Does EyakTek scandal mean trouble for Alaskan firms?

If people want proof that the Alaska Native Corp set-aside program needs reform, the indictment this week of an executive at Eyak Technology on allegations of fraud won’t help. But the case means less for the future of the ANC program overall than its critics might want, experts say.

“This is a story about bad guys getting caught. It’s not related to the company’s ANC status,” said Stan Soloway, president and CEO of the Professional Services Council.

With the news of the indictment, supporters of ANCs moved quickly to distance themselves from scandal. But pressure on the set-aside program likely will increase.

Related stories:

Eyak fires indicted exec; more pressure likely on ANC firms

Obama builds up controls against Alaska Native Corporations

“At a time when Native corporations’ status as 8(a) contractors is constantly under attack, we hope that the alleged actions of one company will not contribute to further misconceptions about Native 8(a) contractors,” the Native 8(a) Works organization said in a statement released late on Oct. 4.

Earlier that day, Justice Department officials announced they had indicted Harold Babb, director of contracts at Eyak Technology LLC, an ANC-owned small business based in Dulles, Va., on allegations of fraud and bribery.

Babb, along with Michael Alexander and Kerry Khan, both program managers at the Army Corps of Engineers, and Lee Khan, the son of Kerry, are accused of conspiring to hide the money from their bribery and fraud scheme through a series of financial transactions.

Rod Worl, CEO of The Eyak Corporation and president of EyakTek, said on Oct. 5 that Babb had been fired from his position at the company.

A Justice official called it “one of the most brazen corruption schemes in the history of federal contracting.”

Despite its brazenness, Roger Waldron, president of the Coalition for Government Procurement and former federal procurement official, said regulators and lawmakers should not write rules based on a single case. This should not be part of the proof of a program's problems, he said.

In the same vein, the federal contracting community cannot label an entire set of companies because of this case, just as government employees should not be labeled as corrupt because of the two involved in the collusion, Soloway said.

That’s not always how it goes though.

“Too often, people do regulate and legislate based on the worse case scenarios,” Waldron said.

But regulatory changes need in-depth cost-benefit analysis with the broad community in mind, he said. The vast majority of law-abiding companies should not be punished with overburdening oversight.

In fact, “this is demonstration that the system works,” Waldron said.

The ANC small-business set-aside program may feel more pressure from Congress. Sen. Claire McCaskill (D-Mo.) has investigated the ANC program and found loopholes that she says have to be closed.

“For several years I’ve been crusading against the large loopholes in our contracting laws that allow waste, abuse, and — as these charges show — fraud,” said McCaskill, chairwoman of the Homeland Security and Governmental Affairs Committee’s Contracting Oversight Subcommittee.

McCaskill added that the ANCs need to compete, like other small businesses, for large contracts. They should not have the option of receiving a sole-source contract of any size, she said.

“The Alaska Native Corporations should compete for these large contracts and further should not be allowed to ‘front’ for other corporations that are actually doing the work,” McCaskill said in her statement.