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Defense rider targets Alaska Native contracting
Monday, April 25, 2005

A rider tucked into the $81 billion defense appropriations bill approved by the Senate last week could limit the number of sole-source contracts for Alaska Native corporations and Indian-owned businesses.

In recent years, Alaska Native corporations have won billion-dollar contracts for defense and military work. Under a program meant to benefit minority and disadvantaged businesses, the contracts are awarded without opening them up to competitive bidding.

The program has drawn scrutiny in recent years among Democrats, labor unions and non-Indian businesses. But challenges to the sole-source contracting policy have been rejected in the courts.

Critics are now turning their eyes to Congress. Just last month, the leaders of a key House committee launched an investigation into Native contracting. Rep. Tom Davis (R-Virginia) and Rep. Henry Waxman (D-California) of the House Government Reform Committee say they are concerned that most of the work is being done not by Native corporations but by non-Indian subcontractors.

Sen. Pete Domenici (R-New Mexico) has joined the effort, inserting a paragraph into the defense bill that targets this practice. Without mentioning Native corporations by name, the rider redefines the meaning of "prime contract" to include not just the corporations but their subcontractors. The change will impact how the government meets its overall minority contracting goals.

As written, the rider only applies to contracts awarded by the Department of Energy. Most of the large-dollar contracts won by Native corporations have come from the Department of Defense.

The House version of the bill doesn't include the language either. A joint House-Senate conference committee is meeting to hammer out the differences between the two versions.

Nevertheless, the Native American Contractors Association, a Washington, D.C.-based alliance of Native corporations, said it was worried about the rider. "NACA is concerned potential legislative actions may diminish current programs and negate the historical progress and positive effects of previous initiatives," the group said in a statement.

The scrutiny so far appears limited to Alaska Native corporations, some of which maintain close ties with powerful Sen. Ted Stevens (R-Alaska). It was Stevens who rewrote the Small Business Act to create the minority contracting program and exempt the corporations from limits on the size and dollar-value of the contracts.

But some Indian advocates fear tribal- and Indian-owned businesses in the lower 48 are at risk. In a recent Indian Country Today editorial, Pete Homer, the president of the National Indian Business Association, called the Congressional inquiry an "attack" on Indian economic development.

"The issue of any 'special' federal contracting incentives for American Indians and Alaska Natives continues to be one of a lack of education for the general public, non-Native business owners and, to a large extent, Congress," Homer said. "Tribes are not a minority group, but sovereign nations that have a unique relationship with the federal government that is defined and protected by constitutional law -- the legal basis for federal programs for Indians."

This rationale was upheld in a case that originated from Domenici's home state. A $170 million defense contract awarded to two Alaska Native corporations came under fire but the courts said the Stevens program was legal. The U.S. Supreme Court later rejected an appeal of the case

The decision hasn't stopped criticism of the program. Last year, two Alaska Native corporations won sole-source defense contracts worth up to $500 million after they partnered with large non-Native companies that would have had to otherwise compete for the work or may have not been eligible for the work on their own.

Despite the focus on sole-source contracts, Native firms have been able to secure work through competitive bidding. In 2002, a Chugach subsidiary won a $2.5 billion contract -- to be shared with two partners -- for public works, engineering, aviation and marine-support services at a missile testing facility in the South Pacific.

The language in the Senate version of the appropriations bill reads as follows:

SEC. 6023. Section 15(g) of the Small Business Act (15 U.S.C. Sec. 644), is amended by adding the following new paragraph:

`(3) For purposes of this section, the term `prime contract' shall, with respect to the Department of Energy, mean prime contracts awarded by the Department of Energy, and subcontracts awarded by Department of Energy management and operating contractors, management and integration contractors, major facilities management contractors, and contractors that have entered into similar contracts for management of a departmental facility. Contracting goals established for the Department of Energy under this section shall be set at a level not greater than the applicable Government-wide goal.'.

Section 15g is important because it defines the goals of government contracting to "small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women." By counting contractors and subcontractors as required by the Domenici rider, the goals for minority contracting would be met quicker.

Get the Bill:

House Government Reform Committee Letters:
To General Accountability Office | To Defense, Homeland Security and State Departments

Relevant Links:
Native American Contractors Association -

Related Stories:
Opinion: Congressional probe will hurt Indian business (03/21)
Alaska Native corporation contracts under scrutiny (03/07)
Non-Native companies benefit from Native contracting (08/13)
Alaska Native subsidiary wins defense contract (06/29)
Alaska Native subsidiary awarded NASA contract (06/25)
Native firm leases Stevens building for $6M (12/18)
Supreme Court rejects appeal of Native preference case (12/16)
Court rejects union claim against Native contract (06/09)
Native corp close to $2.5B contract (09/09)
Alaska Native deal criticized (6/14)
Native Corp. survives bankruptcy (5/30)

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