[Senate Hearing 111-250]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-250

         CONTRACTING PREFERENCES FOR ALASKA NATIVE CORPORATIONS

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

                                HEARING

                               before the

              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 16, 2009

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs







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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           JOHN McCAIN, Arizona
MARK PRYOR, Arkansas                 GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                       CLAIRE McCASKILL, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
THOMAS R. CARPER, Delaware           TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
MICHAEL F. BENNET, Colorado
                     Margaret Daum, Staff Director
                Molly Wilkinson, Minority Staff Director
                       Kelsey Stroud, Chief Clerk












                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator McCaskill............................................     1
    Senator Collins..............................................     2
    Senator Tester...............................................     4
    Senator Akaka................................................     9

                               WITNESSES
                        Thursday, July 16, 2009

Hon. Mark Begich, a U.S. Senator from the State of Alaska........     5
Hon. Lisa Murkowski, a U.S. Senator from the State of Alaska.....     6
Debra Ritt, Assistant Inspector General, Auditing, Office of 
  Inspector General, U.S. Small Business Administration..........    11
Joseph Jordan, Associate Administrator, Government Contracting 
  and Business Development, U.S. Small Business Administration...    13
Shay Assad, Acting Deputy Under Secretary of Defense, Acquisition 
  and Technology, Director of Sefense Procurement, U.S. 
  Department of Defense..........................................    14
Sarah L. Lukin, Executive Director, Native American Contractors 
  Association....................................................    24
Jacqueline Johnson-Pata, Executive Director, National Congress of 
  American Indians...............................................    26
Julie Kitka, President, Alaska Federation of Natives.............    28
Mark Lumer, Senior Vice President, Federal Programs, Cirrus 
  Technology, Inc................................................    31
Christina Schneider, Chief Financial Officer, Purcell 
  Construction Corporation.......................................    33

                     Alphabetical List of Witnesses

Assad, Shay:
    Testimony....................................................    14
    Prepared statement...........................................    62
Begich, Hon. Mark:
    Testimony....................................................     5
Johnson-Pata, Jacqueline:
    Testimony....................................................    26
    Prepared statement with an attachment........................    93
Jordan, Joseph:
    Testimony....................................................    13
    Prepared statement...........................................    58
Kitka, Julie:
    Testimony....................................................    28
    Prepared statement...........................................   110
Lukin, Sarah L.:
    Testimony....................................................    24
    Prepared statement...........................................    69
Lumer, Mark:
    Testimony....................................................    31
    Prepared statement...........................................   122
Murkowski, Hon. Lisa:
    Testimony....................................................     6
Ritt, Debra:
    Testimony....................................................    11
    Prepared statement with attachments..........................    49
Schneider, Christina:
    Testimony....................................................    33
    Prepared statement...........................................   124

                                APPENDIX

Hon. Don Young, a U.S. Congressman from the State of Alaska, 
  prepared statement.............................................   127
Letter from Sarah Palin, Governor of Alaska, and Sean Parnell, 
  Lt. Governor of Alaska, dated July 23, 2009....................   131
Letter from Kirsten E. Gillibrand, a U.S. Representative from the 
  State of New York, dated July 30, 2009.........................   136
``New Information About Contracting Preferences for Alaska Native 
  Corporations (Part I and II),'' Majority Staff Analysis, 
  prepared for Chairman Clare McCaskill..........................   138
Report submitted by Ms. Kitka, ``Status of Alaska Natives 2004''.   161
Questions and responses submitted for the Record from:
    Ms. Ritt.....................................................   181
    Mr. Jordon...................................................   183
    Mr. Assad....................................................   191
    Ms. Lukin, with attachments..................................   195
    Ms. Johnson-Pata.............................................   213
    Ms. Kitka....................................................   215
    Mr. Lumer....................................................   219
    Ms. Schneider................................................   223

 
         CONTRACTING PREFERENCES FOR ALASKA NATIVE CORPORATIONS

                              ----------                              


                        THURSDAY, JULY 16, 2009

                                   U.S. Senate,    
          Ad Hoc Subcommittee on Contracting Oversight,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Claire 
McCaskill, Chairman of the Subcommittee, presiding.
    Present: Senators McCaskill, Tester, Akaka, and Collins.
    Also Present: Senators Begich and Murkowski.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. The hearing will come to order. Today's 
hearing will examine the contracting preferences for Alaska 
Native Corporations. Federal contracting laws create a limited 
privilege for economically and socially disadvantaged small 
businesses. Under the Small Business Administration's 8(a) 
program, these businesses can receive no-bid contracts for up 
to $3.5 million for services and $.5 million for manufacturing 
or goods.
    In the 1980s and the 1990s, Congress created special 
preferences for the Alaska Native Corporations that allow them 
to participate in the 8(a) program in a way that is not 
identical to other small businesses. But Congress has said that 
Alaska Native Corporations do not have to prove that they are 
socially or economically disadvantaged. They do not have to be 
small businesses, and they can receive no-bid contracts worth 
billions of dollars.
    No one begrudges giving small, disadvantaged businesses a 
chance to win Federal contracts. We have programs like 8(a), 
HUBZone, and the Service-Disabled Veteran-owned businesses 
because we want these small businesses to be able to get their 
foot in the door. But the Alaska Native Corporations have used 
their special preferences to bust the door down.
    To get to the real facts at issue in this hearing, I 
requested detailed information from 19 Alaska regional and 
village corporations. The Subcommittee staff has prepared an 
analysis of this information and a separate analysis of 
publicly-available contracting information. And without 
objection, I will enter both analyses into the hearing 
record.\1\
---------------------------------------------------------------------------
    \1\ The information submitted by Senator McCaskill appears in the 
Appendix on page 138.
---------------------------------------------------------------------------
    The Subcommittee staff's analysis shows that Alaska Native 
contract awards have skyrocketed since 2000. Alaska Native 
Corporations are now among the largest Federal contractors, 
with hundreds of millions in annual revenues and hundreds of 
subsidiaries and joint ventures. According to the information 
submitted by the 19 ANCs, none of them would be classified as 
small businesses under SBA regulations.
    The Alaska Native Corporations may also be passing work 
through to their subcontractors. They employ relatively few of 
their shareholders and rely heavily on non-Native managers.
    We will hear today from representatives of the Alaskan 
Native people and the Alaskan Native contractors, who will tell 
us that sole-source contracting is needed to provide important 
benefits to impoverished people. But we must take a hard look 
at the numbers. Only about $615 a year in money, scholarships, 
and other benefits goes back to each member of the Alaskan 
Native community from this particular Federal contracting 
effort.
    The American people are looking to Congress to cut back 
wasteful spending and make sure that every single Federal 
dollar is spent wisely. And there must be a strong bias in 
favor of competitive contracts that only compelling rationale 
should ever overcome, and then in very limited circumstances.
    As we hold hearings in the Subcommittee on waste, fraud, 
and abuse in government contracts, we cannot give anyone a free 
pass. The Alaska Native Corporations have had, and I have seen 
firsthand over the last few weeks, a very vocal group of 
advocates. But our responsibility is to look out for the 
taxpayers, not these corporations and their profit margins, or 
any other Federal contractor, or any other special interests. 
From the taxpayer perspective, it is hard to see why the Alaska 
Native Corporations should be able to receive enormous 
contracts with no competition.
    When this Subcommittee was formed, we made a commitment to 
the taxpayer. Our priority would be promoting efficiency, 
transparency, and accountability. Our goal is to make sure that 
every taxpayer dollar is spent wisely in the contracting arena. 
By taking a hard look at contracting loopholes like those for 
the Alaska Native Corporations, we can take the first step 
towards ensuring that our contracting system provides the best 
possible value for the taxpayer.
    Eliminating waste, fraud, and abuse in government 
contracting is not a partisan issue. And on this Subcommittee, 
I am particularly grateful to have Senator Collins as a Ranking 
Member. Senator Collins has a long record of working in the 
contracting and procuring arena. She shares my commitment to 
promoting competition in contracting and ensuring the best 
value for the taxpayer.
    I yield to Senator Collins for her statement.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you very much, Madam Chairman. I 
very much appreciate your kind comments and your hard work and 
leadership as the Chairman of this Subcommittee.
    Today, as the Chairman has indicated, the Subcommittee 
examines the benefits afforded Alaska Native Corporations 
(ANCs), in the Small Business Contracting program for socially 
and economically disadvantaged small businesses, known as the 
``8(a) program.''
    The recent report of the SBA's inspector general has raised 
several troubling issues concerning the ANC program, including 
whether other minority-owned small businesses are being treated 
fairly given the special benefits afforded ANCs. As we examine 
the ANC program, it is important that we recognize our 
commitment to the growth and prosperity of small businesses and 
to the well-being of our Native Americans, including Alaska 
Natives. In particular, we should consider how the 8(a) program 
has helped to support our Nation's minority-owned small 
businesses by giving them the opportunity to participate in 
Federal contracts.
    In 1978, Congress first established the current 8(a) 
program. Beginning with protections for Black Americans, 
Hispanic Americans, Native Americans, and other minorities, 
Congress has revised and expanded the program over time, 
including in 1986 when Indian tribes and ANCs were added.
    Over the last half century, whether by Executive Order or 
by Legislative action, the government has acknowledged the 
value in encouraging the growth and expansion of small 
companies and promoting minority-owned small business 
participation in government contracting.
    In passing the Alaska Native Claims Settlement Act in 1971, 
Congress recognized Alaska Natives' aboriginal land claims to 
large portions of Alaska, and in return, permitted Alaska 
Natives to establish unique corporate structures, the ANCs, to 
manage their affairs. ANCs were established to be stewards of 
the land and to help Native Alaskans.
    The ANCs, whether they are large regional entities or the 
smaller village corporations, help to provide leadership for 
developing the land's natural resources, provide scholarships, 
and offer employment opportunities to the members of the 
Alaskan tribes and villages. ANCs are a way for many Natives to 
continue to live in Alaska.
    Today, however, the SBA's IG has produced some disturbing 
statistics that raise difficult questions regarding the scope 
of the protections afforded ANCs. These issues the Chairman has 
outlined in her opening statement, but let me just touch on 
some of them.
    First, the IG noted that the total value of 8(a) ANC awards 
soared from $265 million in Fiscal Year 2000 to $3.9 billion in 
Fiscal Year 2008. Of additional concern, the IG found that 82 
percent of these ANC contracts were awarded via sole-source 
procurements; that is, without competition.
    Second, the IG's report shows that the dollar value of the 
ANC's share of all 8(a) program dollars grew from 13 percent in 
2004 to 26 percent in 2008. Yet, ANCs account for only 2 
percent of the 9,500 businesses that participate in the 8(a) 
program. Third, the report reveals that 11 of the 20 largest 
ANCs receive approximately 50 percent of all the 8(a) funds 
that are awarded to all ANCs.
    These statistics show a growing domination by ANCs--
particularly of a few large ANCs--of the 8(a) program market 
share at the potential expense and exclusion of other minority-
owned contractors and perhaps to the detriment of taxpayers 
given the lack of a cap on the dollar amount of the non-
competitive contracts.
    While I do not question the fundamental proposition that 
ANCs provide critical services for an economically and socially 
disadvantaged group of Americans, we simply must consider 
whether the structure of the 8(a) program provides 
disproportionate benefits to one group.
    Congress must carefully consider the following key 
questions. First, do the statutory advantages of the ANC 
program need to be reexamined within the context of a more 
competitive, fair, and transparent overall 8(a) program? 
Second, should the ANCs continue to receive an exemption from 
the cap on awards of sole-source contracts to 8(a) program 
participants? Third, should ANCs continue to be exempt from the 
limitation on subsidiaries applicable to other 8(a) 
participants, which permits their indefinite participation in 
the program?
    I recall when I was the regional head of the Small Business 
Administration in New England that we would have graduation 
ceremonies for our 8(a) participants. If you can have an 
infinite number of subsidiaries, ad infinitum, that raises a 
real question about the purpose of the program.
    I look forward to hearing the testimony of the witnesses 
today. And as the Chairman said, the final question we need to 
look at is what the impact on the value received by the 
American taxpayer is for the services provided under this 
program.
    Thank you, Madam Chairman.
    Senator McCaskill. Thank you.
    I do not want anyone to think that I am skipping over our 
Senators from Alaska, but I am going to--just for the record, 
we have done something a little unusual today in that we have 
invited the two Senators from Alaska to attend the hearing to 
make opening remarks and even have gone so far as to allow them 
to ask questions of the witnesses, even though they are not 
Members of this Subcommittee.
    We are trying to bend over backwards to make sure that 
Alaska's representatives in the Senate have an ample 
opportunity to ask questions about this important topic to 
their State, and I am cognizant of their need to do that. So 
that is why they are here, and that is why they are on the 
dais. And we welcome both of them to the Subcommittee.
    However, Senator Tester is a Member of the Subcommittee, 
and so he will be recognized for any opening comments he would 
like to make as a Member of the Subcommittee.

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. Thank you, Chairman McCaskill. I appreciate 
that. Sorry I missed your opening remarks. I am going to be 
very brief because I want to hear the testimony and get an 
opportunity to ask some questions.
    I think that we all want to get the maximum bang for the 
buck when it comes to taxpayer dollars and when it comes to 
contracting. I do not think there is any doubt about that. I 
think we also want to give benefit to people who are in severe 
economic conditions when possible. And I think that is what 
this discussion will be interesting about for me.
    I mean, I cannot speak to what goes on in Alaska as far as 
the unemployment rates. I can speak to the unemployment rate in 
Indian country in my State and the value of the 8(a) program 
itself in my State. When you have unemployment rates that rise 
well above 50 percent, in some cases 80 percent, as one person 
said, it would be nice to give those folks fishing poles so 
they can do a little fishing. And I think that is what that 
program is meant to do. Hopefully, that is the same way as it 
is in Alaska, and hopefully, we can get some of those questions 
answered as we move forth.
    I appreciate the opportunity. Thank you, Madam Chairman.
    Senator McCaskill. Thank you. And I would recognize--I 
believe Senator Begich was here first. We come in order of 
appearance here. So if you would take a couple of minutes, if 
you would like, to make a few comments and then we will 
recognize Senator Murkowski.

TESTIMONY OF SENATOR MARK BEGICH, A U.S. SENATOR FROM THE STATE 
                           OF ALASKA

    Senator Begich. Thank you very much, Chairman McCaskill.
    Thank you, Ranking Member Collins for allowing Senator 
Murkowski and I to be here today to participate in the hearing.
    The issues we explore today are vitally important for my 
constituents and especially for the Native people of Alaska who 
comprise 20 percent of our State's population. For me, the 
well-being of Alaskan Native people is personal for two 
reasons. First, my father's greatest legacy in his short tenure 
here in Alaska as a lone congressman was to write the Alaska 
Native Land Claims bill. This landmark act, which has 
dramatically improved the status of Alaskan Natives passed 
Congress in 1971, just a year before he died.
    The second reason it is personal, is because I have 
personally witnessed the struggle against formidable odds and 
the enormous success of the Alaska Native people. I was born in 
Anchorage barely 3 years after Alaska became a State. At that 
time, Alaska Natives had developed a rich culture in some of 
the harshest conditions on the globe. By Western measures, 
their status was bleak.
    Census data for the post-statehood era is incomplete. But 
the data that is available tells a story of great need. In 
1970, only 18 percent of Alaska Natives had a high school 
diploma and less than 1 percent had a college degree. Half 
lived below the poverty line. Fifty percent of Alaska Natives 
lived without indoor plumbing, collecting their waste in what 
we call the ``honey bucket.'' And nearly two-thirds lacked what 
we define today as a job. Most hunted, fished, and lived off 
the land and water.
    Today, thanks to the Settlement Act and congressional 
action to permit Alaska Native Corporations to participate in 
the SBA's 8(a) program, the story of Alaskan Native people is 
one of unprecedented success. The numbers tell part of the 
story. Educational attainment has soared with about half of 
Alaskan Natives earning high school diplomas and nearly a third 
with at least some college. Less than 25 percent now live below 
the poverty line. Three-quarters live in homes with basic clean 
water and sewer facilities we all take for granted.
    For those of us who believe in the free market system, as I 
do, the transition to the private sector is especially 
admirable. In 1970, about half of Alaskan Natives worked for 
the government. Today, that number is just 29 percent as more 
Natives work for their corporations and other Alaska companies.
    What is more impressive to me is the success of Alaska 
Native Corporations. After struggling in their early years, all 
12 of Alaska's in-state regional for-profit corporations are 
profitable, generating about $4 billion in revenues for the 
Native shareholders.
    ANCSA corporations are among the State's top employers, 
providing jobs for more than 30,000 people. And I submit that 
these companies are among the most socially conscious in the 
world. Their chief mission is to provide benefits to the Native 
people they were created to serve. They work hard and 
contribute enormously for education scholarship, cultural 
preservation, elder services, community development, and 
support the subsistence lifestyle that is such a vital part of 
the culture.
    The participation of the ANCs through the 8(a) program is 
another great success story. These amendments to the Claims Act 
were 5 years in the making, thoroughly discussed within both 
the Native community and Congress before adoption. The SBA IG 
report that there are now about 203 ANCs that participate in 
the program.
    Through their work across the Nation, they are generating 
billions of dollars in benefit to the ANC shareholders. This 
continues to raise the standard of living for thousands of 
Alaskan Native people who live in 200 villages and communities 
across my State. There are scores of compelling stories we 
could document if time permitted.
    Madam Chairman, contrary to the spin generated off the 
various government reports, I believe Alaska Native 
participation in the 8(a) program overall has been one of the 
most successful programs this government has done. Certainly, 
there may be a few bruised apples that require attention. I 
agree with many of the IG recommendations that the SBA needs to 
clarify its procedures and fully staff its oversight mission.
    Let us continue to be mindful of the continued needs among 
Alaskan Native people in my State and how ANCs working in part 
through their 8(a) subsidiaries are meeting those needs so that 
American taxpayers do not have to.
    Again, I look forward to working with the Subcommittee, 
hearing the testimony, and being able to ask questions 
regarding the reports given.
    Thank you, Madam Chairman.
    Senator McCaskill. Thank you, Senator Begich. Senator 
Murkowski.

 TESTIMONY OF SENATOR LISA MURKOWSKI, A U.S. SENATOR FROM THE 
                        STATE OF ALASKA

    Senator Murkowski. Thank you, Madam Chairman, and thank you 
for the courtesy that you have extended Senator Begich and I to 
participate. And to Ranking Member Collins, I truly do 
appreciate this.
    Today the Subcommittee takes testimony on the question of 
whether a law intended to provide Indian tribes, Native 
Hawaiians, and Alaska Native Corporations with the opportunity 
to establish viable business enterprises selling goods and 
services to the Federal Government, whether or not this has 
been a flawed concept. My views on this subject are informed 
certainly by the 6 years that I have served as a member of the 
Senate Committee on Indian Affairs, including a short stretch 
when I was vice chair of that committee.
    I believe that the Indian 8(a) preferences are achieving 
important economic development objectives and are well worth 
preserving as a matter of Federal Indian policy. Our Nation has 
a special relationship with its first peoples, which has been 
recognized since the founding of this country, and that special 
relationship is expressed in our Constitution. It is also well 
established that our great Nation has a long history of 
imposing ill conceived policies on Indian tribes and Native 
peoples, and the Senate acknowledged as much when it attached 
Senator Brownback's apology resolution to the Indian Health 
Care Bill back in 2008.
    As Senator Begich has noted, our Native people live in some 
of the poorest, most geographically and most economically 
isolated places in the country, some in conditions that 
resemble Third World countries. Our Native people struggle to 
maintain their traditional cultures in an era in which 
subsistence hunting, fishing and gathering simply do not 
generate sufficient resources to keep one's house warm in the 
winter.
    As we begin this inquiry, we must keep firmly in our mind 
that the preferences that we are discussing today are an 
exercise of Federal Indian policy to mitigate the impact of 
past ill conceived policies and to help our Native people 
maintain their unique cultures and identities and survive in 
the modern world.
    Although today's hearing is labeled an inquiry into Alaska 
Native Corporation contracting, let me make clear that there is 
no such thing as an Alaska Native Corporation preference in 
government contracting. There is a preference for Indian 
tribes, which includes Alaska Native corporations as well as 
Native Hawaiian organizations. The opportunity was structured 
in a way that would be meaningful to the challenges of economic 
development in Indian country and provide financial benefits 
that could be shared among large numbers of tribal members. All 
of that is at risk today. While the hearing is labeled Alaska 
Native Corporations, nobody in Indian country believes that the 
consequences will not fall equally on all beneficiaries of the 
Indian 8(a) preferences.
    Now, there are some who say that this program really is not 
important to anyone other than Alaskan Natives. But we will 
hear much today about how some Alaska Native Corporations have 
done well, perhaps too well in pursuing these opportunities. 
But that does not mean that they are less important to other 
Native corporations or to Indian country as a whole.
    The history of economic development in Indian country 
suggests that Native leaders frequently look at which kinds of 
businesses are working in Indian country and adopt the 
successful business models of others, all in their own time. 
This has certainly been the case with Indian gaming, and all 
indications are that interest in government contracting among 
the tribes is rising.
    The sad truth is that there are very few business models 
that have provided any modicum for success in tribes and ANCs. 
From my conversation with Indian leaders, there seems to be 
unanimity that the 8(a) business opportunity holds great 
promise for Indian economic development and it is an 
opportunity worth saving. I expect that you will hear the same 
from the Native leaders that are testifying today.
    But this Senator does not believe that these contracting 
preferences undermine the integrity of all Federal contracting. 
While the dollar value of some individual contracts may be 
substantial, taken together, all of the contracting under this 
preference accounts something on the order of 1 percent of the 
total Federal contract pie. And I am deeply concerned by the 
suggestion that a victory for the Indians is a defeat for 
businesses enjoying preferences through other socioeconomic 
classifications. Surely, there must be a way to win for all.
    Let me be clear about the stakes here. Congress enacted a 
law giving Indian-owned and controlled entities an opportunity 
to build Federal contracting businesses. Many rose to the 
challenges and have fully committed their tribes and their 
business enterprises to these opportunities. Some of these 
businesses are maturing, and others are just starting. Our 
Native leaders have entered into contracts, they have hired 
people, they have created systems and focused all of their 
energies on learning the business. And now that same Federal 
Government threatens to pull the rug out from under them.
    I fear that we are moving down the road to breaking yet 
another promise to the Indians. If we are not careful, policy 
changes prompted by this Subcommittee's inquiry will go down in 
history as another of the ill conceived policies that we, in 
the Congress, are later forced to apologize for.
    I do thank the Chairman for inviting me to participate. I 
look forward to the witnesses. And I ask, Madam Chairman, our 
Congressman, Don Young, Alaska's only House member, had 
requested an opportunity to appear before the Subcommittee. And 
I understand that his request could not be accommodated. He has 
submitted written testimony in hope that it would be included 
within the record.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Young appears in the Appendix on 
page 127.
---------------------------------------------------------------------------
    Of course, since I am not a member of your Subcommittee, it 
is inappropriate for me to offer a unanimous consent request. 
But I would like to submit the Congressman's testimony and 
would hope that this request could be accommodated, and would 
also ask that the Committee or the Subcommittee hold the record 
open to accommodate a statement from the Governor of Alaska as 
well as any Alaska Native Corporations that may wish to submit 
their views, if that is appropriate.
    Senator McCaskill. We certainly will take all of those 
statements, and as it relates to the congressman, certainly, 
and the governor, we will be happy to make a unanimous consent 
motion that their statements be included in the record.\1\
---------------------------------------------------------------------------
    \1\ The letters from Governor Palin and Representative Kirsten E. 
Gillibrand submitted for the Record appears in the Appendix on page 131 
and 136 respectively.
---------------------------------------------------------------------------
    We have had so many requests for statements to be included. 
For all other statements, we will receive them in the 
Subcommittee and review them, and then be happy to get back 
with the people who submit the statements as to whether or not 
they will be made part of the record.
    Senator Murkowski. But we can encourage them to submit 
them----
    Senator McCaskill. Absolutely.
    Senator Murkowski [continuing]. To the Subcommittee.
    Senator McCaskill. We will take all the information. We 
have received so many requests in the last 5 days, we want to 
make sure that we are not overwhelmed if somebody wanted to 
submit 600 pages. We have a very small staff.
    Senator Murkowski. I think everyone is anxious to tell 
their story.
    Senator McCaskill. I understand, Senator. Thank you very 
much.
    It is the custom of this Subcommittee that witnesses must 
be sworn in. Therefore, I would ask the first panel to rise, 
please.
    Do you swear that your testimony that you are about to give 
will be the truth, the whole truth, and nothing but the truth, 
so help you, God?
    Ms. Ritt. I do.
    Mr. Jordan. I do.
    Mr. Assad. I do.
    Senator McCaskill. Thank you very much. Senator Akaka has 
joined us.
    Senator, as a Member of the Subcommittee, would you like to 
make any opening comments?

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Madam Chairman, I thank you so much for your 
work on contracting, which is something that we really need to 
work on in this new period. And if you do not mind, Madam 
Chairman, I would like to make just my statement.
    Senator McCaskill. Certainly.
    Senator Akaka. Chairman McCaskill, thank you for conducting 
the hearing. I appreciate the opportunity.
    As Chairman of the Subcommittee on Oversight of Government 
Management, the Federal Workforce, and the District of 
Columbia, I recognize the need and importance of ensuring 
appropriate oversight measures are in place for Federal 
contracts. Failure to have skilled contract officers in place 
at Federal agencies can negatively impact the process and risk 
the loss of billions of taxpayer dollars due to inefficiencies 
and, in some cases, fraud. That is why I am pleased by your 
efforts to review Federal contracting practices.
    Today we are here to examine just one aspect of Federal 
contracting, Federal contracts with Alaska Native Corporations. 
In our review, it is appropriate that we acknowledge the 
Federal trust relationship the United States has with Native 
Americans, including Alaska Natives. The U.S. Constitution 
under the Indian Commerce Clause, vests Congress with the 
ability to regulate commerce within Indian Tribes. Congress has 
utilized its well established authority to enact policies that 
address the unique circumstances and needs of Alaska Natives.
    For the past 19 years, I have worked with Senator McCain, 
Senator Murkowski, Senator Dorgan, and others as part of the 
Senate Indian Affairs Committee to protect and advance this 
unique trust relationship with our Nation's first Americans. 
From experience, we know that successful Federal Indian policy 
enables American Indians and Alaska Natives to be a full 
partner with the Federal Government. We have seen more enduring 
and meaningful results when Native people are allowed to 
maintain their culture, commerce, and local political systems 
to adapt and address the impact of an America that has rapidly 
changed around them.
    As we review the experience of ANCs in the Small Business 
Administration 8(a) program, we must be mindful that Congress 
deliberately established this corporation structure to empower 
Alaska Natives to develop sustainable economies that benefit 
their communities.
    Under the Alaska Claims Settlement Act, Alaska Natives were 
required to establish corporate vehicles quite similar to 
tribal corporations with vital differences. To promote a more 
robust commerce, it provided control of a portion of their 
aboriginal lands at fee simple title, rather than the 
establishment of reservations, and required the engagement of 
commerce and enterprise to be separate for their tribal 
government.
    Congress established the SBA 8(a) business development 
program to connect the growth of American business enterprise 
directly to the needs for goods and services of our Federal 
Government. It has shown success and great promise for the 
growth of women-owned, veteran-owned, and minority-owned firms 
and has changed the socioeconomic standing of thousands of 
Americans.
    Recognizing the success achieved with individually-owned 
firms, in the 1980s, Congress established provisions within the 
8(a) program to include the unique corporate vehicles of 
American Indian and Alaskan Native enterprises. And today, ANCs 
are responsible for providing more than just profits but are 
responsible for the welfare and long-term survival of their 
people and indigenous culture.
    As proposals may come forward to address oversight issues 
relating to ANCs, I am hopeful we will proceed honorably in a 
manner that respects and strengthens the government-to-
government relationship between the United States and Alaska 
Natives. The United States and Alaska Natives are partners, and 
development of any policy should be a collaborative effort.
    Again, thank you, Chairman McCaskill for holding this 
hearing. I look forward to the hearing and the witnesses who 
will offer their expertise on this important matter. Thank you.
    Senator McCaskill. Thank you, Senator Akaka.
    Our first panel has three witness. Our first witness is 
Debra Ritt, and she is the Assistant Inspector General for 
Auditing at the Office of Inspector General for the Small 
Business Administration, and we welcome your testimony.
    Let me tell all the witnesses that we would like you to try 
to limit your statements to 5 minutes, but, please, we will put 
your entire statements in the record, so do not worry that we 
will not take all of the information. But if you can try to 
limit it to 5 minutes, we have five people on the second panel, 
and I have a feeling there will be a lot of questions. So if 
you could limit it to 5 minutes, that would helpful. Thank you 
very much.

   TESTIMONY OF DEBRA RITT,\1\ ASSISTANT INSPECTOR GENERAL, 
  AUDITING, OFFICE OF INSPECTOR GENERAL, U.S. SMALL BUSINESS 
                         ADMINISTRATION

    Ms. Ritt. Thank you. Chairman McCaskill, Ranking Member 
Collins, and Members of the Subcommittee, we appreciate the 
opportunity to testify on our recent audit. As requested, my 
statement today will focus on procurement advantages enjoyed by 
ANCs in the 8(a) program and the benefits derived from those 
advantages, the growth of ANC 8(a) activity and SBA's oversight 
of ANC participants.
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    \1\ The prepared statement of Ms. Ritt with attachments appears in 
the Appendix on page 49.
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    ANC companies enjoy special procurement advantages beyond 
those afforded most other 8(a) businesses. The most significant 
is their exemption from statutory dollar limits on the amount 
of individual awards that may be sole sourced and the 
regulatory cap on sole source awards once $100 million in total 
8(a) contracts has been received. This has allowed some ANC 
companies to receive 8(a) sole source awards as large as a 
billion dollars and is the major reason for the explosive 
growth in ANC 8(a) activity.
    Further, unlike other 8(a) businesses, ANC companies are 
considered small even if they are affiliated with other large 
businesses. Consequently, ANC companies that are large through 
affiliation with their parent companies are allowed to compete 
for 8(a) awards against other small disadvantaged businesses. 
While Federal law permits these large businesses to participate 
in a small business program, it is an anomaly that impacts the 
small disadvantaged business community.
    Although ANC contracting advantages were intended to 
provide economic opportunities for impoverished Alaskan 
communities, ANC companies are not required to report to SBA 
how they use their 8(a) share of their profits. We have found 
that ANC profits are generally used to fund shareholder 
dividends, cultural programs, employment assistance, 
scholarships and numerous other services for their communities.
    ANC companies have unquestionably prospered under the 8(a) 
program. In Fiscal Year 2007, the 12 regional corporations had 
combined revenues of $5.8 billion and profits of $484 million, 
much of which was generated from the 8(a) program. Moreover, 
from Fiscal Years 2000 to 2008, obligations to ANC-owned 
participants increased by 1,386 percent and more than tripled 
in recent years from $1.1 billion in 2004 to $3.9 billion in 
2008. While some of the increase was due to the growth in 
Federal contracting as a whole in 2008, ANC companies received 
26 percent of total 8(a) obligations even though they 
constituted just 2 percent of the companies performing 8(a) 
contracts.
    Also, 50 percent of the 8(a) dollars obligated to ANC 
companies in 2007 went to just 11 or 6 percent of the ANC 
participants. One company, which accounted for nearly 20 
percent of these obligations, had only 750 shareholders or less 
than 1 percent of total ANC shareholders.
    Finally, sole source contracts continue to be the major 
contracting mechanism for obligating 8(a) funds to ANC 
businesses. In 2007, the top 11 ANC companies received 82 
percent of their 8(a) obligations through sole source awards. 
While such awards provide an expedient means of meeting Federal 
procurement goals, reports by IGs and GAO have shown that 
noncompetitive contracts have been misused and do not always 
provide the government with the best value.
    Despite these concerns, SBA has not evaluated the impact of 
ANC growth on other 8(a) participants or tailored its oversight 
practices to account for ANC's unique status and growth in the 
program. SBA has also not fully addressed oversight weaknesses 
identified by prior GAO and IG audits. Specifically, SBA does 
not monitor whether ANC subsidiaries are obtaining their 
primary revenue from the same industry. The agency is 
developing a system to collect information on ANC companies, 
but this capability will not be developed until a later phase.
    Also, SBA has had difficulty monitoring ownership changes 
involving ANC companies to ensure that they remain majority 
owned by ANCs. While SBA plans to increase the size of its 
Alaska district office to address this issue, the office 
currently only has three employees to oversee the 200-plus ANC 
companies in the program.
    SBA does not determine whether ANC companies or their 
affiliates have a substantial unfair competitive advantage in 
determining size for 8(a) awards and has not clearly 
articulated in regulation how it will comply with existing law. 
Further, SBA cannot readily identify and is not monitoring 
partnerships between ANC companies and large businesses to 
ensure that such businesses are not exploiting ANCs for their 
8(a) status.
    Finally, SBA is not adequately reviewing financial 
information reported annually by ANC companies to identify 
unreported management agreements related to their 8(a) 
contracts.
    In conclusion, while ANC participation in the 8(a) program 
has undeniably benefited Alaska Natives, ANC companies are 
receiving a disproportionate share of the 8(a) obligations. 
Also, the procurement advantages that they enjoy and their 
ability to access capital and credit through their parent 
companies may be working to disadvantage other 8(a) 
participants.
    Consequently, Congress may wish to consider whether ANC 
companies should continue to be exempt from statutory limits on 
sole source awards and whether procurement goals should be 
revised to account for the significant growth in ANC 8(a) 
activity. It may also wish to consider further clarifying SBA's 
role in monitoring ANC 8(a) activity and requiring ANCs to 
report how they are using their 8(a) revenues.
    Madam Chairman, this concludes my prepared statement, and I 
would be happy to take questions at this time.
    Senator McCaskill. Thank you.
    Our next witness is Joseph Jordan. He is the Associate 
Administrator for Government Contracting and Business 
Development at the SBA.
    Welcome, Mr. Jordan.

    TESTIMONY OF JOSEPH JORDAN,\1\ ASSOCIATE ADMINISTRATOR, 
  GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Jordan. Thank you very much. Chairman McCaskill, 
Ranking Member Collins, and Members of the Subcommittee, thank 
you for inviting the SBA to testify regarding the participation 
of Alaska Native Corporations in the 8(a) business development 
program. My name is Joe Jordan, and I am the Associate 
Administrator for the SBA's Office of Government Contracting 
and Business Development.
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    \1\ The prepared statement of Mr. Jordan appears in the Appendix on 
page 58.
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    The 8(a) program, authorized by Section 8(a) of the Small 
Business Act, seeks to remedy discrimination by helping 
eligible small businesses compete in the American economy 
through business development. Participation in the 8(a) program 
is generally restricted to businesses owned and controlled by 
socially and economically disadvantaged individuals. Individual 
applicants must demonstrate both social and economic 
disadvantage.
    Socially disadvantaged individuals have been subjected to 
racial or ethnic prejudice or cultural bias within American 
society. Economically disadvantaged individuals are socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system has been impaired.
    In addition to management and technical assistance, the 
government is able to award contracts to participating 8(a) 
firms without competition below certain dollar thresholds. The 
government can also limit competition for Federal contracts to 
only 8(a) certified firms.
    Congress has enacted legislation that allows ANCs, Native 
Hawaiian organizations, community development corporations and 
tribally-owned firms to participate in the 8(a) business 
development program. The Alaskan Native Claims Settlement Act 
was enacted by Congress to settle claims to land and resources 
while also exploring an alternative to the reservation system. 
General goals included self determination and participation in 
a U.S. capitalist society.
    In 1988 and 1992, ANSCA was amended to remedy evidence that 
Alaska Natives were not receiving all the intended benefits. So 
Congress designated ANCs, where Natives hold majority 
ownership, to be minority businesses and economically 
disadvantaged.
    ANCs have twofold missions of being competitive businesses 
accountable to many thousands of shareholders as well as 
providing a mechanism for self sufficiency. Generally, they 
support cultural, societal and community activities on behalf 
of their people while providing economic benefit to 
shareholders and their families.
    The 8(a) BD program's regulations anticipate that 
organizational-owned firms, including ANCs, use the 8(a) 
program to provide economic development to their communities 
even though all other 8(a) participants use the program only 
for individual business development assistance. ANC-owned 8(a) 
firms, tribally-owned companies and program participants owned 
by Native Hawaiian organizations are not subject to the same 
rules as other individually-owned companies participating in 
the program.
    First, subsidiaries can participate in the 8(a) program 
without being considered affiliated with one another. This 
allows several subsidiaries to participate in the program at 
the same time and for each to be considered a small business. 
Second, these firms are able to receive a Federal contract in 
any amount without competition. In 2003, Congress authorized 
Native Hawaiian organizations to receive 8(a) contracts in any 
amount for Department of Defense procurements.
    Last, these companies do not have a restriction on the 
participation by non-disadvantaged individuals. For traditional 
8(a) firms, the individual claiming disadvantage must control 
the day-to-day operations of the company and traditionally must 
be the highest compensated. As it is currently operating, the 
8(a) program is simultaneously providing business development 
opportunities to disadvantaged individuals and to firms owned 
by organizations, including ANCs.
    It is also important to recognize that as a business 
development program, sole source contract awards continue to 
have an important role in 8(a). However, competition also plays 
an important part and has been used effectively in the 8(a) 
program.
    The SBA has worked diligently to ensure that oversight of 
these programs is strong and that SBA programs are operating 
free of waste, fraud, and abuse. To this end, in the past 6 
months the Administration has taken four main actions.
    First, we sent a team to review the Alaska district office 
which handles the interface and caseload of ANCs. Second, we 
have begun the hiring process for two additional staff devoted 
to the 8(a) business development program in the Alaska district 
office. Third, we have funded initiatives to better track ANC 
participation in the 8(a) program. And fourth, we have 
submitted a package of regulatory changes to ensure more 
effective administration of the 8(a) program for all 
participants. These changes were driven by the SBA as well as 
concerns expressed in the GAO report from 2006.
    Thank you for allowing me to share the SBA's view with you 
today, and I will be happy to answer any questions you may 
have.
    Senator McCaskill. Thank you, Mr. Jordan.
    Our next witness is Shay Assad. He is the Acting Deputy 
Under Secretary of Defense for Acquisition and Technology at 
the U.S. Department of Defense.
    Mr. Assad.

 TESTIMONY OF SHAY ASSAD,\1\ ACTING DEPUTY UNDER SECRETARY OF 
 DEFENSE, ACQUISITION AND TECHNOLOGY, AND DIRECTOR OF DEFENSE 
            PROCUREMENT, U.S. DEPARTMENT OF DEFENSE

    Mr. Assad. Thank you, Madam Chairman McCaskill, Ranking 
Member Collins, and Members of the Subcommittee. My name is 
Shay Assad. I am the director of Defense Procurement. I am also 
presently serving as the Acting Deputy Under Secretary of 
Defense for Acquisition and Technology. I want to thank you for 
the opportunity to appear in front of you today to participate 
in today's discussion.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Assad appears in the Appendix on 
page 62.
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    As you know, the Small Business Administration manages the 
8(a) program. ANC firms along with the tribally-owned firms 
participate in the 8(a) program, but like Indian tribes and 
Native Hawaiian organizations, they receive unique procurement 
advantages not available to individually-owned 8(a) firms. You 
have touched on several of these advantages already.
    You asked me to address the adequacy of the Department of 
Defense's management and oversight of contracts with ANCs. 
Consistent with my recently expanded responsibilities following 
my appointment as the Acting Deputy Under Secretary and as part 
of a general review of contract oversight across the 
Department, I am currently attempting to determine the 
management and adequacy of our contracting oversight. I have 
asked my staff to work with the Defense Contract Audit Agency 
as well as the Defense Contract Management Agency to ascertain 
the extent to which ANCs receive the same audit and oversight 
as other DOD contracts.
    Further, I have directed my Deputy Director for Strategic 
Sourcing to initiate a detailed review of all of the 
Department's awards to 8(a) ANC firms for Fiscal Years 2008 and 
2009. Through this review, we will gain a detailed 
understanding of what we are buying and procuring from these 
firms, and in those instances where we are not competitively 
procuring, the rationale for that sole source approach. It will 
also give us an opportunity to further expand opportunities for 
ANC firms as we gain a better understanding of exactly what the 
capabilities and skills of those companies are collectively.
    My purpose here today is not to challenge the assistance 
provided to 8(a) participants or specifically to ANC 
businesses. Again, I reiterate my support for the 8(a) program. 
My concern is with competition in this particular context and 
the benefits of that to the American taxpayer.
    While we have authority to use sole source procedures with 
ANC contractors, we do, in fact, compete sometime. In 2008, it 
is approximately 35 to 40 percent of the time. That is well 
below our average for competition. We need to significantly 
improve that. On many occasions, I have stressed the importance 
of fair competition, which I believe is the cornerstone of our 
procurement system. It is important to obtain the best value 
for our warfighters and the best use of taxpayer dollars. GAO 
has repeatedly reported that some sole source procurements to 
ANCs have resulted in paying significantly more for services 
and products than were warranted.
    I respect the need to provide economic opportunities for 
8(a) ANCs. However, based on the Department's experience with 
the 8(a) program, I think there may be ways to promote 
additional competition in appropriate circumstances. The 
Department has used competition successfully to achieve best 
value in the 8(a) program, and I would welcome the opportunity 
to work with SBA in exploring appropriate options for the 
application of competition for ANCs.
    Taxpayers would benefit. All procurement agencies would 
benefit, as their prices they pay for their requirements would 
be competitively determined. Small business would benefit as 
well because of greater opportunities. In short, the 
appropriate use of competition could provide economic 
opportunities for 8(a) ANCs and further help agencies to obtain 
best value for the government and for the taxpayers.
    Finally, I would like to emphasize the important role that 
small business plays in the industrial base. Fostering an 
environment that is conducive to small business is critical in 
helping us maintain our competitive procurement system. A 
strong and vibrant small business program which includes ANCs 
is one that will allow its small businesses to not only provide 
goods and services that are essential to our national security 
but will also enable them to develop over time so that they can 
meet the future needs of our Nation's warfighters in a 
competitive marketplace. Our warfighters deserve no less, and 
our taxpayers demand that we do so.
    Senator McCaskill. Thank you, Mr. Assad.
    Mr. Jordan, let me start the questioning. We will do 5-
minute rounds, and we will go to the Subcommittee Members first 
and then allow our guests from Alaska to question some, also.
    I will be honest with you that your responses to the audit 
I found troubling and dismissive. I am a former auditor, and so 
I always go to the responses first because that is where you 
are going to determine if the audit is going to make a 
difference. And reading your responses, I was concerned that 
the audit was not going to make a difference.
    Let me start by stating for the record that this is 
confusing. The 8(a) program is confusing, and you can get into 
the weeds because there are so many different requirements, 
rules, thresholds, and determinations. But I want to make very 
clear for the record one thing, and that is that there is a 
difference between Alaska Native Corporations and the rules for 
them and for any other Native corporation, Hawaiian and the 
lower 48.
    Would you explain that to the Subcommittee, Mr. Jordan, 
what the difference is between the rules for an Alaska Native 
Corporation versus a lower 48 Native corporation or a Hawaiian 
corporation?
    Mr. Jordan. Yes, Madam Chairman, I will.
    So ANCs and Indian tribes both have statutory exception to 
affiliation. Native Hawaiian organizations also enjoy the 
exception to affiliation privilege; however, that is 
regulatory. Indian tribes and ANCs both have sole source 
authorized above the thresholds. They both have exception to 
the $100 million sole source cap, and they both have statutory 
authorization to own more than one company, 8(a) company, at a 
time as long as no two companies are in the same primary NAICS 
code.
    Native Hawaiian organizations also enjoy the authority to 
own more than one company, but that is regulatory. They do not 
have the exception to the $100 million cap. And for the sole 
source above the thresholds for Native Hawaiian organizations, 
that only applies to the Department of Defense.
    The one area in which Alaska Native Corporations are 
different from Indian tribes is the presumption of economic 
disadvantage. ANCs are presumed economically disadvantaged 
whereas tribes are not. However, to the best of my knowledge, 
there has not been a case where a tribe was rejected from the 
8(a) program based on that.
    Senator McCaskill. But don't you lose your status as 
economically disadvantaged once you get to a certain threshold, 
Mr. Jordan?
    Mr. Jordan. You do. Senator McCaskill, as you said, there 
are differences between ANC's tribes and Native Hawaiian 
organizations and the traditional 8(a) business development 
program participant.
    Senator McCaskill. Including the Indian tribes.
    Mr. Jordan. Yes, but the larger difference is between ANC's 
tribes, Native Hawaiian organizations and community development 
corporations and the individual socially and economically 
disadvantaged business owner. And so when you are looking at 
the net income, net asset threshold over which you become no 
longer presumed economically disadvantaged, the process by 
which Indian tribes are evaluated is obviously more complex 
than the process for evaluating one individual small business 
owner.
    Senator McCaskill. Well, but it is my understanding, Mr. 
Jordan, that the law carves out a permanent economic 
disadvantage status for ANCs.
    Mr. Jordan. You are correct.
    Senator McCaskill. And it does not do that for Indian 
tribes.
    Mr. Jordan. You are correct, yes.
    Senator McCaskill. OK. And that is a huge difference 
because if you get a $100 million contract for 4 years running, 
then you are no longer economically disadvantaged under the 
rules of SBA, correct?
    Mr. Jordan. Correct.
    Senator McCaskill. Unless you are a ANC and you are 
permanently economically disadvantaged regardless of how big 
the contract is.
    Mr. Jordan. That is not necessarily correct because it is 
not the size of--I will get back to you with the exact 
definition--but it is not the size of the contract that would 
necessarily----
    Senator McCaskill. It is the revenues.
    Mr. Jordan. Well, yes, it is the net income and the total 
assets and the revenues. But it depends what flows to the 
individual business owner, the socially and economically 
disadvantaged business owner.
    Senator McCaskill. Well, I am not talking about the 
socially--I am not talking about the business owner. I am 
talking about Indian tribes versus ANCs.
    Am I correct, Ms. Ritt, with what I am saying, that there 
is a special status for the ANCs that provide permanent 
economic disadvantage regardless of how big they get, 
regardless of how large the corporation is, regardless of how 
many subsidiaries they have, and that is simply not true for 
Indian tribes?
    Ms. Ritt. You are absolutely correct.
    Senator McCaskill. Let me also talk about the audit in this 
context. There is an exception that allows the ANCs to create 
subsidiaries and there have been almost 250 subsidiaries 
created in the last 9 years and still count as a small business 
along truly small businesses like a start-up disadvantaged 
business. And it says the SBA has the ability to count those 
subsidiaries if it determines it creates an unfair competitive 
advantage.
    In your audit, Ms. Ritt, you pointed out that both you and 
the GAO said that SBA is not really making that determination. 
They are making no effort to determine whether or not there is 
an unfair competitive advantage.
    Ms. Ritt. Right. There is a statutory requirement that they 
make those determinations when considering size and they are 
not doing that.
    Senator McCaskill. And I want to make sure I get this 
correct. The SBA told GAO that the statute was confusing and 
you were not sure how to implement.
    Is that accurate, Mr. Jordan?
    Mr. Jordan. I would have to look at our response. I was not 
with the agency at the time of the 2006 report.
    Senator McCaskill. Well, do you think that language, 
``unfair competitive advantage,'' is confusing?
    Mr. Jordan. I do not believe that I am in a position to 
declare it confusing one way or not confusing another way right 
now.
    But I do want to get back to you later on the tribes versus 
the ANCs.
    So under the regulations, tribes have a one-time 
determination of whether that tribe is economically 
disadvantaged. So this happens with the first 8(a) firm from 
that tribe. For every other 8(a) firm owned by the tribe, they 
do not have to establish that economic disadvantage.
    Senator McCaskill. The point is not establishing it, Mr. 
Jordan. The point is that they do not get to keep it forever. 
That is the point. The point is that Indian tribes, after they 
get to a certain size, no longer can participate on a sole 
source basis. That is simply not true for ANCs.
    Mr. Jordan. Well, it would not be the tribe so much as the 
tribally-owned company that is a 8(a) participant.
    Senator McCaskill. Maybe I am not being clear. I thought 
that I was being very clear. There is a difference in the law 
as to how an Indian tribe is treated and an Alaska Native 
Corporation is treated as the determination of economic 
disadvantage is made. And one is permanent and one is not 
permanent; is that correct?
    Mr. Jordan. There is a difference in the law. That is 
correct. In terms of how that difference plays out over time, I 
would have to get back to you.
    Senator McCaskill. OK. Thank you. Senator Collins.
    Senator Collins. Thank you. Mr. Jordan, to follow up on 
this line of questions, it is my understanding that other 8(a) 
firms have to every single year prove that they are still 
economically disadvantaged; is that correct?
    Mr. Jordan. Yes, that is correct.
    Senator Collins. But with an ANC, no matter how big or how 
successful it becomes, it is presumed to be economically 
disadvantaged; is that accurate?
    Mr. Jordan. That is accurate. Just like with the individual 
businesses being developed, there is no presumption of them 
giving a community development or shareholder benefit, per se. 
So, again, I view them as separate contexts operating on the--
--
    Senator Collins. I am just wanting to make sure we 
understand how the process works.
    Mr. Jordan. Yes, ma'am.
    Senator Collins. Ms. Ritt, current law provides a 5 percent 
bonus if you subcontract with an ANC or an Indian organization 
or an Indian-owned economic enterprise. I was surprised to 
learn that this bonus applies even with an ANC that contracts 
with its own subsidiary.
    Is that your understanding?
    Ms. Ritt. I am sorry, Senator Collins. I cannot answer that 
question.
    Senator Collins. Mr. Jordan, can you answer that question? 
Can an ANC get a 5 percent bonus for contracting with its own 
subsidiary?
    Mr. Jordan. I do not know. I will have to get back with 
you.
    Senator Collins. Mr. Assad, do you know?
    Mr. Assad. I do not believe the law distinguishes amongst 
that and probably allows that to happen.
    Senator Collins. It is my understanding that the law does 
allow that to happen.
    Ms. Ritt, can you think of any rationale for giving a bonus 
to an ANC that subcontracts the work to its own subsidiary?
    Ms. Ritt. No, I cannot. And my staff just confirmed that 
what you said was true, that they can get a 5 percent bonus.
    Senator Collins. Do you believe that incentive is needed to 
encourage ANCs to do business with the Federal Government or to 
help direct more work to ANCs?
    Ms. Ritt. No, I do not. I think the exemption from the sole 
source caps is a huge incentive by itself.
    Senator Collins. Mr. Assad, do you think there should be an 
incentive where an ANC gets a 5 percent bonus if it contracts 
with one of its own subsidiaries?
    Mr. Assad. No, I do not.
    Senator Collins. Mr. Assad, you said in your opening 
comments that you were concerned about the lack of competition 
in the award of ANC contracts. A subsequent witness today is 
going to say that there is informal competition, that a 
contracting officer can informally call up other ANCs and see 
if they are interested and do an informal price competition.
    Do you view that as being equal to the requirement for full 
and open competition under the Competition and Contracting Act?
    Mr. Assad. No, I do not, Senator. I actually have some 
personal experience along these lines.
    Senator Collins. Could you share that with us?
    Mr. Assad. Yes, ma'am. When I was the director of 
contracting for the Marine Corps, we had a procurement come to 
me that, in fact, was determined on the basis of one of these 
informal determinations that a specific company should do the 
work. When that was presented to me, I just would not buy it 
because I had actually been contacted by a couple of other 
Alaska Native Corporations who said they could do the work. We 
went back to the SBA at that time and suggested that this 
should not be sole sourced to a particular company but, in 
fact, should be competed amongst the ANCs.
    Well, because the determination had already been made that 
this particular company was going to get the work, the SBA was 
reluctant to do that. So in order to deal with it, we actually 
canceled the procurement. We then reset the procurement. It was 
competed amongst three Alaska Native Corporations, and the best 
company won. And that is how I see things ought to be.
    Senator Collins. Thank you. Mr. Jordan, I mentioned in my 
opening comments that I remember when I was the regional head 
for New England of SBA that we would have actual graduation 
ceremonies when an 8(a) firm had been in the program perhaps 
for the limit of 9 years or because it had been successful and 
become prosperous, was graduating from the 8(a) program.
    Is 9 years the maximum limit for participation in the 8(a) 
program except for Native-owned corporations in Alaska, Native 
corporations?
    Mr. Jordan. Yes, 9 years is the limit, but I believe tribal 
entities and Alaska Native Corporations, these 8(a) certified 
subsidiaries that are in the 8(a) program, are also held to 
that 9-year limit. It is the parent company itself that is not.
    Senator Collins. Correct.
    But, Ms. Ritt, isn't there a provision in the law that 
allows the ANCs to keep adding subsidiaries so that the effect 
is that they can remain in the 8(a) program virtually forever 
rather than being subjected to the 9-year limit?
    Ms. Ritt. Yes, Senator Collins, that is correct. They are 
not restricted in the number of subsidiaries that they can 
enter into the 8(a) program. And as we have seen, as firms 
graduate, new ones get created. So it happens quite frequently.
    Senator Collins. Thank you.
    Senator McCaskill. Thank you, Senator Collins.
    We do not have any Subcommittee Members here. So, Mr. 
Begich, would you like to ask a few questions?
    Senator Begich. Absolutely. Thank you very much.
    Let me, Ms. Ritt, follow up on that. Do you, I am assuming 
you do, understand the difference between an 8(a) that is an 
individually-owned and an 8(a), an American Indian, Alaska 
Native and Hawaiian, which represents thousands of owners?
    Ms. Ritt. Yes, I do.
    Senator Begich. Do you see any difference in the sense of 
what they should be able to do or not do?
    Ms. Ritt. I do understand that the Alaska Native companies 
have multiple shareholders----
    Senator Begich. And American Indian.
    Ms. Ritt. And American Indians that benefit----
    Senator Begich. And Hawaiian-owned.
    Ms. Ritt. Multiple individuals benefit from their 
participation whereas other 8(a) companies just have a few 
owners.
    Senator Begich. Right. Do you see a difference there in the 
sense of how they generate contracts and value in the sense 
that an 8(a), that 9,000 or so that are individually-owned or a 
couple owners, are much different in that their profit 
motivation is obviously for their own personal wellbeing in the 
sense as individuals but the Alaska Native Corporations, the 
Indian-owned, the American Indian-owned and the Hawaiian-owned, 
are for the betterment of their culture, their communities as 
well as profit to their shareholders?
    Ms. Ritt. Certainly, I do. But I also understand that the 
small businesses are the backbone of this economy and part of 
the recovery plan.
    Senator Begich. I do not disagree. I have been in small 
business for 25 years. My wife owns four small businesses, so 
we have been in it; we understand it. But I thank you for that 
comment of your knowledge of it.
    Let me ask you, in your report, did you compare the growth 
of the women-owned businesses, the HUBZone firms, the veteran-
owned firms and their percentage of growth over time compared 
to?
    Ms. Ritt. The scope of this audit was limited to ANCs based 
on concerns raised by GAO in its report.
    Senator Begich. But you used the phrase ``explosive 
growth.'' Let me give you one data point from testimony that 
was given on the House side in 2006.
    When I look at the women-owned business in 1 year alone, 
they grew almost double. HUBZones grew over 200 and some 
percent. If you did it over the same period, which you did it 
over 9 years, in some cases, it would be as much as 1,600 
percent. So I guess when you say explosive, you are----
    Ms. Ritt. What I meant was----
    Senator Begich. How are we comparing it?
    Ms. Ritt [continuing]. The percentage of participation. 
When you have one group that is 2 percent of the participants 
getting contracts, getting 26 percent share of the 8(a) pie, to 
me, that is explosive. That is disproportionate.
    Senator Begich. But if I compared the ownership of, in the 
sense of Alaska Native Corporations, that are owned by 
thousands--thousands--there are more owners for those for sure 
than even the 9,000 single owned or double owned, correct?
    Ms. Ritt. There are more owners. I would agree.
    Senator Begich. So there is a different responsibility.
    Let me ask you another question. In your report, you talked 
about a lot of gross revenues, and you talked about the value 
of the dividends, and yet you kind of had some question in that 
arena. I forgot the exact number, but I want to say it was $1-
point some billion dividend return for the $11 billion or so 
that you reviewed. And their contract total was $29 billion, if 
I remember this right, over the period of time that you did the 
analysis.
    So the question is, why didn't you focus on the net 
revenues? Because that is what matters, is what flows to the 
owners. Because if you use the calculation that I am familiar 
with, they almost gave away 70 percent of their dividends to 
their shareholders. Why didn't you use that number instead?
    Ms. Ritt. Use their net revenues?
    Senator Begich. Yes.
    Ms. Ritt. Because a lot of them do not make very large 
profits.
    Senator Begich. Right.
    Ms. Ritt. They have very huge cost structures, as I am sure 
you know. Some of them have restructured after Chapter 11.
    Senator Begich. Yes. And 8(a)s helped them move forward?
    Ms. Ritt. But there they are getting billions of dollars in 
contracts with hundreds of millions of dollars in profits, I 
guess, from various sources.
    Senator Begich. Yes, but your analysis here kind of makes 
it sound like they have these huge contracts and they are 
making this huge amount of money. But really, it is about the 
net revenue just like the standard 8(a) is measured by.
    So let me ask you an additional question in regards to 
that, and that is you had a lot of commentary in here on SBA 
reforms necessary. Actually, I think your last report 
highlighted that a lot, which I agree with, and I think every 
SBA member agrees with that. Besides staffing and overview and 
monitoring, what else does SBA need in order to do the job? 
Because it sounds like, for example, the example that I just 
heard from Mr. Assad, the process he used stopped a contract 
they did not feel was adequate. So what more?
    Ms. Ritt. Well, I do think that they need to collect data 
on ANC activity, and they need to be more engaged in overseeing 
joint ventures, mentor protege relationships, where there are 
opportunities for abuses.
    Senator Begich. OK. My time is pretty much up here. But in 
your report, you talked about the GAO in regards to sole source 
and the potential of costs to the taxpayers.
    How come you did not specify any specific issues where an 
ANC 8(a) corporation has cost the taxpayers more than it 
should?
    Ms. Ritt. Well, I think that there has been a lot of cases 
documented with other IG reports----
    Senator Begich. Of ANC 8(a)s?
    Ms. Ritt. Yes, of ANC 8(a)s.
    Senator Begich. But why didn't you restate that, then, if 
that was such, as I saw, an important piece of the equation? 
Because that is part of the debate of sole source, of what is 
the value. Because, like today, for example, I receive a nice 
newsletter from the Air Force talking about $25 million they 
saved working with an ANC 8(a).
    Ms. Ritt. Right.
    Senator Begich. So why didn't you use those examples?
    Ms. Ritt. Well, we felt that there was a sufficient body of 
work that other IGs had done that clearly demonstrated that 
sole source awards to ANCs had been abused.
    Senator Begich. More recently?
    Ms. Ritt. Yes. There was a DOD IG report in 2007 regarding 
a contract for leased space, a $100 million, 10-year contract, 
sole sourced to an ANC who was not small, did not qualify under 
the size standards, they did not go through GSA, and GSA 
appraisers determined that it cost $2.7 million more a year for 
the life of that contract.
    Senator Begich. Well, I will stop because I want to ask you 
about the process of that.
    Senator McCaskill. Senator Murkowski.
    Senator Murkowski. Ms. Ritt, let's continue with you, if we 
may. Both in your oral statement and in your written testimony, 
you have suggested that the audit has confirmed--so this is not 
a suggestion. The audit has confirmed the differences in the 
rules governing ANC participation has allowed ANCs who have 
access to the capital and credit of its parent to compete 
against truly small disadvantaged companies. So your suggestion 
in this language is very clear to me that somehow or other, the 
ANCs have broad access to credit and certainly to the capital 
markets. And I am just not clear how you support your 
conclusion.
    You realize, of course, that ANC stock is not traded. It is 
not on the stock exchange. Its subsidiaries are not public 
companies. So I guess I am not sure what capital markets you 
are suggesting. And in terms of the capital markets that might 
be available to the ANCs themselves, the suggestion that they 
might have to pledge their land is wholly inappropriate.
    Where do you believe that this comes from?
    Ms. Ritt. It is a very good question. We met with the 
parent companies of the 11 ANC 8(a) participants that were 
getting most of the money under the program who confirmed to us 
that they are heavily involved in managing those companies, 
that they have extended capital and credit to them and other 
services, management expertise, legal advice. They have a 
central treasury, many of them, where they sweep in all of the 
8(a) contract revenue on a daily basis. They make the decisions 
on how that money is going to be spent. And that is where they 
are getting their access to capital and credit of the parent 
corporation and the bonding capability of the parent 
corporation.
    Senator Murkowski. Well, your suggestion, though, is 
somehow or other that they could go out to the capital markets 
and again----
    Ms. Ritt. No, that was not our suggestion at all. It was 
that they are truly large companies through affiliation with 
their parent corporations who have access to capital and 
credit.
    Senator Murkowski. You have looked at just 11 of the ANCs 
in this request in response to the Chairman of the Subcommittee 
here. Some of these that you have reviewed were early entrants 
into the 8(a) program. Others are relatively recent 
participants into the program, very different status, most 
clearly, very different status.
    Is it reasonable to suggest that we would basically pull up 
the ladder at this point and either deny entry to futures or to 
cut off those that are relatively new entrants into the 
programs and exclude them from future opportunity?
    Ms. Ritt. No, our office is not advocating in any way that 
ANCs should not be allowed to participate in the 8(a) program. 
We are concerned as an IG with the unlimited sole source awards 
that do not provide the government the best value. There is 
opportunity in the 8(a) program to get large competed 
contracts, and ANCs can compete for those.
    Senator Murkowski. Mr. Jordan, because it has been 
suggested here, through the report and Ms. Ritt has stated 
again, that somehow or other we are not getting good value out 
of the 8(a) ANCs. Can you speak to that?
    Mr. Jordan. I can. First of all, it is also a bit of a 
misnomer to say there is no competition when it comes to 8(a) 
ANCs. In 2008, of the figures stated in terms of 8(a) 
contracts, over $650 million was through 8(a) competition. In 
terms of sole source authority not providing the best value, I 
do somewhat reject that on its premise. I believe that 
competition is good. I believe that promoting competition is 
good. I believe that general principle. The President has 
talked about competition, transparency, accountability.
    However, in every contract, and this also applies to all 
sole source contracts, the contracting officer must certify 
that the government got fair and reasonable value and it must 
monitor performance of that contract and can terminate it if 
the contracting officer sees fit. So to say that the government 
did not get the best value because it was sole sourced is, or 
should be, inaccurate.
    Senator Murkowski. Well, I appreciate the clarification on 
that.
    My time has expired, but I do have another series of 
questions if we are going to do a second round.
    Senator McCaskill. I do not think that we are. I do not 
think that the Ranking Member and I have additional questions 
for this panel, so we are going to move on to the second panel.
    Thank you all very much.
    Mr. Jordan. Thank you.
    [Pause.]
    Senator McCaskill. We will move on to our second panel, and 
our first witness on our second panel is Sarah Lukin. She is 
the Executive Director of the Native--oh, excuse me. I forgot 
to swear you in. I need you to stand, please.
    Do you state that the testimony you are about to give is 
the truth, the whole truth, and nothing but the truth, so help 
you, God?
    Ms. Lukin. I do.
    Ms. Pata. I do.
    Ms. Kitka. I do.
    Mr. Lumer. I do.
    Ms. Schneider. I do.
    Senator McCaskill. Thank you very much.
    Ms. Lukin is the Executive Director of the Native American 
Contractors Association. Prior to joining the Native American 
Contractors Association, Ms. Lukin served as Vice President of 
External Relations for Afognak and their wholly-owned 
government contracting subsidiary, Alutiiq.
    Thank you, Ms. Lukin, and we welcome your testimony.

  TESTIMONY OF SARAH L. LUKIN,\1\ EXECUTIVE DIRECTOR, NATIVE 
                AMERICAN CONTRACTORS ASSOCIATION

    Ms. Lukin. Quyanaa. Thank you. I am Alutiiq from the Native 
Village of Port Lions on Kodiak Island, a remote community of 
250 people in the Gulf of Alaska. I just started as the 
Executive Director for the Native American Contractors 
Association (NACA).
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Lukin appears in the Appendix on 
page 69.
---------------------------------------------------------------------------
    I firmly believe the 8(a) program is critical to the future 
of our disadvantaged Native communities. It has made a dramatic 
difference in my quality of life, my family's, and my 
community. And I am here today to ensure other disadvantaged 
Native Americans and Alaska Natives have the same opportunities 
to improve their lives.
    So when I see, as I did recently, an official press release 
describing Tribal, Alaska Native, and Native Hawaiian 
participation in the 8(a) program as a ``loophole,'' it 
disturbs and disheartens me. That term ignores the reality of 
our severe socio-economic disadvantages. The fact that Native 
enterprises are owned by Native communities that are destitute 
and geographically isolated, decimated by centuries of failed 
Federal policies, yet are still responsible for the health and 
welfare of thousands of their people, their descendants and 
dependents, that is real.
    When poverty in our Native communities exceeds all other 
race categories, and is twice the national average, that is 
real. The fact that Members of Congress have tried to keep the 
promises made by their predecessors in the Constitution, 
countless treaties, and land settlements when taking hundreds 
of millions of acres of Native lands, that is real. And it is 
real, too, that Native women have earned an education because 
of Native 8(a) benefits, and that our Native children can now 
speak their traditional language that was lost for generations, 
and that Native elders now receive benefits to offset their 
very limited income.
    Here is a Federal program that the government actually got 
right for Native people. The program is making a difference and 
we can tell you that--one Alaska Native story by one Alaska 
Native story.
    Like so many of our Native children, I was a statistic. I 
come from a broken family that faced substance abuse and 
poverty. I remember how ashamed I would feel when I had to buy 
groceries with food stamps and wear secondhand clothes. No one 
in my family had ever earned a college degree, but scholarships 
from my Native corporations enabled me to earn a bachelors and 
a masters degree, empowering me to overcome enormous odds and 
experience my own American dream. And I am one of many Alaska 
Natives that 8(a) has helped.
    The Native 8(a) benefits protect our land, our language, 
our culture, our elders, our children, and our future. They 
help America keep its word. They build business capacity and 
work ethic, educating teachers, accountants, and IT 
specialists, hope and opportunity. The hand up is replacing the 
handout. We need more benefits for our people. And more Native 
employment, more work in our Native communities, and more 
Native executives. To cut the program that got us this far is 
absolutely wrong.
    Native American peoples represent 4 percent of America, but 
Native enterprises still represent less than 1.3 percent of the 
Federal contracting pie. Native 8(a)s strive to increase 
business opportunities for all other small businesses and 
8(a)s, and we offer real competition to the large contractors 
and real value to the taxpayer.
    There have been difficulties. The SBA is under-staffed and 
underfunded. Its enforcement, assistance, guidance, and 
training have suffered. There are some very real problems. We 
strongly believe everyone must play by the rules, and those who 
do not should be held accountable. Fortunately, those rules and 
enforcement mechanisms already exist. Unfortunately, the SBA 
lacks the resources it needs for these important oversight 
tasks.
    The problems with government contracting are universal. The 
search for solutions should be comprehensive, and not 
disproportionately focused on Native American 8(a)s. America 
needs the Federal procurement system to work, so do Native 
Americans. That is why the National Congress of American 
Indians, the National Center for American Indian Enterprise 
Development, and NACA have been very active for over 3 years in 
pushing, pulling, and prodding for the GAO recommendations, 
regulatory reforms, and more resources for the SBA.
    We have worked so hard on these issues because Native 8(a) 
represents success, hope and self-determination for our Native 
communities. Now is not the time for Congress to go back on its 
commitment to Native people.
    Quaynaasinaq. Thank you very much for allowing me to 
discuss a very important program in my life, my children's 
lives, and the lives of my people.
    Senator McCaskill. Thank you, Ms. Lukin. Our next witness 
is Jacqueline Johnson-Pata. She is the Executive Director of 
the National Congress of American Indians. Mrs. Pata is also a 
Member of the Board of Directors of Sealaska Corporation, one 
of the ANCs. Welcome.

 TESTIMONY OF JACQUELINE JOHNSON-PATA,\1\ EXECUTIVE DIRECTOR, 
             NATIONAL CONGRESS OF AMERICAN INDIANS

    Ms. Pata. Thank you. Gunalcheesh. Good afternoon. My name 
is Jacqueline Johnson-Pata, and I am the Executive Director of 
the National Congress of American Indians, the largest and 
oldest Native organization representing American Indians and 
Alaska Native tribal governments.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Johnson-Pata with an attachment 
appears in the Appendix on page 93.
---------------------------------------------------------------------------
    The U.S. Constitution and many statutes establish the 
unique American Indian and Alaska Native trust relationship 
with the Federal Government. Native peoples ceded over 500 
million acres of land, and the United States entered into a 
trust relationship with the American Indians and the Alaska 
Natives. Congress was very specific when articulating the 
Federal Government's relationship with the Alaska Natives in 
the Alaska Natives Claims Settlement Act, and this law required 
Federal compensation to settle Native land claims. And Congress 
mandated that Native-controlled corporations be created. 
Furthermore, in the Settlement Act, Congress confirmed that 
Alaska Native Corporations are eligible for Federal procurement 
programs.
    The Federal Government has enacted numerous policies aimed 
at reducing poverty and creating economic opportunity for 
tribes. Specifically, the 8(a) help tribal communities to 
overcome economic and social barriers and create new business 
opportunities for Native and surrounding rural communities that 
are far removed from major markets.
    Intergenerational poverty remains a serious challenge. 
American Indians and Alaska Natives are amongst the most 
economically distressed populations in the United States with a 
poverty rate of 25.7 percent. This far exceeds the poverty rate 
for any other group as more than double the national average. 
Per capita income of Indians living on reservations is still 
less than half the national average, and unemployment is twice 
that of the national average.
    Many tribal governments lack the ability to provide the 
basic infrastructure that most U.S. citizens take for granted 
such as water, sewage, roads, affordable housing, plumbing, 
electricity, and telephone service. These substandard economic 
and quality of life indicators have a social toll. Health 
disparities are prevalent and suicide rates, a symptom of lack 
of opportunity, are high. Over 60 percent more American Indians 
and Alaska Natives experience suicide than the national 
average. Alcoholism and diseases like tuberculosis are over 500 
percent higher in American Indians and Alaska Natives.
    Despite these great needs, tribal governments have fewer 
resources than State and local governments to fulfill their 
governmental responsibilities to their citizens, making 
economic development even more important. The longstanding 
Federal policy of self determination is hollow with adequate 
resources or economic development to carry it out.
    The 8(a) program is an effective vehicle to realize Native 
self determination. Business, educational and leadership skills 
are being developed, and the results are impacting the economic 
and social conditions in Native and rural communities. For 
example, thousands of scholarships have been awarded to Native 
people. Hundreds of internships have given valuable work 
experience to our future workforce. Employment and, more 
importantly, career opportunities are available where none 
existed earlier.
    Business skills learned through government contracting, 
like strategic planning and management, are taking root in our 
communities, and leaderships skills are being developed in 
councils and on boards. Leaders are now being empowered to make 
choices about how best to sustain their economic enterprise, 
their culture, and their future generations.
    NCAI has taken seriously the recommendations from the GAO 
report and the prior SBA Inspector General reports. Since these 
reports were issued, we formed a joint working group with NACA, 
and with the National Center for American Indian Enterprise 
Development. And in 2007, we hosted a series of government-to-
government consultations with the SBA administrator to discuss 
the GAO and the SBA IG report recommendations and to identify 
solutions to address these concerns.
    Through this process, we developed comprehensive 
recommendations to improve the program oversight. Consistent 
with the 2006 GAO report, these recommendations we proposed 
were administrative rather than legislative. Our 
recommendations included developing effective data collection 
mechanisms, enhancing oversight through Web-based reporting, 
setting milestones for mentor protege and joint ventures, and 
increased transparency of ownership agreements. Additionally, 
we have urged that Congress increase funding to the SBA and 
charge the agency with reengineering the Native 8(a) program.
    We feel it is important for this Subcommittee and for 
Congress to know that tools, such as 8(a) business development 
created to promote economic self sufficiency, are working in 
our Native communities. The criticism about the success of 
tribal and ANCs' contracting is misplaced. More importantly, 
pitting a disadvantaged group against another only distracts 
from the many issues all small and disadvantaged contractors 
have in common.
    The Federal procurement market is enormous and growing. 
There is plenty of room for tribal, ANC and other minority 
businesses to participate. We have proposed increasing SBA 
contracting goals and size standards, as well as increasing the 
thresholds for individually-owned 8(a) companies.
    Limiting access to the Federal marketplace will have 
devastating effects on our Native and rural communities. With 
conditions in Native communities comparable to those of 
developing nations, we should all be working together to 
improve programs like 8(a) business development programs and 
create the opportunity that is needed in Indian country. Thank 
you.
    Senator McCaskill. Thank you, Ms. Pata.
    Julie Kitka is here. She is the President of the Alaska 
Federation of Natives. She is also a Member of the Board of 
Directors of Chugach Alaska Native Corporation.
    And I do want to say for the record that you owe thanks to 
your Senators for your testimony here today. Your request to 
testify came in after we finished the witness list, but because 
Senator Begich and Senator Murkowski came to the Subcommittee 
and made a specific request for you to testify, we made an 
exception to the normal rule that we do not allow more 
witnesses after the witness list has been finished. So I do not 
know if you want to say no thanks to them when this is over or 
thanks to them, but you are here at their behest and we welcome 
you and look forward to your testimony.

 TESTIMONY OF JULIE KITKA,\1\ PRESIDENT, ALASKA FEDERATION OF 
                            NATIVES

    Ms. Kitka. Well, thank you, Madam Chairman, Ranking Member, 
members of our delegation, and other Members of the 
Subcommittee and staff. I truly appreciate the opportunity to 
present testimony on behalf of the Alaska Federation of Natives 
regarding our Native corporations, their contracting 
opportunities, and their status under the Small Business 
Administration 8(a) program, and request that my written 
testimony be included into the record.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Kitka appears in the Appendix on 
page 110.
---------------------------------------------------------------------------
    Before I actually get into some of the oral comments that I 
wanted to do, I wanted to place a couple things into the record 
to give you a background of when, for example, we are talking 
about scholarships that are going to our young people or this 
or that, it is not like scholarships like everybody just 
imagines that you just give out to kids.
    I want to put one thing formally into the record and would 
like to provide the backup for that, is we are still not on a 
level playing field as far as education in Alaska. There is a 
class action lawsuit pending in the courts right now in Alaska 
asserting that there is a $200 million a year shortfall deficit 
spending on the rural village schools, and this has been going 
on for decades. We have just had a class action lawsuit on law 
enforcement and the deficit spending and the lack of law 
enforcement opportunities to deal with alcohol and other 
things.
    We are not yet at a level playing field. And so for 
example, the scholarships that come in from this 8(a) 
contracting to our young people are essential because we are 
trying to catch up generations of young people. And our 
corporations that are providing these scholarships, they are 
for all ages. It is for adults. It is for young people. It is 
for their descendants on that. But we are never going to catch 
up and get parity with everybody else in education if we lose 
these opportunities for these contracts.
    So I just wanted to say for the record, the value of these 
scholarships means so much more to us because we have got these 
hurdles to overcome still and we are not getting the funding 
for our basic first grade through high school education that 
other people across the United States take for granted, or 
their State government works really closely with them and 
accomplishes.
    We are still in the State under the Voting Rights 
Protection Act, the only other State along with Mississippi, 
that people have to look out to make sure our voting rights are 
protected. We were the last Americans to get the right to vote 
in 1924, and in 1971, the year our land claims was formed, they 
had to amend the State constitution to take out the requirement 
that you had to write and speak English in order for our 
elders, our Native people, could even vote in our State. We 
have still got a lot of catching up to do, and the 
circumstances we are dealing with as a people have to be 
understood by this Congress when you are making policies.
    As I put in my written comments, we are honored to submit 
this testimony. I have worked with an incredible number of 
Native leaders in public policy, public officials for many 
years, trying to create these opportunities. And we have had 
great success. We have had many accomplishments.
    I cite in my testimony a 30-year trend analysis that we 
commissioned from the University of Alaska in 2004 in which we 
looked at all the social, health and economic indicators of our 
whole populations over three decades. And the thumbnail sketch 
of that analysis is tremendous difference that this Congress, 
the State of Alaska, and the Native people have made in 
people's lives. People are living longer. Infant mortality is 
being decreased, health indicators.
    Lots of progress is being made. So we do not have a 
hopeless situation, but we still have a thread of disparity in 
every single indicator, including poverty, including infant 
mortality, that needs targeted attention on that. And we still 
are not at a parity with other Alaskans, let alone with other 
Americans. And I really commend that report to you as you are 
taking a look at when we are talking about socially 
disadvantaged people on that, that report over 30 years will 
see the progress of work has been done, but it will point to 
you every single indicator where the disparity continues.
    That is real. That is documented. It was not done for the 
purposes of justifying contracting but was done because our own 
leadership wants to pay attention to these indicators. And we 
also were aware that we are in the midst of a baby boom with a 
lot of growth in our population, and we knew that there would 
be tremendous needs in health and education to grow up this 
next generation of young people. And I commend that report and 
would like to submit that for the record.\1\
---------------------------------------------------------------------------
    \1\ The report titled ``Status of Alaska Natives 2004,'' submitted 
by Ms. Kitka appears in the Appendix on page 161.
---------------------------------------------------------------------------
    I want to go on record on behalf of AFN fully supporting 
the 8(a) program and assuring this Subcommittee that our people 
are getting solid benefits from that program. As I mentioned, 
the scholarships, the internship opportunities, AND the work 
opportunities are real.
    Are there improvements that can be done? Of course there 
are improvements that can be done. But there are many other 
factors that need to be in place to help our Native population 
to grow our workforce in these contracting opportunities and in 
other sectors.
    I also want to extend on behalf of our board of directors 
and our people up there an invitation to this Subcommittee, the 
Chairman, and your staff to come up to Alaska and meet our 
people and see firsthand some of the contracting that is going 
on, some of our corporations, our people, and our aspirations. 
And I might suggest a time frame in which you might do that.
    On August 12, we have a very historic visit in our State by 
five members of the cabinet of President Obama--five cabinet 
secretaries are all going to be in Bethel, Alaska on August 12. 
Unprecedented in our history to have five cabinet officials, 
and they are also planning visits and sending staff out to the 
Wade Hampton district, which is among the top 10 poorest 
counties in the whole United States.
    And we welcome the attention and the effort and the 
partnership that is being offered to address and raise up the 
living conditions for our people. And if there is an 
opportunity for this Subcommittee--if, Madam Chairman, you 
cannot make it, please send your staff up. I mean join us in 
this because we are going to have quite a bit of open 
discussion and dialogue. And we are going to be looking at 
solutions and things that can go forward. But it is very 
historic. We have never seen that before.
    I know I am using quite a bit of time on that, but I want 
to try to get as much into the record. As I said, the basis for 
our Native corporations is our land claims settlement, and it 
is vitally important to the Native people of Alaska that our 
corporations are strong and healthy. They hold our settlement 
lands in them, our cultural lands, our historic and sacred 
lands. If they go down, the danger of losing our land and our 
future is very real.
    So we are committed to do everything that we can to help 
our leadership that is trying to make these corporations work 
and are being very diligent and successful to create as many 
opportunities as possible.
    I might want to cite one item. When I think about the IG 
report and the data and the period of time in which they 
collected data, I think that is kind of an incomplete time 
frame and it is probably nobody's fault. But after the time 
frame on that, I mean we have had the worst economic crisis in 
my lifetime in this country, and how people are faring and how 
government contracting is doing. I mean we have to take into 
account we are still in this crisis and it has not bottomed 
out.
    So I would just like to suggest that the collecting of 
information and the monitoring and the status needs to continue 
on. And we need to pay attention to how everybody is faring in 
this economic crisis and how people are positioning their 
companies to be able to contribute to this country. We are very 
much committed to do everything in our power for the economic 
recovery of this country because we are affected by that in 
Alaska as well as we know every American is, and we want to be 
partners in trying to contribute to that as well.
    Senator McCaskill. Ms. Kitka, you are several minutes over 
your testimony. And I know you have come a long way. I do want 
to assure you that every word you want to go into the record 
will go into the record. But we want to make sure since we have 
five members of the panel that we have enough time for 
questions.
    If there is anything else you want to close with in just a 
few seconds, you are welcome to do so.
    Ms. Kitka. Well, in closing, I just want to reiterate our 
strong support of the 8(a) program and that it makes a 
difference, and we are pleased to provide additional 
information if the Subcommittee has questions for us or wants 
additional reports or information.
    We are honored to be allowed to testify, and we are just 
very proud to be contributing to building the country. I have 
stated in the testimony that we feel the No. 1 benefit to the 
Native people from these contractings is the capacity building 
and the whole Nation building experience. And we think as we 
get past this economic crisis, that whole capacity that we have 
built in our corporations and that Nation building experiences 
can be put to use not only throughout the rest of the United 
States but in other parts of the world.
    Senator McCaskill. Thank you so much. Thank you.
    Our next witness is Mark Lumer. He is the Senior Vice 
President for Federal Programs at Cirrus Technology, a service 
disabled veteran-owned small business based in Alabama. Before 
joining Cirrus, Mr. Lumer was the principal assistant 
responsible for contracting for the U.S. Army Space and Missile 
Defense Command, a member of the Senior Executive Service in 
Army Acquisition Corps with Level 3 certifications in both 
contracting and program management. He is an expert and author 
in the field of government contracting and has received many 
awards. Between November 2003 and July 2004, Mr. Lumer served 
as the Assistant Deputy Assistant Secretary of the Army for 
Policy and Procurement in Iraq.
    Welcome, Mr. Lumer.

  TESTIMONY OF MARK LUMER,\1\ SENIOR VICE PRESIDENT, FEDERAL 
                PROGRAMS, CIRRUS TECHNOLOGY, INC

    Mr. Lumer. Madam Chairman McCaskill, Ranking Member 
Collins, Members of the Subcommittee, and the Alaska 
delegation, I am Mark Lumer. I am here representing Cirrus 
Technology, a small business located in Huntsville, Alabama. 
Cirrus Technology is a HUBZone and service disabled veteran-
owned small business and a recent graduate of the 8(a) program.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Lumar appears in the Appendix on 
page 122.
---------------------------------------------------------------------------
    Before I went into private industry, I did serve as a 
contracting official with the Department of the Army for almost 
33 years. My last assignment was as the contracting executive 
for the Army Space and Missile Defense Command, a SES position 
and a post I was in for almost 13 years. Prior to that, I was 
on the Army staff at the Pentagon where I helped write the FAR 
and DFARS for 4 years. So in a sense, this is all my fault. 
Part 19 of the FAR, in fact, and part 219 of the DFARS were two 
areas of my personal responsibility.
    I have been told I am the most decorated civilian 
contracting official in the history of the U.S. Army. However, 
there was a fire in St. Louis about 35 years ago and destroyed 
thousands of records, so that statement cannot be accurately 
verified. [Laughter.]
    The first observation I do want to make is that as a 
contracting officer for 25 years, the unlimited sole source 
authority that ANCs have was a very useful tool to me in 
issuing contracts pursuant to the Competition and Contracting 
Act quickly. I authorized the use myself about six times in 
those 13 years at SMDC for hundreds of millions of dollars. I 
received exceptional performance from the ANCs. The prices 
proposed were audited, they were negotiated and ultimately 
determined to be fair and reasonable by the contracting 
officers. I am really not in favor of having that tool 
completely eliminated.
    Serving now as a small business employee, which was an 8(a) 
and is currently a HUBZone and service disabled veteran-owned 
small business, I have to state it is incredibly difficult to 
compete with ANCs under the current rules. Cirrus has lost 
contracts that were bundled and awarded to ANCs. Cirrus has 
lost opportunities to compete where contracts were assigned to 
ANCs noncompetitively.
    As a general rule, Cirrus Technology will not compete for 
any procurements if there is a history of ANC involvement or 
where there is a likelihood that an ANC will go after the 
opportunity directly. I cannot provide you with any concrete 
evidence, but anecdotally, I firmly believe that many small 
businesses will routinely bypass procurements where ANCs are 
involved because the chances of winning are so small even if 
they are allowed to compete in the first place.
    It is my firm belief that the extraordinary growth in sole 
source awards to ANCs is a direct byproduct of the extreme 
shortage of government contracting officers and procurement 
contract specialists, a situation that, frankly, will only get 
worse with the addition of billions of dollars in stimulus 
money. I have seen and heard estimates that most government 
contracting offices are short-staffed by an average of 35 
percent. I believe that figure to be low, personally.
    Procurement officials are in the constant process of 
performing what I call contracting triage. They are looking to 
see what requirements can be legally awarded in the shortest 
amount of time using the least amount of resources. And that 
inevitably leads them to using ANCs because of the unique 
unlimited sole source authority that exists, the fact that they 
get small business credit for those awards, and the guarantee 
that there will be no protests sustained by the GAO. There are 
several areas where the playing field is currently uneven. We 
have talked about the sole source thresholds for HUBZones, non-
ANC 8(a)s; service disabled is three and a half and five and a 
half versus unlimited. The size standards for most small 
businesses are determined by employees, typically 500, 1,000, 
or 1,500 depending upon the NAICS code or sometimes by income 
as opposed to no employee limits for the ANCs. That can create 
an extreme disparity in the ability to compete.
    ANCs may have multiple 8(a)s, as has been identified 
previously, while other firms are typically limited to one 
each. That ANC's unique authority gives them an extraordinary 
advantage to adjust overhead rates and general administrative 
costs, thereby giving them a cost advantage that other firms do 
not have. The inability of companies to protest a contracting 
officer's decision to award a procurement to an ANC, especially 
when there are bundling issues, that is a problem.
    To obtain a HUBZone designation from the SBA, one 
requirement is that 35 percent of the employees in the company 
live in any designated HUBZone track, yet there are no minimum 
requirements for ANCs to employ tribal members or Alaskans. In 
fact, there is no requirement that they even have offices, in 
Alaska, though almost all of them do. Even the subcontracting 
arena, there is special incentives, the 5 percent bonus that 
was talked about. There are no incentives for subcontracts to 
HUBZones, women-owned, or service disabled veteran-owned small 
businesses.
    Having said all that, I truly believe there are many 
legitimate reasons to provide procurement assistance to ANCs. I 
do not believe many companies would even object to allowing 
ANCs to have some type of procurement preference in competing 
for government contracts. However, the current situation is out 
of balance and it may be time to start to swing the pendulum 
back the other way.
    I look forward to answering any questions the Subcommittee 
may have.
    Senator McCaskill. Thank you, Mr. Lumer.
    Our next witness is Christina Schneider. She is the Chief 
Financial Officer for the Purcell Construction Corporation, a 
HUBZone contractor based in the State of New York. Welcome, and 
we look forward to your testimony.

 TESTIMONY OF CHRISTINA SCHNEIDER,\1\ CHIEF FINANCIAL OFFICER, 
                PURCELL CONSTRUCTION CORPORATION

    Ms. Schneider. Thank you. Good afternoon. My name is 
Christina Schneider, and I am the Chief Financial Officer of 
Purcell Construction Corp. I also serve as the Director on the 
New York State Associated General Contractors (AGC), a 
statewide trade organization of over 600 construction 
contractors. We are also a member of AGC of America with over 
33,000 members nationwide. One of the founding principles of 
AGC is to promote fair and open competition within the 
marketplace.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Schneider appears in the Appendix 
on page 124.
---------------------------------------------------------------------------
    I commend the Senators today for calling today's hearing 
and am honored to present testimony on this subject. 
Specifically, my remarks will focus on the effect that sole 
source awards to Alaska Native Corporations has had on Purcell 
Construction and other local general contractors.
    We are a second generation mid-size general contractor 
based in Watertown, New York. Watertown is a small community in 
rural, economically depressed northern New York where much of 
the economy is dependent upon Fort Drum, home of the Army's 
10th Mountain Division. From 2002 to 2007, our company was one 
of two local contractors who held a term contract at Fort Drum. 
We completed over 96 different task orders under a contract 
valued at $57.5 million. Both firms involved in this contract 
received multiple commendations for the work that we did, and 
by all accounts performance exceeded contract expectations.
    In 2004, the government anticipated exceeding our contract 
value limits, so they began preparing for the solicitation of a 
follow-on contract, which we assumed would be through 
competitive bidding. We were shocked to learn that the 
government decided to award the contracts to two Alaska Native 
Corporations, Chugach and Alutiiq, on a sole source no-bid 
basis. Our firm and several other general contractors in 
northern New York were totally shut out from competing for this 
contract.
    We were given various reasons for this decision, ranging 
from there not being enough time to procure this contract using 
traditional methods to the unbelievable argument that this sole 
source contract would lead to the most potential for 
involvement by local companies.
    In addition to being excluded from bidding, we had no 
opportunity to protest the decision. Federal regulations 
dictate that only a competing bidder has legal standing to 
protest. With no competitors, there is no mechanism for us to 
protest. This was particularly frustrating because we believe 
Chugach was ineligible to receive sole source awards because of 
their multiple large affiliates operating in the same industry 
classification. We provided the SBA in Washington with 
documentation to support our claim but have no evidence that 
this information was ever considered.
    Even though this particular sole source contract was 
awarded in 2004, local contractors are still suffering from the 
impact of its 10-year, $400-million obligation. We have learned 
over the past month that most of the current construction 
projects being procured by the Fort Drum directorate of 
contracting, including the bulk of the stimulus funds allocated 
to Fort Drum, are going through these two ANC contracts. Local 
contractors are not competing for the stimulus funds.
    While it is true that ANCs employ local labor and 
subcontractors, this contracting preference has eliminated 
opportunities for general contractors like us. Our firm is a 
prime contractor, and ANCs have replaced us in performing that 
function. It has negatively impacted our firm and others like 
us who no longer compete for this work.
    As you know, the foundation of the small business 
legislation is to temporarily provide assistance to fledgling 
firms. There are also dollar volume thresholds that apply to 
the 8(a) program. And as we have heard today, ANCs are exempt 
from all of that.
    If you refer to a website called Government Contracts Won, 
the two companies that were awarded the Fort Drum contracts, 
Alutiiq and Chugach, have amassed in excess of $2.6 billion and 
$3.8 billion in government contracts respectively over the past 
9 years. According to the Inspector General's report issued 
last week, these two ANCs represent a total of approximately 
2,300 individuals. This equates to $2.7 million in contract 
dollars per person. To us, these figures alone are staggering. 
But we also know that Alutiiq and Chugach are only two out of 
scores of ANCs being awarded Federal contracts.
    In the construction industry, as with most businesses, when 
competition is removed, prices soar. The costs of this 
arrangement to the Federal Government is astronomical. Another 
side effect of these preferences is the impact on truly small 
businesses. We suspect many contracting officials use this as a 
way to meet their small business contracting goals. The award 
of a large contract to an ANC surely comes at an expense of 
legitimate small businesses.
    We think the solution to this is straightforward. The 
unfair advantages enjoyed by the large Alaska Native 
Corporations must be closely examined. Their immunity to 
affiliation rules and size standards and the lack of dollar 
limits on sole source contracts should be eliminated. Tribal 
firms that legitimately meet the small business standards would 
still be entitled to all of the benefits offered by the 8(a) 
legislation.
    Thank you for this opportunity to present our concerns.
    Senator McCaskill. Thank you, Ms. Schneider.
    Let me start with going through some of the numbers with 
the representatives here from some of the ANCs. Let me go 
through the three corporations that you represent.
    In 2008, Afognak had 728 shareholders, and you had $763 
million in contract revenue and you employed 6,400 people. Less 
than 1 percent of your employees were shareholders of your 
Alaska Native Corporation.
    Ms. Kitka, your corporation, Chugach, your total revenue 
for 2008 was $952 million; 62 percent of that revenue was from 
Federal contracting. The revenue from the contracts represented 
$595 million. You had 6,587 employees; 2.2 percent of your 
employees were shareholders, 147 people.
    Ms. Pata, the Sealaska Corporation, your total revenues for 
2008 were $126 million. Your revenue from contracts was only 
$8.4 million. In fact, only 6 percent of the revenue of your 
corporation came from contracting. You had 1,069 employees, and 
the largest percentage of shareholders employed, you had a 136 
shareholders employed or 12.7 percent.
    If I add those together, we have less than--in revenues of 
hundreds and hundreds and hundreds of millions of dollars, in 
fact, well over billions of dollars. We have literally less 
than 300 people that live in Alaska that are employed or that 
are members of your corporations.
    Ms. Kita, as you talk about capacity building, how is it 
capacity building if less than 1 percent of the employees of 
the company are members of the corporation?
    Ms. Kitka. Well, first off, Madam Chairman and Members of 
the Subcommittee, I came here to testify in my role as 
President of the Alaska Federation of Natives, not in my role 
or spokesman for Chugach Alaska Corporation. I would be happy 
to convey any questions back to that corporation.
    The Alaska Federation of Natives is a completely different 
entity than Chugach. It is an umbrella organization, and that 
is the role that I came here prepared to testify to try to give 
you----
    Senator McCaskill. OK. That is fair enough. Let me ask the 
other two----
    Ms. Kitka. But I would be glad to get questions or 
information back.
    Senator McCaskill. That would be terrific.
    I am trying to get at whether or not this is a capacity 
building, which traditionally is what the 8(a) program was 
designed to be. It was designed to allow small businesses to 
grow and get their foot in the door for Federal contracting, to 
build capacity. And then once the capacity is built, to 
graduate from the program and go into the world of competing. 
And, in fact, there are some Alaska Native Corporations that 
are, in fact, not really participating in the sole source. They 
are out there competing.
    With such a low number of Alaskans--45,000 people are 
employed by ANCs and only 5 percent of them are members of the 
corporations; 95 percent of the employees have nothing to do 
with the corporations.
    Ms. Kitka. Madam Chairman, on the capacity, since I put 
quite a bit in my written testimony about capacity and Nation 
building, I would be pleased to spend more time and focus a 
little bit more on the capacity building in a written response 
back to you.
    Senator McCaskill. That would be terrific.
    Ms. Kitka. Because I absolutely know that the capacity 
building, in my judgment, based on my years of experience, that 
is one of the strongest benefits of this program statewide 
and----
    Senator McCaskill. OK. We would welcome that testimony.
    Ms. Pata. Madam Chairman, I would actually like to answer 
this question. I am very proud of Sealaska Corporation and the 
work that we have done, particularly around shareholder hire. 
If you look at the numbers that you talked about, 12.7 is the 
shareholder hire rate, if you take out the U.S. employees 
versus our offshores out of the U.S. jurisdiction employees, 
which is about 455 of them are Mexican employees, we get to a 
21.4 percent shareholder hire ratio.
    But if you look at the way that we do our business, our 
business in Alaska and our corporate headquarters, we have 80 
percent shareholder hire in our corporate headquarters, which I 
think is an outstanding ratio considering that in the 40 years 
that we have been in business, the first 20 years of business 
development for all the Alaska Native Corporations was very 
challenged with trying to develop folks--our shareholder base 
that had gone to school and had been able to get the education 
necessary and the skills in businesses outside.
    One of the things that Sealaska does that I am so proud 
about is our scholarship program and our internship program. 
And you have the numbers in the materials that we submitted to 
you. But in our scholarship program, we do not just give our 
scholarship, we actually continue to track our scholarship. And 
so that as we are recruiting for any opportunities in the 
corporation, we recruit to that scholarship base. We also are 
very proud of our internship program. And you can also see in 
the materials that we submitted to you that we give you a 
number of stories of how our Sealaska core management team 
really started from either the scholarship program or the 
internship program or both. The majority of our vice presidents 
and core management team is shareholders.
    When we are looking at the capacity of the corporations--
and I cannot speak for the other corporations because I only 
represent Sealaska Corporation as the board of directors. But I 
do know that we are looking for models and sharing models, not 
only amongst us in Alaska but in the lower 48 States, and that 
these models of how do we use scholarship programs, as the 
tribes are looking across the country to implement scholarship 
programs, are looking at best practices and what works.
    I think some of the things Sealaska has done through 
experience, we have learned tracking makes a difference in 
being able to recruit back home to our own community that those 
have left our community and to get them back. And so I think 
one of the things about this government contracting program, 
8(a) program, in this business development, and one of the 
recommendations that we made, is that we really look towards 
taking those best practices and using them to be able to 
implement better practices. And some of the things that Native 
American Contracting Association, NCAI, and NCAIED, have done 
in trainings with lower 48 tribes is really sharing some of 
those best practices.
    Senator McCaskill. Ms. Lukin, did you want to address the 
less than 1 percent of your employees being shareholders?
    Ms. Lukin. Senator, I came here today to speak on behalf of 
the Native American Contractors Association. As such, I cannot 
speak to the direct operations or businesses relating to 
another organization. Certainly, I am sure that I can find the 
proper person to answer that particular question regarding 
Afognak Native Corporation. But I would like to speak in 
general terms about shareholder hire and employment of Alaska 
Native people.
    As you know, I hope, that the goal of every Alaska Native 
Corporation is to hire as many qualified shareholders and their 
family members as possible. In fact, we have in place Public 
Law 93-638, which allows us to provide a preference for 
qualified shareholders, Alaska Natives, and American Indians.
    In addition to that, we are really focused on mentoring, 
growing our Alaska Native students to be at a point where they 
can earn management level positions within our Alaska Native 
Corporations. Remember that we are really talking about first 
generation college graduates, such as myself, as a great 
example of somebody who came from a family that did not have a 
college education. So really, I am the first generation that is 
qualified to earn those management level positions.
    I would also like to note that a lot or most of the Alaska 
Native Corporations have shareholder development departments 
focused specifically on helping to train, mentor, and grow our 
shareholders to earn those positions. They do everything from 
helping shareholders build life skills, to resume writing, and 
training. They help them with mock interviews and then help 
walk them through the hire process. So I wanted to just focus 
on that in general terms.
    Senator McCaskill. Yes, and I am going to go ahead and give 
my colleagues from Alaska an opportunity to question now since 
I am over my time. I have a number of questions that I want to 
ask, and so hopefully, this will not take too long.
    Senator Begich.
    Senator Begich. Thank you very much, and this line of 
questioning, I am going to follow up on it, also, actually.
    I think there is an ongoing misunderstanding how the 
corporations operate. Not only do you have the for-profit arms, 
you have the non-profit arms, which are a significant portion 
of the business that goes on, which has a huge percentage of 
Alaska hire, Alaska Native hire. But, also, they are providing 
the health care. They are providing the major part of the 
social network.
    So tell me if this is a fair statement, that individuals 
that may work for a time being--or like, for example, I met 
four interns from NANA Corporation that were working for some 
of the subsidiaries here throughout the country and came by 
here a couple weeks ago. They may or may not stay in those 
corporations. They may go to one of the sister corporations, 
for example, the health care. They may be an administrator. 
They may be a practitioner.
    Is that a fair statement? That if you take a very narrow 
look at 8(a)s by themselves, you can argue the percentage all 
kinds of ways because that is what numbers do. But if you look 
at the big picture, what ANCs were set up for, is that cross 
sharing not only for American Indian tribes but also for within 
the corporations within Alaska--and, really, the village 
corporations have kind of grown in the last few years versus 
the regionals.
    Ms. Kitka. Well, Senator, I would like to address that. And 
it was kind of going to be my follow-up to the Chairman. And I 
will use my daughter as an example. My daughter is a graduate 
of the University of Alaska nurses program with honors last 
August. She was supported by scholarships from her native 
corporation. There is a critical nurse shortage in our State, 
in our villages and communities, and she graduated with honors, 
and now she is working for the Center for Disease Control on 
influenza things.
    If you took a look at the growth of teachers in our village 
schools and in our hubs, in our communities, you will see the 
incredible growth of Native teachers. I bet if you looked at 
every single one of them, virtually 100 percent of those 
teachers would have been funded from their village or their 
regional corporation's scholarship programs.
    As far as I know on any of the scholarship programs, nobody 
is just trying to only put money into law or business 
management. They are trying to create opportunities for our 
young people in whatever areas that they want to go to, and 
some gravitate towards working with the corporation and we 
really encourage them. But like I said, like my daughter, she 
is in the health field in a critical area of need, and there 
are so many Native teachers that are there as well.
    Senator Begich. Thank you.
    Ms. Pata. I would like to follow up on the rippling effect 
of what I see as today's investments. I know as a corporation 
we are taking--and in my testimony, I talk about the longer 
term. We, as Native peoples across this country, are always 
concerned with the seventh generation to come. And so as I look 
at that, these investments we see today have rippling effects. 
It is that student, that person who got that first time 
scholarship, who went to college, and who then now maybe more 
in that family will go to college. It is how they invest in 
their communities.
    But it is the way we do our business, too. It is our 
corporate business philosophy. The way that we stay connected 
to our non-profit values as far as cultural and community 
values that are very important in what we do. We have not only 
the tribal organizations, we have the non-profit associations 
that function. And we very much have the same people. So no 
matter what hat we are wearing, we are all the same Alaska 
Natives concerned about the subsistence and the other political 
issues that affect our communities. And so, we have to invest 
in those, too.
    Senator Begich. Let me ask one other question--and I have 
got about a minute left here.
    The analysis, which, again, I have a lot of questions--
there is a committee report that came out late last night that 
I have had a chance very briefly to review. But when they talk 
about shareholders within the corporation, it is not uncommon 
to have other Native corporation shareholders that are not of 
the corporation that runs the corporation.
    Is that a fair statement?
    Ms. Pata. That is a fair statement. When the shareholders 
were divided, when----
    Senator Begich. The regions.
    Ms. Pata [continuing]. The regions were divided, they kind 
of drew lines around the map where you were living at the time.
    Senator Begich. Right.
    Ms. Pata. Not unlike some places in the lower 48 when we 
are dealing with those issues and so----
    Senator Begich. So we have to be careful when we talk about 
the numbers of shareholders of your corporations working for 
the corporations. The real question is Alaska Native hire 
within the corporate structures that exist. And one of the 
biggest strengths you have is the issue of in-state and how 
much you have been doing there.
    For example, one of the interns I met, it was the first 
time he was ever out of his village. And people have to have 
that perspective when they deal with what we are doing in 
Alaska, that it is a very unique situation where a young person 
may not have ever left the village and this is a new 
experience. But when you think of shareholders, I think of it 
from a broader perspective, and that is a fair statement, I 
think. Thank you.
    Senator McCaskill. Thank you, Senator Begich. Senator 
Murkowski.
    Senator Murkowski. Thank you, Madam Chairman.
    I think we all recognize that there is nothing in the 
Federal Government requirements when we are talking about 
government contracting here, that in order to get a contract 
here in Virginia, you have to be a Virginia-based company. And 
so, there seems to be some suggestion, both in the report that 
we have seen and from some of the testimony that we have heard 
today, that, well, the criticism is, is that we are not seeing 
enough local hire, enough shareholder hire. Also in the report, 
there was some criticism directed that we are not seeing a 
substantial number of Alaska Natives that are part of the 
executive structure.
    I will ask you, Ms. Lukin, you come from Port Lions. Now, 
tell me--and I am not asking you to wear your other hat here, 
but as a resident of Port Lions, what kind of economic 
development can we really see within a tiny community like 
this?
    But, Ms. Pata, you come from southeast Alaska, where I was 
born down there. We were born in a national forest. This is 
land that is not available for development. We are working with 
Sealaska to try to allow for some of that. We have got the CEO 
of NANA Corporation, 60 percent of NANA's lands are locked up 
as Federal lands. And when we are talking about the ability to 
hire your people locally, the reality is, if you are going to 
have a government contract, more likely than not, it is going 
to be out of the State, and more likely than not, how easy is 
it to get an individual, a young person, whether they are from 
Port Lions or Angoon or from Kiana, to come here to Virginia?
    Can you just speak to that? Because, Ms. Lukin, you have 
obviously got some very present experience as a young Alaska 
Native who has left the village and come out into this world.
    Ms. Lukin. Yes. Quyanaa. Thank you for the question.
    My village, like so many in rural Alaska, is not connected 
to any other communities by road. It is only accessible by 
small plane or a seasonal ferry from the mainland or boats.
    Senator Murkowski. How much does it cost to get from your 
village to Anchorage?
    Ms. Lukin. If I were to fly from my village to Anchorage, 
it would be several hundred dollars. To take my family, it is 
over $1,000 to leave the village. And we are probably less 
expensive than many in, say, the Bethel region or the Aleut 
region or other areas in the State.
    There are no economic opportunities in my community. We had 
one single store, which I think would be comparable to what you 
might have here is like, what, a 7-Eleven? But it closed 
because it could not sustain itself in our village. We have 
minor commercial fishing, but the prices for fish have been 
drastically declining over the years. And we used to have 
timber development, but again, the prices for timber 
dramatically went down in the mid-1990s.
    The likelihood that an Alaska Native Corporation is going 
to be pursuing contracts out of the State is very high because 
there are contract opportunities in the State of Alaska but 
there are only so many opportunities, and there are 200 Alaska 
Native Corporations.
    How likely is it somebody will move? Very unlikely. I just 
moved myself, and it is hot here. But we are very connected to 
our culture and to our community, to our family and to our 
traditional ways of life. So to uproot your people and move 
them to somewhere outside of your community, it is very 
difficult to do.
    Senator Murkowski. But let me ask about that because what 
we are attempting to do through the use of the educational 
scholarships, primarily, is to provide for that level of 
educational opportunity so that there can be a level of 
exposure to how we can make business opportunities and 
translate them back to the village. Sometimes it is going to 
work; other times it is not going to work. But as you point 
out, we are really just in that first generation of educating 
young Alaska Natives and now being successful in bringing them 
back home; is that correct?
    Ms. Lukin. Yes, that is correct. And I would also point out 
that through the scholarships and small business programs 
available to--and by the ANCs to their shareholders, there are 
some in my dad's age bracket who at the age of 53 decided to 
start his own small business, sports fishing charter business 
in our village. And he is still going strong today, used his 
dividends to help purchase a small boat and got scholarships to 
help him get the Coast Guard's trainings and the certifications 
that were necessary to operate his small business in our 
village. So there are opportunities like that that are growing 
in rural Alaska because of the 8(a) program.
    Senator Murkowski. Thank you.
    Senator McCaskill. Thank you, Senator Murkowski.
    Would the three of you have any problem with competing with 
other ANCs?
    Ms. Pata. No, I think we actually do compete with other 
ANCs on various contracts.
    Senator McCaskill. I mean, actually taking away the ability 
of you to get a sole source contract if, in fact, the other 
companies that you were going to compete against were all ANCs, 
so that it would actually be a competitive bidding process but 
all of the bidders would be ANCs.
    Do you have any problem with that?
    Ms. Pata. I am not here to speak about that at this point. 
Obviously, we would have to have a consultation on that issue. 
It just brings to light two issues for me. One is sole 
sourcing--the issues around sole source contracting and whether 
or not it is a good Federal value is not only an issue of 8(a) 
contracting, certainly not an ANC only issue or a tribal issue 
because tribal governments have the same ability to sole source 
as ANCs. And I think that the separation of those poses an 
issue for me.
    I think, though, once again, we look towards 
recommendations for improving the program. We would be more 
than glad to sit down with you and your staff and the 
Subcommittee and have consultation with tribes across the 
country as well as the ANCs to come up with some 
recommendations that could address some of the concerns.
    Senator McCaskill. Do not need to explain to me that we 
have a problem with noncompetitive contracts? How I found out 
about you guys was that I was looking in to all the 
noncompetitive contracts that were let in Iraq. And as I 
started pulling the thread, I started finding all of these 
noncompetitive contracts across our government.
    This is by no means an effort to say that the ANCs are the 
only problem we have in the Federal Government as it relates to 
sole source contracting. We have lots of problems surrounding 
sole source contracting, especially at DOD and Homeland 
Security. And that is why the President issued an Executive 
Order in March directing his Executive Branch to prefer 
competitive bidding because we have gotten into this incredible 
explosive growth, not just in the ANC area, not just in the 
8(a) program, but an explosive growth in contracting across the 
board. And that is why this Subcommittee was created, is we 
need to look at all of the contracting issues.
    If you might be willing to compete with other ANCs and if 
we put that out there on the table, what about accepting the 
exact same rules as the Indian tribes? Would you have any 
problem with having the same rules for contracting as it 
relates to a status of economically disadvantaged?
    I also served on the Indian Affairs Committee briefly and I 
also have been informed and briefed--although not firsthand 
knowledge, because we do not have significant tribes in 
Missouri--of the incredible dysfunction of our government in 
terms of making sure that we have opportunity and economic 
opportunity for Indian tribes.
    So I think all the things you have talked about in terms of 
scholarships and empowerment and all of those would equally 
apply to the Indian tribes.
    Would you have any problem with accepting the exact same 
rules as the Indian tribes have?
    Ms. Pata. I guess, once again, I would have to say that we 
obviously are not here to be decisionmakers for the body of 
people who sit behind us or that we represent here today 
without having those conversations.
    I do want to clarify, though. I think there was some 
concern about the differences between tribes and ANCs. The 
differences between tribes and ANCs are really the issue of 
proving that you are disadvantaged. And tribes one time prove 
that they are socially disadvantaged, and then they are able to 
continue to operate multiple 8(a) contracts, very similar to 
ANCs.
    The only other difference that is out there is in the 
management responsibility, and even at that, tribes are allowed 
to be able to put forward management plans to show that they 
can--that they would have a non-Native manager as long as they 
had a mentoring program in place.
    As far as equitably being able to compete on sole source 
contracts and those elements, we are the same. So I am trying 
to discern from you exactly what are you--are those the only 
two issues that you were concerned about?
    Senator McCaskill. Well, the main issue is that regardless 
of how large an ANC gets, it is still economically 
disadvantaged. It does not matter how big it is. Whereas with 
Indian tribes, at a certain point in time, they lose their 
status as economically disadvantaged if they get to a certain 
size.
    Ms. Pata. No. I am trying not to disagree with you, but it 
is my understanding that tribes prove they are socially 
disadvantaged the first time, the one time.
    Senator McCaskill. Socially and economically disadvantaged.
    Ms. Pata. Disadvantaged the one time, and they graduate out 
of the program just like ANCs graduate out of the program. So 
ANCs subsidiaries are--ANCs 8(a) programs graduate out of the 
programs. Tribes graduate out of the program, too. That is also 
the same.
    The difference, the tribes no longer, according to SBA 
regulations, have to prove themselves, continually prove 
themselves that they are socially and economically 
disadvantaged. They do that one time, whereas the ANCs have 
been given by congressional support the recognition that they 
have already proved they are socially and economically 
disadvantaged because they are addressing a community of 
socially disadvantaged folks.
    I think if you look at the history of the program, part of 
that was at the time when ANCs were being included, tribes were 
just getting this new gaming opportunity and many Members of 
Congress were not quite sure whether or not how that would be. 
And so that is why the ANCs have this congressional recognition 
but the tribes have to prove that they are still socially and 
economically disadvantaged. But they do not have to repeatedly 
have to prove it to themselves.
    Senator McCaskill. I think we have got something on the 
table here.
    Ms. Pata. Yes.
    Senator McCaskill. If there is no difference, then I would 
hope that you would be willing to accept and support a change 
in the law that would make sure that you are on completely 
equal footing as it relates to socially disadvantaged and 
economically disadvantaged, because, certainly, some of your 
corporations are much larger than many Native American 
corporations.
    I do not think any of you would argue about that, would 
you?
    Ms. Lukin. Ms. Chairman, as Ms. Pata indicated earlier, we 
are not in a position today through our organizations to 
negotiate on behalf of our people. We need to go through an 
extensive tribal consultation process to ensure that the 
government-to-government relationship between Native peoples 
and the United States is maintained and we have the opportunity 
to hear everyone's voice. So we would be happy to have that 
discussion.
    Senator McCaskill. OK.
    Ms. Lukin. But we would like to go through the proper 
process.
    Senator McCaskill. Oh, I understand. I just wanted to put 
it out there, that would seem to me----
    Ms. Lukin. And I would also clarify----
    Senator McCaskill [continuing]. The starting point of just 
some discussions.
    Ms. Lukin. Absolutely. And the only other point I would 
clarify for Ms. Pata is it is proving economic disadvantage. In 
fact, tribes and Alaska Natives are automatically socially 
disadvantaged. Thank you.
    Senator McCaskill. Right. It is the economic disadvantage 
where the difference is, not the socially disadvantaged.
    Ms. Lukin. Thank you.
    Senator McCaskill. Mr. Lumer and Ms. Schneider, can you 
explain--especially you, Mr. Lumer, with your background in 
contracting--what would be in your mind a rationale for 
allowing a corporation a 5 percent bonus for subcontracting 
with one of their affiliates of taxpayer money?
    Mr. Lumer. Madam Chairman, I was here for the earlier 
discussion. I frankly do not agree that is allowable.
    Senator McCaskill. You do not?
    Mr. Lumer. I do not.
    Senator McCaskill. OK. Well, I believe we have people that 
are allowing it, so we need to get you back in government.
    Mr. Lumer. That is another whole discussion, ma'am. 
[Laughter.]
    Senator McCaskill. Well, that would--because it is our 
understanding, based on the information that we have gathered 
at the Subcommittee, that, in fact, a 5 percent bonus is being 
paid.
    Mr. Lumer. I believe it is allowed by law, but I believe by 
regulatory process, it is not allowable.
    Senator McCaskill. OK. Do you think there is any limit that 
would be appropriate, Ms. Lukin or Pata? I mean, would there be 
a point that if an Alaska Native Corporation was netting 
profits of $10 billion a year, $20 billion a year, would there 
ever be a point in time that you would be willing to say that 
you ought to have to compete with everyone else for contracts?
    Ms. Lukin. Again, Senator, actually there are a couple of 
points I would like to make here. One, I think it is important 
that we remember that Native participation in the 8(a) program 
honors the government's commitment to Native peoples.
    In addition to that, I think that I would reiterate my 
earlier point on a tribal consultation process, and I would 
also--I forgot to mention earlier--encourage us to also 
remember other committees of joint jurisdiction on this, 
including the Indian Affairs and Small Business. So again, we 
would be happy to work with you in a positive, joint effort 
with our people.
    Senator McCaskill. I am painfully aware that this is not my 
decision. I understand other committees have jurisdiction.
    I do want to point out for the record that I think there 
has been a little bit of a blurring because the legislation 
that you proudly spoke of, Senator Begich, was passed in 1971. 
The first contracting preference came about in the 1980s. And, 
in fact, even in the 1990s, there was additional contract 
preferences put in. So the idea that this was envisioned back 
in 1971, that we would fast forward to 2008, I am not sure that 
necessarily follows because one came almost 30 years after the 
other.
    Ms. Pata. And if you inferred that from my abbreviated oral 
statement, I apologize because what I was basically saying was 
that Congress enacted ANSCA and Congress also enacted the 
procurement preferences.
    If you studied the ANSCA history, as probably all of us 
have, the first 20 years are pretty grueling for our 
corporations and very difficult as we dealt with the challenges 
of building capacity. And that is one of the reasons why in 
those years when we were looking at amendments to ANSCA that we 
were also looking for ways of really trying to make the 
corporation model work. It was a model that Congress invested 
in because they did not want to deal with the economic 
conditions that were present in the reservations during the 
1970s when this was all being debated. So I think we have 
tried--this corporate model worked to the extent that it threw 
us into an environment that we had to understand corporations 
and shareholder value but still never left our cultural and our 
personal values.
    Senator McCaskill. I also wanted to point out that there 
are subcontracting going on with major multinational 
corporations that are big players in government contracting, 
such as Wackenhut. I believe your former corporation, Ms. 
Lukin, had a major subcontract with Wackenhut. And Blackwater 
has been a subcontractor. Korvis has been a subcontractor. So 
it is not uncommon for an Alaska Native Corporation to, in 
fact, subcontract with a company that is much larger than the 
ANC; is that correct?
    Ms. Lukin. Ms. Chairman, yes, Alaska Native Corporations, 
tribes and Native Hawaiian organizations, like all other 
Federal contractors, can enter into joint venture agreements 
and subcontract arrangements under the FAR and the SBA 
regulations.
    Senator McCaskill. OK. I am curious. I have had a penchant, 
a bug that is bugging me about line standing. And I found out 
today for the first time--I was conducting a hearing where 
there was line standing, and I am curious how many of the 
people in the audience hired someone to stand in line for them 
for this hearing, if you would raise your hands, if you are 
willing to.
    Only one, two brave souls? OK. All right. I was just 
curious.
    Senator Begich. Our Alaskan people understanding waiting 
and being patient. [Laughter.]
    Senator McCaskill. I have a feeling there might be more 
people in the room that did not want to raise their hands, but 
congratulations to the two of you who were willing to raise 
your hands.
    I think we are going to conclude the hearing there, unless 
the two of you have something that you are anxious to ask. I am 
feeling a little uncomfortable since I am the only Member of 
the Subcommittee left here, and it does not quite seem fair, 
you guys. [Laughter.]
    Senator Murkowski. Madam Chairman, if I just may add my 
thanks. We have a large contingent of Alaskans that have come 
back for this hearing. I think it is fair to say that when you 
sent out your letter some 6 weeks ago, there was a great deal 
of angst about this hearing, the direction that you were taking 
with it, and a real concern that a program that has really 
yielded benefits for so many in Alaska, from the furthest point 
north to the smallest communities south, there was a concern 
about this.
    But I have seen interviews, talked with some of the CEOs of 
our ANCs, talked with people who are back here representing 
their native corporations, and they feel very strongly that 
they have a story to tell. And I think I can speak--I will 
speak for them in saying they want that opportunity to present 
not only where they have come from but where they feel they are 
capable of going given some opportunities.
    I do not think any of them are afraid to present the facts. 
They are willing to work certainly with you and this 
Subcommittee. And I hope that some of the suggestions--I know 
NCAI has been working on this since the hearing back in, what, 
it was 2006, and looking at proposals. I know that NAC has been 
looking and assessing. We want to make sure that it works not 
only for Alaska Natives but when they assume these government 
contracts, whether they be in Fort Drum, New York or wherever, 
and are able to employ thousands of people helping the economic 
recovery of this country, that it works on all sides.
    So we want to work with you on this, but I do think that 
the message from Alaskans is we have a success story here, we 
are proud of it, and we are pleased to be able to speak to it. 
So thank you for giving this opportunity today.
    Senator Begich. Madam Chairman, I just want to say thank 
you very much for the opportunity. Thank you for allowing both 
Senator Murkowski and I to be here and to outnumber you on the 
backend here. I appreciate that.
    But it was, I think, especially toward the end here, a very 
positive opportunity to figure out what is the right thing to 
do for the long-term benefit of not only Alaskan Natives but 
American Indians and Hawaiians and all of us together. So thank 
you very much for the opportunity.
    Senator McCaskill. Let me close with a couple of comments.
    First, the record will stay open for 15 days for anyone who 
wants to submit information for the record. We will consider 
any information that is submitted for the record.
    I also want to make sure that there is no misunderstanding 
about this. This has absolutely nothing to do with whether or 
not the Native people of Alaska have had struggles and 
challenges that are unique to the Native people of Alaska. And 
one of the reasons I was concerned about line standers is I 
know how many Alaskans traveled here and they deserve a seat at 
this hearing. And sometimes the folks that just are regular 
citizens get squeezed out at the door because of people who 
have been standing in line. That is why I was curious about it. 
And I am glad we had people standing during this hearing. And I 
hope none of them came all the way from Alaska because they did 
not have enough room because of line standers.
    But more importantly, what I want to make sure everyone 
understands, that this is about whether or not we have created 
preferences in the law that are capable of being outgrown, and 
whether or not the preferences that we have created in the law 
are something that should be permanent, and whether or not the 
preferences we have created in the law are providing good value 
to taxpayers.
    I hope Alaska Native Corporations soar, and I think they 
have the capability, many of them, in fact, the largest ones, 
to do very well without sole source contracting. In fact, many 
of them are. And a lot of the income for these corporations, 
based on our analysis, is not even from Federal contracting. In 
fact, the majority of the income from all the Alaska Native 
Corporations are not from Federal contracting. When we are 
going to say to the government you do not have to worry about 
whether or not you can get the same goods or services for 
cheaper, are we going to continue to have a compelling 
rationale to carve out this kind of exception for companies 
that have grown as big and as powerful in the contracting field 
as some of the ANCs have? And that is really what this is 
about.
    I hope that the people of Alaska continue, and the 
shareholders of these corporations continue to receive 
scholarship and cultural benefits for decades in the future. 
The question is how long will we continue to have a preference 
in the law that squeezes out good companies like Christina 
Schneider's and lots of companies in many States in this 
country that have the willingness to work for the government 
for less to provide the same service. And that is really what 
this is about.
    I think we have gotten mixed up with whether or not Alaska 
Natives are entitled to something from the Federal Government 
and whether this is the best mechanism to deliver it. And that 
is what this discussion is about. If there is an entitlement 
program that is deserving of the people of Alaska, perhaps it 
needs to be through another way and not in a way that is 
driving the competitive process the wrong direction.
    As I say, you are one small piece of this problem. You are 
not the major problem on competitiveness. There are many other 
problems on competitiveness. But we thought it was important 
enough to take a look at. I certainly appreciate all of the 
witnesses. I appreciate the fact that the two Senators from 
Alaska were able to be here. And to all of you who traveled 
from Alaska, thank you for coming and we respect and honor your 
traditions and we are glad you were here. Thank you, and this 
hearing is adjourned.
    [Whereupon, at 5:06 p.m., the Subcommittee was adjourned.]

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