House scrutinizes Alaskan biz

Rep. Tom Davis (R-Va.), is looking into Alaskan Native Corporations (ANCs), a small-business classification that many critics argue is ripe for abuse. The ANC program, part of the 8(a) system for disadvantaged small businesses, allows the companies to get sole-source contracts with no maximum dollar value.

Most 8(a) firms can get sole-source contracts only if they are worth less than $3 million.

Davis, who heads the House Government Reform Committee, and Rep. Henry Waxman (D-Calif.), the ranking Democrat on that committee, co-signed letters to Comptroller General David Walker requesting a Government Accountability Office review of the program. They also wrote to Defense Secretary Donald Rumsfeld, Secretary of State Condoleezza Rice and Homeland Security Department Secretary Michael Chertoff requesting information on their departments' use of ANC contracts.

The ANC program is a scam, opening too many loopholes with too little accountability, Davis said during a recent interview with Federal Computer Week. He said too many procurement programs are driven by political desires to reward friends or punish enemies, and they can limit competition or create inefficiencies.

In writing to Walker, Davis and Waxman cited reports that ANCs have won as much as $1 billion in contracts to provide security to military bases, but most of the actual work will be done by large, nonnative businesses that are partners with the Alaskan firms. Such companies, the congressmen wrote, "should be capable of obtaining federal contracts through the standard competitive process."

Davis and Waxman are not the only observers taking note of the ANC program. Others in the procurement community have raised concerns and criticisms about such companies' ability to get business without competition, with less oversight and to bring large companies into their sole-source deals.

"It is a very favorable arrangement," said Dave Nadler, an attorney at Dickstein Shapiro Morin & Oshinsky. Firms that are owned at least 51 percent by an Alaskan tribe are considered disadvantaged automatically, while other companies seeking 8(a) status must demonstrate their disadvantage. In addition, the Small Business Administration doesn't count the size of a parent company or other subsidiaries the parent owns in determining a company's eligibility, he added.

The government doesn't treat ANCs the same way it treats other firms, Nadler, said, because "the preferences relating to ANCs go back to what's really a government-to-government relationship. These tribes are governments."

Another attorney who works directly with some of the firms and asked not to be identified, said some companies are exploiting the program.

"The sky's the limit" on contract size, the attorney said. "We've heard of awards $300 million, $400-plus million, all without competition."

The participation of Alaskan tribe members is also dubious in some ANCs, the attorney said. Native Alaskans do not run most of the federal government divisions in particular.

"It has become an enormous loophole," said Charles Tiefer, a law professor at the University of Baltimore. "One of the most graphic demonstrations is that if you go to the Web sites of [some of] the ANCs, you see them brazenly saying that they can obtain contracts for other companies. They just say it, 'Here we are. Come over.'"