Polar fleeced: Sen. Ted Stevens built a welfare state for Eskimos that made defense contractors rich.

• Author: Wallace-Wells, Benjamin

Many remote places claim to be the end of the earth, but the tiny Eskimo village of Tatitlik, set in near-mythic isolation on a small beach on Alaska's Prince William Sound, has a better case than most. The village has stood for a thousand years on a small strip of sediment that has collected at the point where the Chugach Mountains soar out of the sound. There are three dirt roads in Tatitlik, which loop around the beach and connect back to one another; you can only get in or out by boat or by plane, and all supplies have to be flown or ferried in. Tatitlik has a population of 97, subsistence hunters and fishermen who live in about 30 small, irregular ranches set on wood platforms. The mountains that surround Tatitlik are, even in summer, mostly covered in snow, and as you pull into the village, they look like shards of broken eggshell, the village encased inside.

The people of Tatitlik have had a spectacularly unlucky history. In 1964, much of the population was relocated from the nearby village of Chenaga, which had been destroyed by the Great Alaska Earthquake. (Chenaga sat on what turned out to be the epicenter of the 9.2 Richter quake, the most powerful recorded tremor in North American history.) Then, in 1989, the drunk captain of the Exxon Valdez plowed his tanker into Blythe Reef, just five miles down the coast from Tatitlik. The Valdez spilled 10.8 million gallons of oil onto the seal beaches and herring runs that the villagers retied on for food. Tatitlik tried to get Alaska to use some of the compensation funds to build a small boat harbor for its fragile fishing fleet, but the state instead built massive industrial docks to accommodate clean-up tankers in the event of another spill. Those docks loom over the village's fishing boats, which look in comparison as if they've been imported from Lilliput.

Tatitlik has no stores and no on-village work, save for a handful of government jobs running its health clinic and school. The pride of the village is an old Russian Orthodox church, one legacy of the long history of Russian colonization here. Used oil drums are stacked at the east end of the town, a wrecked car at the western end, and kids, on their way to hunt, sometimes lug shotguns through the streets. Until recently, the town had five cars, but the brakes on one, a black pickup, failed a couple of weeks ago, and the villager driving it had to smash the truck against the crane at the end of the tanker dock in order to keep it from rolling into the sound. So now, Tatitlik's automotive fleet is down to four.

These same villagers are the unlikely owners of a giant multinational company: the Chugach Alaska Corporation. Chugach Corp.'s annual revenues now top $700 million, near all of which comes from federal contracting. The company does more business with the U.S. government than do IBM, AT&T, or Motorola. Chugach and ins partners run military bases from Nevada to Iraq. They monitor seismic activity from a base in Korea in support of the Nuclear Test Ban Treaty. And on another end of the earth, Chugach operates the Reagan Test Site, a coral reef leased from the Marshall Islands, where engineers give ballistic missiles a workout and may some day run the planned Star Wars program. The contract for that one is worth $2.5 billion.

How do the villagers, most of whom would much rather hunt seals and stalk caribou herds than go anywhere near a corporate boardroom, manage these projects? The truth is, they don't. Village chief Gary Kompkoff is vice chairman of the corporation, but no other villagers and only a handful of Eskimos are even employed on these projects. The projects are managed instead by Chugach's subsidiary companies--run by white contracting executives from offices in downtown Anchorage or in the Lower 48 states--or by Chugach's corporate partners--huge firms such as Lockheed Martin and Bechtel.

These natives are being used essentially as fronts, what the Heritage Foundation's Ronald Utt calls "corporate shells," because of certain privileges that only Alaskan tribal corporations enjoy. Chief among them is the unlimited right, given to Alaskan native-owned corporations by Congress at the behest of Alaska's senior senator, Ted Stevens (R-Alaska), to bid for "sole-source" federal contracts (those not put up for competitive bid). As a result, these companies and their giant corporate partners can win federal contracts without necessarily having to offer the government the lowest possible price.

These contracting advantages provide the natives with some modest benefits, mostly in the form of annual dividend checks. The villagers of Tatitlik who were born before 1971 get about $1,500 a year--enough to buy new outboard motors for their boats so they can chase the migrating seal herds. Chugach is one of the most successful native corporations; most villagers in Alaska, while connected to a native corporation, receive even smaller annual checks.

Many of the system's benefits, though, flow to non-native people and corporations inside the Beltway. Lobbyists get hefty fees for putting together the deals. Federal contracting officers get in pad their minority and small business requirements mad sidestep the headaches of competitive bidding. Bush administration officials get a tool to circumvent civil service unions. And, most of all, the Bechtels and Lockheed Martins get business they might not otherwise have obtained, with larger profit margins than they normally enjoy.

The amount of business flowing through Eskimo contracting schemes has exploded in the post- 9/11 contracting boom. An industry that was still tiny five years ago now generates billions of dollars each year. And it's beginning to attract scrutiny. Keith Ashdown of the nonpartisan watchdog group Taxpayers for Common Sense calls the Eskimo loophole a "magnet for mischief." The Government Accountability Office has launched a probe into whether federal agencies are paying far more for contracts than they should. The Senate Energy and House Armed Services Committees have also held hearings on whether some sole-source contracts run through the Eskimo loophole ought to have been competitively bid. Stevens, the author of the loophole, has been accused of making hundreds of thousands of dollars from a real estate deal involving one of the Alaskan corporations he helped to create.

If these investigations develop into a full-fledged scandal, it will be the third in just a few months involving senior Republicans in Washington and aboriginal...