[Senate Hearing 111-250]
[From the U.S. Government Publishing Office]
S. Hrg. 111-250
CONTRACTING PREFERENCES FOR ALASKA NATIVE CORPORATIONS
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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
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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
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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\
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\1\ The information submitted by Senator McCaskill appears in the
Appendix on page 138.
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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\
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\1\ The prepared statement of Mr. Young appears in the Appendix on
page 127.
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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\
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\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.
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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.
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\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).
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\1\ The prepared statement of Ms. Lukin appears in the Appendix on
page 69.
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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.
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\1\ The prepared statement of Ms. Johnson-Pata with an attachment
appears in the Appendix on page 93.
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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.
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\1\ The prepared statement of Ms. Kitka appears in the Appendix on
page 110.
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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\
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\1\ The report titled ``Status of Alaska Natives 2004,'' submitted
by Ms. Kitka appears in the Appendix on page 161.
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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.
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\1\ The prepared statement of Mr. Lumar appears in the Appendix on
page 122.
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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.
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\1\ The prepared statement of Ms. Schneider appears in the Appendix
on page 124.
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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.]
A P P E N D I X
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