Audit finds lax oversight of Alaska Native corporations contracting program

McClatchy NewspapersFebruary 8, 2012 

WASHINGTON — The debate over the sole source contracting privileges that Alaska Native corporations have used to make billions of dollars is flaring in Congress with a new government audit that found lax oversight of the program.

The General Accountability Office said there's scant government monitoring of how much of the work is actually done by Alaska Native corporations that are supposed to benefit from the program and how much is subcontracted to big Lower 48 companies.

"We found no evidence of regular and systematic monitoring of the limitations on subcontracting," said the report from the GAO, the auditing and investigative arm of Congress.

The report, released on Tuesday, also suggested that some Alaska Native corporations "effectively operate as large firms" in what is meant as a small business program.

Massachusetts Democratic Rep. Ed Markey called for congressional hearings on the GAO's findings.

"Alaska Native corporations are provided advantages in federal contracting because of the unique history of native peoples and the U.S. government's obligations to them," said Markey, among the members of Congress who requested the audit. "However, we must ensure that these advantages are not wrongly exploited and that taxpayers are receiving fair value for contracted work. GAO's report finds that federal agencies are currently unable to provide the necessary protections.

Firms owned by tribal entities have special advantages in the Small Business Administration's 8(a) federal contracting program and can receive sole source contracts for any amount. The audit found most of the federal contracting dollars for tribal 8(a) firms go to Alaska Native corporations, whose take rose from $1.9 billion in 2005 to $4.7 billion in 2010.

Alaska's congressional delegation defended the Native corporations Tuesday.

Alaska's Democratic Sen. Mark Begich said the GAO report does not target the corporations and is mainly about how government agencies can better manage the program.

"What we do know is Alaska Native corporations are good corporate citizens, providing jobs and economic stimulus in Alaska and across the country," Begich said. "It's unfortunate that a handful of bad actors have tarnished the reputation of thousands of reputable small businesses who are in ethical compliance ... I've always said we need better training and oversight, and this report just confirms that."

'THIS REPORT IS INNOCUOUS'

The audit release follows the recent bribery and kickback scandal involving an executive at a subsidiary of the Eyak Corporation, the village corporation for Native shareholders in Cordova.

The $20 million scheme allegedly involved corrupt Army Corps of Engineers officers working with the EyakTek executive to pocket kickbacks from a federal contract.

The audit also comes as longtime critics of the program like Missouri Democratic Sen. Claire McCaskill continue to argue that Alaska Native corporation privileges lead to waste as the money is funneled to Washington D.C. subcontractors. McCaskill and Markey are among the six members of Congress who requested the audit. Begich and Alaska Republican Rep. Don Young, who say they want to ensure the program is working properly, are also on the list of the audit requesters.

Young said Tuesday that Alaska Native corporations have become an unjustified target for criticism. The corporations receive just a tiny fraction of sole source federal government contracts and oversight is being improved in the program, he said.

"I'd like to write a eulogy for these GAO reports. It would start with, 'Here lies another GAO report into Alaska Native corporations. Brought to life by opponents of Native economic development, and being laid to rest affirming that there is nothing to see here.' This report is innocuous and should not be spun as an excuse to undermine a critical tool to empower Native communities," Young said.

Alaska Republican Sen. Lisa Murkowski said she's not surprised the GAO wants more oversight, given that some of the rules for the program have only recently been put in place. But Murkowski emphasized the report did not call for changing the law.

"They say, 'look, additional monitoring, additional oversight is going to be required.' But they didn't say there should be statutory changes, they didn't say the participants should be restricted. I think that's significant," Murkowski said.

GAO CALLS FOR CHANGES

The 78-page GAO report found contracting officials are attracted to sole source contracts under the program as quick and easy, allowing them to avoid potential bid protests and meet their goals for small business development. Contracting officers are required to decide if such a contract represents a fair market price. There's also a new rule requiring a written justification for sole source contracts over $20 million.

Regulations limit the amount of work that can be performed by subcontractors, an effort to keep firms in the program from passing the benefits of their federal contracts on to big companies that do the work. The 8 (a) firm has to generate at least 15 percent of the labor costs in general construction contracts and 50 percent in service contracts. But no one knows if that is happening, the report said.

"We found no evidence of regular and systematic monitoring of the limitations on subcontracting. Some of these contracts had large dollar values, up to $500 million," the GAO report said.

The GAO said contracting officers are confused over which agency is responsible for the monitoring and how they're supposed to figure out how much work is subcontracted.

The report also said some Alaska Native firms promote the fact they're part of a larger corporate brand and can access vast resources. It found one unnamed Alaska Native corporation saying it was "without geographical limitations" and established in 49 states. Another Alaska Native corporation reported it could transfer staff between subsidiaries and access 6,700 employees nationwide, according to the GAO report.

Touting corporate resources to promote business and using sister subsidiaries for subcontracting are allowed, the report said. But it noted the Small Business Administration has the ability to decide "if these practices are congruent with the purpose of the 8(a) program--which is to develop sustainable, small, disadvantaged businesses in the U.S. economy."

The GAO report recommends the Small Business Administration look into that as well as adopt a series of new procedures aimed at improving oversight of the program.

The group Native 8 (a) Works, set up by Native organizations to counter criticism of the program, sent out a statement saying the program benefits Native shareholders and helps rural economic development. "Alaska Native corporations participating in the 8(a) program embrace additional oversight and monitoring," said Will Anderson, chief executive of Koniag Inc.

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