ANCs set to work with new rules
September 2, 2011
U.S. Small Business Administration officials stood before a crowd of Alaska Native business people recently and outlined new regulations put in place this spring to govern the SBA 8(a) program. At a National 8(a) Association conference held in late June at Anchorage's Marriott hotel, Marie Johns, deputy administrator for SBA, told attendees the government agency has spent the past four years developing and refining new regulations for minority contractors in the 8(a) program. She outlined three goals for the new regulations:
1. Implement statutory requirements.
2. Reduce waste, fraud and abuse.
3. Strengthen the program by ensuring benefits flow to the right small businesses.
Reaching the final goal through the regulation, she added, will require firms owned by Native organizations to report how they have helped their communities through the work done under their 8(a) contracts. Establishing tracking and reporting methods have been postponed for a six-month period while SBA conducts tribal consultations.
These new regulations took effect March 14, and were the result of wide-ranging complaints levied primarily by senators Claire McCaskill and John McCain. They charged that the federal government was giving unfair advantage to Alaska Native contractors by giving them access to sole-source contracts of any size while limiting other minorities to smaller contracts - $4 million or $6 million, depending upon the type of contract.
"McCain has just come out with this stand in the last year," said Ron Perry, board president of the National 8(a) Association. "We're in the worst recession in the last 110 years and everyone is looking for waste, fraud and abuse, but these programs create jobs. Certainly they need to be monitored - but if the programs work, they need to continue. They're tools to provide jobs and we don't want to see them go away."
Perry said the government wants to make sure the benefits earned through the SBA program flow down to corporation shareholders, but the methods used to measure those benefits and how they reach shareholders are both open questions. To help answer those questions, Perry added, the Native American Contractors Association and the Alaska Native Village CEOs Association put together proposals they submitted to SBA during the June conference. The National Congress of American Indians and the National Center for Indian Enterprise Development have both expressed their support for the proposals.
"There are a number of things you need to consider," Perry said. "You shouldn't focus any returns until after three years. Most businesses fail within the first year or two. You have to consider how you can provide benefits and continue building the company. After that, we have to determine how and what we track to provide meaningful measurements."
Having a Voice in Changes
Perry said Congress and the SBA will make those determinations, but the triad of organizations - N8(a)A, NACA and NCAI - want their members' voices to be heard before those decisions are made. A tribal consultation during the conference provided one occasion, and the proposals put forward by the three organizations provided another.
"Something Congress and SBA have to understand," said Jennine Elias, external affairs coordinator for NACA, "is that while some Alaska Native corporations have been very successful under the 8(a) program, many tribes, Alaska Native and Native Hawaiian organizations are just now entering the field. Since we have many new contractors and new regulations, we're telling people on the hill that we need to let these significant reforms work before making additional changes."
Elias added that today, there are more than 225 Alaska Native corporations with 8(a) subsidiaries, 185 (Outside) tribal and about 18 Native Hawaiian organizations.
The new regulations covering the 8(a) Business Development Program represent the first comprehensive revisions in more than 10 years, according to John Klein, SBA's associate general counsel for procurement law. These revisions include significant changes to income, joint ventures, mentor/protégé relationships, tribes and Alaska Native corporations, military relationships and community benefits.
The final rule adds objective criteria to determine economic disadvantage based on personal income ($250,000 for initial eligibility, $350,000 for continued eligibility) and total assets ($4 million for initial eligibility, $6 million for continued eligibility)
Subchapter S Corporations: This provision will eliminate income reinvested in the firm or used to pay taxes from consideration in determining economic disadvantaged
Joint ventures are now required to be in writing, don't need to be a separate legal entity, do not have to have separate employees, cannot be awarded more than three contracts in a two-year period without a finding of general affiliation, and allows the same two entities to form additional joint ventures with each having the ability to be awarded three contracts over two years. The 8(a) partner to the joint venture must perform 40 percent of the work (this replaces "significant portion" language in the previous regulations). In an unpopulated JV (or a JV populated only with administrative personnel), an employee of the 8(a) managing venture must be the project manager. With an unpopulated JV (or a JV populated only with administrative personnel) the amount of work done by all partners will be aggregated, and the 8(a) partner must perform at least 40 percent of all work done by the JV.
The new regulation specifically allows nonprofit mentors. Allows a mentor up to three protégés up to one time. Requires mentor assistance to be tied to protégé's SBA-approved business plan.
Tribes and ANCs
A firm owned by a tribe, Alaska Native corporation, Native Hawaiian organization or Certified Development Company may not receive a sole-source 8(a) contract that is a follow-on contract to an 8(a) contract immediately performed previously by another participant (or former participant) owned by the same tribe/ANC/NHO/CDC.
The changed regulations allow owners of 8(a) firms called to active military status to elect to be suspended in order not to lose any of their 9-year term in the program.
An additional rule in the new regulations requires ANC, NHO, and CDC organizations to report benefits flowing back to communities - and this is the requirement that is in its six-month hiatus while SBA and 8(a) participants talk with each other about how this reporting will be done.
NACA submitted a proposal to SBA at the June conference that would set the reporting into six categories - all are to report benefits to Native or other communities as a direct or indirect result of the organization's participation in the 8(a) program. The six categories proposed are health, social and cultural support; education and development; lands; economic and community development; employment; and economic benefits.
Stimulating the Economy
"In Alaska, ANCs are stimulating the state's economy," Elias said. "They're hiring Native and non-Native employees in a time of high unemployment. They have operations in all 50 states and are employing more than 55,000 people. They are benefiting whole communities and Congress needs to put that into perspective.
"I, myself, have benefited from the 8(a) program. I'm a Bering Straits shareholder, and I earned my undergraduate degree and two masters' degrees on scholarships," she added. "Kawerak, in collaboration with the Bering Straits Native Corporation, built a wind turbine in Nome to help offset the high cost of fuel. Afognak and NANA have contributed to the preservation of their languages. Eighty percent of Sealaska's work force is Alaska Native. We see the benefits."
According to the ANCSA Regional Association's annual report for 2010, ANCs, energized by Native 8(a) contracting, have provided more than 35,000 jobs worldwide - nearly 14,000 in Alaska. In 2008, the 12 Alaska Native regional corporations distributed $171 million in dividends to shareholders. That dollar amount represented 66 percent of net profits. Also in 2008, Alaska Native regional corporations contributed $11.1 million in educational scholarships to more than 3,200 recipients.
Elias added that Alaska's Native corporations, as a group, are the second highest taxpayer in the state, behind the oil companies.
Protecting the Program
According to NACA and the National 8(a) Association, the Alaska Native contracting community can work with the regulation changes, although they remain alert to additional challenges from members of Congress.
"Our role in all this is to watch, educate and protect the program as a whole for all minority businesses," Perry said. "We don't want one minority group attacking another. As a matter of fact, the Hispanic minority has the smallest number of contracts - even though they have the highest number of small businesses."
Perry added that ANCs are providing benefits to their shareholders from a wealth of income-producing businesses, not all relating to the 8(a) program.
"NANA's oilfield services have nothing to do with federal contracting," Perry said. "NANA has a very high employment rate from its shareholder population."
Perry also enumerated a number of benefits coming back to shareholders from the corporations, regardless of the income source.
"Social and cultural programs," he said. "Community-based meetings, scholarships and apprenticeship programs, K-12 programs, internships, board and leadership training - all come to shareholders from the corporations. There's also energy assistance programs and an elders' trust, sort of like a permanent fund dividend, to help our elders."
ANCs have taken advantage of the learning and income opportunities of the SBA 8(a) program over the last several years, and have bootstrapped their way to becoming the successful organizations they are today.
"We've followed the rules," Perry said. "They gave us the playbook and said 'here are the tools.' Everyone has a level playing field, but you have to have the drive, the right management system. A lot of it is simple hard work. If you go out and use those abilities and advantages, well good on you. That's the purpose of the program - to give you the abilities to grow out of it."
For more information visit the Alaska Business Monthly Magazine.