UNIQUE RIGHTS OF ALASKA NATIVE CORPORATION OWNED 8(a) BUSINESSES IN THE FEDERAL GOVERNMENT PROCUREMENT PROCESS

INTRODUCTION

Indian reservations and Alaska Native Villages suffer from some of the worst poverty in this country, with unemployment levels in excess of 60%. For example, a recent federal study found that the area of the country with the lowest life expectancy in the country was not an urban ghetto but an Indian reservation. Because of the lack of resources, there is little individual entrepreneurship on reservations. Instead, the Indian tribal governments and Alaska Native Corporations (the Alaska equivalent of tribes) have the primary responsibility for promoting economic development. On the premise that it is both appropriate and necessary to use the Federal government's massive procurement activity to help jump-start reservation economies, Congress has given tribes and Alaska Native Corporations (ANCs)1 unique rights in the Federal procurement process. These rights provide the Federal agencies and federal contractors with strong incentives to contract with tribal and ANC firms. (All of these special provisions are contingent upon the tribal and ANC-owned firms providing quality services and supplies to the Federal agencies and performing 51% of the labor hours with their own direct labor.)

• Special Rights Under the SBA 8(a) Program:

Tribal and ANC 8(a) firms are eligible to receive sole source 8(a) contracts regardless of dollar size, with no upper limit, while all other 8(a) firms may not receive sole source contracts in excess of $3 million for services and $5 million for manufacturing2 . Congress provided this opportunity because it recognized that tribes and ANCs have the large responsibility of trying to pull their entire tribal membership up from poverty and need larger contracts to be able to do so. For the same reason, they permitted tribes and ANCs to have as many 8(a) firms as they wish, so long as each is in a different primary NAICS (formerly SIC) Code. In sum, to enable tribes and ANCs to build their communities, Congress has permitted a tribal or ANC owned 8(a) firm to have many of the attributes of a large company to enable them to perform large and complex contracts, while still having preferential procurement rights under the 8(a) program.

• Special Rights Under the A-76 Program:

The A-76 program ("A-76" refers to the number of the implementing Office of Management and Budget (OMB) Circular) imposes a long and cumbersome procedure for any government facility that wishes to contract out (i.e., outsource) an activity that employs ten or more civilian government employees. (The average A-76 study takes 23 months.) One of the few options open to a DOD command, service or agency that wants to contract out a function but avoid the cumbersome A-76 process is to award the contract to a tribal or ANC 8(a) firm. Language in the Defense Appropriations Act3 provides that a command does nothave to go through the A-76 process but may do a direct conversion of that function to a private contractor, regardless of the number of civilian employees, if the command contracts with a firm that is 51% or more Native American owned, so long as the conversion is cost effective. While this opportunity is available to any 51% or more Native American owned firm, in practice it is only available to tribal and ANC 8(a)s on the larger conversions, because the Appropriations language does not create a new procurement vehicle. As a result, the only way the command may contract with a Native American firm is to do it through the 8(a) sole source authority. As indicated above, the only entities that may receive an 8(a) contract in excess of $3 million for services are tribal and ANC-owned 8(a) firms and the bulk of the A76 contracts are far in excess of $3 million.

• The 5% Subcontracting Bonus:

Pursuant to statutory language and implementing regulations, a DOD contractor that subcontracts for supply or services with a firm that is 51% or more Native American owned is entitled to receive a bonus equal to 5% of the amount of the subcontract award. While this provision is theoretically available to all agencies, Congress has provided appropriations to implement it only to DOD, which, after some initial resistance, has initiated it fully (out of the DOD Office of Small and Disadvantaged Business Utilization). Since the late 1990's, the Defense Appropriations Act has provided $8 million to this program each year. Another $8 million has been provided in FY 20044. It is expected that a similar amount will be provided in subsequent years.

ANALYSIS OF THE THREE BENEFITS

Following is a more detailed description of the three sets of unique rights of tribal and ANC-owned firms summarized above, with citations to the applicable statutory and regulatory provisions."

1. The SBA 8(a) Program

• 8(a) firms owned by tribes and ANCs may receive sole source contracts regardless of dollar amount. They are not subject to the $3 million limitation on sole source contracts for services and the $5 limitation for manufacturing (the "competitive threshold") applicable to other 8(a) firms. The applicable regulation is 13 C.F.R. 124.506(b), which states that the SBA may award an 8(a) subcontract on a non-competitive basis to an 8(a) concern owned and controlled by an Indian tribe or an ANC where the anticipated value of the procurement exceeds the applicable competitive threshold if SBA has not accepted the requirement into the 8(a) BD program as a competitive procurement.

• Sole-source procurements to tribes and ANC owned 8(a) firms may not be protested, because there is no injured party. The applicable regulation is 13 C.F.R. 124.517(a), which state: "The eligibility of a Participant for a sole source or competitive 8(a) contract may not be challenged by another Participant or any other party, either before SBA or any administrative forum as part of a bid or other contract protest."

2. The A-76 Program

• Section 8014 of the FY 2004 Defense Appropriations Act, P.L. 108-87, requires the A-76 procedure to be followed before contracting out any DOD activity performed by more than ten DOD civilian employees. It then goes on to provide that this requirement shall not apply to a commercial or industrial type function that is contracted to the blind or handicapped, or "(3) is planned to be converted to performance by a qualified firm under 51% Native American ownership.." This provision has appeared in previous Defense Appropriations Acts, and likely will be included in future legislation.

• Because there is no authority that would permit a command to issue a competitive bid with competition limited to Native American owned firms, the only way a command may use this authority is by awarding an 8(a) sole source contract to a Native American firm. As indicated above, only 8(a) firms owned by tribes and ANCs are eligible for sole source awards in excess of $3 million.

3. The 5% Subcontracting Bonus

• Section 504 of the Indian Finance Act (25 U.S.C. 1544) provides that a contractor subcontracting for supplies or services with a firm that is 51% or more owned by a Native American Tribe or ANC may receive an additional amount of compensation, above the amount of the prime contract, equal to 5% of the amount of the subcontract with the Native American-owned entity. This authority is applicable government-wide5 ,but, many agencies have been unwilling to implement this provision without specific appropriations to pay for the bonus, since they are unwilling to take the 5% out of the contract or other budget items. The FY 2004, the Defense Appropriations Act contains $8 million for DOD to implement this program within DOD. As a result, DOD is the major agency implementing the 5% bonus program.

• The DOD procedure for tapping the bonus is relatively simple. After a DOD contractor awards a subcontract to a 51% or more Native American-owned firm, it submits an invoice to its contracting officer, along with a copy of the subcontract and proof that the subcontractor is 51% or more Native American-owned. The invoice is routed through the DOD Office of Small and Disadvantaged Business Utilization and then to the Comptroller, who authorizes payment. Various contractors have received their bonus payments under this program. For further information about how this program operates, visit: http://www.acq.osd.mil/sadbu/iip/index.htm, DOD's Indian Incentive Program web site.

SUMMARY OF KEY POINTS

Tribal and ANC-owned firms have been granted special contracting opportunities under the FAR for government contracts in general and for DOD contracts in particular. These include unique 8(a) rights, expedited A-76 authority, and bonuses for DOD contractors that subcontract with Native American-owned firms. However, to fully put these rights to work in order to aggressively attack the extreme poverty that exists on Indian reservations and in Alaska Native Villages, the tribal and ANC-owned firms often need mentoring from large established government contracting firms that can help guide them through the intricacies of DOD contracting and provide technical support while the firms are building their in-house capability. Working with tribal and ANC firms to put these unique rights to work provides the DOD contractor with an opportunity to help reduce some of the worst poverty in this country, to meet is SDB goals, to make money, and help further legislative initiatives.

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1 Section 450b(e) of title 25 U.S.C. ''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) (43 U.S.C. 1601 et seq.), which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians;

2 13 C.F.R. 124.506(b): (b) SBA may award a sole source 8(a) contract to a Participant concern owned and controlled by an Indian tribe or an ANC where the anticipated value of the procurement exceeds the applicable competitive threshold if SBA has not accepted the requirement into the 8(a) BD program as a competitive procurement. There is no requirement that procurement must be competed whenever possible before it can be accepted on a sole source basis for a tribally owned or ANC- owned concern, but a procurement may not be removed from competition to award it to a tribally owned or ANC-owned concern on a sole source basis.

3 Public Law 108-87 (Defense Appropriations Act FY 2004) SEC. 8014.

(a) LIMITATION ON CONVERSION TO CONTRACTOR PERFORMANCE- None of the funds appropriated by this Act shall be available to convert to contractor performance an activity or function of the Department of Defense that, on or after the date of the enactment of this Act, is performed by more than 10 Department of Defense civilian employees unless--

(1) the conversion is based on the result of a public-private competition that includes a most efficient and cost effective organization plan developed by such activity or function; and

(2) the Competitive Sourcing Official determines that, over all performance periods stated in the solicitation of offers for performance of the activity or function, the cost of performance of the activity or function by a contractor would be less costly to the Department of Defense by an amount that equals or exceeds the lesser of--

(A) 10 percent of the most efficient organization's personnel-related costs for performance of that activity or function by Federal employees; or

(B) $10,000,000.

(b) EXCEPTIONS-

(1) This section and subsections (a), (b), and (c) of section 2461 of title 10, United States Code, shall not apply to a commercial or industrial type function of the Department of Defense that--

(A) is included on the procurement list established pursuant to section 2 of the Javits-Wagner-O'Day Act (41 U.S.C. 47);

(B) is planned to be converted to performance by a qualified nonprofit agency for the blind or by a qualified nonprofit agency for other severely handicapped individuals in accordance with that Act; or

(C) is planned to be converted to performance by a qualified firm under at least 51 percent ownership by an Indian tribe, as defined in section 4(e) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(e)), or a Native Hawaiian Organization, as defined in section 8(a)(15) of the Small Business Act (15 U.S.C. 637(a)(15)).

(2) This section shall not apply to depot contracts or contracts for depot maintenance as provided in sections 2469 and 2474 of title 10, United States Code.

(c) TREATMENT OF CONVERSION- The conversion of any activity or function of the Department of Defense under the authority provided by this section shall be credited toward any competitive or outsourcing goal, target, or measurement that may be established by statute, regulation, or policy and is deemed to be awarded under the authority of, and in compliance with, subsection (h) of section 2304 of title 10, United States Code, for the competition or outsourcing of commercial activities.

4 Public Law 108-87 (Defense Appropriations Act FY 2004) SEC. 8021. In addition to the funds provided elsewhere in this Act, $8,000,000 is appropriated only for incentive payments authorized by Section 504 of the Indian Financing Act of 1974 (25 U.S.C. 1544): Provided, That a prime contractor or a subcontractor at any tier that makes a subcontract award to any subcontractor or supplier as defined in 25 U.S.C. 1544 or a small business owned and controlled by an individual or individuals defined under 25 U.S.C. 4221(9) shall be considered a contractor for the purposes of being allowed additional compensation under section 504 of the Indian Financing Act of 1974 (25 U.S.C. 1544) whenever the prime contract or subcontract amount is over $500,000 and involves the expenditure of funds appropriated by an Act making Appropriations for the Department of Defense with respect to any fiscal year: Provided further, That notwithstanding 41 U.S.C. 430, this section shall be applicable to any Department of Defense acquisition of supplies or services, including any contract and any subcontract at any tier for acquisition of commercial items produced or manufactured, in whole or in part by any subcontractor or supplier defined in 25 U.S.C. 1544 or a small business owned and controlled by an individual or individuals defined under 25 U.S.C. 4221(9): Provided further, That businesses certified as 8(a) by the Small Business Administration pursuant to section 8(a)(15) of Public Law 85-536, as amended, shall have the same status as other program participants under section 602 of Public Law 100-656, 102 Stat. 3825 (Business Opportunity Development Reform Act of 1988) for purposes of contracting with agencies of the Department of Defense.

5 FAR 26-104 -- Contracting officers in civilian agencies may insert the clause at 52.226-1, Utilization of Indian Organizations and Indian-Owned Economic Enterprises, in solicitations and contracts if--

(a) In the opinion of the contracting officer, subcontracting possibilities exist for Indian organizations or Indian-owned economic enterprises; and

(b) Funds are available for any increased costs as described in paragraph (b)(2) of the clause at 52.226-1.