Thursday, July 23, 2009

Real Acquisition Reform with ANCs

The central pillars of acquisition reform are to prevent and eliminate waste, fraud, and abuse. To that end, Sen. Claire McCaskill (D-Mo.), chair of the Senate Homeland Security and Governmental Affairs Committee’s Contracting Oversight Subcommittee, held a scheduled hearing to take a closer look at the Alaska Native Corporation (ANC) 8(a) program. Although the fate of the ANC program is unclear, the hearings, analysis from Sen. McCaskill’s staff, an SBA IG report, and similar investigations conducted by the Government Accountability Office, which concluded that the ANC program is an “open checkbook” for these companies, clearly demonstrate the need to reform this program and bring it back into parity with sound government contracting practices.

Although no one is disputing the good that these programs to do for Alaska Natives, the question is what are the real benefits of continuing this program which has clearly been abused. Sole source contracts to ANCs rose dramatically this decade, from $508.4 million to $5.2 billion, according to Sen. McCaskill’s report. Further data in the report included the so-called benefits of this astonishing growth: $615 each per year to the 130,000 Alaska Natives who are company shareholders. The report further details the apparent misrepresentation by supporters of these programs, since Alaska Natives do not seem to be enjoying the fruits of these revenues as only a small percentage (approximately 5 percent) of ANC employees are Alaska Natives and a vast majority of executive compensation is earned by non-Alaska Natives.

Although defenders of ANCs point out the millions of dollars of scholarships, internship programs and other civic organizations donated by these firms, I would argue that many companies with these revenues do the same as just being good corporate citizens. It should also be pointed out that firms donate to similar initiatives without the enormous and unwarranted privileges ANCs command.

Shay Assad, the Defense Department's top civilian procurement official, testified that additional competition for ANCs may be appropriate in certain circumstances, in addition to ordering a review for why Defense goes to the sole-source well so often with ANCs and the need for more oversight of subcontracts to ensure that ANCs are following federal regulations and performing at least 50 percent of the work associated with these awards:

…"I respect the need to provide economic opportunities for 8(a) ANCs," he said. "However, based on the department's experiences with the 8(a) program, I think there may be ways to promote additional competition in appropriate circumstances. Taxpayers would benefit because their dollars would be more efficiently and effectively spent."…

Mr. Assad only need walk into a contracting shop at the Pentagon to get answers to his questions on why sole-source awards are the norm; the empty chairs and frantic pace of the skeletal crew of acquisition personnel. Contracting Officers have a perfect tool to save time and bypass oversight, scrutiny, and the competitive acquisition process since they can award sole-source awards to ANCs without the normal 8(a) award guidelines. These decisions are also often conducted without verifying what is in the best interest of the government or if they are being good stewards of taxpayer money.

What I find troubling, and also telling, is that supporters of the program seem to be offering little substance in their arguments or providing clear evidence that the ANC program is providing the benefits to the magnitude they claim. Many ANCs should not even be in the 8(a) program with revenues of hundreds of millions of dollars. What kind of “small” business has these types of revenues, or has armies of lobbyist anyway?

On the other hand, ample evidence has been provided in the aforementioned reports that ANCs are stifling competition and being used as shell companies to funnel money and contracts to a network of companies that are not ANCs and do not directly impact Alaska Natives:

…"I firmly believe that many small businesses will routinely bypass procurements where ANCs are involved," Lumer said, "because the chances of winning are so small, even if they are allowed to compete in the first place."…

Stifling competition ultimately leads to poor business decisions and waste, fraud, and abuse. Acquisition reform should include a restructuring of this program in the name of parity, competition, and fairness. No one is arguing to eliminate the program or that ANCs do not provide valuable services to the government or their constituents, but the costs seem to be outweighing the benefits. If supporters of the program disagree, it is up to them to prove it.


  1. While I agree the ANC program could be revamped, you really haven't made a case as to why. What exactly are the "costs" that "seem to be outweighing the benefits." All you have addressed is there is a significant apportionment of funds being allocated to ANC's for expediency given a shortfall of Acqusition staff through under sole-source arrangements vice competition. Please expand on your point, speak to the legislation which provides for this and how its tied to treaties, why is there a price assessment differential, what constitutes the qualifications of an ANC, why isn't there a stipulation for employment, i.e. Hubzones. It's all well and good to say it isn't fair but you really haven't explained why.

  2. Harlan - Thanks for the feedback. I would recommend you read my previous posts, in addition to the reports and analysis done ahead of and for the hearing. The "costs" are lack of competition, which hurts the government and other 8(a) firms, waste, fraud, and abuse in the program through pass through, and of course the lack of direct impact to Alaska Natives themselves which I cite and have discussed.

  3. Hi Jamie - me again. Saw the Government Executive articles and your blogs. Mostly inferences and suppositions that articulate the idea that there could very well be indirect additional costs incurred through the implementation of the program. If you knew of real waste, fraud and abuse as a contracts professional you would be reporting it to the proper authorities and I don't see any Alaska Natives being interviewed and telling us what the direct impact has been to them. Probably we should follow up on the GAO 2006 report on its recommendations to the SBA on how to better monitor and regulate the program which has been enacted by Federal legislation and the cost to overturn that could be dramatic to the taxpayers. Just my opinion.

  4. I'll be interested in how this all turns out