Empire editorial: Time to scale back federal no-bid program

Posted: Monday, July 10, 2006

The following editorial first appeared in the Anchorage Daily News:

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Is it any wonder that small and minority-owned businesses in the Lower 48 are steamed about a federal bidding preference that has helped enrich some Alaska Native corporations? The preference drew heavy fire at a U.S. House committee hearing last month, in part because it shrinks the pool of government contracts available to truly small businesses.

The Native firms are taking advantage of a nationwide, no-bid program intended to set aside work for "small" and "disadvantaged" businesses. "Small" in this case is big enough to include a Native firm like Chugach Alaska Corp. It grossed $700 million in 2004, much of it through federal contracting.

Chenega Corp. also took advantage of the federal government's preference for small businesses. Federal contracts helped the company gross $481 million in 2004. The same was true for Alutiiuq, with $234 million in 2004 revenue. And Koniag, which grossed $151 million.

Those are hardly small companies. And if they were once disadvantaged, they aren't anymore. But the special break for Alaska Native companies allows them to form multiple subsidiaries that can qualify on their own as small businesses.

In the small and disadvantaged business program, the normal cap on a federal no-bid contract would be $3 million, or at most $5 million. But there is no cap for Alaska Native corporations, nor do they need to have any previous experience delivering the service the federal government is buying. Native corporations also can partner with much larger corporations as long as the Native firm is, at least on paper, in charge and does the majority of the work.

However, a federal review found that agencies don't check to make sure the Native corporation really is running things. Without enforcement, the corporations can be used as fronts by larger, more savvy businesses that want to avoid competitive bidding. The federal review, by the Government Accountability Office, found an $80 million case where the awarding agency wanted to pick a particular company, which partnered with an Alaska Native corporation to get the contract.

There's another reason federal bureaucrats like the unlimited, no-bid option available with Native corporations. Instead of parceling out dozens of small contracts, they can meet their small business contracting quotas with larger awards to Native-led bidders. But that shrinks the pool of work available to genuine small businesses. Powered by the special preference, Alaska Native corporations snagged $1.1 billion worth of federal contracts in 2004. That total included $876 million worth of no-bid awards.

Another concern that came up in the House hearing is excessive cost. Without competitive bidding, federal agencies may pay higher prices under some of the huge Native corporation contracts. Last month's hearing cited a case where the Native venture's initial price on a no-bid contract was double the agency's original estimate. It took a month of bargaining, including the threat of competitive bidding, to get the price down close to what the State Department thought was reasonable.

Contrary to what defenders like Alaska Rep. Don Young say, critics of the preference are not penalizing Native firms for their success. The question is how long is it appropriate to give special advantages to firms that have jumped into the game and are doing well.

When the federal government is letting a business have a no-bid preference on contracts of unlimited size, once is enough. After that, Native corporations should be treated just like every other small or disadvantaged business.

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