Contracting Programs for Alaska Native Corporations: Historical Development and Legal Authorities
Released: 2012-11-28T00:00:00

Introduction

The widely reported increase in federal contract dollars awarded to Alaska Native Corporations (ANCs) and their subsidiaries in recent years has generated congressional and public interest in the legal authorities governing contracting with these entities. Of particular interest are the authorities creating the alleged "special procurement advantages" that ANC subsidiaries enjoy in contracting under the Small Business Administration's Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) Program).

According to some reports, federal contract dollars awarded to ANCs and their subsidiaries increased by 916% between FY2000 and FY2008, going from $508.4 million to $5.2 billion. The dollars awarded to ANC-owned firms through the 8(a) Program, in particular, reportedly tripled between FY2004 ($1.1 billion) and FY2008 ($3.9 billion). Critics are concerned about the impact of these increases on other minority-owned businesses participating in the 8(a) Program, as well as the potential for fraud, waste, and abuse when agencies make sole-source awards to ANCs or their subsidiaries. However, supporters of contracting programs for ANCs point out that, even with the recent increases, contracting with ANCs and their subsidiaries represents a small percentage of federal contract dollars. They also note that profits from federal contracts are vital to improving the economic well-being of Alaska Natives.

Members of the 112 th Congress have introduced legislation ( H.R. 598 , S. 236 ) that would generally subject ANC-owned firms participating in the 8(a) Program to the same treatment as individually owned firms. Among other things, this legislation would preclude ANC-owned firms from receiving sole-source awards valued in excess of $4 million ($6.5 million for manufacturing contracts) under the authority of Section 8(a) of the Small Business Act. Also, in 2011, SBA promulgated regulations that seek to address alleged issues regarding ANCs' participation in the 8(a) Program (e.g., requiring annual reporting on ANCs' benefits to Alaska Natives).

The History of Contracting Programs for ANCs

Alaska Native Claims Settlement Act and ANCs

The Small Business Administration's (SBA's) 8(a) minority contracting program slightly predates the creation of Alaska Native Corporations. The 8(a) minority contracting program dates from the late 1960s, when it was created administratively. The SBA considered Indian tribes eligible for the 8(a) minority contracting program, as indicated by a September 1970 SBA pamphlet encouraging Indian tribes and individuals to participate in the 8(a) Program.

Creation of Alaska Native Corporations

ANCs were created under the authority of the Alaska Native Claims Settlement Act (ANCSA), enacted in 1971 to settle Alaska Natives' aboriginal land claims to most of Alaska. Congress's stated intent in passing ANCSA—shared by Alaska Native organizations and the state of Alaska—was to settle the claims

without establishing any permanent racially defined institutions ... without creating a reservation system or lengthy wardship or trusteeship, and without adding to the categories of property and institutions enjoying special tax privileges.

To carry out this intention, Congress authorized Native corporations, not tribes, to receive the lands and monies awarded in the settlement. Unlike Indian trust lands, the corporations' lands would be held in fee simple and could be developed without federal approval.

Congress intended ANCs to be vehicles for the economic development of Alaska Natives. The conference report on ANCSA stated that

the Regional Corporations shall be organized as business for profit corporations…. [T]he investment functions to be carried out by the [state-wide] Alaska Native Investment Corporation [under the Senate version] have been assigned ... to the Regional Corporations.

The intended functions of this state-wide Investment Corporation, according to the earlier Senate committee report on its bill, were to:

conduct business for profit activities and to provide a long-range return through dividends to its Native stockholders. The Investment Corporation thus is intended to act as a prudent businessman would, and to administer the Natives' funds with the object of maximizing the value of their stock and their future unrestricted income.

ANCSA created four types of ANCs, all to be incorporated under state law:

12 regional corporations, based on the regions of 12 specified Alaska Native associations, covering the entire state (plus a 13 th regional corporation for Alaska Natives permanently residing outside Alaska); village corporations, for Alaska Native communities with populations of 25 or more Natives; group corporations, for Alaska Native communities with populations of fewer than 25 Natives in which Natives constituted a majority; and urban corporations, for urban Alaska Native communities.

An Alaska Native could become a voting shareholder in both the local regional corporation and the local village, group, or urban corporation.

As compensation for settling the land claims, ANCSA provided for the conveyance of some 40 million acres (including subsurface rights) and $962.5 million to the ANCs, chiefly to the 12 regional corporations and the village corporations. The settlement lands were to be divided among the 12 regional corporations based on the acreage of their regions and among the village corporations based chiefly on their populations. Group and urban corporations were to receive a set number of acres apiece. (Conveyance of title to the ANCs is the responsibility of the Bureau of Land Management, which reported in its FY2013 budget justifications that 59% of the lands to be conveyed had been surveyed and patented to the ANCs.) The settlement funds were to be paid out over a number of years and divided among the regional corporations (including the 13 th corporation) based on their population. Each regional corporation was to distribute at least half of its share of these funds to the village corporations in its region.

As noted above, the ANCs were to hold their ANCSA lands in private fee title, not in the trust title usual for Indian lands, and subject to federal, state, and local taxation in specified circumstances. The regional corporations were to operate as for-profit entities, and the village corporations as either for-profit or non-profit entities. Their revenues from investment of their settlement funds were to be subject to taxation.

Definition of ANCs as Tribes

The Indian Self-Determination and Education Assistance Act of 1975

Congress has taken several steps to assist ANCs. An important step in relation to the 8(a) Program came in 1975, when Congress included regional and village ANCs in the definition of "Indian tribe" in a major Indian law, the Indian Self-Determination and Education Assistance Act of 1975:

"Indian tribe" means any Indian tribe, band, nation, or other organized group or community, including any Alaska Native village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.

8(a) Definition of Tribes

This 1975 definition of "Indian tribe" was used in two later amendments to the Small Business Act. First, in 1978, the definition was incorporated by reference in an amendment specifying that small businesses wholly owned by Indian tribes were eligible for the loan program implemented under the authority of Section 7(a) of the act. Second, 1986 amendments to the Small Business Act used the language of the 1975 definition when making "economically disadvantaged" Indian tribes and ANCs eligible for the 8(a) Program. These 1978 and 1986 amendments to the Small Business Act were each added after Indian tribes complained about SBA officials' varying opinions as to whether Indian tribes were eligible for the 7(a) and 8(a) Programs.

ANCs Deemed Economically Disadvantaged

The 1986 amendments meant that tribes and ANCs still had to prove they were economically disadvantaged to be eligible for the 8(a) Program. In 1988, ANCSA was amended to specify that "Native Corporations" (ANCs) were to be considered "minority business enterprises" for all purposes of federal law. Designation as minority business enterprises did not, however, lead the SBA to deem ANCs to be economically as well as socially disadvantaged. According to 1991 testimony of the Alaska Federation of Natives,

[w]hen the ANCSA amendments of 1987 [P.L. 100-241] were being legislated, the parties involved agreed to include an amendment that would make it clear that Alaska Native corporations were eligible for SBA minority programs. At that time, congressional staff relied on the fact that "disadvantaged business enterprises" (called DBE's), were a subset of "minority business enterprises" (called MBE's), and would thus be covered by the explicit inclusion of Native corporations and specified affiliates as MBE's.... Since then, we have found that SBA is distinguishing disadvantaged business enterprises from minority business enterprises, saying that a statutory definition as an MBE does not qualify Native corporations as DBE's for purposes of SBA programs.

In 1992, Congress further amended ANCSA to clarify that Native Corporations were to be considered "economically disadvantaged" for all purposes of federal law. Since 1988, according to Government Accountability Office (GAO) figures, ANCs have consistently increased their involvement in the 8(a) Program, as measured by the number of ANCs owning subsidiaries that participate in the 8(a) Program.

ANCs' Economic Performance

ANCs were to be ANCSA's vehicles—the "engines," as it were—for the economic development of Alaska Natives. However, the variation among regions and villages in acreage and population meant that ANCs differed widely in their shares of the $962.5 million settlement fund and the 40 million acres to be conveyed. The 12 land-based regional corporations, which together cover the entire state of Alaska, also varied not only in the size of their regions but in their regions' economic resources and activities. Likewise, the village, group, and urban corporations, which are scattered unevenly across the 12 regions, varied in their degree of isolation and the economic activity of their surroundings. Hence, ANCs differed widely in their initial ANCSA funding, the land-based resources they received, and their opportunities for economic development.

Since 1971, the ANCs have also differed widely in their business success, growth, income, and losses, but an overall pattern of loss, recovery, and gradual expansion has been suggested by several observers.

Loss

In the 1970s, ANCs organized themselves, made their land selections, and received their ANCSA payments. The last major ANCSA payments to regional ANCs were made in 1980. In the 1970s and 1980s, the ANCs invested in a wide variety of business operations, such as hotels, seafood processing, shipping, oilfield services, and construction, as well as in natural resources. Their businesses and investments were chiefly in Alaska. However, as a group, regional ANCs lost substantial amounts of money in the period of 1971-1985, especially in non-resource business operations. "The [regional] corporations altogether lost money on business operations every year except 1974 and 1985," according to economist Steve Colt. The same analyst later stated,

the consolidated financial performance of the Alaska Native corporations over their first two decades was surprisingly poor. The twelve regional corporations lost about $380 million—more than three quarters of their original cash endowment—in business operations between 1973 and 1993.

At the same time, the ANCs struggled with the significant financial costs of litigation to determine how ANCSA was to be applied and interpreted. There was "heavy litigation" over land selections, Native village and group eligibility, individual Natives' enrollment, ANC elections and corporate governance, revenue-sharing among regional ANCs and with village ANCs, and other issues.

During this period, ANCs reportedly had little or no involvement in the SBA's 8(a) Program.

Recovery

What allowed the ANCs to recover, apparently, was their brief, unique opportunity to sell net operating losses (NOLs) to other U.S. companies between 1986 and 1988. The ANCs' sale of NOLs provided an estimated $410 million for regional ANCs and $500 million for village ANCs.

Congress created the ANCs' window of opportunity for NOL sales in 1986 when it added a provision to the Internal Revenue Code that disallowed sales of NOLs by any corporation except ANCs. Two years later Congress repealed the ANC exception.

"For the regional corporations as a group, NOL sales proceeds provided a cash infusion equal (in real dollars) to two thirds of the original ANCSA payments." ANC income from NOL sales "essentially recapitalized many of the struggling regional corporations, and put them in position to benefit from the economic boom that began in the early 1990s."

Expansion

Given the opportunity to start over, ANCs apparently selected investments more wisely and emphasized diversification, especially in businesses outside Alaska, although they also continued "to do what they do well." ANCs became active and made profitable investments in tourism (including hotels), oilfield services, communications, catering, real estate, construction, and other businesses, as well as in natural resources (timber and mining). In addition, by about 1992, litigation costs were diminishing.

Some ANCs also became active in federal contracting, especially through the SBA's 8(a) Program. As noted above, the first ANC 8(a) contract was awarded in the late 1980s. However, the 8(a) certification process was considered by many ANCs "arduous" until the 1992 amendment to ANCSA, discussed above, that deemed ANCs economically disadvantaged for purposes of the SBA's 8(a) Program and other federal programs.

By 1992, an Alaska Business article had mentioned two regional ANCs as having 8(a) contracts. By 1997, two regional ANCs, Aleut Corporation and Chugach Alaska Corporation, got the bulk of their revenues and profits from 8(a) contracts. A chart in a 2006 GAO report on contracting with ANCs shows a gradual but consistent increase in the number of ANCs (of all types) with 8(a) subsidiaries and the total number of such subsidiaries in the 8(a) Program, from very low numbers in 1988 to a total of 49 ANCs and 154 subsidiaries in December 2005. According to GAO, as of 2005, 12 of the 13 regional ANCs had 8(a) subsidiaries, as did 33 village ANCs and 4 urban ANCs (out of a total of 182 village, urban, and group ANCs).

Legal Authorities Governing Contracting with ANCs

Various authorities presently govern contracting between federal agencies and ANCs or ANC-owned firms. These include (1) the general contracting authorities, (2) the general small business authorities, (3) Section 8(a) of the Small Business Act, (4) authorities pertaining to Native Americans, and (5) various appropriations riders. These authorities address the award of contracts, as well as related issues.

General Contracting Authorities

The Armed Services Procurement Act of 1947 and the Federal Property and Administrative Services Act of 1949, as amended, give defense and civilian agencies, respectively, broad authority to contract for goods and services. So long as they comply with statutory and regulatory requirements governing solicitation of bids or offers, competition in contracting, and similar matters, agencies may generally make awards to any entity that happens to be the lowest qualified responsible bidder or offeror. This includes ANCs and their subsidiaries.

Moreover, agencies may make sole-source awards to ANCs or ANC-owned firms under the general contracting authorities in the same circumstances in which they can make sole-source awards to other entities. Such circumstances exist when

1. only one source can supply the goods or services, 2. there are unusual and compelling circumstances, 3. the agency seeks to maintain the industrial base, 4. international agreements require the agency to award the contract to a particular entity, 5. a statute authorizes non-competitive awards or the agency is acquiring brand-name commercial items for resale, 6. considerations of national security keep the agency from advertising its requirements, or 7. a particular award is necessary in the public interest.

Contracting officers must generally justify such sole-source awards in writing and obtain approval of these justifications from their superiors. They must also generally issue a notice of their intent to make a sole-source award prior to awarding the contract.

The general contracting authorities may, in fact, be necessary to make awards to ANCs themselves, as opposed to their subsidiaries or ANC-owned firms, given that some ANCs may not qualify as "small" under the size standards applicable to contracts awarded under the authority of the Small Business Act. The general contracting authorities also do not require that entities be for-profit to receive an award, unlike the small business authorities. Not all ANCs are for-profit, and small non-profit ANCs could receive awards under the general contracting authorities when they could not receive awards under the small business authorities.

General Small Business Authorities

Contracts could also be awarded to small ANCs or ANC-owned firms under the general small business authorities. Section 15 of the Small Business Act of 1958, in conjunction with Sections 2711 and 2723 of the Competition in Contracting Act of 1984, provides agencies with special authorities for contracting with small businesses. Under these authorities, agencies may "set aside" contracts for small businesses—by conducting competitions in which only they can compete—when certain conditions are met. These set-asides can be total or partial, encompassing the entire acquisition or a severable segment of it. Agencies may also make sole-source awards to small businesses when one of the seven circumstances authorizing noncompetitive awards under the general contracting authorities exist, although such awards are made under the general contracting authorities and not the general small business authorities. They are thus subject to the notice, justification, and approval requirements discussed previously.

One of the alleged "special provisions" governing contracting with ANCs, discussed below, arguably assists ANC-owned firms in qualifying as "small" for purposes of contracting under the general small business authorities. While all affiliations between businesses, or relationships allowing one party control or the power of control over another, count when the SBA makes size determinations, certain affiliations with the parent ANC or its subsidiaries are generally excluded when the SBA determines the size of an ANC-owned firm. Although the SBA is authorized to consider these affiliations when not doing so results, or is likely to result, in an ANC-owned firm obtaining a "substantial unfair competitive advantage within an industry category," the SBA and agencies exercising delegated authority on its behalf reportedly seldom exercise this authority.

In contrast, ANC-owned firms are not exempt from the requirement that they be "businesses" for purposes of the Small Business Act, which means that they must be for-profit to be awarded contracts under the general small business authorities. They also must self-certify that they are "small," as measured by the size standards for the goods or services to be procured, when submitting bids or offers for contracts to be awarded under the general small business authorities. However, while there are potentially severe penalties for misrepresentation of size and other entities may generally protest firms' size, self-certifications are not necessarily closely scrutinized. SBA regulations provide that

A contracting officer may accept a concern's self-certification as true for the particular procurement involved in the absence of a written protest by other offerors or other credible information which causes the contracting officer or SBA to question the size of the concern.

Section 8(a) of the Small Business Act

Agencies can also contract with ANC-owned firms, although not necessarily ANCs themselves, under the authority of Section 8(a) of the Small Business Act of 1958, as amended. Section 8(a) generally authorizes set-asides and sole-source awards to "socially and economically disadvantaged small business concerns," which include firms at least 51% owned and unconditionally controlled by ANCs, Indian tribes, Native Hawaiian Organizations (NHOs) or Community Development Corporations (CDCs). Contracts whose value is at or below the so-called "competitive threshold" ($4 million, $6.5 million for manufacturing contracts) may generally be awarded on a sole-source basis, without the competition among 8(a) firms that would result if the contract were set aside. Contracts whose value exceeds the competitive threshold, in contrast, generally must be set-aside for competitions in which all 8(a) firms may compete unless there is not a reasonable expectation that at least two eligible and responsible 8(a) firms will submit offers at a fair market price. See Figure 1 .

However, agencies also have special authority to make sole-source awards to ANC- or other group-owned firms under Section 8(a) in circumstances when they could not make awards to individually owned 8(a) firms (e.g., when the contract exceeds the "competitive threshold," and there is a reasonable expectation that at least two eligible and responsible 8(a) firms will submit offers at a fair market price). Because this authority does not derive from the Competition in Contracting Act (CICA), such awards were not subject to the same requirements regarding justifications, approvals, and notices as other sole-source awards prior to enactment of the National Defense Authorization Act (NDAA) for FY2010. The NDAA for FY2010 changed this by requiring justifications, approvals, and notices for sole-source contracts in excess of $20 million (base plus all options) awarded under the authority of Section 8(a) similar to those required for sole-source contracts awarded under the general contracting authorities. However, justifications, approvals, and notices are still not required for sole-source contracts valued at between $4 million ($6.5 million for manufacturing contracts) and $20 million awarded under the authority of Section 8(a).

While agency discretion in determining whether to procure particular goods or services under the authority of Section 8 (a) is fairly broad, detailed statutory and regulatory requirements govern firms' eligibility for and participation in the 8(a) Program. The places where the statutory or regulatory requirements pertaining to contracting with ANC-owned firms differ from the general 8(a) requirements have attracted the most scrutiny from those concerned about the alleged "special procurement advantages" of ANC-owned firms. These places are briefly summarized in Table 1 , while a separate report explains the general 8(a) requirements in more detail.

ANC-owned firms are, however, subject to other requirements governing eligibility for and participation in the 8(a) Program, including requirements that they (1) be small under the SBA's size standards, (2) be businesses under the SBA's definition, (3) be unconditionally owned and substantially controlled by their owner (i.e., the ANC), (4) possess good character, (5) demonstrate potential for success, and (6) obtain increasing percentages of their income from non-8(a) sources in their final five years of participation in the 8(a) Program. ANC-owned firms must also apply to participate in the 8(a) Program like other firms. This application form is somewhat different from that used by individually owned firms, but requires similarly extensive supporting documentation concerning company personnel, corporate organization, financial status, and company operations. ANC-owned firms must also submit an "8(a) Annual Update" like other 8(a) firms. This update requires additional documentation much like that submitted with applications to the 8(a) Program. Careful review of this documentation could potentially disclose some of the alleged problems with ANC-owned 8(a) firms, such as joint ventures to which the ANC-owned firm contributes nothing beyond its eligibility for 8(a) contracts. However, a November 2008 GAO report questioned whether SBA's resources are adequate for thorough reviews of 8(a) firms, and a January 2012 GAO report opined that SBA "cannot implement" its new rules (discussed below) intended to strengthen 8(a) firms' role in any joint ventures using currently available information.

Authorities in Native American Laws

Several authorities governing contracting with ANCs and their subsidiaries are located in statutes and U.S. Code sections pertaining to Native Americans, rather than those pertaining to contracting or small business. These provisions create incentives for agencies to contract with ANCs or their subsidiaries by, for example, allowing contracts with "large" ANCs to count toward federal prime contractors' goals for subcontracting with small businesses.

5% "Subcontracting Bonus"

Federal prime contractors are eligible for so-called "bonuses" equal to "5 percent of the amount paid, or to be paid, to a subcontractor" when they subcontract with ANCs or ANC-owned firms, among others. Congress authorized such bonuses in 1988, in part, because of concerns that federal prime contractors had less incentive to use Indian-owned subcontractors than other minority-owned subcontractors because of the geographical "remoteness of [Indian] reservation[s]." Congress also appropriated funds for the Department of Defense (DOD), in particular, to pay subcontracting bonuses. The amount appropriated remained constant at $8 million per year between FY1989 and FY2006, and was increased to $15 million per year during the 110 th Congress. Other agencies have not received similar appropriations to pay subcontracting bonuses, but have the same statutory authority to pay them that DOD has.

To be eligible for a bonus, the prime contractor must

use its best efforts to give Indian organizations and Indian-owned economic enterprises … the maximum practicable opportunity to participate in the subcontracts it awards to the fullest extent consistent with efficient performance of its contract.

Contracting officers and contractors may generally rely on subcontractors' representations regarding their eligibility as Indian organizations or Indian-owned economic enterprises unless an interested party challenges their eligibility, or the contracting officer has independent reason to question it. Any challenges are referred to the Bureau of Indian Affairs for eligibility determinations.

Credit Toward Prime Contractors' Subcontracting Goals

Subcontracts awarded by federal prime contractors to ANCs or their subsidiaries count toward contractors' goals for subcontracting with small businesses and "small disadvantaged businesses" even if the ANC or ANC subsidiary is large or not certified as "disadvantaged":

Subcontracts awarded to an ANC or an Indian tribe shall be counted towards the subcontracting goals for small business and small disadvantaged business (SDB) concerns regardless of the size or Small Business Administration certification status of the ANC or Indian tribe.

Section 8(d) of the Small Business Act, as amended, requires federal agencies to negotiate subcontracting plans with the apparently successful bidder or offeror on eligible prime contracts prior to awarding the contract. These subcontracting plans establish goals for the value of subcontracts that prime contractors should award to small businesses and small disadvantaged businesses, among others. A contractor's failure to comply with its subcontracting plan constitutes a material breach of the contract, potentially allowing the agency to terminate the contractor for default. The contractor could also potentially be required to pay liquidated damages.

Other firms must qualify as "small" under the SBA regulations for subcontracts with them to count toward contractors' goals for subcontracting with small businesses or small disadvantaged businesses (SDBs). Moreover, until October 3, 2008, other firms had to be certified SDBs for subcontracts with them to count toward contractors' goals. All 8(a) firms were deemed to be SDBs, but other firms at least 51% unconditionally owned and controlled by socially and economically disadvantaged individuals or groups could also obtain certification.

Small Disadvantaged Businesses for Purposes of Transportation Contracts

The same statute that allows subcontracts with large or uncertified ANCs or ANC affiliates to count for purposes of contractors' subcontracting goals for small businesses also enables large ANCs or ANC affiliates to qualify as "small disadvantaged businesses" for certain contracts funded by the Department of Transportation (DOT), provided that they obtain the necessary certifications. The Transportation Equity Act for the 21 st Century (TEA-21) originally required that

not less than 10 percent of the amounts made available for the program under titles I, III, and V of this Act shall be expended with small business concerns owned and controlled by socially and economically disadvantaged individuals.

However, later regulations, promulgated in response to court cases challenging the constitutionality of "quotas" for minority firms, construe "10 percent" as an "aspirational goal at the national level," which "does not authorize or require recipients to set overall or contract goals at the 10 percent level, or any other particular level, or to take any special administrative steps if their goals are above or below 10 percent."

Allowing large ANCs and their affiliates to qualify as small disadvantaged businesses for purposes of DOT contracting goals is potentially significant for two reasons. First, "small business" arguably has a narrower meaning under TEA-21 than it does under the Small Business Act, which could render some non-ANC-owned firms that might otherwise qualify as "small" ineligible for the DOT program. Second, "small disadvantaged businesses" under TEA-21 include women-owned firms, which could place the collective interests of women-owned small businesses more directly at odds with those of ANC-owned firms than is the case when individual women-owned firms participate in the 8(a) Program or are designated as small disadvantaged businesses for SBA programs. Women are not among the groups presumed to be socially disadvantaged for purposes of SBA programs, and small businesses owned and controlled by women are eligible for such programs only when individual women owners prove by a preponderance of the evidence that they are socially disadvantaged.

Appropriations Riders Allowing Direct Conversion of DOD Functions

The Department of Defense (DOD) can contract out functions performed by government employees to ANCs or ANC-owned firms without going through the competitive sourcing process normally required under Office of Management and Budget (OMB) Circular A-76. OMB Circular A-76, along with its four attachments, generally sets forth guidelines and procedures for determining whether an activity should be performed in-house by the agency with government personnel or contracted-out to the private sector. Beginning in the early 1980s, a series of appropriations riders and permanent laws affected DOD's use of the A-76 process. While most of these enactments in some way limited DOD's ability to contract out functions using the A-76 process, one rider attached to every DOD appropriations act since 1989 has permitted DOD to avoid the A-76 process and its restrictions on outsourcing by contracting functions out to firms owned by ANCs, Indian tribes, or NHOs.

The original version of this rider generally restricted outsourcing using the A-76 process, but exempted so-called "direct conversions" to "qualified firm[s] under 51 percent Native American ownership," among others. Such firms included those owned by ANCs, Indian tribes, or individual Native Americans. The 106 th Congress later made two modifications to this provision. First, it exempted direct conversions to "qualified firms" from requirements concerning federal employee comments and congressional notification codified in 10 U.S.C. §2461(b)-(c), as well as from the A-76 process codified in 10 U.S.C. §2461(a). Second, while it maintained the exemption for direct conversion to firms owned by ANCs and Indian tribes, it removed the exemption for direct conversions to firms owned by Native American individuals and replaced it with one for direct conversions to NHO-owned firms. The exemptions for direct conversions remained unchanged since the 106 th Congress.

However, while these appropriations riders allowed DOD to avoid the A-76 process when contracting out functions to ANCs or ANC-owned firms, they did not authorize DOD to make noncompetitive awards to such entities. For this reason, DOD has used the authority to make sole-source awards above the competitive threshold to ANC-owned firms codified in Section 8(a) of the Small Business Act in conjunction with its authority under the appropriations riders.

Legislative Activity in the 112th Congress

Members of the 112 th Congress have introduced legislation ( H.R. 598 , S. 236 ) that would remove all the "special rules" for contracting with ANC-owned 8(a) firms described in Table 1 and subject ANC-owned firms to eligibility and other requirements like those to which individually owned 8(a) firms are subject. The proposed legislation would accomplish this, in part, by amending the Alaska Native Claims Settlement Act (ANCSA) so that ANCs are no longer deemed to be socially or economically disadvantaged for purposes of Sections 7(j) and 8(a) of the Small Business Act. It would also amend the definition of "Indian tribe" contained in Section 8(a)(13) of the Small Business Act so that ANCs no longer constitute "Indian tribes" for purposes of the 8(a) Program. By doing so, H.R. 598 and S. 236 would preclude ANCs from receiving sole source awards in excess of $4 million ($6.5 million for manufacturing contracts) under the authority of the Business Opportunity Development Reform Act (BODRA) of 1988. Section 602(a) of BODRA currently provides that the "competitive thresholds" contained in Section 8(a) of the Small Business Act do not apply to entities defined as "Indian tribes" in Section 8(a). Excluding ANCs from Section 8(a)'s definition of "Indian tribe" would, thus, subject them to the competitive thresholds, as well as require that all affiliations of ANC-owned firms count when the firms' size is determined and that an ANC may participate in the 8(a) Program only one time.

The proposed legislation would also amend Section 8(a) to (1) prevent ANC-owned firms from receiving additional sole-source awards when the total amount of competitive and sole-source awards they have received in any year exceeds the total amount of competitive and sole-source awards that individually owned firms may receive (currently, $100 million); (2) prohibit the SBA from exempting ANC-owned firms from any time limitations on participation in the 8(a) Program to which individually owned 8(a) firms are subject; and (3) require ANCs to report annually to the SBA on their total revenue, the amount of this revenue attributable to the 8(a) Program, and the "total amount of benefits paid to shareholders." H.R. 598 and S. 236 would also require the SBA to amend the regulations for the 8(a) Program so as to preclude SBA from waiving the requirement that the management and daily business operations of ANC-owned firms be controlled by one or more socially and economically disadvantaged individuals; prohibit ANCs from conferring eligibility to participate in the 8(a) Program on more than one firm at a time; and preclude ANC-owned 8(a) firms from acquiring ownership interests in other 8(a) firms that exceed the ownership interests that individually owned 8(a) firms may acquire.

Regulatory Developments

On February 11, 2011, SBA amended its rules to change certain eligibility and other requirements pertaining to the 8(a) Program. Several of these changes apply specifically to ANC-owned firms. Under the new rules, ANC-owned 8(a) firms (1) may not receive a sole-source 8(a) contract that is a follow-on contract to an 8(a) contract that was performed immediately previously by a firm owned by the same ANC; (2) must report annually to the SBA on the benefits provided to Alaska Natives from the ANC's participation in the 8(a) Program; and (3) may be found to have potential for success if the ANC pledges to use its resources to support the firm and to not allow the firm to cease operations. The rule also generally prohibits non-8(a) firms that form joint ventures with 8(a) firms to perform sole-source contracts in excess of $4 million ($6.5 million for manufacturing contracts) from serving as subcontractors (at any tier) on the contract. In addition, the rule indicates that it is the SBA's policy to have ANC-owned firms' applications for the 8(a) Program processed at the San Francisco Division of Program Certification and Eligibility whenever possible. These applications had previously been processed in the Anchorage District Office.

These changes generally took effect on March 14, 2011, although the SBA has delayed implementation of the requirement that ANCs report on the benefits provided to Alaska Natives through their participation in the 8(a) Program.