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Given the current economic climate, participation in the Small Business Administration 8(a) small and disadvantaged business program can be the difference between success and failure for small, struggling businesses in communities all across America.
Unfortunately, many small or disadvantaged businesses owned by minorities, women and veterans are unable to fully participate in the SBA’s 8(a) program because they have been crowded out of the federal marketplace by the special carve-outs afforded Alaska Native Corporations that participate in the program. For example, awards to non-ANC 8(a) firms are capped at $3.5 million for services or $5.5 million for goods, yet they are uncapped for ANCs and often far surpass these amounts.
Furthermore, while non-ANC 8(a) firms have to prove every year that they are economically and socially disadvantaged, ANCs are irrefutably presumed to be socially and economically disadvantaged, even if the ANC is managed by a nonminority millionaire. As a result, ANCs are squeezing out small businesses in communities all across America that could otherwise serve as catalysts for local economic growth.
Since discovering the disproportionate awarding of contracts to ANCs versus small, local 8(a) businesses following Hurricane Katrina, I have expressed a long-standing interest in leveling the playing field in this vital program. The SBA has finally responded.
New rules for 8(a) businesses, including ANCs, have gone into effect. Major changes that are consistent with legislation I introduced were made. For example, ANCs will now have to perform at least 40 percent of the work on joint ventures, preventing them from simply serving as conduits for large corporations seeking to reap the benefits of ANC special privileges; and steps have been taken to require ANCs to prove their economic benefit to Alaska Natives.
But more must be done to equalize the playing field.
Like other 8(a) companies, ANCs can receive sole-source contracts outside the open bidding process. However, the ability to receive sole-source contracts is where the similarity between ANCs and other 8(a) companies begins and ends. SBA rules provide ANCs with advantages that virtually eliminate competition from other 8(a) businesses. Because of this favored position, ANCs, which constitute 2 percent of 8(a) eligible firms, receive over 25 percent of all federal contracts awarded under the 8(a) program.
Forty years ago, when initially proposed as a means to settle the aboriginal land claims of Native Alaskans, few would have imagined that the bulk of ANC revenues, which totaled $6.9 billion in 2008, would go to Beltway-based corporations who “partner” with ANCs to bypass traditional rules and receive sole-source Homeland Security, Defense and other complex contracts, not to the people the law was intended to benefit.
Prior to the rule change it was difficult to see the benefit afforded Alaska natives by ANCs. One was left to speculate because ANCs were not required to publicly disclose the amount, timing or existence of shareholder distributions. Absent this concrete and objective proof, we were left with mere anecdotes from individuals about benefits and scholarships. This lack of knowledge was exacerbated by the fact that despite a 1,386 percent growth since 2000 in federal contracting dollars that go to ANCs, the poverty rate in Alaska has actually risen to 9.4 percent.
Now the SBA will require ANCs to demonstrate how their 8(a) participation has benefited Alaska Natives. However, the SBA placed limitations on this reporting so that it only applies to parent corporations, and it delays the implementation of this requirement for another six months, with the possibility of further delays if needed.
The SBA’s failure to specify the requirement to show actual benefit to Alaska Native communities leaves the door wide open for ANCs to continue doing business without showing that their activities contribute to the economic self-sufficiency of Alaska Native communities.
ANCs must meet the same standards as all other 8(a) firms. Specifically, ANCs should be required to show that they are actually economically and socially disadvantaged and that the firm meets the same “small business” definition as other 8(a) firms. ANCs should also be barred from receiving uncapped sole-source contracts, and these firms must be subject to the nine-year participation limit that is applied to other 8(a) firms. The right changes would not preclude ANCs from participating in the 8(a) program, but it will discourage much of the Beltway gamesmanship that has surrounded this program for far too long.
Rep. Bennie Thompson (D-Miss.) is the ranking member of the House Homeland Security Committee and represents Mississippi’s 2nd district.