[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




NORTHERN LIGHTS AND PROCUREMENT PLIGHTS: THE EFFECT OF THE ANC PROGRAM 
          ON FEDERAL PROCUREMENT AND ALASKA NATIVE CORPORATION

=======================================================================

                             JOINT HEARING

                               before the

                     COMMITTEE ON GOVERNMENT REFORM

                                and the

                      COMMITTEE ON SMALL BUSINESS

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 21, 2006

                               __________

                           Serial No. 109-185

                     Committee on Government Reform

                           Serial No. 109-56

                      Committee on Small Business

                               __________

 Printed for the use of the Committees on Government Reform and Small 
                                Business


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform

 
NORTHERN LIGHTS AND PROCUREMENT PLIGHTS: THE EFFECT OF THE ANC PROGRAM 
          ON FEDERAL PROCUREMENT AND ALASKA NATIVE CORPORATION

=======================================================================

                             JOINT HEARING

                               before the

                     COMMITTEE ON GOVERNMENT REFORM

                                and the

                      COMMITTEE ON SMALL BUSINESS

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 21, 2006

                               __________

                           Serial No. 109-185

                     Committee on Government Reform

                           Serial No. 109-56

                      Committee on Small Business

                               __________

 Printed for the use of the Committees on Government Reform and Small 
                                Business


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                      David Marin, Staff Director
                Lawrence Halloran, Deputy Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel
?

                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
    Chairman                         JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          RAUL GRIJALVA, Arizona
RIC KELLER, Florida                  MICHAEL MICHAUD, Maine
TED POE, Texas                       LINDA SANCHEZ, California
MICHAEL SODREL, Indiana              JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska           MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania    GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
                  J. Matthew Szymanski, Chief of Staff
          Phil Eskeland, Deputy Chief of Staff/Policy Director
                  Michael Day, Minority Staff Director

                                 (iii)


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 21, 2006....................................     1
Statement of:
    Alford, Harry, president and CEO, National Black Chamber of 
      Commerce; Ann Sullivan, president, Madison Services Group, 
      Inc. on behalf of Women Impacting Public Policy; Chris E. 
      McNeil, Jr., chairman, Native American Contractors 
      Association and president and CEO, Sealaska Corp.; Helvi 
      Sandvik, president, Nana Development Corp.; Bart Garber, 
      Tyonek Native Corp.; Julie Kitka, president, Alaska 
      Federation of Natives; and Charles Totemoff, president and 
      CEO, Chenega Corp..........................................   172
        Alford, Harry............................................   172
        Garber, Bart.............................................   237
        Kitka, Julie.............................................   257
        McNeil, Chris E., Jr.,...................................   185
        Sandvik, Helvi...........................................   221
        Sullivan, Ann............................................   178
        Totemoff, Charles........................................   255
    Jenkins, Calvin, Deputy Associate Deputy Administrator, 
      Office of Government Contracting and Business Development, 
      Small Business Administration; David Cooper, Director, 
      Acquisition and Management, Government Accountability 
      Office; Frank Ramos, Director, Small Business Programs, 
      Office of the Under Secretary of Defense, Acquisition, 
      Technology, and Logistics, Department of Defense; and 
      Melodee Stith, Associate Director, Acquisition and 
      Financial Assistance, Office of Acquisition and Property 
      Management, Department of Interior.........................   126
        Cooper, David............................................   134
        Jenkins, Calvin..........................................   126
        Ramos, Frank.............................................   146
        Stith, Melodee...........................................   153
    Young, Hon. Don, a Representative in Congress from the State 
      of Alaska, chairman, Committee on Transportation and 
      Infrastructure.............................................   121
Letters, statements, etc., submitted for the record by:
    Alford, Harry, president and CEO, National Black Chamber of 
      Commerce, prepared statement of............................   175
    Cooper, David, Director, Acquisition and Management, 
      Government Accountability Office, prepared statement of....   136
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............   288
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     4
    Garber, Bart, Tyonek Native Corp., prepared statement of.....   239
    Jenkins, Calvin, Deputy Associate Deputy Administrator, 
      Office of Government Contracting and Business Development, 
      Small Business Administration, prepared statement of.......   129
    Kitka, Julie, president, Alaska Federation of Natives, 
      prepared statement of......................................   259
    McNeil, Chris E., Jr., chairman, Native American Contractors 
      Association and president and CEO, Sealaska Corp., prepared 
      statement of...............................................   187
    Ramos, Frank, Director, Small Business Programs, Office of 
      the Under Secretary of Defense, Acquisition, Technology, 
      and Logistics, Department of Defense, prepared statement of   148
    Sandvik, Helvi, president, Nana Development Corp., prepared 
      statement of...............................................   224
    Stith, Melodee, Associate Director, Acquisition and Financial 
      Assistance, Office of Acquisition and Property Management, 
      Department of Interior, prepared statement of..............   155
    Sullivan, Ann, president, Madison Services Group, Inc. on 
      behalf of Women Impacting Public Policy, prepared statement 
      of.........................................................   180
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    10


NORTHERN LIGHTS AND PROCUREMENT PLIGHTS: THE EFFECT OF THE ANC PROGRAM 
          ON FEDERAL PROCUREMENT AND ALASKA NATIVE CORPORATION

                              ----------                              


                        WEDNESDAY, JUNE 21, 2006

        House of Representatives, Committee on Government 
            Reform, joint with the Committee on Small 
            Business,
                                                    Washington, DC.
    The committees met, pursuant to notice, at 1 p.m., in room 
2154, Rayburn House Office Building, Hon. Tom Davis of Virginia 
(chairman of the Committee on Government Reform) presiding.
    Present from the Committee on Government Reform: 
Representatives Tom Davis, Platts, Schmidt, Waxman, Cummings, 
Watson, Van Hollen, Ruppersberger, and Norton.
    Present from the Committee on Small Business: 
Representatives Manzullo, Bartlett, Velazquez, Lipinski, 
Bordallo, Barrow, and Moore.
    Staff present from the Committee on Government Reform: 
David Marin, staff director; Keith Ausbrook, chief counsel; 
Patrick Lyden, parliamentarian; Rob White, communications 
director; Andrea LeBlanc, deputy director of communications; 
Edward Kidd, professional staff member; John Brosnan, 
procurement counsel; Teresa Austin, chief clerk; Sarah D'Orsie, 
deputy clerk; and Leneal Scott, computer systems manager.
    Chairman Tom Davis. The meeting will come to order. I want 
to welcome everybody to today's joint hearing with the Small 
Business Committee on the awarding of contracts by Federal 
agencies to Alaska Native Corporations [ANCs], participating in 
the Small Business Administration's 8(a) program.
    I want to extend a special welcome to Chairman Manzullo and 
Ranking Member Velazquez and all members of the Small Business 
Committee participating in the hearing today. Further, we are 
honored by the participation of our distinguished member from 
Alaska and chairman of the Committee on Transportation and 
Infrastructure, the Honorable Don Young, who will be our lead-
off witness.
    Over the last few years, the increased participation of 
ANCs in the Government market through the use of non-
competitive contracts has spawned various newspaper articles 
and concerns that the Government's competitive acquisition 
system is being circumvented. Therefore, our committee and the 
Small Business Committee tasked the Government Accountability 
Office to review the role of ANCs in our competitive 
acquisition system and within the SBA's 8(a) program. The GAO 
report issued this April showed that sole-source awards to ANCs 
have been on the rise in recent years and that SBA has not 
tailored its policies and practices to account for ANC's unique 
status and growth in the 8(a) program.
    Through this hearing today, I want to explore the impact of 
the special exemption to the standard of full and open 
competition granted ANCs. I also expect to hear about SBA's 
management of the program and whether the Alaska Native people 
are receiving the appropriate benefits from the acquisition 
advantages they have been given. I recognize that the ANC 
program has a complex background and that the ANCs were created 
in a context independent of any participation in the 
acquisition system.
    The Alaska Native Claims Settlement Act was enacted in 1971 
to resolve land claims and to foster economic development for 
the Alaska Native people. ANCs were established under the act 
to become the vehicle for distributing land and monetary 
benefits in lieu of a reservation system. ANCs are to be used 
for the benefit of Alaska Native peoples. Alaska Natives are 
eligible for membership in the ANC for their village and 
locality and, as shareholders, are entitled to a voice in 
management and a share in the assets and income. A part of this 
income in many but not all of the ANCs comes from Government 
contract revenues.
    ANCs have been permitted since 1986 to participate in the 
SBA 8(a) program. The 8(a) program was established to help 
socially and economically disadvantaged groups start small 
businesses and develop them, at least in part by contracting 
with the Federal Government. Under the program, Federal 
agencies are allowed to award contracts without competition to 
small businesses that are certified by the SBA as 8(a) firms.
    For most firms, these sole-source awards are limited to $5 
million for manufacturing and $3 million for other goods and 
services. Acquisitions above these thresholds must be competed 
among eligible 8(a) certified small businesses, but these 
limitations don't apply to ANC firms participating in the 8(a) 
program.
    ANCs are subject to different requirements than other 8(a) 
firms in a number of respects. For example, ANCs are not 
subject to the affiliation rule which requires other 8(a) small 
business to count affiliates or subsidiaries of the business to 
determine whether the business concern is small.
    The GAO review of the ANC program found that expenditures 
obligated to ANC firms through the 8(a) program have grown from 
$265 million in 2000 to $1.1 billion in 2004. My concern is 
centered on GAO's finding that the spending of six Federal 
agencies--DOD, Energy, Homeland Security, Interior, State, 
Transportation, and NASA--through sole-source contracts to ANC 
firms rose from about $180 million in 2000 to $876 million in 
2004.
    These sole-source contracts represented a broad range of 
services such as contracts for construction in Brazil, training 
of security guards in Iraq, and information technology services 
in Washington, DC.
    According to the GAO report, agency officials said they had 
used ANC firms as a quick, easy, and legal method of awarding 
contracts of any value. At the same time, the officials noted 
these contracts helped them meet small business goals. It is 
notable, I think, that nowhere in the GAO report is there a 
statement that the contracts were awarded to ANCs because of 
the quality or value of performance offered. Further, according 
to GAO, SBA has not tailored its policies and practices to 
account for ANCs' unique status in the 8(a) program or their 
growth in Federal contracting.
    I have concerns about the impact of this program on our 
already overburdened competitive acquisition system. Ideally, 
the system is designed to permit all segments of the global 
competitive market to contend to provide our Government with 
the best value goods and services available, but we have 
increasingly burdened our system with restrictions on 
competition. We prohibit acquisitions from overseas suppliers, 
and we limit competition to a bewildering array of special 
types of businesses. While these various restrictions often 
have laudable social goals, they all come at a price. Whenever 
competition is limited for reasons that are not tied to the 
needs of the Government, taxpayers pay the price in quality and 
cost.
    I hope this hearing today will clarify the impact of the 
ANC program on our competitive acquisition process and the 
value of the ANC program to the Alaska Native people. I look 
forward to the witnesses' views on ways to improve the 
management, oversight, and structure of the ANC program, so 
that appropriate benefits go to the Alaska Native people and 
taxpayers get the benefit of the best value goods and services 
available from the marketplace.
    I will now recognize Mr. Manzullo, the chairman of the 
Small Business Committee, and then I will go to Mr. Waxman and 
Ms. Velazquez.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Manzullo. Thank you. Good morning and welcome to 
this joint hearing by the Committee on Government Reform and 
the Committee on Small Business. Special thanks to those 
witnesses who have come a great distance to participate and 
attend this hearing.
    I welcome this hearing since there have been various 
newspaper articles concerning the increased use of Alaska 
Native Corporations. This increased use is the subject of a 
U.S. Government Accountability Office study released in April 
of this year. GAO found that the amount of 8(a) contracts going 
to ANCs increased from $265 million in fiscal year 2001 to $1.1 
billion in 2004, which represents 13 percent of all the 8(a) 
contract dollars in that year.
    Federal agencies have awarded large sole-source contracts 
to Alaska Native Corporations since they enjoyed statutory 
advantages not enjoyed by other 8(a) contractors. Federal 
agencies may award contracts on a sole-source basis to Alaska 
Native Corporations without reference to the dollar value of 
the contract. Other 8(a) contractors must compete among 
themselves if the procurement is in excess of $5 million for 
manufacturing or $3 million for services and goods.
    In addition, Alaska Native Corporations are not subject to 
the affiliation rule which requires for other certified 8(a) 
small businesses that affiliates or subsidiaries of the small 
business be counted in determining the size of a business 
concern. The result is that the Alaska Native Corporations, 
including their subsidiaries, can grow to large businesses in 
comparison with other 8(a) small businesses that are 
constrained by size standards. In fact, the GAO report states 
that for fiscal year 1988 to 2005, Alaska Native Corporations 
8(a) subsidiaries increased from one subsidiary owned by one 
ANC to 154 subsidiaries owned by 49 ANCs.
    Alaska Native Corporations have used their procurement 
advantages to help stockholders of the corporations in Alaska 
with various benefits being enjoyed by Alaska Natives including 
dividends, jobs, education, scholarships, etc.
    Again, I welcome this hearing as another means of getting 
the facts concerning Alaska Native Corporations enrolled in the 
8(a) contracting program. I want to thank my good friend and 
colleague, Chairman Davis for joining with the Committee on 
Small Business and holding this hearing.
    Chairman Tom Davis. Thank you very much.
    Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman, for holding 
this hearing on Federal contracts with Alaska Native 
Corporations.
    On Monday, I released a major report entitled ``Dollars, 
Not Sense: Government contracting under the Bush 
Administration.'' This report, which is based on a review of 
over 500 Government audits, is the first comprehensive 
assessment of Federal contracting under the Bush 
Administration. I would like to ask that this report be made 
part of today's hearing record.
    Chairman Tom Davis. Without objection.
    Mr. Waxman. As the report documents, procurement spending 
has grown rapidly over the last 5 years, nearly twice as fast 
as the rest of the Federal budget, and the result is that 40 
cents of every discretionary Federal dollar now goes to private 
contractors, which is a record level. Unfortunately, while 
contract spending has soared, oversight has been discouraged 
and accountability undermined. The result is that mistakes have 
been made in virtually every step of the contracting process, 
from pre-contract planning through contract award and oversight 
to recovery of contract overcharges. Contractors get rich, and 
taxpayers get gouged.
    The report identifies 118 contracts worth $745 billion that 
have experienced significant overcharges, wasteful spending or 
mismanagement over the last 5 years. Well, that is the big 
picture.
    True, we are going to focus today on one small but 
important part of the problem, and I think it is an important 
one as we put it in the context of this bigger picture. Today, 
we are going to look at Federal contracts with Alaska Native 
Corporations.
    This is our first hearing on these contracts, but Chairman 
Davis and I began our oversight of this issue over a year ago. 
To lay a foundation of this hearing, we jointly asked the 
Government Accountability Office to investigate, and we 
requested contract documents from the Departments of the 
Defense, Homeland Security, and State.
    Our investigation is focused on the special contracting 
privileges that Alaska Native Corporations [ANCs], have under 
Federal law. Federal contracting law provides a valuable but 
limited privilege for small minority and economically 
disadvantaged businesses. Under Section 8(a) of the Small 
Business Act, these companies can be awarded contracts worth up 
to $5 million without competition, but a 1986 law eliminated 
the $5 million ceiling for all Alaska Native Corporations. The 
result is that Alaska Native Corporations can be awarded 
Federal contracts of any size without competition.
    What both the GAO investigation and the contracting report 
I released found is that this contracting ``flexibility'' has 
been grossly abused by the Bush administration. In 2000, the 
last year of the Clinton administration, Alaska Native 
Corporations received only $265 million in Federal contracts. 
Four years later, spending on these contracts has ballooned to 
over $1 billion per year.
    The original purpose of the special ANC contracting 
privileges was to encourage economic opportunities for Alaskan 
natives living in Alaska, but the administration has used ANC 
contracts to manage commercial property in Virginia, renovate 
buildings in Brazil, and train security guards in Iraq, and 
much of the work has been done by non-Native companies working 
as subcontractors. In effect, the contracts become a convenient 
vehicle for circumventing open competition requirements at a 
great expense to the taxpayers.
    Today, I am releasing an analysis of some of the documents 
that the committee has received. The documents show how 
congressional pressure has been placed on agency officials to 
provide special treatment to Alaska Native Corporations in 
contracting actions. They also show that the Alaska Native 
Corporation received large fee awards, despite repeatedly 
receiving poor security performance evaluations. I would like 
to ask that this analysis and the documents it cites be made 
part of the hearing record.
    Chairman Tom Davis. Without objection.
    Mr. Waxman. When GAO examined how Federal agencies are 
using the ANC contracting provisions, it found the 
administration officials view the provisions as ``an open 
checkbook.'' GAO also found almost no evidence that contracting 
officials are effectively enforcing the legal requirements that 
at least 50 percent of the work under these contracts be 
performed by Alaska Native Corporations rather than large non-
Native subcontractors.
    In one case identified by GAO, an agency wanted to contract 
with a particular company but could not award a no-bid contract 
directly to that company. The agency solved the problem. They 
awarded a passthrough contract to an ANC and required it to 
subcontract with the favored company.
    The abuse of the ANC provision has been costly to the 
taxpayers, in one case described by GAO, the State Department 
awarded a no-bid contract to an ANC even though its initial 
proposed price was double the Government's cost estimate. In 
another case, rather than buying water and fuel tanks directly 
from a manufacturer, the Army awarded a no-bid contract to an 
ANC which had the effect of adding an unnecessary layer of fees 
to the contract. When an ANC was used to provide emergency 
classrooms after Hurricane Katrina, prices again doubled.
    The special contracting privileges for Alaska Native 
Corporations were established with the best of intentions, but 
along the way and especially over the last 5 years, these good 
intentions have been replaced by avarice and indifference to 
the interests of the U.S. taxpayer. Fundamental changes in the 
law are needed, and I hope this hearing will be the first step 
on the road to reform.
    Thank you.
    [Note.--The April 2006 GAO report entitled, ``Contract 
Management, Increased Use of Alaska Native Corporations' 
Special 8(a) Provisions Calls for Tailored Oversight, GAO-06-
399'' may be found in committee files.]
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    The Federal Government has grown to become the biggest 
buyer of goods and services in the world. In the last year 
alone, Federal purchasing power increased by 3 percent to $295 
billion.
    In order to achieve a vibrant and open Federal marketplace, 
it is essential for small firms to be included in the 
procurement equation. Small businesses have always played a key 
role in ensuring our Government is able to effectively operate 
and continue in this role. These businesses are capable of 
providing quality services at the best value for the American 
taxpayer's dollars.
    There are many Federal Government programs designed to 
encourage agencies to utilize small business owners in their 
Federal buying strategies. These are valuable programs that 
serve an important purpose and have provided the Government 
with the highest quality products for the taxpayer's dollar. 
However, it is all too often that many of these programs are 
unfairly singled out, not because they are ineffective but due 
to the current administration's failure to properly modernize, 
fund, and administer these initiatives.
    The 8(a) program, our Nation's only remaining Federal 
initiative focused solely on the development of minority 
entrepreneurs, is one such initiative. It has been responsible 
for the development of more than 20,000 companies that have 
received almost $100 billion in Federal contracts. Yet, for all 
the good the 8(a) program has done, the Small Business 
Administration has allowed it to deteriorate significantly. 
Without sufficient funding, manpower, and oversight, the 8(a) 
program has faltered in its ability to serve low income 
communities and aid in the development of minority 
entrepreneurs.
    Today, we have the opportunity to discuss the findings of a 
recent Government Accountability Office report which takes an 
in-depth look at the current state of affairs with the 8(a) 
program, in particular, the dramatic increase in 8(a) contracts 
awarded to Alaska Native Corporations and the impact this might 
have on the future of the program.
    In fiscal year 2004, ANCs were awarded $1.1 billion or 13 
percent of the total 8(a) dollars. This should be contrasted 
with the fact that between fiscal year 2003 and fiscal year 
2004, the 8(a) program as a whole, minus ANCs, declined by $2 
billion. The reality is that the ANC participation is 
increasing while 8(a) contracts are declining. The reason for 
this decline is in large part due to SBA sheer lack of 
attention to the program.
    The GAO has outlined 10 recommendations for the SBA to 
increase its oversight. Without this, the GAO has pointed out 
that there is clearly the potential for unintended consequences 
or abuse. This situation not only takes away valuable 
contracting opportunities for small business owners but also 
diminishes the ability of the 8(a) program to fulfill its role 
of aiding economic and community development.
    The important issue we are facing today with this hearing 
is to attempt to strike a balance between the need to provide 
economic development to Alaska Natives while ensuring small and 
minority business owners do not see further contract dollar 
declines. As we continue to look for ways to foster economic 
development in minority and under-served communities, it is 
essential that we do not lose sight of the capabilities of the 
8(a) program. This initiative has always been and should 
continue to be a key element in building strong communities and 
local economics.
    I am hopeful that the two of our committees can find common 
ground to refocus the 8(a) program and reengage the SBA in 
seeing that this initiative is truly able to accomplish its 
intended mission.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    We have our lead witness, the Honorable Don Young, our 
Representative for Alaska and great friend. Don, thank you for 
being with us.

STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM 
THE STATE OF ALASKA, CHAIRMAN, COMMITTEE ON TRANSPORTATION AND 
                         INFRASTRUCTURE

    Mr. Young. Thank you, Mr. Chairman and ranking members and 
committee members for having this hearing.
    You will have a panel before you from Alaska that is a 
broad representation of the ANC program. Mr. Chairman, with 
your permission, I would ask at this time to allow those 
individuals who will testify to be able to rely upon the people 
who accompany them to answer some technical questions if there 
are any technical questions.
    Chairman Tom Davis. Without objection.
    Mr. Young. The ANC contracting, Mr. Chairman, to get a fair 
hearing and a fair review, this committee and Congress must 
look at the broad picture of Federal Government contracting as 
a whole, so that the ANCs' contracting can be put in the proper 
context.
    Mr. Chairman, I am hear to say these folks are doing right 
by the Federal Government; they are doing right by the American 
taxpayer; and, most importantly, they are doing right by the 
impoverished communities back home in Alaska.
    A razor focus on just Alaska Native Corporations [ANCs], 
contracting would be a disservice to the Federal agencies who 
have given the ANCs very high performance ratings generally and 
to ANCs who have done a good job executing the contracts they 
have been awarded.
    The issues of the hearing we will be looking at are not 
just small business policies or general Government procurement 
policies but rather are the important part of the National 
Indian policy emanating from Congress' constitutional mandate 
to set Indian policy.
    I am here to tell you that the efforts to find fault and 
criticize Alaska Native Corporations participating in Small 
Business Administration SBA Section 8(a) programs, frankly, I 
think is a thinly disguised attack on Native Alaskan people and 
the corporations precisely because a few of them enjoy great 
success.
    As the senior member of the House Committee on Resources, I 
intend to work with Chairman Pombo and Ranking Member Rahall on 
the National Indian policy ramifications of the GAO report and 
any proposed regulatory or statutory changes that may be 
developed.
    Mr. Chairman, I request your committee put on the record 
the following: The total amount of Federal contracting and the 
percent of that total that has been awarded to ANCs, it is my 
understanding that according to the Government's own data base, 
total Federal contracting was $300 billion in 2004; the total 
ANC contracting for all sources, both 8(a) and non-8(a), was 
$2.2 billion in 2004, about 7 cents of 1 percent, 7 cents for 
every $100 the Fed spent on contracting. If you look at the 
percentage of total Federal contracting that went into ANC 8(a) 
contracts alone, the percent follows to a little over one-half 
of 1 percent. In other words, every $100 the Government spends 
on procurement, all the ANCs combined are getting a little over 
50 cents through the 8(a) program.
    In addition, your two committees should also examine the 
percent of Federal contracting that goes to the 8(a) program. 
Regarding the percent of the 8(a) program that goes to ANCs 
over the period of years, the GAO report said 17 percent of the 
8(a) contracts went to ANCs in 2004. Regarding the total amount 
of sole-source contracts for all Federal contracts, the percent 
of total sole-source contracts that have been awarded to non-
ANC and non-8(a) companies compared to the percent of sole-
source contracts that go to ANCs, looking only at ANCs 
regarding sole-source contracts is ignoring the larger issues.
    When the Federal Government's own studies from the 10 
largest defense contractors--and I believe Mr. Waxman has 
mentioned this--none of them were ANCs by the way. From 1999 to 
2003, 6 years, only one of them had more than 50 percent of its 
contracts from competitive procurements. All the rest of what I 
call the big boys had more than 50 percent of their contracts 
through sole-source and non-competitive awards. I submit that 
the dollar amounts going to these large contracts are huge 
compared to what we have in the ANCs.
    Finally, I want to point out ANC contracts have been and is 
a good thing for the Government. It is a good thing for the 
Alaskan Natives. The SBA 8(a) program, as it relates to 
businesses owned by Alaskan Natives and Native American tribes, 
has been one of the few Federal Native programs that is 
actually working. The ANCs should be proud that the GAO report 
made no recommendation for statutory changes and reported no 
wrongdoing on their part. In fact, the one wrongdoing that was 
reported was actually a competitive contract awarded to 
somebody outside of the ANCs.
    This SBA program has benefited not only ANCs and the Alaska 
Native, but it has created job opportunities and developments 
of small businesses in 49 of the 50 States in virtually every 
one of the Congressional Districts represented by members of 
the two committees.
    Now, you know I have a long involvement in Native American 
issues, such issues as the Alaskan Native Land Claims 
Settlement Act and the subsequent amendments. There is 
absolutely no question that the program you are looking at 
today is an integral part of the economic settlement of ANCSA. 
Alaska Natives ceded millions of acres of land claims in 
exchange for the ability to provide for economic self-
sufficiency for their people. This is part of the National 
Indian Policy, something that has been reaffirmed by the U.S. 
District Court of Appeals as recently as June 2003. The Supreme 
Court declined to review that decision, letting stand the 
provision indeed called Indian Policy.
    This was the promise of ANCSA, Alaskan Native Land Claim 
Settlement Act. It is clear to me, from all my experience, that 
the Federal Government record in dealing with Native Americans 
is a dismal one, one marked by the fact that too many times the 
Government sets out a policy only to go back on its word. The 
Government should not break its promises, and by the way, the 
Government being this Congress.
    It seems to be the case that particularly Native Americans 
are actually succeeding and benefiting from the policy set 
forth. It is my strong belief that the Federal Government 
cannot go back on its word again. If we need to make proper 
adjustments to the program, if we have to have more oversight, 
let us do that, but let us allow the program to continue to 
help fulfill the responsibility that we have as a Nation to all 
the Native Americans.
    Mr. Chairman, I suggest respectfully that the people you 
will hear from on the panel from Alaska will give you the more 
integral results of what this program has been able to do for 
their stockholders and the people in Alaska.
    With that, Mr. Chairman, I will answer any questions.
    Chairman Tom Davis. Don, thank you very much and thank you 
for putting that in a historical context.
    I will just say my only concern, as you look at the 8(a) 
program and what it was designed to do, is this squeezes out, 
because it is not being done in a competitive way, other 
opportunities for other 8(a)'s. I think that is one of the 
concerns that has been expressed on that.
    Mr. Young. That is a legitimate concern. The thing I want 
to again bring out and my testimony said it also, is this is an 
attempt to try to rectify, I think, a lot of injustices over 
the history of America and the Congress to the American 
Natives. It is not just Alaska Natives. We have an exception; 
that is correct. Contrary to what you read in the paper, we 
have impoverished areas in Alaska that have really very little 
opportunity which have used this program now where they are 
building schools and they are doing things that, very frankly, 
are the Government's responsibility.
    Chairman Tom Davis. I appreciate that.
    Mr. Young. I just want you to know that.
    Chairman Tom Davis. Thank you.
    Anyone else? Mr. Waxman.
    Mr. Waxman. Thank you very much, Chairman Young for your 
testimony.
    From my perspective, I think I made this clear in my 
opening comments, if we are talking about a contract where it 
is more than $100 million, it ought to be competed for. It 
ought not to be given any special weight with the ability to 
waive the rules that require competition, without limits that 
we put on for small businesses. From the taxpayer point of 
view, when there is not competition or where there aren't the 
market forces, we end up paying more money.
    I would agree with you that maybe you turn the other way if 
it is going to benefit people who have been disadvantaged in 
the past. I am not sure that I agree with that. But we are 
talking about subcontractors who do the work, who are not even 
Native Alaskans and they are not even doing it in Alaska. They 
are doing work in Virginia and Iraq and other places.
    Mr. Young. I understand that, Mr. Waxman. I understand, Mr. 
Congressman, but the point that I think you have to keep in 
mind is in the GAO report--and you have read it--there is no 
one who says the taxpayer is not getting a good deal out of 
this. If you want to have a $100 million contract that is not 
going to go to an Alaskan Native Corporation, it is going to go 
to you know who, the 10 big ones because they can outbid it.
    Now, you don't need your staff to tell you the answer to 
that question right now. That always irritates me when that 
happens, sir. I mean I am the chairman, and I will not, very 
frankly, allow that to happen. If I can't do that on my own, 
you can ask me a question and I can answer it, but let you and 
I talk together, please. I think that is important.
    But you understand what I am saying. This is an attempt. 
You say it is not bid on. If there is a report from the GAO 
that says the taxpayer didn't get the best bang for their buck, 
then let us see that.
    Mr. Waxman. I think you and I read the report in a 
different way because it seems to me the GAO has reported a 
number of instances of excessive costs, and that is what 
bothers me.
    Mr. Young. Some of those instances were requirements of the 
agency which let the contract. Let us say for a defense 
contract for security, they let that contract and they required 
further training of the people in the guard positions, which 
costs more.
    I am just saying, when you study this, make sure that the 
agency that requested the contract, make sure that they are not 
the ones that caused the higher cost. They created the higher 
cost, and I think you will hear that testimony.
    Mr. Waxman. Well, I want to see competition, and I want to 
see costs held down.
    Mr. Young. I understand.
    Mr. Waxman. That is the objective, and I think it is an 
important one.
    Mr. Young. Yes.
    Chairman Tom Davis. Chairman Manzullo.
    Chairman Manzullo. I guess my concern is it is not just 
8(a) versus 8(a); it is Alaska and the ANC 8(a) versus other 
small businesses. I mean 1 of the 154 ANCs is Chenega 
Technology Services.
    Mr. Young. Chenega.
    Chairman Manzullo. Chenega, of the 2,300 employees who work 
there, only 33 are Alaskan Natives.
    Mr. Young. That is true, and those are 33 more Alaskans who 
wouldn't be working. Remember, Chenega is a very small, small 
community. The one thing is it does bring money back into the 
community. Like I said, I think you will hear testimony later 
on about the benefit of this.
    One of the things that has always concerned me about this 
is every time there is an act of Congress and it seems as if we 
are successful in doing what we attempted to do and it becomes 
a greater success, there seems to be a notion of, well, we 
didn't mean it to be that successful.
    Now, under this act, and they were given this specifically 
and purposely, they could go above $5 million, so they could in 
fact be non-competitive if they want to, but they are offering 
a service. If the agencies come back and say, we are not 
getting the services, then let us look at it. All due respect 
to every gentleman who has read that report, there is no one 
who says they haven't done the services.
    You can't expect a village of 300----
    Chairman Manzullo. Let me ask the question.
    Mr. Young. OK.
    Chairman Manzullo. The issue is not the quality of the 
service because if the issue was the quality of the service, 
then that company would not be getting another contract unless 
the contracting agent came before this committee or my 
committee and tried to justify that. The issue is the fairness 
to the other small businesses. I have an area that I represent, 
chairman, that in 1980 led the Nation in unemployment at over 
25 percent. There are serious issues of unemployment throughout 
the Continental 48 States in addition to what is going on in 
Alaska.
    As we have been approached to take a look at the ANCs, it 
is the question of whether or not there is overemphasis upon 
helping out Alaska as opposed to the rest of the States. In 
fact, Madeleine Bordallo who represents Guam, natives of her 
island in Guam tried to get a contract to repair ships, and 
they were bumped by an ANC. This is Guam.
    And so, these issues are coming up all over, literally all 
over the world as to not the quality of the services nor the 
fact that the services help out the people that you so ably 
represent but as to the fairness to the other small businesses 
and to the other 8(a)'s across the Nation. That is the reason 
for the hearing.
    Mr. Young. I understand that. I will just leave you guys 
alone. I am just suggesting respectfully that if the other 
small businesses could do this, it might be all right, but 
these contracts are let to get the best result. I thought we 
were here to save the taxpayers some money, and they are doing 
the job.
    No one can show me, and your staff has read that report. 
They have not been charged with not fulfilling the obligation 
with which they were charged by the agency which contracted 
with them. You will hear from the agencies, I hope. If there is 
one person per agency who says they haven't done the job, I 
would like to hear because I have asked each one of them. Have 
they or have they not done the job? They have always said they 
have done a great job. They have a good rapport. I thought that 
was also part of the hearing.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you for the historical context of 
this. I think sometimes as we get caught up in this, we need to 
understand historically how this came to be and what it was 
trying to do. We appreciate it, and anything else you would 
like in the record, we would be happy to submit.
    Mr. Young. Thank you.
    Chairman Tom Davis. Thank you.
    The Health Centers Renewal Act is a 15 minute vote, 
followed by a 5 minute vote on the Children's Hospital GME 
Support Reauthorization Act.
    So we have an hour. Let us get our first panel up here. 
Thank you very much.
    So, we have votes at 2:30, and I think we can get through 
this. Let us start with the first panel: Mr. David Cooper, 
Director of Acquisition and Sourcing Management at the GAO; Mr. 
Calvin Jenkins, the Deputy Associate Deputy Administration of 
the Office of Government Contracting and Business Development, 
Small Business Administration; Mr. Frank Ramos who is the 
Director of the SBA Office of the Under Secretary of Defense 
for Acquisition, Technology, and Logistics, Department of 
Defense; and Ms. Melodee Stith, the Associate Director of 
Acquisition and Financial Assistance in the Office of 
Acquisition and Property Management, U.S. Department of the 
Interior.
    It is our policy that we swear you in before you testify, 
if you would just rise and raise your hands and if there is 
anyone with you who may be advising you on anything.
    [Witnesses sworn.]
    Chairman Tom Davis. Mr. Jenkins, we will start with you. 
Your entire written statement is in the record. You will have a 
light in front of you that turns green when you start, orange 
after 4 minutes, red after 5 minutes. If we can keep to that, I 
think we can get through this panel before the first votes and 
maybe swear in the second panel. If you need longer, we don't 
mind, if you think it is important. Thank you for your work on 
this.

     STATEMENTS OF CALVIN JENKINS, DEPUTY ASSOCIATE DEPUTY 
 ADMINISTRATOR, OFFICE OF GOVERNMENT CONTRACTING AND BUSINESS 
   DEVELOPMENT, SMALL BUSINESS ADMINISTRATION; DAVID COOPER, 
DIRECTOR, ACQUISITION AND MANAGEMENT, GOVERNMENT ACCOUNTABILITY 
OFFICE; FRANK RAMOS, DIRECTOR, SMALL BUSINESS PROGRAMS, OFFICE 
OF THE UNDER SECRETARY OF DEFENSE, ACQUISITION, TECHNOLOGY, AND 
LOGISTICS, DEPARTMENT OF DEFENSE; AND MELODEE STITH, ASSOCIATE 
   DIRECTOR, ACQUISITION AND FINANCIAL ASSISTANCE, OFFICE OF 
  ACQUISITION AND PROPERTY MANAGEMENT, DEPARTMENT OF INTERIOR

                  STATEMENT OF CALVIN JENKINS

    Mr. Jenkins. Chairman Manzullo, Chairman Davis, and Ranking 
Member Velazquez, Ranking Member Waxman, and members of the 
Small Business and Government Reform Committees, thank you for 
inviting me here today to discuss the participation of the 
Alaska Native Corporations [ANCs], in the 8(a) business 
development program.
    The 8(a) program was enacted during the 1960's to assist 
eligible small businesses' concerns to compete in the American 
economy through business development. The Small Business Act 
authorized SBA to develop business ownership among groups that 
own and control little productive capital.
    Individual applicants must demonstrate social and economic 
disadvantage. Although some groups are presumed to be socially 
disadvantaged, they as well as other applicants must 
demonstrate economic disadvantage. ANC-owned firms are deemed 
by statute to be socially and economically disadvantaged. All 
U.S. citizens who can demonstrate social and economic 
disadvantage as well as comply with other eligibility 
requirements are welcome to apply for participation in the 8(a) 
program.
    In addition to management and technical assistance provided 
under the program, certified 8(a) firms may be eligible to 
receive contracts that Federal agencies offer for the 8(a) 
program. Furthermore, under 8(a) program, the Government is 
able to award contracts to participating firms without 
competition below a certain dollar threshold. Also, the 
government can restrict competition for Federal contracts above 
stated dollar thresholds to 8(a) certified firms.
    In 1986, a significant change was made to the 8(a) program 
when Congress enacted legislation that allowed agencies, Native 
Hawaiian organizations, community development corporations, and 
tribally owned firms to participate in the 8(a) program to 
force the economic development to respective communities. Since 
1986, Congress has extended special procurement advantages 8(a) 
ANC firms.
    The 8(a) program design anticipates that organizational-
owned firms including ANCs will utilize the program to provide 
economic development to their respective communities. All other 
8(a) participating firms utilize the program to receive 
individual business development assistance.
    I must emphasize that, as the law is currently written, the 
8(a) program is simultaneously providing business development 
to disadvantaged individuals while also providing regional or 
community economic development to organizational-owned firms 
including ANCs.
    The GAO report addressed some of the differences I have 
mentioned. The report also states that ANCs have utilized the 
8(a) program to improve local economic conditions and provide 
increased social services to Alaskan Natives. The report notes 
that Federal contract dollars obligated to firms owned by ANCs 
grew from $265 million in fiscal year 2000 to $1.1 billion in 
fiscal year 2004. Importantly, there is no indication within 
this report of wrongdoing by any participants in this program. 
In fact, the issues addressed in the report come from 
activities that are part of the program as Congress designed 
it.
    The GAO report failed to note the significant increase in 
Federal contract dollars to other groups during the same period 
of time. In fiscal year 2004, women-owned small businesses grew 
from $5.5 billion to $9.1 billion; service-disabled veteran 
small businesses grew from $554 million to $1.2 billion; 
HUBZone firms grew from $1.6 billion to $4.8 billion; and 
overall, small businesses grew from $50.1 billion to $69.2 
billion.
    The Federal Government achieved its goal during fiscal year 
2003 and 2004 that 23 percent of its prime contracting dollars 
were awarded to businesses that certified as small businesses 
including ANCs. Though there is a small disadvantaged business 
goal which includes 8(a), there is no small goal for 8(a). 
However, in fiscal year 2004, 8(a) were awarded $8.4 billion of 
the SDB achievement of $18.5 billion.
    Information recently released by SBA indicates that the 
8(a) program has increased from Fiscal year 2004 to fiscal year 
2005 by $2.1 billion.
    Frankly, I would like to talk about oversight. The SBA 
takes its oversight responsibility very seriously. Prior to the 
release of the GAO report, the SBA had taken a number of steps 
to improve the oversight of the 8(a) program, including taking 
into consideration special provisions afforded to 8(a) concerns 
owned and controlled by ANCs, Native Hawaiian organizations, 
CDCs, and Indian tribes.
    For instance, the agency is revising its partnership 
agreement, delegating 8(a) authority from SBA to various 
Federal procuring agencies to clarify their role and 
responsibility for monitoring contract compliance of and 
performance by 8(a) firms. SBA has also increased training to 
field staff responsible for working on the 8(a) issues. In 
addition, the agency is exploring possible regulatory changes 
that will strengthen the program and increase SBA's oversight 
capabilities. SBA also recently installed a new management, a 
new experienced management team to oversee the 8(a) program.
    In closing, let me emphasize SBA's responsibilities to 
implement the existing law.
    Thank you for allowing me to share SBA's reviews with you 
today, and I will be happy to answer any questions you have.
    [The prepared statement of Mr. Jenkins follows:]

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    Chairman Tom Davis. Thank you.
    Mr. Cooper.

                   STATEMENT OF DAVID COOPER

    Mr. Cooper. Chairman Davis, Chairman Manzullo, Ranking 
Member Waxman, and Ranking Member Velazquez, and members of 
both committees, it is a pleasure to be here this afternoon to 
share with you and discuss the results of the GAO review on 
Alaska Native Corporations' participation in the 8(a) program.
    In response to your request, we issued a report in April 
that shows that Federal agencies are turning increasingly to 
ANC 8(a) firms to meet their requirements and to do their 
contracts. Although representing a small portion of the total 
Federal procurement spending obligations, obligations to ANC 
firms increased from $265 million in 2000 to $1.1 billion 2004. 
During that 5-year period, Federal agencies obligated a total 
of $4.6 billion to ANC 8(a) firms, of which $2.9 billion of 
that went through the 8(a) program. In 2004, the amount of 
obligations to 8(a) ANC firms represented about 13 percent of 
total 8(a) business.
    The ANCs are using the 8(a) program as one of many tools to 
generate revenue with the goal of benefiting or providing 
benefits to Alaskan Natives, their shareholders. Benefits take 
many forms including dividend payments, scholarships, elder 
support, and cultural preservation, and there is no doubt, 
because I visited some of the villages, that the revenues from 
the 8(a) program have benefited the communities in Alaska. 
Appendix 10 in our April report contains a detailed description 
of the kinds of benefits that have been provided.
    Since 1986, when ANC firms were permitted to participate in 
the 8(a) program, Congress has extended procurement advantages 
to those firms beyond those afforded to other 8(a) businesses. 
For example, ANC firms are permitted to receive non-competitive 
contracts without any limits, whereas other 8(a) businesses are 
subject to a competitive threshold of $3 million or $5 million 
if it is a manufacturing contract. ANCs can also own multiple 
firms participating in the 8(a) program, and as Chairman 
Manzullo pointed out, there has been a significant growth in 
the number of firms doing that.
    While these advantages have been controversial, I want to 
be clear that GAO is not challenging them. Congress passed 
those provisions to allow the ANCs to provide economic 
development and benefits to their shareholders.
    However, our work shows that Federal agency contracting 
officials need to do a better job of complying with certain 
requirements that are intended to preclude abuses of the 8(a) 
program. Specifically, I am referring to the need for procuring 
agencies to inform SBA when work under an 8(a) contract is 
expanded or modified and to monitor the performance of the 
contract to ensure subcontract limitations are not exceeded. 
Our work also shows that SBA needs to tailor its oversight to 
account for ANC's unique status and growth in the program.
    For example, we believe SBA needs to track the business 
industries in which ANC firms have 8(a) contracts to ensure 
that more than one firm of the same ANC is not generating the 
majority of its revenue in the same industry. SBA regulations 
do not allow an ANC to have more than one firm operating in the 
same primary industry.
    We also believe SBA needs to more consistently determine 
whether other small businesses are losing contract 
opportunities and to collect better information about the 8(a) 
program.
    During our review, SBA officials recognized that ANC firms 
enter into more complex business relationships than other 8(a) 
companies and told us they faced a challenge in overseeing the 
increased activity. The officials agreed that improvements are 
needed in their oversight and said they are considering various 
actions in that regard.
    We have made several recommendations in our April report to 
both the procuring agencies and to SBA to improve oversight and 
ensure that firms are operating in the 8(a) program as it was 
intended.
    That concludes my statement. I will be glad to answer any 
questions you might have.
    [The prepared statement of Mr. Cooper follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Ramos.

                    STATEMENT OF FRANK RAMOS

    Mr. Ramos. Chairman Davis, Ms. Velazquez, Chairman 
Manzullo, Mr. Waxman, and distinguished members of both 
committees, it is an honor to speak before you about the 
Department of Defense's interactions with Alaska Native 
Corporations [ANCs].
    ANCs are a part of a talented pool of entrepreneurs and 
business people and, by law, are considered part of the small 
business community. The important contributions made by small 
businesses have firmly established them as an integral part of 
the Department of Defense warfighting mission and the American 
economy. The Department of Defense is committed to providing 
our men and women in uniform with the best technology, 
products, and services that are available to us. The Department 
looks to dependable small businesses, including ANC-owned firms 
participating in the Small Business Administration's 8(a) 
business development program, as suppliers of the innovation 
needed to deliver technology into the hands of the warfighters.
    Congress has enacted legislation over the years enabling 
the Department to offer greater procurement opportunities to 
small business, and I thank you for this.
    Through the authority you have granted and the guidance you 
have provided, we have been able to successfully leverage the 
capabilities of small business in a number of technological 
areas such as composite materials, modeling and simulation, 
unmanned aerial vehicles, and robotics. This has served to 
strengthen the defense industrial base.
    I am also pleased to note that the small business program 
has a record-breaking performance for fiscal year 2005. The 
information just released today from the Department of Defense 
prime contracted awards was recorded at 24.5 which is a 
historical record. Our prime contracting dollars is $52.9 
billion, and this is information as released by the SBA and 
OMB, and I checked with OMB before I released this information.
    Now, let me focus on the areas of interest relative to 8(a) 
ANC firms participating in the SBA 8(a) program. There are 
three key pieces of legislation that set forth parameters for 
doing business with the 8(a) ANCs by the Federal Government 
including DOD. They are the Small Business Act, the Alaskan 
Native Claim Settlement Act, and the Business Opportunity 
Development Reform Act. I will not go into the details of each 
of the acts as they have been clearly addressed by GAO in your 
letter of invitation.
    However, I would like to reference the basis of that 
statute that permits all Federal agencies, including DOD, to 
transact business with Native Americans, specifically ANCs, and 
that is Section 602 of the Business Opportunity Development 
Act, which states that ``These dollar thresholds shall not 
apply to programs participants that are owned and controlled by 
economically disadvantaged Indian tribes.''
    The Business Opportunity Reform Act of 1988 limits sole-
source authority for traditional 8(a) program participants to 
$5 million for manufacturing, $3 million for other goods and 
services. The act permits concerns that are owned by either 
tribes or Alaska Native Corporations to receive 8(a) sole-
source contracts beyond those dollar thresholds.
    I would like clarify why I did not answer the questions in 
the letter of invitation. I viewed, in general, that the 
questions posed are best responded to by those Federal agencies 
that may such program assessments for the Federal Government. 
However, if you have specific questions pertaining to the 
Department of Defense, I will be glad, I will be happy to 
answer those questions.
    I view my role as a chief small business advocate for the 
Secretary of Defense is to ensure that our Department's 
acquisitions system affords every small business seeking DOD 
contracts every privilege that they are entitled to under the 
law as passed by Congress. I believe that the Department of 
Defense has diligently attempted to meet that requirement to 
the best of our ability.
    I look forward to your questions. Thank you.
    [The prepared statement of Mr. Ramos follows:]

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    Chairman Tom Davis. Thank you.
    Ms. Stith.

                   STATEMENT OF MELODEE STITH

    Ms. Stith. Messrs. Chairmen, thank you for providing me 
with the opportunity to present the views of the Department of 
the Interior on the award of contracts by Federal agencies to 
Alaska Native Corporations participating in the Small Business 
Administration 8(a) program.
    In December 1971, Congress enacted the Alaskan Native 
Claims Settlement Act to resolve land claims and to foster 
economic development for Alaskan Natives. The statute created 
Alaska Native Corporations as a means for distributing land and 
monetary benefits to Alaskan Natives in lieu of a reservation 
system. Since 1986, ANCs have been permitted to participate in 
the SBA's 8(a) program, a program developed to foster the 
growth and development of small businesses owned by socially 
and economically disadvantaged individuals.
    By law and regulation, certain limitations that apply to 
other 8(a)-certified small businesses are not applicable to 
ANCs. In one example, for most 8(a) firms, sole-source awards 
are limited to $5 million for manufacturing and to $3 million 
for other goods and services. Acquisition requirements above 
these thresholds must be competed among eligible 8(a)-certified 
small businesses. However, Section 124.506(b) of Title 13 of 
the Code of Federal Regulations provides an exemption from the 
sole-source threshold limitation that a procurement be competed 
before it is awarded on a sole-source basis for tribally owned 
concerns including ANCs.
    Have ANCs been successful in attracting Federal contract 
awards under the 8(a) program? The answer appears to be a 
strong affirmative. According to the Government Accountability 
Office's April 2006 report, ``Contract Management Increased Use 
of Alaska Native Corporations' Special 8(a) Provisions Call for 
Tailored Oversight,'' 8(a) obligations to firms owned by ANCs 
increased from $265 million to $1.1 billion in 2004.
    The Department of the Interior has a significant presence 
in Alaska and considerable interaction with the Alaska Native 
people. From the standpoint of our responsibilities to Alaskan 
Natives, we definitely have an interest in providing continuing 
economic opportunities through Federal contracts.
    The GAO identified the need for the Federal contracting 
community to better understand the nature of ANCs and to 
mitigate any risk of their misuse under the program.
    We concurred with the draft and final GAO report's 
recommendation made to the Departments of Defense, Energy, 
Homeland Security, the Interior, State, and Transportation, and 
the National Aeronautics and Space Administration to work with 
SBA to develop guidance to agency contracting officers on how 
to comply with the requirements of 8(a) programs such as 
limitations on subcontracting and notifying SBA of contract 
modifications, particularly when contracting with 8(a) ANC 
firms. In fact, we proposed that an interagency work group be 
established and headed by SBA to develop this important and 
much needed guidance for our contracting and small and 
disadvantaged business utilization and development communities. 
We look forward to partnering with our colleagues in developing 
the guidance.
    Messrs. Chairmen, this concludes my prepared remarks. I 
will be happy to answer any questions you or other members of 
the committees might have.
    [The prepared statement of Ms. Stith follows:]

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    Chairman Tom Davis. Thank you all.
    Let me start, Mr. Ramos and Ms. Stith, with you. When the 
Department enters into sole-source negotiations with an ANC, 
how does it determine if the Government is getting a fair and 
reasonable price?
    Mr. Ramos. You are asking about the Department of Defense, 
right?
    Chairman Tom Davis. I am.
    Mr. Ramos. One thing about the sole-source at the 
Department of Defense, there is a lot more scrutiny than people 
realize. First of all, the contracting officer, given the 
circumstance and environment that they make decisions on, has 
to negotiate a reasonable price with the firm. What is unknown 
to most people is that the defense contracting agency may 
scrutinize that contract, so it has more scrutiny in terms of a 
sole-source as compared to a competitive contract. From our 
view with respect to the GAO report, and we worked very 
closely----
    Chairman Tom Davis. DCAA gets a lot of that on the back 
end.
    Mr. Ramos. Pardon me?
    Chairman Tom Davis. DCAA gets a lot of that on the back 
end. Do they do it on the front end as well?
    Mr. Ramos. Yes, it can be done at the front end. Now that 
is a part of the oversight that the Department of Defense has 
up front. There is always that opportunity for them to come 
back at the back end.
    My point with respect to the Government Accountability 
Office report, we didn't see or hear of any specific major 
concern outside of doing things to inform our people how to 
manage those contracts a little better.
    Chairman Tom Davis. Nobody is saying anybody has broken the 
law or anything. What we are looking at here is everybody has 
applied the law as it reads.
    The question is for other 8(a)s, they have a threshold of 
$3 million or $5 million for sole-source. Everything else is 
competed. For ANCs, there is no such ceiling. So you have a lot 
of large contracts going out for which they get 8(a) credit, 
but it is not being competed and sometimes when you are 
competing against another company, prices come down. When you 
are competing against a Government negotiator, they are not 
likely to. Is there something wrong with my reasoning there as 
someone who sits there in DOD?
    Mr. Ramos. Here again, I think you have to look at the 
circumstance and the environment that contracting officer is 
making that decision.
    Chairman Tom Davis. Isn't it a fact that if you do an ANC, 
you get good 8(a) credit, your numbers go up, everything looks 
great, and it is a lot easier to negotiate one no-bid sole-
source contract with an ANC than it is going out and maybe 
finding 10 that you have to compete with other 8(a) companies 
to get the same amount, just to put it bluntly?
    Mr. Ramos. I would say that we probably get the best value 
in any case. We are doing a lot of hypotheticals here, 
Congressman.
    Let me make a point here, if I may. We are focusing on 
ANCs, but the Native American tribes also have the same 
opportunity, and they are getting more contracts in the 
Department of Defense than ANCs. So, in answer to your 
question, there is a form of competition on best price when 
that contract officer deals with that.
    Chairman Tom Davis. I know there is. I am just saying don't 
you get more when you are out there competing and asking two or 
three or four companies to come in instead of just one?
    Mr. Ramos. That is a subjective question.
    Chairman Tom Davis. It is a subjective question. You are 
sitting there, and I am asking you from your experience. 
Doesn't that make sense to you?
    Mr. Ramos. I am saying that----
    Chairman Tom Davis. You are trying hard not to offend 
anybody.
    Mr. Ramos. No. I am saying, I am saying that it all depends 
on that set of circumstances. Most of the time, we get a fair 
value, and I think----
    Chairman Tom Davis. Could you get a fairer value if it were 
competed? Could you get a better price, do you think, if you 
were competing, if you had three companies up there instead of 
one?
    Mr. Ramos. My sense is that it would be an almost close 
price depending on circumstances, Congressman.
    Chairman Tom Davis. OK. Ms. Stith, what about you? How do 
you feel on that? Do you have any comments?
    Mr. Sutfin. Mr. Chairman Davis, I would be happy to respond 
on the part of the Interior Department. Generally, a 
contracting officer relies on technical experts to advise on 
matters of the products and services that are being bought. So 
you have experts that can give you advice on whether or not you 
are making good decisions. Also----
    Chairman Tom Davis. Mr. Sutfin, I was a general counsel to 
a billion dollar defense contractor. I have seen how the system 
works.
    What I am asking is a very simple question. If you are a 
Government negotiator, and you are trying to get your 8(a) 
numbers up, it is a lot easier to go out if you could do a 
sole-source with a large company than it is having to do maybe 
10 competitive contracts with smaller companies. I guess my 
question ultimately is: Don't you think, as a general 
proposition, that if you have more competition, you are likely 
to drive price down than if you are negotiating sole-source?
    Mr. Sutfin. I think if price, low price is the ultimate 
objective, you are right. Most nowadays are under a best value.
    Chairman Tom Davis. Even better value, even better value 
because price is a component of value. If you have three people 
competing or four companies competing versus one, aren't you 
more likely to have people come down on price?
    Mr. Sutfin. I think that is a fair statement.
    Chairman Tom Davis. OK, thank you. I am glad. I feel better 
about the Interior Department than I do about DOD on this. My 
time is up.
    Mr. Manzullo.
    Chairman Manzullo. I guess I have more of a comment than a 
question, especially with regard to DOD. I spend most of my 
time in this place, working on manufacturing issues, and I find 
it just absolutely ironic that DOD does everything possible to 
buy stuff from China, to eviscerate the Barry amendment, to 
enter into memorandums of agreement that essentially nullify 
our defense industrial base, all on the use of the words, best 
value. Every time I hear those words, best value, from DOD, it 
is almost like that song: There goes another American job.
    The question here is I think there is laziness going on at 
DOD. When you take a look at the article that appeared in the 
Washington Post on Thursday, November 25th, we have these 
bureaucrats in agencies all across the Government that are 
being enticed by ANCs because there is no required cross 
comparison, the sole-source awards cannot be protested, and the 
ANCs come in and say, hey, we are going to make this real easy 
for you. Then no one is talking about best value.
    I mean, surely, Mr. Ramos, in the discussions we have had 
for numerous years, every time one of my companies gets 
unfairly treated by DOD giving a Government contract overseas 
and thereby helping to eviscerate the defense industrial base, 
someone yells, best value. I don't even hear that term being 
used here. Why not?
    How can you say that when these sole-source agreements or 
sole-source contracts are given, and the rules specifically say 
no required cross comparison? How could you possibly know that 
you are getting the best value?
    Mr. Ramos. I think that the best value is the objective 
that the contracting officer, I am trying to allude to the 
circumstance here. There may be circumstances where the 
decision of that contracting officer may be where the best 
value is not the outcome because of the circumstances you are 
drawing it in.
    Chairman Manzullo. No one has ever given me that answer in 
14 years of trying to get business to the dwindling industrial 
base that I have in my District. No one has ever said that, 
that there is something besides price. Now the first time I 
hear that is in defense of what ANC is doing.
    Mr. Ramos. Congressman, I think it is in the GAO report, 
and it has to do with the decision made during the startup of 
the Iraqi War where they had to get the fuel and the water. 
That was an example of a decision that was made to support the 
warfighter at that time.
    Chairman Manzullo. I am not talking about those exigent 
circumstances. I am just saying, for example, do you know how 
many contracts DOD has with ANCs?
    Mr. Ramos. I can get it to you in a minute.
    Chairman Manzullo. Ms. Stith, have you seen the advertising 
proposals from ANCs? For example, the one that appeared in this 
Washington Post article says: Fast, efficient, streamlined 
acquisitions where ANCs will come to a contracting officers and 
say, let me make your job a lot easier for you. There are no 
contract ceilings, no required cost comparisons. Sole-source 
awards cannot be protested, even if it costs more.
    There is something wrong with that, isn't there?
    Mr. Ramos, do you have the answer there?
    Mr. Ramos. No, I don't have the answer. I have the dollars 
for the contracts for the ANCs.
    Chairman Manzullo. Give us what you have.
    Mr. Ramos. The set aside dollars for the ANCs is $1.1 
billion, and we ran the DOD's numbers from GAO to come up with 
this for 2005. This is what I was trying to allude to 
Congressman Davis earlier. As a comparison, we had--these are 
setaside dollars--Native Americans is $1.7 billion; Hispanics, 
$1.4; African-American, $1.2; and then the fourth location we 
would have is the ANCs at $1.1. So, from the DOD perspective, 
it appears from the data, that there is a balance in terms of 
the contracting dollars to these different competing entities.
    So, if the concern of Congress is for the Department of 
Defense to level the playing field, the legislation has to 
change that, so that all these different entities that are 
competing against one another have the same opportunity to 
compete on that level playing field because they are disparate.
    Chairman Manzullo. Thank you.
    Chairman Tom Davis. Mr. Waxman is going to have questions. 
I just would add, at the end of the day, I think what we want 
to do is get competition with all these different entities and 
make sure everybody gets the same piece. I think we are 
comparing apples to oranges.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    I just insist that full and open competition is the gold 
standard in Federal contracting or should be. One reason why 
competition is so important is that it disciplines costs. It is 
much easier for the Government to get a reasonable price for 
goods or services if multiple companies submit competing bids. 
I think that is obvious. I would dispute anybody who would say 
if they are trying to contract out for some work on their home, 
they will have one contractor only and just pay that contractor 
whatever he asks for. You want to see what the competition is 
going to charge.
    When the Government awards large no-bid contracts to Alaska 
Native Corporations, it leaves the taxpayers vulnerable to 
inflated costs. Congressman Young testified that GAO hasn't 
found that no big contracts for ANCs are a bad deal for 
taxpayers. That is not my understanding of the GAO report.
    Mr. Cooper, I would like to ask you about this issue. In 
the aftermath of Hurricane Katrina, an ANC named Akima received 
a contract to supply portable classrooms in Mississippi. When 
GAO assessed the reasonable of Akima's prices, what did it 
find?
    Mr. Cooper. We found those prices were inflated.
    Mr. Waxman. In fact, those prices----
    Mr. Cooper. Mr. Waxman, can I just clarify? I think what 
Congressman Young was talking about is the report that we did 
at the request of the committees. What you are talking about 
with the classrooms for Mississippi, that was a separate 
report. So I just want to clarify that.
    Mr. Waxman. Well, they are still part of the same issue 
because the ANCs get a contract. The Corps accepted Akima's 
proposed price of $39.5 million, although it had information 
that the cost of the classrooms was significantly less than 
what Akima was changed. I am reading now from the GAO report. 
It may have been a GAO report, but it is still the same thing. 
The prices for similar units from GSA's scheduled contracts 
would have been a lot lower.
    Now, GAO also examined the Army's use of ANCs to provide 
security guards at Army facilities in the United States. In 
this case, the two ANCs that received no-bid contracts actually 
lost a subsequent Army competition for security guard services. 
Nevertheless, the Army continued to give the ANCs additional 
work.
    Mr. Cooper, could the Army have saved money by awarding the 
work to the companies that actually won the competition?
    Mr. Cooper. Let me explain what we found in that report. 
The Army had a three-phase acquisition strategy. The first 
phase was to----
    Mr. Waxman. Just answer my question because I have a 
limited time. Could they have saved money?
    Mr. Cooper. Yes, we believe they could have, and we 
recommended that they take action to compete those, the third 
phase.
    Mr. Waxman. How much money are we talking about?
    Mr. Cooper. Well, the Army did a study, and when they 
competed the contracts for guard services, they paid 27 percent 
less than what they did when they didn't use competition.
    Mr. Waxman. On the classrooms, the prices were double what 
they should have been, isn't that right?
    Mr. Cooper. They were really too high.
    Mr. Waxman. I would like to look at an example from GAO's 
most recent report on ANCs. In 2002, the State Department was 
looking for a contractor to renovate U.S. Government office 
buildings in Sao Paulo, Brazil. According to documents the 
committee obtained from the State Department, the Department 
developed an independent price estimate of $46.8 million for 
the work. In January 2002, Alutiiq and ANC formed a joint 
venture with Fluor, a large non-Native contractor. Rather than 
conduct a competition, a request for proposals was sent to just 
one contractor in March 2002, the Alutiiq-Fluor joint venture. 
Two months later in May 2002, the joint venture submitted a 
price proposal of $81.8 million. This was $35 million higher 
than the Government's estimate. The agency rightly noted that 
there was a great disparity and that the proposal was 
significantly high.
    Mr. Cooper, does that match what GAO found, an initial 
proposed price that was almost double the Government's cost 
estimate?
    Mr. Cooper. In that case, yes, but the State Department 
contracting officer actually did his job in that case because 
they got subsequent proposals and negotiated a much lower price 
before awarding the contract.
    Mr. Waxman. Well, they had a second proposal that was 
received in June 2002, that was still too high. In fact, the 
Department considered seeking competitive bids at that time, 
but it didn't shift to competition. Instead, in July, the 
Department accepted the contractor's bottom line offer of $54.5 
million even though this was $20 million above the Government's 
original cost estimate and millions higher than its revised 
estimates.
    In other words, it took the State Department 4 months to 
award a no-bid contract to this ANC joint venture for an amount 
that was substantially higher than its own cost estimate. Do 
you think that was a good deal for the taxpayers, Mr. Cooper?
    Mr. Cooper. The ultimate deal turned out to be only $2 
million different than the State Department's revised estimate. 
So it wasn't that bad of a deal.
    Mr. Waxman. So it wasn't that bad of a deal.
    Mr. Cooper. Right.
    Mr. Waxman. OK. If it was going to take 4 months to award a 
no-bid contract, why didn't the State Department hold a 
competition? Wouldn't open competition produce even a better 
buy?
    Mr. Cooper. They probably, they realize now that they 
probably should have gone competitive to start with, yes.
    Mr. Waxman. I know my time is up. The obvious point of all 
of this is if you don't have competition, the taxpayers pay 
more money, and the ANCs are often being used to circumvent the 
opportunity for real competition. Thank you.
    Mr. Cooper. Can I respond to that? I agree with you fully. 
Competition is the gold standard for Federal contracting, and 
when you don't have competition, you better have the safeguards 
in place to make sure you are not paying too much. Going back 
to what Chairman Manzullo said, sometimes contracting 
officials, I don't know that they are lazy, but they are 
certainly not doing the job that they should be doing for 
whatever reasons.
    I think if you look at Federal procurement in general 
today, we have work force problems. The work force is being 
asked to do things that they either don't think they have time 
to do or they don't think is necessary to do, and when they 
don't do those kind of things, like some of the things we 
identified in our report, you put yourself at risk.
    Mr. Waxman. You put the taxpayers at risk.
    Mr. Cooper. That is what I mean. You put the taxpayers at 
risk, no question.
    Chairman Tom Davis. A couple of up-front dollars in 
training and giving that to people would probably save you a 
lot of money downstream.
    Mr. Waxman. I would agree, yes.
    Chairman Tom Davis. This is the last question.
    Mr. Waxman. Can I just ask a followup?
    Chairman Tom Davis. Yes.
    Mr. Waxman. So, up-front training for the procurement 
officers, but you don't want to contract private companies to 
do that job, would you?
    Mr. Cooper. No, I don't. I don't. I want the Government 
people to do it.
    Mr. Waxman. You want the best value. [Laughter.]
    Chairman Tom Davis. Thank you.
    Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Jenkins, of the agencies involved in this report, six 
of them agreed with the Government Accountability Office's 
recommendations. SBA appears to be the only one that has taken 
issue with the report. On a similar proof of ANCs and security 
guard contracts, the Department of Defense agreed with all 
seven recommendations and even rebid the contracts at all 54 
locations. Don't you find it at all interesting that the SBA, 
the agency charged with ANC oversight, is the only one that has 
a problem with the report?
    Mr. Jenkins. I think SBA's concerns with the GAO report was 
that it was sort of, it wasn't consistent with all of the data 
that we saw, relating to all of the other categories of small 
businesses that increased at the same time. We certainly, as I 
mentioned in our testimony, take our oversight responsibility 
very seriously, and we have been working with the various 
agencies through our PCRs, through our local district offices. 
We have considered the GAO recommendations, and we will look at 
every opportunity to improve our oversight.
    Ms. Velazquez. Mr. Jenkins, you might take it seriously, 
but the facts of the matter are that you are doing a very poor 
job. You know that your own Office of Advocacy stated in their 
report that $2 billion were miscoded as going to small 
businesses when in fact they were given to large businesses. So 
if there is one thing that SBA should have taken seriously, it 
is that no one is tracking that large businesses are performing 
the majority of the work on ANC contracts.
    I will ask Mr. Cooper. In your review, did you find that 
ANCs are not performing work with their own work force and 
passing through contracts to large corporations?
    Mr. Cooper. We did not find that specifically, but what we 
did find is that no one knew whether the subcontracting 
limitations were being complied with, and that was a 
recommendation that we had made in the report for the Federal 
agencies to assume responsibility. I think it is really a 
shared responsibility between the agencies awarding the 
contract and SBA with the 8(a) program.
    Ms. Velazquez. Mr. Cooper, what are some of the ways that 
ANCs have competitive advantages over other 8(a) companies?
    Mr. Cooper. Our report points out, we include a chart in 
there that shows the way that ANCs have used the 8(a) program. 
I mentioned two examples in my oral statement about being able 
to have contracts awarded to them without any limitations on 
the amount, non-competitive contracts. They have been very 
successful in hiring talented people who know the 8(a) program 
and know how to use the 8(a) program, and they have just been 
very successful in doing it.
    Ms. Velazquez. Can ANCs afford to hire professional 
marketers?
    Mr. Cooper. Professional?
    Ms. Velazquez. Marketers.
    Mr. Cooper. Some ANCs did use firms to help identify 
contracting opportunities.
    Ms. Velazquez. Can they afford to pay as much as $1 million 
in annual salary?
    Mr. Cooper. And they did that as our report points out.
    Ms. Velazquez. Do they have advantages of size with their 
subsidiary being able to access funds from the parent 
corporation?
    Mr. Cooper. They do have those benefits.
    Ms. Velazquez. No minority executive of ANCs are able to 
get as much as 49 percent of the profits. For the program that 
the primary purpose is economic development, does that seem to 
be in keeping with the mission?
    Mr. Cooper. I think the difference between the 8(a) program 
as it was initially designed and as it has evolved over the 
years, it has changed in character to serve two purposes: One, 
the individual business development that you talk about, but at 
the same time, and that is why we, as a matter of policy, are 
not challenging what Congress has put in place, is it is also 
intended to serve a different purpose, and that is to help 
Alaska Native Corporations develop the capability to benefit 
their shareholders.
    Ms. Velazquez. Mr. Cooper, how would you characterize SBA's 
comment letter to the Government Accountability Office's 
report?
    Mr. Cooper. I am sorry, would you say that again?
    Ms. Velazquez. How would you characterize SBA's comment 
letter to the GAO report?
    Mr. Cooper. I would characterize it as disappointing.
    Ms. Velazquez. Dismissive?
    Mr. Cooper. We thought we would get a different kind of 
response from SBA? And I would add that, listening to the 
statement today, I think that is a different tone than the 
letter that we got in response to our report. It sounds like 
SBA is considering some actions and is probably going to work 
with agencies like Interior to make things better.
    Ms. Velazquez. OK, so let me ask you this question. In 
terms of all the recommendations that you have made to SBA on 
the reports and investigations that you have made before, how 
would you qualify the track record of SBA complying with the 
recommendations?
    Mr. Cooper. I think in several cases, SBA has been slow to 
respond to our recommendations.
    Ms. Velazquez. Thank you very much, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman. I want to thank 
the chairman and ranking members of both committees for holding 
this hearing. Thank you to the witnesses.
    As I see it, there are really two separate issues before 
us. One is the overall policy issue and the framework that 
Congress put in place with respect to special treatment for 
ANCs, and the second issue is the extent to which SBA and other 
agencies are complying with the existing regulations, 
implementing the program, and whether they are doing it 
effectively.
    Let me just start with the first one, and I do want to jump 
ahead to some of the testimony we are going to hear from the 
next panel. Just to quote from the representatives testifying 
on behalf of Women Impacting Public Policy, they state in their 
testimony that WIPP members have lost opportunities to ANCs 
both at the prime contract level and at the subcontract level. 
That is because they are not subject to the same affiliation 
rules and competitive thresholds to what other businesses 
participating in the 8(a) program adhere. They conclude in this 
section by saying, ``It seems to us Congress should consider 
treating all participants in the 8(a) program equally and they 
should all adhere to the same rules.''
    The testimony from that National Black Chamber of Commerce 
is along the same lines. They say that ANCs reap the 8(a) 
benefits such as receiving awards without competition but also 
get the enormous benefit of waiving contract dollar maximums 
and exceeding the size standard for small businesses, and they 
go on to point out several other things.
    Now I know that the GAO in its report looked at the extent 
to which there was compliance with the existing framework and 
the laws set out by Congress, but let me just ask all of you 
whether you would take issue from a policy standpoint with the 
recommendation raised, which really goes to the fundamental 
issue of no-bid contracts and the ceilings, by Women Impacting 
Public Policy, where they conclude that treating all 
participants in the 8(a) program equally is the right way to 
go, and that they should all adhere to the same rules.
    Does anybody think, as a matter of public policy, that 
equal treatment of all these entities would be the best way to 
go in terms of protecting the taxpayers' interests? Does 
anybody dispute that recommendation and conclusion from the 
perspective of protecting taxpayer's interests?
    I take that no one thinks that. Everyone agrees that this 
recommendation would better protect the taxpayers' interest.
    Let me just go on to ask with respect to the issue of 
subcontracts and pass through contracts. As I understand it, 
when you do a subcontract, when Alaska Native Corporations 
receives a no-bid contract under the 8(a) program and they 
subcontract it out, they are limited to requiring that 50 
percent of costs, the contract's personnel costs, must be from 
the ANC's own employees, is that correct?
    Mr. Cooper. That is correct unless it is a construction 
contract, and in that case, the subtracting would be 85 
percent.
    Mr. Van Hollen. As I understand it, when you looked at this 
issue and you said just a moment ago, no one knows whether 
subcontracting limitations were being complied with. You looked 
at about 16 contracts to see if agencies were monitoring these 
subcontracting requirements, is that right?
    Mr. Cooper. That is correct. Of the 16 we looked at, 14 of 
them had subcontracts at work and almost every one, the 
contracting officer and the agency were not doing any kind of 
surveillance to make sure the subcontract limitation was not 
exceeded.
    Mr. Van Hollen. Right. Based on that assessment, as we are 
assembled here in the room today and as you are testifying, you 
have absolutely no basis and it is your understanding these 
contracting officers have absolutely no basis for knowing 
whether or not that 50 percent limitation is being complied 
with, is that correct?
    Mr. Cooper. That is correct.
    Mr. Van Hollen. Whose responsibility is it to enforce that 
Federal acquisition regulation requirement?
    Mr. Cooper. I would respond to say in this case, it is a 
shared responsibility between SBA and the agency who is getting 
the contract. There are, they are called partnership 
agreements, where SBA has delegated authority to directly award 
8(a) contracts to Federal agencies. When we went out and talked 
to the contracting community, there was just a lot of confusion 
about who was responsible for what, and I think this is an 
excellent example of that confusion.
    Mr. Van Hollen. I understand in actually looking at your 
testimony, you found a case where an agency wanted a contract 
with a particular non-Native company but couldn't award a no-
bid contract directly to that company, and so the agency solved 
the problem by awarding a pass through contract to an ANC and 
requiring it to subcontract with the desired non-Native 
company. Could you talk a little bit about that and why that is 
an example of how this system is being effectively 
circumvented?
    Mr. Cooper. That is exactly what can happen, and it is not 
limited to 8(a) ANC contracts. We have, over the years, issued 
a number of reports expressing concern about, again as Mr. 
Waxman pointed out, the lack of competition. What we see is, 
and primarily in the Department of Defense, is that instead of 
the contracting people making the decisions about what the best 
solution is in terms of getting a contract, program people are 
directing the contracting people to award a contract to a firm 
and instruct them to pass it on to the firm they really want.
    It has happened over at GSA. The Get It Right Program, I 
think was put in place to stop, cut that kind of contracting 
out. It is not good contracting because you end up paying 
layered costs, multiple fees, multiple profits, multiple 
overhead. It is just not a good business decision on the part 
of Federal agencies to do that kind of contracting.
    Mr. Van Hollen. Thank you.
    Mr. Chairman, I would just say Congress may have set up a 
system where these different kind of shenanigans are encouraged 
or, at the very least, allowed to happen, but it seems to me we 
should, as joint committees, get to that fundamental issue.
    Mr. Cooper. Can I respond? I think one of the problems is 
we now have a lot of interagency contracting where an agency 
get fees for doing contracting work for another agency, and 
there is an incentive to generate revenue and do business 
because the contract, the agency awarding the contract for 
another agency makes money on it and can do things, operations 
and that kind of thing. So, while interagency contracting might 
be a great contracting vehicle, the incentives are driving it 
in the wrong direction.
    Mr. Van Hollen. The incentive there is for the agencies 
themselves to take a cut, rather than have the savings passed 
on to the taxpayer.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    Mr. Barrow.
    Mr. Barrow. No, thank you.
    Chairman Tom Davis. OK.
    Ms. Watson.
    Ms. Watson. I would like to make some comments on 
competition. I think what the GAO is reporting is that there 
has been some abuse, we think, of using the ANC formula and 
applying it across the board. Maybe, Mr. Cooper, you can help 
our thinking on this issue. As I understand, the original 
purpose of that legislation created a preference to encourage 
economic opportunities for Alaskan Natives. The report that we 
got from the GAO suggests that the preference is used by 
contracting officials primarily as a way to circumvent just 
exactly what we are trying to get to, to circumvent competition 
requirements on contracts--they are worth hundreds of millions 
of dollars--and often passing the work to large non-Native 
corporations or to help meet small business goals.
    Maybe you can shed some light on why the use of ANC 
preferences seems to be increasing so rapidly. Also, while you 
are doing that, it appears that the report references that no-
bid ANC contracts are like an open checkbook. Can you explain 
this to me how this formula has been misused?
    Mr. Cooper. What we found when we went and talked to 
contracting officials who awarded those 16 contracts is that 
they felt the use of a non-competitive vehicle with no limits 
on dollar, thresholds, or anything was a fast, quick, easy way 
for them to meet a requirement. Again, I think this is a 
situation where the intent of the Congress is probably being 
diluted because the contracting people are not using due 
diligence in using the flexibilities and the authorities.
    In my initial oral statement, I said I wanted to make it 
clear that we do not take issue with the flexibilities that the 
ANCs have been provided, and we take that position because we 
believe that if contracting officials exercise due diligence 
and fulfill their responsibilities and comply with the 
requirements that they are required to do in awarding these 
contracts, the potential for abuse would be minimized.
    I will give the example that we have talked about a little, 
subcontracting. Alaska Native Corporations can subcontract up 
to 49-50 percent of the work that they get. That was provided 
by the Congress. That authority was provided by the Congress. 
We don't take issue with that, but at the same time, we want to 
make sure that the controls that have been put in place, and 
that is monitoring the subcontract limitation clause, is 
followed and is not just done frivolously without taking it 
very serious and complying with requirements.
    Ms. Watson. OK, you never know what these bells are 
implying.
    Chairman Tom Davis. We are about ready to have a vote, but 
you still have a couple of minutes left.
    Ms. Watson. I have to go back to the Akima contract as it 
relates to the classroom issue, and I don't know of the ANC 
contract was used for buying those mobile units that are stuck 
in the mud in Arkansas and some other places. Let me not get 
into that. Akima raised its price for the classrooms from about 
$23 million on last September the 16, to close to $31 million 1 
day later, and the unit price of some classrooms rose almost 50 
percent in a single day. How does that happen?
    We are going to run out, so if you can't finish, I can't 
take my answer in writing, but go ahead.
    Mr. Cooper. I was very much in the review of that contract. 
This is a clear cut case where the contracting officer blew it. 
I mean I don't know any other way to say it. They had 
information provided by Akima, as a matter of fact, that 
indicated the classroom prices should be lower than what was 
negotiated in that contract. I sat across the table from the 
contracting officer and asked her, why didn't she use the 
information to negotiate a lower price? And she told me, I 
wasn't involved in the details; I just signed the contract.
    That may be lazy, as Chairman Manzullo pointed out, but it 
is not giving the Government a good deal, and contracting 
officers need to use due diligence and protect the taxpayers' 
interests, whether it is a competitive, non-competitive, or any 
other kind of contract.
    Ms. Watson. We are not utilizing the people's money and the 
trust that is put in us when we do deals like that. I think the 
original purpose of ANC was the right way to go, but just the 
people, to whom these programs were directed, miss out.
    I want to thank you for that information. I am glad you 
recognized that there were some mismanagement and some 
insensitivity. We appreciate it. That is what we are trying to 
get to the bottom of here with this hearing.
    I want to thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    Ms. Bordallo.
    Ms. Bordallo. Thank you very much, Chairman Davis and 
Chairman Manzullo. For calling this meeting, and I do want to 
thank Chairman Manzullo for mentioning the difficulties we are 
having with our shipyard in Guam. So, thank you, Mr. Chairman 
for that.
    Mr. Jenkins, I have a question for you. Increased contracts 
awards for the ANCs are of great concern to the business 
community in my District, the District of Guam. While there is 
a public good in having preferences for Native Alaskans, the 
same can be said for the indigenous people of Guam, the 
Chamorros. Chamorros on Guam experience many of the same social 
and economic disadvantages as Alaskan Natives and other 
disadvantaged groups recognized by Federal law. Yet, the 
Chamorros have no set aside or preference program that benefits 
them specifically. When Federal contracts for work on Guam are 
unbundled, the ANCs swoop in, use their set aside preferences 
to win the no-bid contracts, and Chamorro businesses are 
relegated to being hired as subcontractors at best.
    If the Federal Government is going to support social policy 
through Government contracting that is trying to improve 
economic opportunity for the disadvantaged communities through 
the awarding of Federal contracts, then I would hope that these 
contracting policies could be implementing fairly across the 
board in order to benefit all of the disadvantaged indigenous 
groups. Oversight is key to ensure that this happened.
    In your testimony, you mentioned that the SBA takes its 
oversight responsibilities seriously. You mentioned that the 
SBA, even before the GAO report's release, began to improve its 
oversight of the 8(a) program. Your testimony is short on 
detail regarding the progress that the SBA has made toward 
improving its oversight of this program.
    Can you describe for me today the progress the SBA has made 
of late toward improving its oversight of the 8(a) program, and 
also can you describe how the April GAO report on the increased 
use of ANCs in Government contracting has impacted the SBA's 
efforts toward increasing oversight of the 8(a) program?
    Mr. Jenkins. OK, thank you. First of all, as I mentioned, 
one of the things that we felt was very important and we had 
started this discussion prior to the GAO report is to look at 
our partnership agreements with the various agencies. SBA, in 
order to ensure that the 8(a) program was properly being 
administered, placed responsibilities on the procuring 
agencies, and that is to follow the requirements in the Federal 
acquisition regulation. The issues regarding the limitation on 
subcontracting is no difference than the issues with small 
business set asides. That is the responsibility of Federal 
contracting officials as described in the Federal acquisition 
regulation.
    SBA felt, however, the need to increase our relationships 
with the agencies. And so, with the partnership agreements, we 
have already begun to revise those agreements to make it very 
clear what we expect the agencies to be responsible for. We are 
also increasing our training--training not only to our own 
staff, SBA staff, but also training with the various Federal 
agencies through our procurement center representatives as well 
as through our district offices.
    So I think there are a number of things that we are trying 
to do to improve, and we certainly will consider the GAO 
recommendations as well as other recommendations that we have.
    Ms. Bordallo. Thank you very much.
    I don't vote, Mr. Chairman, so I could continue.
    Chairman Tom Davis. I am not stopping you now. We can go. 
We have about 5 more minutes before I have to leave.
    Ms. Bordallo. Very good, all right.
    I am just curious. One real quick question before I get to 
my second question: Are Native Hawaiians participating in these 
programs?
    Mr. Jenkins. Yes, the Native Hawaiian-owned firms that are 
owned by Native Hawaiian organizations----
    Ms. Bordallo. The ANCs?
    Mr. Jenkins. Excuse me?
    Ms. Bordallo. The 8(a) program?
    Mr. Jenkins. Yes, the 8(a) program.
    Chairman Tom Davis. Are they treated as ANCs or as 8(a)'s? 
I think that is her question.
    Mr. Jenkins. They are treated as 8(a)'s, but not ANCs. ANCs 
has a special designation.
    Ms. Bordallo. I see. I don't quite understand that. Why 
wouldn't they qualify?
    Chairman Tom Davis. The thresholds are different.
    Mr. Jenkins. Yes, the statute allows for Hawaiian Native 
organizations, small businesses owned by Hawaiian Native 
organizations, to be considered as 8(a) firms. They can apply 
for the program, and we will look at them and certify them. It 
is different, however, in terms of the tools that they can use 
are different than what they have for the Alaska Native 
Corporations in terms of the sole-source requirements.
    Ms. Bordallo. I see.
    The other question I have is for Mr. Frank Ramos. I am 
concerned by the testimony provided by Mr. Cooper from GAO to 
the committees today, regarding the findings in the April GAO 
report. Mr. Cooper stated in his prepared remarks that the 
contracting officers interviewed during the GAO investigation 
claimed that contracting with 8(a) ANC firm is a quick, easy, 
and legal way to award contracts while at the same time helping 
their agencies meet small business goals. Policies are in place 
to ensure that Federal contracting supports disadvantaged 
groups. These policies are not in place to make it easier for 
agencies to avoid the hard work of supporting small businesses.
    Would you agree that supporting small businesses should be 
the priority, not the relative ease of workload for the 
contracting officers? Also, what roles do your offices and that 
of your peers in other agencies play in overseeing or 
monitoring your respective agencies' contracting behavior?
    Mr. Ramos. In my oral testimony, I said that the statutes 
that the contracting officers use allow them to make certain 
decisions with respect to ease of contracting, if you want to 
use that term. It is not an ease of contracting that is used in 
a negative term, but it facilitates them to use that 
contracting authority to make decisions that best fit the 
interests of the Department of Defense at that particular time.
    With respect, as I understood your second question as to 
what we are trying to do bring conformance to this behavior 
that the Government Accountability Office alluded to, we have 
provided, as a result of the Government Accountability Office 
report, in our small business conference, a panel to discuss 
those things that we must do to bring conformance to our 
behavior within the Department of Defense. Mr. Assad who is the 
Director of Defense Procurement is going to be meeting with Mr. 
Crowther, I believe tomorrow to talk about some of those 
concerns that you have raised. He is the Director of and has 
oversight of the contracting officers, and I believe he is 
going to address that issue. We have discussions, and I feel 
comfortable that we are going to be in conformance in that 
respect.
    Ms. Bordallo. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Before I dismiss the panel, let me just note and, Mr. 
Ramos, I will address to you. I think it is clear that if you 
can meet your 8(a) goals by going to a larger vehicle and not 
have to compete, it makes it a lot easier for the contracting 
officer to do so. We try to do so many things with our 
procurement system. We try to make sure that we buy American. 
We try to make sure that we have domestic content. We have a 
whole myriad of views up here in this committee over how that 
ought to be done. We try to make sure that small businesses and 
8(a) minority groups get opportunities.
    The more bells and whistles we attach to the system, the 
less efficient we become. In passing the ANC, we recognize in 
doing so, that there may be some inefficiencies to the system 
by allowing them some leg-up in contracting. All we are trying 
to do here is have an honest discussion over what that cost is. 
I think that is what we are trying to get out of here. Then we 
will try, as policymakers, to try to see if there is anything 
we can or should do about it or appropriate oversight of the 
executive branch as a way.
    I appreciate everybody being here for this hearing. I will 
dismiss this panel. We will take a 15 minute recess while we go 
over to vote, and we will come back with our next panel. Thank 
you.
    [Recess.]
    Chairman Manzullo. It is the policy of the committee that 
all witnesses be sworn before they testify. Please rise and 
raise your right hands.
    [Witnesses sworn.]
    Chairman Manzullo. We will now recognize our third panel: 
Mr. Harry Alford, president and CEO of the National Black 
Chamber of Commerce; Ms. Ann Sullivan, president of Madison 
Services Group, Inc., on behalf of Women Impacting Public 
Policy [WIPP]; Mr. Chris E. McNeil, Jr., chairman, Native 
American Contractors Association and president and CEO of 
Sealaska Corp.; Ms. Helvi Sandvik, president, NANA Development 
Corp.; Mr. Bart Garber, Tyonek Native Corp.; Mr. Charles 
Totemoff, president and CEO of Chenega Corp.; Ms. Julie Kitka, 
president of Alaska Federation of Natives.
    In order to allow time for discussion, please limit your 
testimony to 5 minutes. When you see the yellow light, you are 
at 4. When you see the red, you are at 5. Your entire statement 
will be made part of the record.
    The first witness is Mr. Harry Alford. Mr. Alford.

 STATEMENTS OF HARRY ALFORD, PRESIDENT AND CEO, NATIONAL BLACK 
CHAMBER OF COMMERCE; ANN SULLIVAN, PRESIDENT, MADISON SERVICES 
 GROUP, INC. ON BEHALF OF WOMEN IMPACTING PUBLIC POLICY; CHRIS 
     E. MCNEIL, JR., CHAIRMAN, NATIVE AMERICAN CONTRACTORS 
   ASSOCIATION AND PRESIDENT AND CEO, SEALASKA CORP.; HELVI 
SANDVIK, PRESIDENT, NANA DEVELOPMENT CORP.; BART GARBER, TYONEK 
  NATIVE CORP.; JULIE KITKA, PRESIDENT, ALASKA FEDERATION OF 
NATIVES; AND CHARLES TOTEMOFF, PRESIDENT AND CEO, CHENEGA CORP.

                   STATEMENT OF HARRY ALFORD

    Mr. Alford. Honorable Chairmen Davis and Manzullo and 
distinguished members of both committees, thank you for 
allowing the National Black Chamber of Commerce, Inc. to 
provide input and comments on the Alaskan Native Corporations.
    This is a very serious and sensitive subject to my 
constituents. We hope and pray that this hearing will become a 
catalyst for change and progress. Let me also make it clear 
that the NBCC believes in the importance of economic 
development for Alaskan Natives and will defend their right to 
such.
    The Honorables Parren J. Mitchell and Adam Clayton Powell 
insisted on inclusion of African-American business owners in 
the Federal procurement arenas. They rightly believed that 
African-Americans had been and were being severely 
discriminated by the very institutions, National and local, 
that were supposed to protect the freedom and equal opportunity 
of all Americans. The programs that evolved from the 
implementation of the Civil Rights Act of 1964 were to correct 
the economic ills created from decades of a Jim Crow economy. 
This economy directly affected African-Americans.
    These programs, as they developed, included all minority 
groups including Native Americans, where there was some sort of 
discriminatory evidence. It is without a doubt that the most 
prolific and successful program to evolve is the SBA 8(a) 
program. I estimate that at least 80 percent of the larger 
businesses within the NBCC network are graduates of the 8(a) 
program. This program has produced more Black millionaires than 
all other Federal programs combined.
    On average, 8(a) firms employ 20 people each, while small 
businesses in general employ an average of 2 people. That is a 
significant difference.
    With the above in mind, the members sitting on both the 
House Small Business Committee and the House Government Reform 
Committee represent a total of 1,780 8(a) companies which 
equate to nearly 20 percent of all 8(a) participants. These 
1,780 businesses employ an estimated 35,600 people. I believe 
each and every one of you considers that appreciable. In sum, 
the 8(a) program is a source of employment in all States as 
well as the District of Columbia, Guam, Puerto Rico, and the 
Virgin Islands.
    For some very peculiar rationale, Alaskan Native 
Corporations, as they are called, have been permitted since 
1986 to participate in the SBA 8(a) program. For the most part, 
ANCs are not minority, not even Native American. ANCs are not 
small businesses. ANCs repeat the 8(a) benefits such as 
receiving awards without competition but also get the enormous 
benefit of waiving contract dollar maximums and exceeding the 
size standard for small businesses, size standards.
    What we have today are billion dollar corporations, waiver 
on the affiliation rule, located in places like North Carolina, 
Virginia, Maryland, etc.--corporations located in places that 
are totally remote to Alaska and void of minority management or 
control. These ANC components, often LLCs, are supposed to 
benefit Alaska Natives. I strongly suggest that very little of 
the revenue obtained through Federal contracting finds its way 
to Alaska Natives. Avarice has no end and what we have here is 
a tool for avaristic manipulators.
    Federal procurement is booming. However, if you take away 
ANC volume from the 8(a) contract awards, you will find that 
the 8(a) program has been decreasing steadily. Two things have 
negatively affected the program. One, the practice of bundling 
contracts, tantamount to sole-sourcing for the Fortune 200, and 
the emergence of the ANC game manipulating the 8(a) program. 
Certain lobbyists and a few slick law firms have mastered this 
game. Major corporations are getting into the ANC program and 
are drawing 8(a) contracts by the billions. Quick thinking 
procurement agents have identified this as an attractive tool 
to quickly boost 8(a) and SDB volume. Some SBA officials rush 
to take advantage of this also.
    The ugliness of this came together when the Katrina and 
Rita disasters hit the Gulf Region last summer and fall. 
Billion dollar sole-source contracts were immediately let to a 
few companies that would eventually flip the scope to various 
smaller companies at reduced rates and would then pocket the 
difference. Ashbritt, a Florida company, received a significant 
prime contract for debris removal, and the company does not own 
one truck.
    Likewise, ANC companies were sought out for contracts that 
had no relation to their NAICs or expertise. The first Minority 
Participation Report I received from the Army Corps of 
Engineers for the Gulf rebuilding activity was 98.2 percent 
ANC, 1.8 percent legitimate SDB.
    Building, excuse me, bundling and a runaway freight train, 
known as the ANCs, is wreaking havoc on 8(a) firms in the 
African-American, Hispanic, Asia, and yes, the Native America 
communities. We are losing jobs, destroying businesses, 
negatively communities who need progress the most. ANCs, in 
effect, have become predators on the minority business 
community. Shame on all of us for letting it get this far.
    The only rational thing to do now is to bring it to a 
close. The NBCC suggests the following.
    Chairman Manzullo. Is your testimony coming to a close like 
the freight train?
    Mr. Alford. Yes, I have about 20 seconds.
    Chairman Manzullo. All right.
    Mr. Alford. One, conduct thorough audits on how much 
revenue is actually being received by Alaska Natives. What are 
the amounts of dollars, programs, end results?
    Two, are most of the agencies run by Caucasians? How many 
minorities actually work ANCs? We need EEO surveys to be 
performed by the Department of Labor.
    Three, is there a strong correlation with certain lobbying 
firms, law firms, and political contributions?
    Four, and last, let us separate the ANCs from the 8(a) 
program. It is an abomination as it is currently structured 
with all of the oddities. ANC numbers should not be counted 
toward small business and/or minority business goals.
    Thank you for the extra 20 seconds, Mr. Chairman.
    [The prepared statement of Mr. Alford follows:]

    [GRAPHIC] [TIFF OMITTED] T0341.137
    
    [GRAPHIC] [TIFF OMITTED] T0341.138
    
    [GRAPHIC] [TIFF OMITTED] T0341.139
    
    Chairman Manzullo. You sound like the trailer on all those 
credit card advertisements, Harry. [Laughter.]
    Our next witness is Ann Sullivan on behalf of Women 
Impacting Public Policy.
    Now, remember, your complete statements are in the record, 
and you can take as much time within the 5-minutes as you want. 
What we are really interested in is the impact because we all 
know that there are different rules that apply to the ANCs, and 
we don't have to repeat those in all the testimony. If you 
could center your testimony on the impact, thank you.

                   STATEMENT OF ANN SULLIVAN

    Ms. Sullivan. Thank you, Mr. Chairman Davis, Chairman 
Manzullo.
    Good afternoon, my name is Ann Sullivan. I am representing 
Women Impacting Public Policy. I represent them in Washington. 
WIPP is a bipartisan women's business organization representing 
over 550,000 women and minorities nationwide. Our umbrella 
includes 42 business organizations as well as individual 
members. Thank you for inviting us today.
    As background, 10.6 million women-owned firms in the United 
States employ 1 out of 7 employees in this country and generate 
$2.5 trillion in sales. Yet, the Federal Government has awarded 
only 3 percent of its contracts to women-owned companies as of 
2004. Although the Congress set a 5 percent women-owned goal 
for the agencies, they have never met that goal. In addition, 
Public Law 106-554 which would allow contracting officers to 
restrict competition to women-owned firms has yet to be 
implemented. That law was enacted in the year 2000.
    For the past several years, WIPP members have felt the 
competitive pinch of increased Federal programs for non-women-
owned businesses. WIPP members have lost opportunities to ANCs, 
both at the prime contract level and the subcontract level.
    We have also felt the effects of contract bundling. Despite 
the president's unbundling initiative in 2002, the trend has 
proven otherwise. In 2002, the OMB reported that for every $100 
awarded on a bundled contract, there is a $33 decrease to small 
business. Despite strong evidence that bundling is not good for 
small business or the Government, a 2004 GAO report shows that 
the Federal agencies are confused over what constitutes 
contract bundling and it results in poor accountability and 
disparity in reporting.
    According to a 2005 SBA Office of Inspector General audit, 
the SBA reviewed only 13 percent of bundled contracts reported 
to the agencies. Those 192 bundled contracts not reviewed 
amounted to $384 million. SBA has cited that their lack of 
resources is why they did not review more contracts.
    The agencies have a challenge meeting their small business 
requirements with larger contracts. It seems to us that 
Congress should consider treating all businesses in the 8(a) 
program equally and they should all adhere to the same rules. 
Perhaps this is not the right program for the ANCs since the 
8(a) program is a business development program, but the ANC 
program is an economic development program for communities. 
While the economic goals for the ANCs seem appropriate, trying 
to fit them into the 8(a) program is like trying to fit a 
square peg in a round hole.
    In the absence of congressional changes in the 8(a) 
program, we give you the following recommendations which we 
think would strengthen all of the programs. One, establish a 
subcontracting requirement for very large sole-source contracts 
awarded to ANCs. Two, strengthen the 8(a) program for all 
participants by increasing the competitive thresholds and the 
personal net worth level that has not changed since 1989. 
Three, provide SBA with the tools necessary to review 
solicitations being placed into the 8(a) program to determine 
adverse impact on other 8(a) companies or small business 
programs.
    We understand that although ANCs benefit from contract 
bundling and procurement work force staffing issues, they are, 
ANCs are not the source of these problems, nor do they dominate 
the small business market. In fact, their contract dollars is 
only a fraction of the $69.2 billion awarded to all small 
businesses. The GAO report sheds light on contracting problems 
affecting all small businesses and SBA's lack of resources and 
staff to implement good oversight of the 8(a) program.
    The goal should be for all groups to work together to 
increase the amount of awards to small businesses, regardless 
of race, ethnicity, or gender, and to implement a meaningful 
women's business program. If the small business community moves 
forward collectively to increase the source of supply to the 
Federal Government, the result will be a stronger America.
    Thank you.
    [The prepared statement of Ms. Sullivan follows:]

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    Chairman Manzullo. Thank you. Our next witness is Chris 
McNeil, Jr. of the Native American Contractors Association.
    Mr. McNeil.

               STATEMENT OF CHRIS E. MCNEIL, JR.

    Mr. McNeil. Chairman Manzullo and Chairman Davis, members 
of the committee, we really appreciate the opportunity here to 
testify today.
    My name is Chris McNeil. I am a member of the Tlingit and 
Nisga Nations. I am the chairman of the Native American 
Contractors Association and also the president of Sealaska. I 
am here to testify on behalf of the Native American Contractors 
Association. Our organization represents, has 27 members, 
including 19 Native corporations and 7 tribally owned 
enterprises and Native Hawaiian organizations. We have over 
100,000 tribal member shareholders who own our ANCSA 
corporations from all over the United States. Congress meant to 
benefit Alaska Natives no matter where they live.
    We are here to discuss the SBA 8(a) program as it applies 
to ANCSA corporations and tribes, and this is a rare program 
because it is a program that actually does work. That is in the 
context of really decades of failed Federal programs to promote 
Indian economic development. It promotes self-determination, 
self-sufficiency, and it points toward sustainable economies 
which is inherent in Alaska, the goal of the Alaska Native 
Claims Settlement Act, and it provides a mechanism upon which 
Alaska Natives have offered increased professional 
opportunities.
    The GAO study itself listed five single-spaced pages of 
benefits, the various benefits that are provided by the 8(a) 
contracting that the corporations provide to its shareholders. 
Our Federal contracting and participation in it has permitted 
the Native corporations and tribes to participate in a greater 
way in the commercial marketplace, and the majority of Native 
corporations and federally recognized tribes have just begun to 
participate in it.
    The GAO report is the subject of this hearing. I think it 
is important to note that it did not find any evidence of abuse 
by the Native corporations. It did not recommend legislative 
changes, and it doesn't suggest any dissatisfaction on the part 
of the agencies in the performance by the Native corporations. 
It was critical in some respects, and it indicates some flaws 
in the administration of the program.
    There is a key difference between the Alaska Native and 
tribal 8(a) programs and the individually owned 8(a) 
enterprises. We, each Native corporation represents hundreds 
and, in some cases, thousands of tribal member shareholders 
that benefit from them. In the case of the individually owned 
enterprises, it benefits only a few people who are the owners 
of the corporations and the significant differences.
    All of this arises from the Federal trust responsibility 
for tribes and for Alaska Native people. Any Federal program 
that benefits Alaska Natives or federally recognized Indian 
tribes arises from our Constitution. It is embedded in the 
power to regulate commerce with Indian tribes which is called 
the Indian Commerce Clause and arises from many U.S. Supreme 
Court decisions. This also is evidenced in the Indian Treaties 
which are the supreme law of the land.
    Our Alaska Native Claims Settlement Act of 1971 was a 
modern day statutory Indian Treaty. This was a large 
congressional experiment with Native people. This land that we 
received back would normally have been held in trust in the 
United States, and the concept was to provide new economic 
vehicles to develop sustainable economies for Native people and 
to benefit our tribal member shareholders. That is our goal, 
and that has been Congress' commitment. In effect, the Native 
Claims Settlement Act arose from a negotiation in which we 
relinquished claims of 300 million acres. In exchange, we 
received back 44.5 million acres and about $962 million to 
benefit over 100,000 tribal shareholders.
    Now, the 8(a) program is an amendment to the Alaska Native 
Claims Settlement Act, and it was intended to provide benefits 
under the Claims Settlement Act for Alaska Native people. So, 
everything in ANCSA, we, in effect, have paid for by providing 
and relinquishing the claims to all the land to which we had 
claims, and that is our statutory treaty. The Alaska Native 
Claims benefit----
    Chairman Manzullo. How are you doing on time? We are 
running out of time here.
    Mr. McNeil. Yes, I understand that. Mr. Chairman, I would 
conclude then by saying that this program does work to the 
benefit of Alaska Native people. I think there is significant 
evidence of that in order to provide the sustainable economies 
for Native people.
    Thank you very much.
    [The prepared statement of Mr. McNeil follows:]

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    Chairman Manzullo. Thank you very much.
    The next witness is Ms. Helvi, is it Sandvik?
    Ms. Sandvik. Yes, that is correct.
    Chairman Manzullo. You are recognized. Thank you.

                   STATEMENT OF HELVI SANDVIK

    Ms. Sandvik. Good afternoon. My name is Helvi Sandvik. I am 
an Inupiaq Eskimo shareholder of NANA Regional Corp. and 
president of NANA Development Corp. which is a business arm of 
our parent corporation. I originally come from the village of 
Kiana, a 400-person village located above the Arctic Circle in 
the northwest corner of our State. I appreciate the opportunity 
to speak on behalf of the 11,200 Inupiaq Eskimo shareholders of 
the NANA Region and also for the employees of NANA Development 
Corp.
    I would like to note that I have been joined today by one 
of our board members, Dude Lincoln from Kotzebue, and several 
young men and women from the NANA Region, all of whom are down 
here working in our Government contracting companies, gaining 
the experience they need to take over as the next generation of 
Native leaders and business leaders in our company.
    Today, I hope to provide you with a better understanding of 
the challenges we face as Alaska Natives who are mandated by 
Congress under the ANCSA act to provide for the social and 
cultural and economic well-being of our owners. I would also 
like the record to reflect that we have submitted more detailed 
written comments for this hearing. I appreciate the opportunity 
to respond to some of the questions and the criticism that has 
been vocalized in recent months, and I do also have to say that 
we have been appalled by some of the stories that have appeared 
in the press recently that we believe to be very serious 
misrepresentation and distortion of the facts.
    As we focus on the Federal contracting opportunities with 
respect to the ANC 8(a) program, I believe we ought to put into 
proper perspective the scope of ANC participation in the 
Federal programs. As a shareholder of an Alaska Native 
Corporation, I believe it is important to emphasize how 
important that 0.2 percent of Alaskan Native Corporations 
participation in Federal contracting is to the Native 
communities in Alaska. In the 35 years since we were 
established, we have focused on trying to pursue and develop 
business interests that will provide for sustainable benefits 
to our current and future generations of NANA shareholders.
    The majority of our shareholders live in the 11 villages in 
the NANA Region. The NANA Region is 38,000 square miles in 
size, about the size of the State of Ohio, and yet 60 percent 
of the lands within our region are owned by the Federal program 
in conservation system units established by the Federal law 
that Congress passed, the Alaska National Interest Lands 
Conservation Act. There are no roads connecting our villages to 
one another or to the rest of the State or to the lower 48 
States. Our communities are only accessible year-round by air. 
Most of our villages do have about a 3,500 foot gravel strip to 
provide their air service. Some of our communities but not all 
can receive barge service in the summer months, and in the 
winter months, our primary means of access is on snow machines. 
Three of our villages do not yet have running water.
    As you might imagine, being so remote, we deal with 
horrendous transportation costs. The cost of gasoline and fuel 
oil in some of our villages recently rose to $8 per gallon, and 
electricity costs 55 cents for kilowatt hour in northwest 
Alaska.
    Opportunities for economic development or even to develop 
alternative energy solutions to reduce the cost of living are 
substantially restricted because of the Federal conservation 
units that I mentioned earlier.
    The sole purpose of NANA is to provide benefits to its 
shareholders. As a for profit corporation, since we were 
formed, NANA has distributed very close to 100 percent of our 
profits to our shareholders. However, cash dividends are but a 
small part of the overall benefits that we provide to our 
owners. We spend part of our annual operating income to 
directly provide for social and cultural services. We also 
manage the lands that we received under ANCSA which are used 
primarily for traditional subsistence--hunting, fishing, and 
gathering activities that are critical to maintain our cultural 
identity.
    We administer programs to help increase job skills, provide 
internships, award direct scholarships, pay college tuition, 
and develop leadership and mentoring programs. We also fund 
social and cultural programs that are provided by other non-
profit organizations including search and rescue, so critical 
in the remote area that we live in, as well as other health 
services.
    As a business, we are successful in providing jobs for our 
shareholders. In 2005, 13 percent of NANA shareholders between 
the ages of 18 and 64 worked either directly for NANA or for 
one of our associated companies. These shareholder employees 
were paid $27 million in wages last year.
    When we first learned that the GAO would be looking into 
the Alaskan Native Corporations' participation in the SBA 8(a) 
program, I was confident that the GAO would find that the ANCs 
have taken their responsibility and delivered with integrity 
the services that the Government was asking us to deliver. 
After much investigation, that is exactly what the GAO report 
found. It did not cite any waste.
    Chairman Manzullo. We have some time issues here.
    Ms. Sandvik. OK. I will finish up here.
    It didn't cite any waste.
    Chairman Manzullo. You have 20 seconds on the Harry Alford 
clock.
    Ms. Sandvik. Thank you.
    In short, the GAO report found that the ANCs were living 
within the law that they provided. However, additional 
resources were needed to improve oversight.
    To conclude, we firmly believe that the 8(a) program for 
the ANCs was created by Congress for the right reason. We are 
providing business opportunities that pay dividends, provide 
scholarships, cultural program support, social service, and job 
opportunities for Native shareholder/owners of our companies. 
As demonstrated by the high performance marks we receive from 
our customers, both in the Government sector and commercial 
sector, we are providing excellent value and quality work for 
our clients.
    Thank you.
    [The prepared statement of Ms. Sandvik follows:]

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    Chairman Manzullo. Our next witness is Mr. Bart Garber 
from, is it Tyonek?
    Mr. Garber. Tyonek.
    Chairman Manzullo. Tyonek Native Corp. We look forward to 
your testimony. Thank you.

                    STATEMENT OF BART GARBER

    Mr. Garber. Thank you very much, Mr. Manzullo and Mr. Davis 
and the rest of the committee members. There will also be a 
PowerPoint up there if you like to watch things instead of 
listen.
    I am a tribal member of the Native village of Tyonek and 
the president of the Tyonek Group. Tyonek Native Corp. is a 
claims act village for the Native community of Tyonek. Tyonek 
lies about 43 miles southwest of Anchorage, and access, just 
like NANA, is limited by air and boat. No roads lead to us. We 
are called Dena'ina Beach People. About 400 of our 600 tribal 
members and tribal corporate shareholders live outside the 
village in Alaska and throughout the United States. We were 
established in 1973 and are entitled to about 200,000 acres of 
land in south central Alaska.
    For over 20 years, the company's business opportunities 
have been primarily limited to conservative passive investments 
in surface land leases. In 1995, after a long series of 
meetings with shareholders and the board, the board instructed 
us in management to acquire or begin active managed companies. 
When I was hired at Tyonek Native Corp. in 1995, I was the 
third employee. TNC owned an apartment building and a startup 
IT company. Total operating revenues that year were $500,000. 
TNC relied upon one-time asset sales and resource revenues to 
finance its operating deficits.
    Ten years later, TNC now has operating revenues now 
approaching $50 million with pre-tax profits between $1.5 and 
$2 million. The company no longer depends upon earnings from 
surface leases and resource sales to balance its books. I am 
happy to say that we have had a large number of women-owned 
businesses, Asian-owned, disabled service vets, and Black-owned 
business who have helped us get to this point through either 
joint ventures or subcontract relationships.
    In 2005, our manufacturing revenues were over $30 million 
derived from 128 negotiated task orders, about 15 percent of 
the revenue derived from non-8(a) sources. That percentage is 
actually increasing on newer work.
    In most situations, a business case must be made for all 
fixed price bids. The Government uses weighted criteria to 
determine final rates and prices. They usually have past prices 
for many items. Particularly in our obsolescence programs, our 
bids represent a significant cost savings to the Government 
over former suppliers due to our lower rates and new 
technology. We have similar experiences in our service 
contracts.
    Tyonek Native Corp. employs nearly 300 people in seven 
States.
    Our primary lines of in 8(a) business are in defense 
manufacturing and engineering services and aircraft 
maintenance. On the commercial side, we are in oil field 
services, civil construction, port operations, and land and 
resource development.
    Our CEO is an Alaska Native, and the managers of our two 
operating divisions, the Alaska Division and Tyonek Group, both 
Tyonek shareholders. Fifty percent of our Alaska corporate 
administrative staff is Tyonek shareholders. All five of our 
Alaska operating subsidiaries are managed or co-owned by Tyonek 
shareholders.
    I was CEO of Tyonek Native corporation for 9 years. In May, 
I transitioned to the role of president of the Tyonek Group 
which includes all of our 8(a) operating subsidiaries. As CEO, 
I oversaw the creation and planning for all of our 8(a) and 
non-8(a) companies.
    At the present time, our VP of operations for defense 
manufacturing is William Jolly, a Chippewa/Metis propulsion 
engineer, and our saying in the company is it does take a 
rocket scientist. Scott Pfeifer, whose family is Alaska Native, 
manages our services companies. The CEO and I are paid $200,000 
with performance bonuses that are no more than half of that, 
and they are tied directly to profit. Our management and direct 
labor staff share in bonus pools based on profit projections 
and are recovered as part of our GNA expenses.
    Our profit performance over the years has averaged about 5 
to 7 percent of gross revenues. You don't get rich in the 
Government contracting business. The company policy is to 
distribute 30 percent of after tax profits to shareholders as 
dividends. The balance of the profits are reinvested into the 
businesses.
    Benefits to our shareholders are listed below in five 
different areas: scholarship, internships, job opportunities, 
community projects, and funeral benefits. We contribute hard 
dollars, both to scholarships and internships. We have two of 
our interns from Alaska going to our operating plants in the 
lower 48 every 6 months and are getting trained as electrical 
technicians, welders, and others. Some have remained and are 
employed in our plants. We have two shareholder representatives 
who work solely on employment opportunities for Alaska Natives 
in Alaska. Nearly 100 percent of our direct labor staff in 
Alaska are shareholders.
    Community projects range from education to cultural matters 
to employment benefits for education. And, as you can see, we 
have employment, we have funeral benefits for our shareholders. 
But, by far, the most significant benefit is a stronger well-
managed company. We would never have been where we are with our 
accounting systems or our management capability without the 
8(a) program, and this benefits our businesses in Alaska. You 
can see that we have distinct lines of businesses that are 
unique to us, and we believe that those will survive over time 
in 8(a) program and allow us to compete in the outside world.
    [The prepared statement of Mr. Garber follows:]

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    Chairman Manzullo. Thank you, Mr. Garber.
    The next witness is Charles Totemoff.

                 STATEMENT OF CHARLES TOTEMOFF

    Mr. Totemoff. Honorable Chairmen, members of the combined 
Committees on Government Reform and Small Business, thank you 
for an opportunity to provide testimony to you on the topic of 
the success of the Alaska Natives participating in the U.S. 
Small Business Administration and Minority Enterprise 
Development Program, also know as the SBA 8(a) program.
    I must state that we appear with serious misgivings about 
the preconceptions of the committee members and staff. The very 
title, ``Northern Lights and Procurement Plights: The Effect of 
the ANC Program on Federal Procurement in Alaska Native 
Corporations,'' conveys a prejudice and a lack of understanding 
of Alaska Natives. I come before you today to speak directly to 
those points with facts and supported by independent 
verification by the very Federal agencies and the U.S. 
Government Accountability Office that provided testimony to you 
today.
    Again, my name is Charles Totemoff, and I am the president 
and CEO of the Chenega Corp. Chenega is an Alaska Native 
village settled thousands of years ago by our forefathers. I am 
an Alaska Native, a shareholder of the Chenega Corp., and I 
have served on the board of the corporation since 1983. I grew 
up in the village of Chenega and have been with the corporation 
from the beginning when we had nothing to provide to our elders 
and shareholders. Like my fellow Alaska Native leader sitting 
beside me, I work each day to help my people achieve self-
sufficiency.
    In the late 1980's, Congress and the SBA recognized that 
Native villages like Chenega and lower 48 tribes as well faced 
a real problem in Government contracting. Unlike other small 
businesses, they did not simply represent a family or 
partnership but were supposed to be engines of economic 
opportunity for entire communities and cultures. Changes needed 
to be made to recognize this fact and allow Native-run small 
business to grow larger, to obtain larger contracts, and to 
remain in the program longer. I recognize that these changes 
have been controversial, but they have allowed the program to 
work for Native communities that participate. We are doing 
exactly what the Federal Government told us to do, and we are 
doing it well. The program has not worked perfectly, to be 
sure, but I challenge you to show me another Federal program 
that works as well for the Native communities that agree to 
work hard and play by the rules.
    I am proud to say that eventually, as a result of much hard 
work, Chenega has been successful in the Government contracting 
business, but it was not an overnight success. There were many 
lean years as the company made the investments in time and 
resources, learning the business. Chenega Corp. was pleased to 
be a participant in the GAO audit. Chenega Corp., its 
shareholders, and the Federal customers with which Chenega does 
business are proud to relate that the GAO did not cite a single 
incident of waste, fraud, or abuse by an Alaskan Native 
Corporation, nor were the Chenega Corp. and its subsidiaries 
found to be performing any Federal contracts at below superior 
standards.
    Mr. Chairman, the SBA Native 8(a) has been around a long 
time. Nobody complained when we were simply getting contracts 
to perform maintenance at Federal facilities, but now that we 
have grown, gained expertise, and actually succeeded at getting 
Federal contracts in substantive areas, people don't want to 
see Natives at the table.
    Let me tell you about a couple of our shareholders and the 
direct impact this program has had on our lives.
    Jason Totemoff is a young Chenega Corp. shareholder and a 
full time employee of our company. He received his degree in 
Process Technology, which he was able to obtain through 
scholarships Chenega Corp. provided to him and to hundreds of 
others of our students. While attending the university, Jason 
completed a formal internship with Chenega Technology Services 
Corp. which is a Chenega Corp. subsidiary. Jason says of his 
experience, ``My experience at CTSC is nothing less than 
incredible. The skills that I have obtained will benefit me 
throughout my life and give me the possibilities to venture 
into careers I otherwise would not have.'' If it were not for 
what the Chenega Corp. provides, Jason would not have this 
option.
    Then consider Margaret Brodken, one of Chenega's revered 
elders in her late eighties. Margaret, like most Alaska Native 
elders, never worked for a corporation that would 1 day provide 
her with a pension. She relies greatly on the quarterly 
dividends Chenega Corp. provides to help pay for her groceries 
and heating bill. Margaret spoke recently at a corporation-
sponsored language preservation meeting that she is very proud 
of the corporation and what it has accomplished. I am thankful 
it is here to help care for her. Chenega will never forget our 
elders.
    Unlike most corporations, our mission has a dual purpose. 
In addition to our business execution, we use the results of 
our business to further our societal, cultural, and community 
needs and activities. Many cultures will allow others to take 
care of their people. Alaska Natives takes care of their own in 
a cultural fashion of caring and sharing.
    Chairman Manzullo. And I have to take care of the clock. 
How are you doing?
    Mr. Totemoff. I will conclude then.
    Chairman Manzullo. You have 20 Alford seconds.
    Mr. Totemoff. Pardon me?
    Chairman Manzullo. Twenty Alford seconds.
    Mr. Totemoff. OK.
    In summary, the Chenega Corp. and its subsidiaries go to 
great lengths to provide tangible benefits to the shareholder 
and their families. These benefits go beyond that of the normal 
role of a traditional corporation but reflect the special 
obligations. We do this while providing excellent service to 
our Federal customers.
    Finally, let me stress something about the SBA 8(a) 
program. It is not wealth redistribution. Despite the many 
wonderful things the program has done for our shareholders, 
this is not a welfare program. It is not a jobs program. It is 
a means by which our villages can learn to stand on their feet.
    Chairman Manzullo. I have to interrupt at that point. Thank 
you for your testimony.
    Mr. Totemoff. Thank you.
    Chairman Manzullo. The next witness is Julie Kitka with the 
Alaska Federation of Natives. We look forward to your 
testimony.

                    STATEMENT OF JULIE KITKA

    Ms. Kitka. Thank you, Mr. Chairman and members of the 
committee for the opportunity to appear before you to testify 
on the importance of the SBA 8(a) program to the Native people 
of Alaska and to offer some recommendations, and we offer seven 
recommendations.
    I am testifying in my capacity as president of the Alaska 
Federation of Natives. By way of background, AFN is the largest 
Statewide Native organization in Alaska, representing more than 
125,000 Alaska Natives residing in Alaska and more than 120,000 
Alaska Natives scattered over the rest of the 49 States. AFN 
was organized in 1966 to advocate for one voice for fair 
settlement of our aboriginal land claims.
    The discovery of oil in Prudhoe Bay and the need to bring 
clear title to the land needed to build a pipeline to bring 
that world class discovery online and the sense of urgency it 
produced in terms of providing for the energy needs of our 
country created a historic opportunity for a settlement of our 
land claims. In December 1971, after years of efforts by 
Members of the Congress, the Alaska Native leadership, and 
others, the Alaska Native Claims Settlement Act was signed into 
law by President Richard Nixon. ANCSA extinguished aboriginal 
claims, and Alaska Natives were compensated as mentioned in 
previous testimony. Unlike previous Indian land claims 
settlements, the assets, land, and resources provided for in 
the settlement in 13 regional for profit corporations and more 
than 200 village corporations.
    Today, the Alaska Federation of Natives is governed by a 37 
member board of directors, representing villages, both 
federally recognized tribes, ANCSA village corporations, 12 
regional non-profit organizations who run hospitals, health 
clinics, non-profit law enforcement, so forth, and the 13 
regional ANCSA regional corporations.
    Geographic considerations, in my written testimony, I 
describe the sheer size of Alaska and its lack of basic 
infrastructure in rural areas which makes it exceedingly 
difficult to build sustainable economies. Alaska, as you know, 
is two and a half times the size of Texas and about a fifth the 
size of the lower 48. If you look at a map that I have included 
in the testimony, when you compare it to Europe, the size of 
Alaska completely engulfs or touches within the boundaries of 
at least 16 countries from Portugal to Turkey. Alaska has one 
of the largest Native populations in the United States, making 
up about 22 percent of the total population in Alaska. If you 
take a look and think of that, the length and the logistics, 
not even to mention the Arctic conditions, you will understand 
our challenges in building sustainable economies.
    In settling our land claims, Alaska Natives gave up a lot. 
Our land holdings were significantly reduced, yet we accepted 
the settlement because we believe the United States would honor 
its trust obligation to us, and our people would benefit from 
the land capital in corporations created by ANCSA.
    I want to mention, some news articles have talked about 
whether or not the 8(a) companies are a front for somebody 
else. Alaska Natives have been involved, just enmeshed in 
capitalism, for over 34 years because our land claim settlement 
was structured by the Congress in the corporate forum. And so, 
we have had to learn to maneuver and how to make capitalism 
work and the forums of corporate structure work for our people, 
and that is a fundamental difference between us and other 
Native people within the United States. We have no 
reservations. We have no trust lands. Our whole, the viability 
of our cultures and ownership of our lands depend upon the 
viability of our corporations to maintain fiscal stability and 
in order to protect our land because it is not trust land.
    We considered the amendment on the 8(a) program to be an 
integral part of the ANCSA economic settlement, and I was 
involved in 1986 in testifying before the Congress, asking for 
the inclusion of the SBA amendment as well as a whole package 
of other amendments that we felt were absolutely essential for 
the success of the land claim settlement and for our people.
    I also want to say, Alaska Natives have lived in our 
homelands for over 10,000 years, and we continue that, and we 
are here to stay. We have a land base, and we are building our 
capacity. One of the most important things of the 8(a) 
contracting is the capacity-building, the opportunity for 
mentorship, what we are learning in how to do business--
absolute essential.
    What we have also done recently is we have commissioned a 
30-year trend analysis to see how we have done in the last 30 
years on a whole range of indicators, whether or not you are 
talking about education, health, infant mortality, life 
expectancy, and so forth. And I am here to report to you that 
we have made tremendous success in the last 30 years.
    I will give, for example, poverty rates among Alaska 
Natives. Thirty years ago, our poverty rates among our people 
were in the 60 percent plus. Now, the poverty rate among Alaska 
Natives is down to 20 percent, and that is with a population 
that increases every 23 years and doubles in its population. 
That is a remarkable achievement by any standard and should be 
something held up by the U.S. Congress and the administration 
to other parts of the world of how to reduce poverty linked to 
economic growth.
    Chairman Manzullo. We have a red light here.
    Ms. Kitka. In conclusion----
    Chairman Manzullo. You know what that means.
    Ms. Kitka. Yes.
    In conclusion, Mr. Chairman, the program is a success. We 
are proud to be a part of it. We have seven recommendations 
which we urge your consideration and which we think can make 
good economic policy for Alaska Natives, Native Americans, and 
I note for the delegate from Guam, many of those 
recommendations could specifically address some of the concerns 
that she has with the Chamorro people in Guam.
    Thank you.
    [The prepared statement of Ms. Kitka follows:]

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    Chairman Manzullo. Thank you very much.
    I think we are talking about two different things. I think 
Mr. Alford hit it on the head. It is that 8(a) was not set up 
to be a community development program. It was set up to be a 
helping hand for small, struggling businesses until they get 
their legs firmly put upon the land and develop some business 
practices and are able to go out and compete on their own. So 
we have two different things going here.
    There is a good argument, a good factual argument that 
these 8(a) exceptions have helped dramatically the Alaska 
Natives. But if you take a look at Mr. Ramos' figures of the 
Department of Defense, he said that of the contracts awarded, I 
believe that $1.1 billion goes to Alaska Native Corporations, 
$1.2 billion to African-American, and about the same to 
Hispanics. If I do the calculations, if 22 percent of the 
people in Alaska fall into the category for inclusion as Alaska 
Natives, that is about 144,000 people that are not only 
situated just in Alaska, but according to the testimony of Mr. 
Garber, 400 of the 600 live I believe outside of Alaska.
    Mr. Garber. No.
    Ms. Kitka. Mr. Chairman.
    Chairman Manzullo. Is that correct?
    Mr. Garber. No. They live in the village. They live in the 
region.
    Ms. Kitka. Mr. Chairman.
    Mr. Garber. Outside the zone. They live in the region.
    Chairman Manzullo. OK.
    Mr. Garber. Within 50 miles of the village.
    Chairman Manzullo. OK, all right. Now my question is----
    Ms. Kitka. Mr. Chairman.
    Chairman Manzullo. Yes.
    Ms. Kitka. The current census says 125,000 Alaska Natives 
within the borders of our State, 120,000 Alaska Natives 
scattered over the rest of the United States.
    Chairman Manzullo. OK. Now, as to the latter, are they 
included in the dividends that are paid by the ANCs, just based 
upon meeting the qualifications to belong to Alaska Native 
tribes?
    Ms. Kitka. Mr. Chairman, I could address that. The 
requirements in enrolling for the land claims is you had to 
meet a certain blood quantum, you had to have been alive on 
December 18, 1971.
    Chairman Manzullo. No. I understand. I am talking about the 
corporations when the dividends are paid.
    Ms. Kitka. Yes, what I am saying is when you enrolled in 
1971, no matter where you lived, if you lived if Seattle, if 
you----
    Chairman Manzullo. There are people who are Alaska Natives 
that are not working with the corporations, the ANCs, that have 
their own businesses, regardless of their wealth, that are 
still the beneficiaries simply because they belong to the 
qualifying tribe by tribal definition, isn't that correct?
    Mr. McNeil. That is so, under the Alaska Native Claims 
Settlement Act.
    Chairman Manzullo. That is right, and I am not trying to 
say there is anything wrong with that. But what I am saying----
    Mr. McNeil. There is even a----
    Chairman Manzullo. Let me finish my point. What I am saying 
is what Mr. Alford is talking about is the 8(a)'s that are 
representing the African-American and the Hispanic community 
and the others covered by 8(a), those are individual businesses 
where the owners themselves who are working, not just because 
they are members of a corporation to get the share and the 
benefit of the profits of the corporation. That is the struggle 
going on here as to 8(a) being used as a tool of economic 
development for ANCs and 8(a) being used as a helping hand up 
for the other so-called, well, for the other minorities that 
are involved in it.
    That is where we are having our problems as Members of 
Congress because to the Harry Alford and to the Hispanic 
community, they see this gross disparity of amounts of money 
going to the ANCs in terms of the awarding of the contracts as 
opposed to the other minorities. This program is working well, 
but that is not what 8(a) ever intended was to work this well 
toward just one group of people that are involved in these 
contracts.
    Mr. McNeil.
    Mr. McNeil. Yes, Mr. Chairman. Congressional policy 
certainly has evolved over time and including the advent of the 
Alaska Native Claims Settlement Act. The Native people of 
Alaska gave up quite a bit for that claims settlement, and that 
is part of it.
    Chairman Manzullo. I understand, but so did other Native 
American tribes----
    Mr. McNeil. That is true.
    Chairman Manzullo. That are not included with the special 
exceptions.
    Mr. McNeil. The other, the Native Americans are also 
included in the same program.
    Chairman Manzullo. OK, all right.
    Mr. Garber. Mr. Chairman.
    Chairman Manzullo. Yes.
    Mr. Garber. The program has evolved in community 
development. I would say that there is a strong argument to say 
that our 8(a) exception isn't necessarily pointed at community 
development. It is development of businesses and the benefits, 
and there is a larger beneficiary pool, not just the 
shareholders, but there is also descendants who all gain from 
the benefits of our scholarships and the like.
    The new HUBZone regs are all about community development in 
places that have nothing to do with Indians.
    Chairman Manzullo. I understand.
    Mr. Davis.
    Chairman Tom Davis. I have a couple questions.
    Look, nobody quarrels with the intent of the Native Claims 
Act or of the ANC. We understand what the purpose is.
    I come at it from a different point of view. I oversee the 
committee that oversees all Federal procurement. Whenever you 
let people go out with sole-source bids, we just don't think 
you get the same value as when they are competed. You talk 
about a seat at the table, and I think the comment from Mr. 
Totemoff was that people don't want to see Natives at the 
table. I want you at the table; I just don't want you to have 
your own table. We want you out there competing with these 
others, with other 8(a) companies and the like. They have 
written different rules for you, so that when we go out and you 
compete for a contract, you are in a class by yourself.
    For a Government procurement officer, a small business 
officer to go out, they can negotiate just with you and other 
8(a)'s but you count against 8(a) percentages and everything 
else, and it just makes it a little too neat and convenient. 
That is the concern.
    We are trying to figure out what the best way is. There is 
a cost to the Government for doing that. We are just trying to 
take a look at it in this context. I don't think anybody, any 
ANC has abused the process. These were the rules that were 
written. You are doing what you ought to be doing. I just think 
on the Government side sometimes, as this has grown, it has 
grown at the expense of people who could have been in there 
bidding and offering the best deal.
    Mr. Alford.
    Mr. Alford. Congressman Davis, it is rather hideous to hear 
Mr. Ramos say that everything is on par because they all have a 
billion a piece. Forty million African-Americans, forty million 
Hispanics, the population of Alaska Natives, less than half the 
district, any one of your Districts, and they are on par? For 
the gentleman to say, well, I just made $200,000 a year. Ninety 
percent of my constituents would love to make $200,000 a year.
    Chairman Tom Davis. I wouldn't mind it.
    Mr. Alford. Thank you. I am wondering about the reality of 
the whole thing.
    One last thing, Akima has been mentioned--Charlotte, NC, 
spawned in Charlotte, NC. Look at the Katrina rebuilding and 
the ANC involvement--Norfolk, VA; Greenbelt, MD.
    Chairman Tom Davis. They have some in my District, too. Let 
me just say----
    Mr. Alford. Are they Alaska Natives?
    Chairman Tom Davis. Well, the shareholders are Alaska 
Natives and that is where the money goes. The profits go back 
into Alaska.
    Mr. Alford. They are not Alaska Natives though.
    Chairman Tom Davis. The employees may not be, but the 
owners of the corporation, as I understand, are Alaska Natives, 
and it gets channeled back there. I don't think there is 
anything improper about that, but here is what concerns me. 
What concerns me is, again, getting the Government's best 
value.
    Mr. Waxman brought this up earlier. Henry and I don't agree 
on everything with Government contracting, but he has been very 
consistent in saying that we should not be doing a lot of sole-
source contracting, no-bid contracting where you are just 
sitting across the table with one company and a Government 
negotiator. You ought to have other companies there. The 
difficulty on the ANCs is you are not at the table. Your 8(a)'s 
aren't at the table. Other 8(a) aren't at the table. Other 
large companies aren't at the table. We think in competition, 
ANC still may end up getting the work. They do a lot of good 
work, but we just think the Government is going to get a better 
value if they do that.
    That is my point. If you take exception to that, but that 
is----
    Mr. Garber. Mr. Chairman, I am one of the few at the table 
actually who actually operate these companies, and I am right 
there. We have substantial cost savings to the Government in 
multiple millions of dollars in manufacturing. For the most 
part, our primary areas in the 8(a) are heavy-duty aircraft 
maintenance of jets and helicopters. We have very, very few, if 
any, small businesses who do that. We do----
    Chairman Tom Davis. Do you object to competing?
    Mr. Garber. We are actually beating large business and the 
proof in the pudding is that large business, after a number of 
years, is coming to us to subcontract because our rates are 
cheaper and we are----
    Chairman Tom Davis. But you shouldn't be afraid of 
competition, that is all I am saying.
    Mr. Garber. Over time, I wouldn't be, except that, as you 
know better than I do, large businesses can do any number of 
different contracts.
    Chairman Tom Davis. I wouldn't mind you competing against 
other 8(a)'s. That would be fine. The difficulty is that their 
threshold for sole-source is $3 million or $5 million, and you 
have no threshold.
    Mr. Garber. In most situations, there are reasons why we 
have actually avoided the pools of under five and under three.
    Chairman Tom Davis. Let me ask you this. How many contracts 
do you have that are open contracts that are basically open to 
everybody?
    Mr. Garber. We compete almost 100 percent right now of our 
services contracts in small business competes.
    Chairman Tom Davis. But you are small business. How many 
contracts have you won that are full and open?
    Mr. Garber. On the services side, on the manufacturing 
side, like I said, 10 to 15 percent. On the services side, we 
have only been bidding for the last 9 months.
    Chairman Tom Davis. So you are new. In time, you think you 
can move to that, is what you are saying.
    Mr. Garber. Yes.
    Chairman Tom Davis. Let me ask you the others. I am not 
advocating it. I am just trying to get a flavor for how many 
contracts you are winning in the open marketplace.
    Mr. Garber. Well, I also, you are making the point that we 
are losing money for the Government. We are winning. Our rates 
are about one half to two-thirds big businesses.
    Chairman Tom Davis. Well, if they are, why can't we compete 
it against others, if your rates are so good?
    Mr. Garber. Because the effect of these things on us is 
that big business is being protected from us.
    Chairman Tom Davis. Why in the world can't you compete 
against other small businesses?
    Mr. Garber. Because they can't do what we do.
    Chairman Tom Davis. Then you are not afraid of competition. 
My point is a very simple one. We can compete against you in an 
8(a) pool, and you would be treated like other 8(a)'s. The 
difficulty isn't that we don't want you at the table. We want 
you at the table. We would just like to have other people at 
the table. That is the only concern.
    I don't want to upset something that is working for Alaska 
Natives. Congressman Young, I think made a very eloquent 
presentation today about what this is doing, going back 
historically. We are not trying to upset the whole thing, but 
there is a concern, at this committee level, whenever anybody 
is given these no-bid contracts and you are sitting across with 
a Government negotiator. I did this for a living for 20 years. 
I understand the way it works.
    If you have a couple other companies there with you, small 
businesses if they can find them, but right now, they are 
prohibited from looking at them because they have a threshold. 
For Mr. Alford's company, it is $3 million to $5 million. When 
you are sitting down with a $30 million, you are the only guys 
in town, and that is the concern. I just say that.
    Now you do a lot of good work. This is the right way to do 
it. You are earning your way. You have done nothing wrong. You 
are operating under rules that we have written. Our question 
is: Should we revisit the rules a little bit and tweak them a 
little bit, so maybe we can include a little bit more 
competition, not from the large companies but maybe from other 
small companies in this pool?
    Mr. Garber. That is my problem, and I guess that is the 
point that you don't understand, that the vast majority of all 
the source contracts, sole-source contracts are big business. 
They are not small business, and they are not us. In the time 
that we have been speaking----
    Chairman Tom Davis. I agree with that.
    Mr. Garber [continuing]. At this hearing, there are more 
sole-source contracts----
    Chairman Tom Davis. Let me tell you something. This 
committee has jumped all over other agencies, just so you 
understand, because of sole-source, even in emergency 
situations. We have four areas in Iraq. So I don't need a 
lecture from you to tell me what we are doing on that.
    Mr. Garber. Oh, I am sorry.
    Chairman Tom Davis. We are going after sole-source and 
these no-bid contracts everywhere. So this is a small piece of 
that. I am asking you, though, if you could compete with other 
small businesses, that is OK, isn't it? You can beat them 
straight up, can't you?
    Ms. Bordallo. In our areas, it would be a concern. We do 
now, and there are not that many who can do what we do.
    Chairman Tom Davis. So you ought to be OK, and that is the 
concern. The difficulty is that a lot of small 8(a) businesses 
can't compete with you because of the size limitations that 
they have that you don't have.
    Mr. Garber. That is not the reason they can't compete with 
me. Not many mom and pop's maintain jets and not many mom and 
pop's have the manufacturing organizations.
    Chairman Tom Davis. Then that is fine. That is fine. I 
don't have a problem with that, but in some of the IT and some 
of the other areas, there certainly are competitive parts to 
this.
    Mr. Alford. Sir, I would like to introduce him to some 8(a) 
firms who do maintain jets.
    Chairman Tom Davis. Well, I think the Government can find 
them if they do it, and if they can find them, I think you are 
still going to win a lot of contracts.
    Mr. Garber. We compete against that.
    Chairman Tom Davis. I still think you are doing a lot of 
good. That is my only point.
    Ms. Sandvik. Excuse me, a couple of points I would like to 
make. No. 1, there seems to be some question about whether it 
is appropriate to have different caps, limits placed, and that 
somehow or another, there is a suggestion that is inappropriate 
for Alaskan Native Corporations to not be subject to the same 
caps that some of the smaller, individually owned businesses 
are.
    Frankly, we believe it is absolutely appropriate. As I 
mentioned in my testimony, there are 11,200 beneficiaries of 
all of NANA's business efforts, and so we distribute our 
profits amongst 11,200 people. If we were held to the same 
threshold as the $3 million, and we earned a typical margin on 
that work of 5 percent, that means $150,000 would be 
distributed to 11,200, yielding a $13.15 return.
    Chairman Tom Davis. Ms. Sandvik, in a vacuum, you are 
right, but here is the practical side of it. We drive these 
procurement officers to meet a certain percent and threshold of 
8(a) contracts that they are letting out. Because it is so easy 
for them to go no-bid, sole-source to you, basically they don't 
give it to other people, and that is the difficulty with this. 
So we want to try to figure out a way out of it. It is an 
unintended consequence.
    I am not griping or complaining about what you are doing 
and the way this has come about. I am just saying I think it 
always works better for the Government when we are looking at 
contracts to have two or three potential bidders out there. If 
we can find two or three ANCs, that would be fine. I would feel 
better about that, but we can't. The record shows that we 
haven't been able to do that. This is driving some fairly large 
procurements at this point. That is the concern.
    I think some of the other concerns, I think you have 
addressed very well today, but that is the concern.
    Mr. Waxman. Thank you.
    Mr. Totemoff, let me ask you some questions about a TSA 
contract for maintenance of airport screening equipment. This 
is a contract that Chenega sought but did not receive.
    In late 2004, TSA planned to hold a competition for this 
contract, and the plan was for companies to submit informal 
white paper proposals before a formal request for proposal was 
sent to a smaller number of select contractors. Both Chenega 
and Siemens were among the contractors that made it to the 
second round, is that correct?
    Mr. Totemoff. Yes, I believe so.
    Mr. Waxman. At this point, the competition was halted 
because of political pressure. According to a November 1, 2004 
e-mail from Lee Kair, the Acting Assistant Secretary for 
Acquisition, the entire Alaska congressional delegation was 
pushing for Chenega to receive the work under a no-bid contract 
it had with Customs and Border Patrol. The e-mail states, 
``Staff from these offices have been adamant that we evaluate 
an option using a CBP contract with Chenega for similar 
services.'' Then the other documents confirm that TSA officials 
met with the staff of the two Senators from Alaska on October 
19, 2004.
    Mr. Totemoff, did Chenega ask the Alaska delegation to 
intervene with TSA on Chenega's behalf?
    Mr. Totemoff. I am not aware of any such thing.
    Mr. Waxman. What specifically did you ask them to do?
    Mr. Totemoff. I really don't recall the TSA contract.
    Mr. Waxman. Then if you didn't ask them, the two Senators 
and a Congressman just decided on their own to begin pressuring 
TSA to consider giving the work to Chenega without a 
competition.
    Mr. Totemoff. Maybe.
    Mr. Waxman. That is what happened. Do you think that is 
what happened?
    Mr. Totemoff. It is possible.
    Mr. Waxman. The documents also show that TSA succumbed to 
this political pressure by giving Chenega special access to 
present its no-bid plan to TSA. Is that true? Did Chenega make 
a presentation about its proposal to a TSA panel on November 
29, 2004.
    Mr. Totemoff. I don't recall that far back, no.
    Mr. Waxman. 2004?
    Mr. Totemoff. Yes.
    Mr. Waxman. November? Well, according to the TSA documents 
obtained by the committee, Chenega proposed using Siemens as 
its subcontractor. A November 24, 2004 memo from Mr. Kair said, 
``Chenega stated that Siemens would deliver 100 percent of the 
technical effort.'' In other words, Siemens ``will execute the 
technical work under Chenega's management.''
    Is that right, Mr. Totemoff? Did Chenega propose to have a 
large non-Native subcontractor do all of the actual maintenance 
work?
    Mr. Totemoff. I don't recall again. I don't recall those e-
mails that you are referring to.
    Mr. Waxman. Do you recall this whole issue of this 
contract?
    Mr. Totemoff. I recall we didn't receive the contract.
    Mr. Waxman. In this case, TSA ultimately resisted the 
political pressure because it didn't think a no-bid contract to 
Chenega would be a good deal for the taxpayer. Mr. Kair, the 
acquisition official, wrote, ``While it asserted that it was 
convinced it could save over the current prime, Chenega was 
unable to demonstrate knowledge of current costs or provide a 
projected order of magnitude of savings.'' In addition, he 
concluded, ``Sole-source negotiations simply cannot yield the 
kind of savings or pressure that the market brings to bear.''
    On November 29, 2004, TSA announced that it was resuming 
the competition. Siemens ultimately received the contract on 
March 1, 2005.
    Mr. Totemoff, do you think it makes sense to award Federal 
contracts on the basis of who has connections to Members of 
Congress?
    Mr. Totemoff. I don't believe so.
    Mr. Waxman. Although Chenega didn't receive this contract, 
this is a disturbing case. An ongoing competition was halted 
due to political pressure. This is not supposed to happen in 
our procurement system.
    This contract highlights another major drawback of a no-bid 
ANC contract. In the absence of competition and with a clear 
criteria for selecting contractors, contracting officials are 
susceptible to political pressure and lobbying. What I 
described is an unsuccessful effort, but nevertheless it raises 
the question of if you don't have competition, then the 
pressure is on to maybe give political favors to a bidder which 
means the taxpayers don't get the benefit of competition and 
the procurement people feel they better go along with the 
political pressure, even though the taxpayers may not get the 
best deal.
    Mr. Totemoff. I think our corporation is ethically far 
better than that. I mean from my viewpoint, as being the 
president and CEO, I tell all my managers that we are going to 
either do things above board and always do the right thing.
    Mr. Waxman. Do you think it was reasonable to have a 
contract that you wouldn't be handling but Siemens would be 
handling and then get it on a no-bid basis?
    Mr. Totemoff. Again, I don't recall the final negotiations 
of the TSA contract. What I do recall is we didn't get it.
    Mr. Waxman. Thank you.
    Thank you, Mr. Chairman.
    Chairman Manzullo. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Totemoff.
    Mr. Totemoff. Yes.
    Ms. Velazquez. You know you made a comment about the fact 
that this is all about people not wanting to see Native 
Americans at the table. You are totally wrong. We in Congress 
are in the business of making sure that things are done the 
right way and if there are fixes that need to be done, that is 
our responsibility. Since SBA has not taken oversight seriously 
for the last 5 years, we need to make sure the taxpayers' 
moneys are protected.
    Mr. Alford, agencies want to buy things the fastest and 
easiest way possible. If agencies were split off from the 8(a) 
program, agencies will have the choice of the 8(a) program with 
no contract dollar limit or 8(a) with its restriction on the 
company, the owner, and the contract. Even considering civil 
rights implications and the possibility of not achieving 
contracting goals, which are limited multi-weighted factors, 
wouldn't we be setting up a situation where contracts would 
disappear from the 8(a) program in a monumental fashion, even 
faster than they are now.
    Mr. Alford. Congresslady, the best agency that uses 8(a) 
contracting programs and has the best results and diversity is 
HUD, and Secretary Jackson will tell you: I use the 8(a) 
program to make sure we have diversity in HUD. They are the 
best agency, and I don't see ANCs proliferating over there 
because they use the true spirit of the 8(a) program.
    God bless ANCs and give them half the Federal treasury if 
he deems necessary, but let them have a program that does not 
prey on Hispanic, African-American, and Asian 8(a) companies. A 
$2 billion increase, ANC; $2 billion increase, other 
ethnicities. There is a direct correlation there.
    Ms. Velazquez. Again, as you know, ANCs are able to receive 
multimillion or billion dollar contracts without competition. 
The rationale for that was to encourage economic development 
that we all support. Given this, do you think we should be 
making sure that the profits from these contracts are used for 
the stated purpose of economic development and not to line the 
pockets of executives who have nothing to do with Native 
Alaskan communities?
    Mr. Alford. Absolutely, and my concern in this whole thing 
came out of these ANC ``companies'' in the good old South and 
going to their facilities, not seeing one Alaska Native and 
seeing billion dollar companies that have a subsidiary arm 
called an ANC that is feeding the other companies of this 
conglomerate. So I think there should be some serious auditing 
done to see exactly where is the money done.
    Ms. Velazquez. Thank you.
    Ms. Sullivan, can you talk to the committees a little bit 
about how ANCs serve as enablers for agencies to do more 
contract bundling?
    Ms. Sullivan. I had a difficult time hearing you. Would you 
mind repeating the question?
    Ms. Velazquez. Can you talk to the committees a little bit 
about how ANCs serve as enablers for agencies to do more 
contracting bundling?
    Ms. Sullivan. The larger the contracts that they are 
allowed to award, the more bundling that we think happens. So, 
because the ANCs do not have the same limitations that other 
8(a) companies do in terms of sole-sourcing, I think that it is 
pretty clear there is a trend toward larger contracts.
    Ms. Velazquez. What do we need to do about this?
    Ms. Sullivan. You know, there are a lot of recommendations. 
The President, in 2002, in his contract bundling initiative, 
laid out nine steps. But it seems, and the 2005 SBA IG audit, 
they are saying that SBA failed to create a statutorily 
required data base for tracking bundled contracts. The agencies 
have told the GAO that the definitions are complex and unclear. 
And so, there is a lot of work, in our opinion, that needs to 
be done by the agencies to make sure that contract bundling is 
properly reviewed.
    Ms. Velazquez. In what way do you think the definition of 
bundling should be modified?
    Ms. Sullivan. You know, I have the definition somewhere 
here in my papers, but it is very, very long and it is a number 
of pages. I would like to be able to come back to you with that 
answer because I think that takes some serious review on our 
part.
    Ms. Velazquez. Thank you.
    Mr. Chairman, I just would like to add for the record that 
we have in the 8(a) program, 9,700 8(a) firms and 154 8(a) 
ANCs. That get 13 percent of all the 8(a) contracting dollars. 
Less than 2 percent of the 8(a) contracts go to the ANCs. The 
problem here that we have is, to have a level playing field, 
the ANCs, without competing and sole-source, which the rest of 
the minorities who are under the 8(a) program do not have. How 
can we benefit or allow for the 8(a) contractors, minority 
contractors to have a level playing field, so that we allow for 
them to have access to the fair marketplace?
    There is no level playing field, and I think we need to 
look into ways legislatively that we can address that 
imbalance.
    Thank you.
    Chairman Manzullo. Mr. Alford and Ms. Sullivan, actually 
anybody, can you describe to me a typical 8(a) company?
    Mr. Alford. Over the last 5 to 6 years, a typical 8(a) 
company, a college graduate with Fortune 1000 experience and a 
specific degree, usually family owned, husband and wife, two 
brothers, with skill sets that identify them as probably going 
to be successful, just need to get into the program and get 
that break and get that experience and they grow.
    One of our larger companies, S.R. Smoot Corp., a 
construction company, has been around since 1946. Lewis Smoot, 
second generation, comes out of Michigan State with an 
engineering degree and convinces his father and uncles that 
they can take this company farther if they employ the right 
people and do the right thing. He convinces them to get into 
the 8(a) program in the 1970's. Today, they do about $800 
million in construction and do a lot around here in Washington, 
DC.
    Chairman Manzullo. Are they still 8(a)?
    Mr. Alford. Oh, no. They graduated years ago. But I am 
saying and as I said in my report, most of these 8(a)'s, when 
they graduate, are probably going to spell big success, the 
ones who are getting the contracts and know how to market and 
get through it. There are many 8(a)'s, and that is becoming 
less and less, who rely totally on the 8(a) program and don't 
prepare for graduation. But today that curve is changed, and as 
I said in my testimony, the majority of our businesses who have 
succeeded are 8(a) graduates.
    Chairman Manzullo. Do you know of companies that lost 
contracts to 8(a) ANCs?
    Mr. Alford. I know companies that are livid. Jerry Harris, 
Cirrus Technology, Huntsville, AL, you would have to arrest him 
if he came into this room right now today. He couldn't control 
himself. He has lost many millions of dollars. He is 8(a). He 
is African-American.
    Chairman Manzullo. How many employees?
    Mr. Alford. Probably at the top, 100. Disabled veteran, top 
secret clearance, Vietnam Vet, can do maintenance on jets, but 
he is livid about the contracts that he has lost. He calls me 
monthly. What are we going to do about the ANCs?
    I think what we have here, you have apples and oranges, and 
they have a serious situation, but it is not similar to the 
situation of a typical 8(a). So, why are they in the same 
arena? Why can't Congress come up with a program specific for 
the ANCs that doesn't create them as being predators to the 
traditional 8(a) company.
    Chairman Manzullo. The other Native American tribes do not 
enjoy the same exceptions.
    Mr. Garber. Yes, they do.
    Chairman Manzullo. Do they, under the $5 million and $3 
million? They don't take advantage of it.
    Mr. Alford. Let me, something I am kicking around, there 
are African-Americans Indians, Pequots in Connecticut, plenty 
in Oklahoma. I am going to get some of them into the ANC 
program and then probably it will go away when that happens.
    Chairman Manzullo. I just have one other question. There is 
a reason for this hearing, and that is that members from across 
the Nation have approached me and Mr. Davis about why there are 
8(a)'s who are not even 8(a)'s. We are outside the realm of 
8(a)'s with regard to competition.
    If I look at the demographics, the population of Alaska in 
2004 is 655,435. The Natives, and this is according to the 
Government definition, is 96,505 or 15.4 percent. The 8(a) 
program has evolved into something that it was never intended 
to do. This is coming from Congress that we are in a position 
where obviously we represent our congressional districts, but 
as a whole, I see this going in the wrong direction. It is 
self-destructive, and it could end.
    It could be big problems for the future of the 8(a) 
program, if the complaints continue to come this way from the 
8(a) participants themselves. They are wondering, why even have 
an 8(a) program when 13 percent of the contracts are going to 
154 companies representing 96,000 people as opposed to 9,700 
companies representing tens of millions of others that come 
within the definition of minorities within the 8(a). That is 
the reason for the hearing.
    Nobody here is picking on the Native Americans in Alaska. 
That is not the purpose of the hearing. It is to show that 
there are huge concerns, and the message has been very clear. 
That is that the industry itself ought to take a serious look 
at trying to resolve this issue. The last thing you want to do 
is have Congress try to fix it and foul it up again because 
this place is notorious for trying to fix issues like this one 
which have to be resolved within the industry.
    I have no further questions.
    Mr. Waxman, did you have any questions?
    Mr. Waxman. Yes.
    Mr. McNeil. Can I comment on the equal playing field issue?
    Chairman Manzullo. Yes, sir.
    Mr. McNeil. I think the story is incomplete here in the 
sense that comparing our owners and constituents of Native 
people as tribal members with the very large numbers of other 
minority groups because it would be the same and it would be a 
good analogy, if in fact those 9,700 individual entrepreneurs 
distributed all the benefits to 40 million people, and they 
don't. That is an obligation that we have to essentially 
distribute the benefits to our people, and we have done it. I 
think there is very good evidence of that.
    But I think that is a very important fact here because if 
there was that sharing that went out to a broad base of people, 
then I think the analogy would make some sense.
    Ms. Velazquez. May I ask you a question?
    Mr. McNeil. Yes, ma'am.
    Ms. Velazquez. In any given contract, can you give 49 
percent of the contract profits to a non-Alaskan executive?
    Mr. Garber. Any 8(a) can do that.
    Mr. McNeil. Yes, any 8(a) can.
    Mr. Garber. Us or the individually owned ones, that is an 
8(a) regulation not unique to Alaska Natives.
    Mr. McNeil. Let me clarify that as well.
    Ms. Velazquez. I don't think that is the intent of the law.
    Mr. Garber. The law applies to all 8(a)'s.
    Mr. McNeil. Representative Velazquez, there is a mentor-
protege program that does allow participation in a partnership, 
and I believe the question here is really what benefit occurs 
in that kind of partnership. The benefit that we, as Alaska 
Native people, as tribes, achieve in those partnerships is that 
they build capacity in our companies that we don't have or in 
our people because it provides a level of expertise that we are 
able to develop over a period of time. I think that is one of 
the key intents of those relationships which are permissible 
under the law and regulations.
    Chairman Manzullo. Yes, Ms. Kitka.
    Ms. Kitka. Mr. Chairman, I just had one comment. You raised 
earlier the concern about the jobs leaving the country, going 
into other countries and the loss of jobs. Our recommendation 
No. 3 addresses that, and it is, we put that forward with the 
good will that what we would like to see this committee, this 
joint committee do is expand the economic pie for Alaska 
Natives, Native Americans, other minorities in this country and 
not pit us against one another.
    We very carefully calculated some different recommendations 
which we think would be very, very timely. This one in 
particularly, especially taking a look over the past months of 
the controversy of Dubai on wanting to take over the ports, on 
that, we have spent some time studying what they were doing. 
They were building a first of its kind, world class outsourcing 
tax/trade-free zone. For U.S. businesses, including homegrown 
ones like Alaska Natives, for us to be competitive in the 
global economy, we need to be able to match up on that.
    I really strongly commit, strongly urge the committee to 
take a look at our recommendations and look at how to expand 
the economic pie and how to create incentives that will benefit 
Hispanics, African-Americans, Alaska Natives, Native Americans. 
There are ways to solve some of these issues and these 
conflicts by expanding the opportunities as opposed to pitting 
us against each other. So I just respectfully urge you to 
consider some of these things.
    We are very concerned about the jobs leaving the United 
States and would like to really engage in some talking about 
how do we create more economic opportunities; how do we make 
American companies more competitive in the global economy; and 
how do we grow the investment climate in our country, so that 
we become magnets for these jobs as opposed to them going over 
to India or China or other places as well.
    So, thank you very much.
    Mr. Alford. Mr. Chairman.
    Chairman Manzullo. Yes, sir.
    Mr. Alford. Take $2 billion from our community and then 
say, now, let us get along. It is a cancer to us, and we are 
not going to get along with it.
    And I was saying about the size of the populations, how 
ludicrous it would be if my constituents had that same scale. I 
am not asking for it. I think it is crazy. But, as the scale 
clearly shows, it is a different animal from us. We are 
different animals. We don't belong in the same corral.
    Chairman Manzullo. Well, I hate to end on that note, Harry.
    You all have been extremely gracious with your time, 
extremely sincere, and I appreciate your testimony. I certainly 
want to thank the witnesses for coming today, especially those 
who have traveled from a great distance.
    The committees stand adjourned.
    [Whereupon, at 4:34 p.m., the committees were adjourned.]
    [The prepared statement of Hon. Elijah E. Cummings and 
additional information submitted for the hearing record 
follow:]

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