAICS code, and 67 percent of the labor cost under the 

contract was subcontracted out by Chenega, in violation of 8(a) program rules. 

Comment 6 – Sole-Source Awards to ANC, Tribal and Native Hawaiian 

Organizations Helps Them to Compete Against Large Businesses 

Management commented that the ability of ANC, Tribal and Native Hawaiian 

organizations to get unlimited sole-source awards helps them compete against 

large businesses. 

OIG Response 

We do not believe, as management suggests, that all sole-source awards to ANC 

participants would have gone to large businesses had ANCs not been exempted 

from the competitive thresholds on sole-source contracts, or that other 8(a) firms 

were not adversely impacted. The Agency’s response is neither supported by 

analysis or discussion with procuring agencies. 

We believe that if such awards had been competed, other 8(a) firms may have 

been able to compete for some of them (depending on the size of the award) or 

may have entered into joint venture arrangements to compete for the larger 

contracts. In evaluating management’s response, we contacted managers in SBA’s 

district offices, who interact with small businesses daily, to get their assessment of 

whether sole-source awards to ANC 8(a) firms were adversely impacting other 

small businesses in their areas. Twenty district offices that service ANC 

participants provided us examples where small businesses reported that they had 

missed out on contracts that were ultimately awarded to ANC firms. Of note is 

that several companies serviced by the Alabama, El Paso, Montana, North 

Carolina, North Dakota, Oregon, Santa Ana, South Carolina, and Syracuse district 

offices reported that ANC firms were getting sole-source contracts in their lines of 

business for which they could have competed. 

A recent legal decision by GAO also provides further evidence that 8(a) firms are 

losing opportunities to ANC-owned firms.16 On May 4, 2009, GAO rendered a 

decision on a protest regarding a sole-source award made to an ANC firm. The 

award was being protested by Mission Critical Solutions, an 8(a) firm located in a 

historically underutilized business zone. On January 2008 the Army had awarded 

a 1-year contract to Mission Critical Solutions for $3.45 million for IT support 

services. Near the conclusion of the contract period, the Army decided it would 

award a sole-source, follow-on contract to include a base and 2 option years. 

Because the anticipated contract value exceeded the $3.5 million competitive 

 

16 U.S. GAO B-401057, Mission Critical Solutions, May 4, 2009. 
 28

threshold, the incumbent firm could not be considered for award, which ultimately 

went to an ANC firm. 

Comment 7 – Tone of Report, like the Previous GAO Report, is Unsettling 

Management commented that the tone of the report was unsettling because ANCs 

are utilizing the statute to bring resources back to improve their Native Alaskan 

communities. Current law gives Federal contracting offices the ability to use all 

aspects of the 8(a) Business Development Program. 

OIG Response 

The report does not take issue with how ANC firms are using the profits realized 

from 8(a) awards. We acknowledge that 8(a) revenue earned by ANC-owned 

firms are used to improve Native Alaskan communities and that ANC profits are 

distributed to hundreds, and sometimes even thousands of tribal members or 

Native shareholders. We also believe that it is reasonable to suggest that if the 

growth in ANC participant activity is adversely impacting other firms in the 

program, Congress may want to consider whether adjustments are needed either in 

procurement goals or sole-source award exemptions so that the two can co-exist in 

the program and both benefit. 

We believe that SBA, the Federal advocate for small businesses, should be 

concerned that 8(a) firms may be adversely impacted by the growth in ANC 

activity, and that it should comply with statutory requirements to evaluate whether 

ANC-owned firms have a substantial unfair competitive advantage within an 

industry before exempting ANC participants from size affiliation rules. 

Comment 8 – The report incorrectly states that SBA has implemented only 2 of the 

10 GAO recommendations 

Management stated that it has taken the necessary corrective actions to implement 

5 of the 10 GAO recommendations. 

OIG Response 

After receiving management’s comments, on July 6, 2009, we contacted GAO to 

determine whether SBA had implemented additional recommendations beyond 

those that we had listed in our draft report. GAO officials confirmed that only two 

of their recommendations had been implemented, and that the remaining eight 

recommendations were still open. GAO officials also told us that SBA had not 

contacted them to close any additional recommendations. 

The three additional recommendations, which we reported as open, but SBA says 

it has implemented, include: 
 29

• “In regulation, specifically address SBA’s role in monitoring ownership of 

ANC holding companies that manage 8(a) operations to ensure that any 

changes in ownership are reported to SBA.” 

o Management claims it addressed this issue by issuing a Procedural 

Notice and a letter to all 8(a) participants; however neither 

document specifically addresses SBA’s role in monitoring ownership 

of ANC holding companies, and the Agency has not issued 

regulations that address this issue. 

• “Collect information on ANC’s 8(a) participation as part of required overall 

8(a) monitoring, to include tracking the primary revenue generators for 8(a) 

ANC firms to ensure that multiple subsidiaries under one ANC are not 

generating their revenue in the same primary industry.” 

o Management stated it launched a Business Development Information 

System which will have the capability to electronically manage all 

aspects of the 8(a) program. As noted in the report, the system does 

not yet have the capability to track primary revenue generators for 

8(a) firms, which is planned for a later phase of the project. 

• “Revisit regulation that requires agencies to notify SBA of all contract 

modifications and consider establishing thresholds for notification, such as 

when new NAICS codes are added to the contract or there is a certain 

percentage increase in the dollar value of the contract. Once notification 

criteria are determined, provide guidance to the agencies on when to notify 

SBA of contract modifications and scope changes.” 

o Management believes that the current regulations along with 

recently revised Partnership Agreements between SBA and the 39 

Federal agencies provide clear guidance. Also language requiring 

that agencies provide copies of contracts and modifications at the 

time of award has been placed in the revised Partnership 

Agreements. However, management has not reissued its regulations 

or established thresholds for when SBA is to be notified. 

ACTIONS REQUIRED 

We request that you submit written comments identifying (1) actions proposed or 

taken in response to each of the six recommendations, and (2) target completion 

dates for each action. We would appreciate receiving your additional comments 

within 15 days of the final report date. 
 30

We appreciate the courtesies and cooperation of the Associate Administrator, 

Government Contracting and Business Development, Director of Business 

Development and the Associate Administrator for Field Operations. If you have 

any questions concerning this report, please call me at (202) 205-7203 or Riccardo 

Buglisi, Director, Government Contracting and Business Development at (202) 

205-7489. 

cc: Joseph Loddo 

 Director, Business Development 
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APPENDIX I. SCOPE AND METHODOLOGY 

The audit objectives were to: (1) identify 8(a) contracting trends relative to ANCowned firms; (2) determine whether 8(a) contracting advantages have improved 

economic opportunities for Alaska Natives; and (3) assess SBA’s ability to 

effectively monitor ANC compliance with program rules. 

To identify 8(a) contracting trends relative to ANC participants, we reviewed 

Federal 8(a) obligations made to ANC participants for fiscal years (FY) 2007 and 

2008 that were reported in the Federal Procurement Data System (FPDS). 

Although prior studies have determined FPDS data to be inaccurate and 

incomplete, we relied on the information as it was the official and only source for 

data on Federal obligations to 8(a) firms. As a result, the obligations reported as 

being made to ANC participants may be over- or understated. At the time of the 

audit, all Federal procuring agencies had not yet certified to the accuracy of the 

FY 2008 data. We compared the 2007 and 2008 obligations to that reported for 

2004 by the Government Accountability Office (GAO).17 We also reviewed 

contract obligations to active ANC participants reported by SBA in its Fiscal Year 

2007 Report to the U.S. Congress on Minority Small Business and Capital 

Ownership Development to identify the firms getting the majority of obligations. 

This was the latest available report and contained information on only active 

participants. 

Because SBA does not track the volume of sole-source awards, we identified solesource awards for 11 companies that collectively comprised 50 percent of the total 

Federal 8(a) obligations that went to ANC–owned firms participating in the 

program in FY 2007. We identified these awards by analyzing information in 

FPDS and SBA 8(a) files.

 

To determine whether 8(a) contracting advantages have improved economic 

opportunities for Alaska Native shareholders, we obtained and reviewed audited 

financial statements for the top 11 ANC participants receiving the majority of the 

8(a) obligations in FY 2007. We also reviewed revenue, profit, and dividend 

information for the 12 regional ANCs contained in the Alaska Economic 

Performance Report for 2007, that was prepared by the Governor of Alaska and 

the ANCSA Regional Association’s Alaska Native Corporations 2006 Economic 

Data. We interviewed SBA officials in Headquarters and the Alaska District 

Office as well as various ANC representatives and reviewed previous audit reports 

to identify the type of benefits that Alaska Native shareholders received from 8(a) 

contract revenues. Further, we interviewed the parent companies of the top 11 

 

17 GAO-06-399, Increased Use of Alaska Native Corporations’ Special 8(a) Provisions Calls for Tailored Oversight, 

 April 2006. 
 32

ANC participants in FY 2007 to determine how the 8(a) revenues were benefiting 

the ANC community and the extent to which the parent companies were involved 

in managing the ANC firms and overseeing compliance with 8(a) program rules. 

To determine the effectiveness of oversight on ANC firms’ compliance with 8(a) 

program rules, we reviewed SBA policies and regulations governing the 8(a) 

program and interviewed officials in SBA’s Alaska District Office, Office of 

Government Contracting, and Office of Business Development. We also reviewed 

Program Assessment Tool ratings of the 8(a) program that were prepared by the 

Office of Management and Budget and followed up on prior OIG and GAO audit 

recommendations related to improvements needed in SBA’s oversight of ANC 

participants. 

The audit was performed between July 2008 and May 2009, in accordance with 

the Government Auditing Standards prescribed by the Comptroller General of the 

United States. 
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APPENDIX II. 8(A) AWARDS TO ANC PARTICIPANTS THAT 

RECEIVED A SIGNIFICANT SHARE OF 8(A) OBLIGATIONS MADE TO 

ANC-OWNED FIRMS IN FYS 2007 AND 2008 

Fiscal Year 2007 (Oct. 1, 2006 - Sept. 30, 2007) 

Contract Award 

Number: 

Estimated Contract 

ANC-owned Firm: Award Amount: Type of Contract: 

W911KB-07-C-0031 $5,000,000.00 sole source 

N69450-07-C-3628 $2,000,000.00 sole source 

W912DS-07-C-0031 $10,000,000.00 sole source 

W911KB-07-C-0026 $7,000,000.00 sole source 

SAQMMA07D0044 $375,000,000.00 sole source Alutiiq International Solutions 

SB134107CN0030 $160,000.00 sole source 

HSCEOP-07-C-00018 $8,600,000.00 sole source 

HSSCCG-07-D-00001 $4,500,000.00 sole source 

FA4427-07-C-0108 $4,780,000.00 sole source APM, LLC W912DR-07-C-0066 $10,000,000.00 sole source

DOC50PAPT0701001 $120,000,000.00 competed 

DOLJ079E24786 $3,000,000.00 sole source 

DJA07D000030 $3,500,000.00 competed ASRC Management Services 

AG-3151-C-07-0004 $6,511,400.00 sole source 

W9132V-07-D-0001 $29,500,000.00 sole source 

N62478-07-G-3026 $3,000,000.00 competed 

W909MY-07-P-0003 $75,000.00 sole source Chenega Federal Services 

HSFEEM-07-D-0002 $15,000,000.00 sole source 

N00178-07-D-2001 $12,300,000.00 sole source 

Chugach Industries N65236-07-C-6286 $133,566.00 sole source 

FA4800-07-P-0057 $1,600,000.00 sole source 

Eyak Technology W91RUS-07-P-0433 $448,303.00 sole source 

SPM1C1-07-D-0041 $46,846,000.00 sole source 

SNC Telecommunication, LLC W911QY-07-C-0023 $20,000,000.00 sole source 

W911QY-07-C-0028 $22,000,000.00 sole source 

Tyonek Manufacturing W31P4Q-07-C-0189 $223,000.00 sole source 

Total: $711,177,269.00 

Fiscal Year 2008 (Oct. 1, 2007 - Sept. 30, 2008) 

Estimated Contract 

ANC-owned Firm: Contract Award Number: Award Amount: Type of Contract : 

N40080-08-C-3018 $1,727,145.00 sole source 

NRC-10-08-380 $421,648.00 sole source 

W911KB-08-D-0009 $105,000,000.00 competed 

N69450-08-C-3585 $825,000.00 sole source Alutiiq International Solutions 

W912DS-08-C-0030 $10,000,000.00 sole source 

N69450-08-C-3582 $1,000,000.00 sole source 

Bristol Design Build Services W911KB-08-D-0008 $105,000,000.00 competed 

Chenega Federal Services W909MY-08-C-0022 $414,000.00 sole source 

HSFECP-08-P-0001 $88,964.00 sole source 

FA3010-08-C-0009 $785,544.22 sole source 

Eyak Technology 08-PO-142-000152720 $20,249.00 sole source 

FA8902-08-C-1009 $3,518,800.00 sole source 

W911QY-08-C-0040 $7,800,000.00 sole source SNC Telecommunication, LLC 

SPM1C1-08-D-1087 $51,155,550.00 sole source 

Total: $287,756,900.22 

Source: OIG Analysis of SBA’s Alaska and Santa Ana District Office contract files.
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APPENDIX III. MANAGEMENT COMMENTS 
 35