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8a Changes affecting Alaska Native Corporations the 800lb Gorilla of the 8a World

In 1971 Congress passed the Alaska Native Claims Settlement Act, 13 Alaska Native Corporations were formed based upon geographic region. Each Alaskan Native in that region was given 100 shares of stock in the regional corporation and 100 shares in their local village corporation. A lot of the rights of these corporations dealt with the mineral rights of the land in the ANCs region. (see map below)

In the early 1990s ANCs were given the right to partake in the SBAs 8a Business Development Program and were given special rights. These special rights included no-limitation on the size of sole-source contracts awarded in the 8a program; for a normal 8a firm these limits are $4.0 million for products and services and $6.5 million for manufacturing. In addition, ANCs can start a new 8a corporation rolling the assets of the past 8a entity so there is not a 9 year sunset provision for ANCs as there are for a normal 8a firms. As a result today, twenty-two of the top forty-nine businesses in Alaska are ANCs. Through steady development and profits, ANCs have become economic powerhouses within Alaska. Combined, ANCs provide 64% of Alaskan jobs and generate 74% of the state’s revenue.

In the mid-2000s some of the ANCs began figuring out ways to maximize their revenue through use of sole-source contracts and by 2011 five of the thirteen ANCs were billing the U.S. government in excess of $1 billion dollars annually. 77% of this revenue is through sole-source contracts. The table below shows the growth of ANCs in the 8a program in the last decade. (see table below)

Year

Percentage of an 8a Sole-Source Contract Dollars going to ANCs

2004

13%

2008

26%

2011

40%

Congress has taken note of the rise these Alaskan Tribes the “800lb gorillas of the 8a world” and to level the playing field among 8a firms has changed the rules.

The new rules require that when an agency is awarding a sole-source contract over $20 million dollars (a contract that only ANCs and a few other entities are eligible for) that the agency justify why this award is in the best interest of the agency.

The results have been dramatic, the contracts awarded ANC firms has dropped from $7.6 Billion in 2011 to $6.8 Billion in 2012 with the pace set for a much lower awards for ANCs in 2013, potentially a 40-50% further drop in 8a revenue for ANCs.

Although in general the ANCs have been very positive for the 8a program, providing high profile success and lobbying efforts that have increased the size and scope of the 8a’s role within the government. The rule change make the award of sole-source contracts over $20 million dollars to ANCs difficult and the end effect is a void for 8as being felt within the Federal Contracting Space as congress has not reduced the quota of each agency to procure from 8a firms. Therefore now could be a good time to consider an 8a certification.

There are 13 regional corporations in Alaska

When Congress passed the law creating ANCs in 1971, Alaska Native Claims Settlement Act

Additionally, ANCs can receive sole-source contracts for any dollar amount

five ANCs that regularly bring in close to $1 billion or more in revenues, according to the Alaska Business Monthly rankings.

The new rule requires federal agencies to issue a Justification and Approval (J&A) prior to the award of 8(a) sole-source contracts over $20 million. The regulation was issued as an interim rule and went into effect on March 16, 2011.

Arguably the biggest change affects ANCs, controversial 8(a) subentities that can win sole-source contracts of any size. For the first time, firms owned by ANCs or by Indian tribes, Native Hawaiian organizations and community development corporations will be required to report the financial benefits flowing back to their communities. Several recent news reports and congressional investigations have questioned whether the profits from ANCs are reaching disadvantaged Native Alaskans.

n fiscal 2008, contract obligations to ANCs represented 26 percent of total 8(a) dollars — double the percentage in fiscal 2004, the report said. ANCs, however, represent just 2 percent of all 8(a) companies.

“Of the 87 contracts in GAO’s review, 71 had subcontractors,” according to the report. “GAO found that required monitoring of limitations on subcontracting by procuring agencies was not routinely occurring. Similar to what GAO reported in 2006, some contracting officers do not understand that ensuring compliance is their responsibility under partnership agreements with SBA, and the regulations do not make this clear.

The interim rule implements Section 811 of the National Defense Authorization Act for Fiscal Year 2010 (Pub. L. 111-84), which requires federal agencies to issue a J&A prior to awarding a sole-source contract over $20 million under the 8(a) program. Prior to the enactment of section 811, a sole-source award of a new contract made using the 8(a) contracting authority did not require a J&A, regardless of the dollar value. Under the interim rule, the J&A must document the reasons for making a sole-source award rather than a competitive award under the 8(a) program. Specifically, the J&A must include a description of the needs of the contracting agency and identify the statutory provision under which the contracting agency is exempting the award from competition. The J&A must also include a determination that use of a sole-source contract is in the best interest of the agency, and that the anticipated cost of the contract will be fair and reasonable. The J&A must be approved by an appropriate official (as currently defined by FAR 6.304) and made public after award of the contract. The rule institutes no new requirements for sole-source 8(a) awards less than or equal to $20 million. Sole-source awards are the easiest method by which agencies can satisfy the 8(a) program goals negotiated with the Small Business Administration (SBA). As the new rule makes awarding major sole-source contracts under the 8(a) program more difficult without reducing the 8(a) program goals for contracting agencies, the likely effect will be an increase in 8(a) set-aside competitions. A shift from sole-source awards to set-aside competitions will have the greatest impact on ANC and Tribal 8(a) concerns, as they are the only 8(a) businesses permitted to receive sole-source awards in excess of $4 million for services and $6.5 million for manufacturing

This new limitation on awards to ANCs comes amid increasing pressure from Congress to eliminate various contracting preferences for ANCs. On March 30, 2011, Sen. Claire McCaskill (D-MO) introduced an amendment to the 2011 Small Business Innovation Research/Small Business Technology Transfer Reauthorization Act (S.493) that seeks to remove several exceptions for ANCs from the normal 8(a) program rules. In conjunction with the new rule, the amendment would require contracting officers to issue written J&As when issuing sole-source awards over $20 million to ANCs. Sen. McCaskill proposed similar legislation in November 2010 (S.3959).

The new rule also reflects a policy of increasing competitive set-asides for all small businesses. As a result of the Small Business Jobs Act passed in September 2010, the SBA is considering permitting and possibly mandating the use of small business set-asides on certain task orders under the General Services Administration’s (GSA) multiple-award and indefinite delivery-indefinite quantity (IDIQ) contracts. The SBA is planning to meet with hundreds of business owners to help determine whether the use of small business set-asides on multiple award and IDIQ contracts should be mandatory or discretionary. The introduction of small business set-asides in these GSA contracts could increase opportunities for all small businesses and help the federal government reach its stated goal of awarding 23 percent of all contract spending to small business.

By 2011, twenty-two of the top forty-nine businesses in Alaska were ANCs.16 Through steady development and profits, ANCs have become economic powerhouses within Alaska. Combined, ANCs provide 64% of Alaskan jobs and generate 74% of the state’s revenue.