Navigating Uncharted Waters: Alaska Native Corporations in a New Era Of8(a) Contracting

• Publication year: 2012

§ 29 Alaska L. Rev. 51. NAVIGATING UNCHARTED WATERS: ALASKA NATIVE CORPORATIONS IN A NEW ERA OF8(A) CONTRACTING

Alaska Law Review
Volume 29, No. 1, June 2012
Cited: 29 Alaska L. Rev. 51

NAVIGATING UNCHARTED WATERS: ALASKA NATIVE CORPORATIONS IN A NEW ERA OF8(A) CONTRACTING

Emily M. Maass ^[*]

Abstract

The highly anticipated finalized rule changes to the Small Business Administration 8(a) Business Development Program will have a prominent impact on 8(a) certified Alaska Native Corporations (ANCs). This Article evaluates the weaknesses in the previous regulations and analyzes how the revisions will effect ANC participation. The Article argues that the revisions address a number of ambiguities in the original regulations without limiting ANC participation in the 8(a) Business Development Program, but other factors may prove critical to future ANC contract procurement.

Introduction

In 2011, the Small Business Administration (SBA) finalized rule changes to how it implements section 8(a) of the Small Business Act. ^[1] These changes (2011 Revisions) took effect on March 14, 2011. ^[2] The 2011 Revisions respond to concerns about lack of clarity in the original regulations and criticisms of Alaska Native Corporation (ANC) participation in the business development program. ^[3] The 2011 Revisions' stated goals include clarifying program guidelines to avoid confusion and addressing concerns of program benefit abuse. ^[4] The following sections explore this topic with a focus on the changes as they relate to ANC participation in the SBA. Part I provides a brief history of ANCs and describes their integration into the 8(a) Business Development Program. Part II summarizes the criticisms of ANC participation in the program and outlines the ultimate objectives of the 2011 Revisions. Finally, Part III examines how the finalized 2011 Revisions and their rule changes will impact ANC participation in the 8(a) Business Development Program.

I. Alaska Native Corporations and Section 8(A)

A. A New Approach to Aboriginal Land Claims

ANCs were created through the Alaska Native Claims Settlement Act of 1971 (ANCSA) as an experiment. Rather than resort to the failing reservation system of the lower forty-eight states, ANCSA legislation established a corporate framework to govern the relationship between Alaska Natives and the United States government. ^[5] ANCSA extinguished aboriginal land claims in Alaska to allow the State of Alaska and the federal government to obtain rights to the abundant oil and minerals found in the state. In exchange, Alaska Natives received $962 million ^[6] and title to approximately forty-four million acres of land. ^[7]

Most importantly, ANCSA gave Alaska Natives a business structure with which to administer these new land rights and create future profits for shareholders. ^[8] ANCSA created twelve regional corporations within Alaska, each characterized by ancestral history and geography, and a thirteenth Regional Corporation for Alaska Natives living outside the state. ^[9] ANCSA also established additional village corporations within the regional corporations' geographic areas. ^[10]

Upon incorporation, the ANCs identified and distributed shares to a total of 79,044 Alaska Natives. ^[11] ANC shares are inalienable; they cannot be issued or sold save for very limited circumstances among family members. ^[12] Additionally, ANCSA exempts ANCs from the regulations of the U.S. Securities and Exchange Commission. ^[13] These provisions ensure that ANC ownership remains with the population the ANC was created to serve, but they also limit the ANCs in their ability to raise capital quickly and compete in the general market.

Geographical Designations of Alaska Native Regional Corporations. ^[14]

B. Strengthening Communities to Honor Native Values

Forty years after ANCSA, ANCs are major participants in Alaska's economy. In 2008, when a widespread economic recession caused losses for businesses across the United States, ANCs experienced 17.5% overall growth in revenues. ^[15] By 2011, twenty-two of the top forty-nine businesses in Alaska were ANCs. ^[16] Through steady development and profits, ANCs have become economic powerhouses within Alaska. Combined, ANCs provide 64% of Alaskan jobs and generate 74% of the state's revenue. ^[17]

Business success gives ANCs the ability to serve as centers of their communities. Alaska Natives have close ties to the land and often live in extreme environments, in villages not connected to the road system, and far from creature comforts. Rural life can be difficult, limiting, and expensive, but many Alaska Natives consider it central to their heritage. ^[18] Today a total of 112,686 regional and village corporation shareholders benefit from ANC profits. ^[19] In 2008, ANCs distributed a total of $171 million, or 66% of total net profits, to shareholders in the form of dividends. ^[20]

In addition to paying annual dividends, ANCs provide unique benefits to shareholders such as subsidies for food, heat, insurance, and education. ^[21] Shareholders are also eligible for preferential hiring within the corporations, scholarships, subsistence training, and youth camps. ^[22] In 2010, ANCs reported employing a total of 3,577 Alaska Natives, approximately 10% of the corporations' total workforces. Moreover, they contributed $11 million to scholarships in 2008. ^[23] These are just a few illustrations of ANCs' positive impact on Alaska's economy and Alaska Native communities.

C. A Hand Up, Not a Hand Out

Alaska Native communities did not immediately realize the economic benefits of ANCs. In fact, the transition from subsistence and rural lifestyles to running Western corporate entities nearly destroyed several regional corporations within their first twenty years of incorporation. ^[24] Since the mid-1980s, a substantial number of corporations have enjoyed success due in part to their participation in the SBA 8(a) Business Development Program (8(a) BD Program). ^[25]

The 8(a) BD Program is designed to assist socially and economically disadvantaged small business owners in becoming competitively viable. ^[26] The program allows qualifying firms to procure government contracts on a sole-source, or non-competitive, basis. ^[27] Once admitted, firms may participate for up to nine years before graduating from the program. ^[28]

The SBA arranges with each agency for 8(a) certified businesses to complete the set-aside contracts. ^[29] The SBA uses a variety of methods to award contracts to a particular firm. The most common method is an inter-program competition, but the contracting federal agency or the SBA may also make a special selection for a particular contract. ^[30] No matter how the SBA chooses a firm, the federal agency is prohibited from paying more than the fair market price for the work to be performed. ^[31] The 8(a) BD Program provides a way for small businesses that lack the resources to procure bid-awarded government contracts to gain valuable business opportunities. For ANCs, 8(a) participation offers a special opportunity to increase revenues and, consequently, provide benefits to Alaska Native shareholders. ^[32]

The core of the 8(a) BD Program is small business development. When program regulations were amended in 1986, ANCs were young corporations with widely varying levels of success. Individual ANCs and their subsidiaries were not necessarily prepared to single-handedly take on complex government contracts. Partnership agreements offered a solution.

SBA guidelines permit 8(a) firms to partner with non-8(a) firms in mentor-protégé relationships to seek guidance and support. When necessary or desirable, an 8(a) firm can even enter into a joint venture agreement with one or more non-8(a) firms to work together for a limited duration on a specific contract. ^[33] By forming partnerships within the 8(a) BD Program, ANC subsidiaries can offer a broad range of services and complete complex government contracts. ^[34] This facilitates business growth and skill development for future expansion without reliance on government intervention. ^[35]

D. Special Rights for Native-Owned Businesses

Congress used ANCSA as the foundation to amend the 8(a) BD Program to specifically include ANCs. ^[36] The amendments accounted for the unique government-to-government relationship between the federal government and Alaska Natives by exempting ANCs from certain program limitations. ^[37] Typically, individual owners of the approximately 9,000 participating small businesses must qualify for 8(a) certification by proving their socially or economically disadvantaged status. ^[38] But ANCSA automatically grants ANCs this status. ^[39] Also, SBA guidelines typically limit 8(a) BD Program participants to one 8(a) certified firm in a lifetime. ^[40] ANCs have no such limit, essentially allowing parent ANCs to establish multiple subsidiaries for 8(a) certification, provided that each subsidiary operates within a different primary industry. ^[41] Additionally, most 8(a) firms are limited by "competitive thresholds" of $4 million for service contracts and $6.5 million for manufacturing contracts. These thresholds do not apply to tribally-owned firms, allowing ANCs to receive sole-source government contracts regardless of the dollar amount. ^[42]

E. A Foundation for Success

In 2006, the Government Accountability Office (GAO) found that twelve of the thirteen regional...