Markey: It’s Time for a Hearing on Alaska Native Corporations

WASHINGTON (February 7, 2012) - Rep. Ed Markey (D-Mass.) is calling on the chairman of the House Natural Resources Committee, Rep. Doc Hastings (R-Wash.), to immediately schedule a hearing around a new report by the Government Accountability Office (GAO) that recommends reforms in federal contracting with Alaska Native Corporations (ANCs). Rep. Markey, who requested the report with other members of Congress, has been examining federal contracting with ANCs after the recent exposure of an alleged $20 million bribery and kickback scheme involving an ANC employee and contracting officers at the Army Corps of Engineers.

"Alaska Native Corporations are provided advantages in federal contracting because of the unique history of native peoples and the U.S. government's obligations to them," said Markey, the top Democrat on the committee. "However, we must ensure that these advantages are not wrongly exploited and that taxpayers are receiving fair value for contracted work. GAO's report finds that federal agencies are currently unable to provide the necessary protections. The House Natural Resources Committee should immediately hold a hearing to make sure this problem is fixed."

GAO's report, which was released today and can be found HERE, examines federal contracting with tribal firms-in particular, ANCs-under the Small Business Administration's minority small business contracting program. In FY 2010, the federal government obligated almost a third of all of these minority small business contracting dollars to tribal firms, with 85 percent going to ANCs, according to GAO. ANCs received $4.7 billion in minority small business obligations in 2010, up from $1.9 billion in 2005, and about 75 percent of these contracts were awarded as sole-source contracts without competitive bidding.

Unlike typical minority small business contractors, ANCs can receive sole-source contracts for unlimited amounts, and federal agencies have increasingly exploited this advantage to get money out of the door quickly-it is not unusual for an ANC to receive a sole-source contract worth hundreds of millions of dollars. But when a small firm is awarded a very large contract, there is additional risk that it will simply pass along the bulk of the work to larger subcontractors and thus undermine the purpose of the minority small business program. Indeed, the ANC contracting officer now indicted for bribery also headed another ANC subsidiary that, according to the Small Business Administration, served as a front for a large corporation. GAO found that federal agencies are currently not providing the necessary oversight to ensure that ANCs and other tribal firms are incurring at least 50 percent of the labor costs themselves, as required.

GAO also found that some ANCs "effectively operate as large firms in a small business program." That's because they do not have the same restrictions on program eligibility as typical minority small business contractors. Even if an ANC is a large multi-national corporation, it can spawn an unlimited number of small subsidiaries to participate in the minority small business program. Such subsidiaries may award subcontracts to one another and may share administrative services, but the Small Business Administration only considers the size of each individual subsidiary in determining program eligibility. For other minority small business applicants, SBA considers all affiliated companies in determining size eligibility.

"The House Natural Resources Committee has the responsibility to examine the issues spotlighted by GAO," Markey said. "We need ANCs to promote economic development and opportunity for Alaska Natives. We should make sure they are serving this purpose above all else." To that end, Markey and congressional colleagues have also requested another GAO report to examine ANC corporate governance and financial disclosures.

Markey first called for a hearing on ANC contracting issues three months ago after an employee of an ANC contractor was indicted for allegedly bribing contracting officers at the U.S. Army Corps of Engineers and pocketing kickbacks from a subcontractor as part of an alleged conspiracy that defrauded the government out of $20 million.