The SBA 8(a) program: business development leads to success for Alaskan-owned business; the legal aspects of 8(a) and its benefi

In a March 25, 2005, Washington Post article, Congressman Tom Davis (R-VA) reportedly stated, "The purpose of federal procurement is to make sure taxpayers are getting their dollars worth." Recently, some SBA 8(a) participants have undergone intense scrutiny that has received both national media attention and the attention of administrators and suppliers within the Federal Procurement System. In 2006, 213 Alaska small businesses were authorized to participate in the U.S. Small Business Administration Minority Enterprise Business Development Program, also known as the SBA 8(a) Program. Every single one of these 213 small businesses would agree with Congressman Davis' statement, and each one would assert that the SBA 8(a) Program ensures that American taxpayers are getting their dollars worth while creating economic opportunities for small businesses.

HISTORY OF ANCSA AND THE DEVELOPMENT OF ANCs

Alaska is unique in many ways, one of which is that Alaska Natives own most firms that participate in the SBA 8(a) Program in Alaska, generally through their Alaska Native Corporations or "ANCs." Alaska's history and the legal context of ANCs are essential in understanding why ANCs have certain privileges in the SBA 8(a) Program.

This history and context begins with the unique government-Indian relationship. This relationship exists due to three fundamental legal bases: (i) "Article I, sec. 8, clause 3 [of the United States Constitution] provides Congress with the power to 'regulate Commerce ... with the Indian Tribes.'" Morton v. Mancari, 417 U.S. 535, 552 (1974).; (ii) the federal government has a "permanent trust relationship" with and to Native Americans. See Report of the Task Force on Indian Economic Development of the U.S. Dept. of the Interior (July 1986) at page 240; (iii) the willful and abhorrent treatment of Indians over the centuries that have placed Native Americans in a state of coerced dependency and this relationship was forced upon them. See Cobell v. Babbitt, 91 E Supp. 2d 1, 7 (D.D.C. 7999), aff'd. 240 F.3d 1081.

For these reasons, the United States has a long history of special treatment of Alaska Natives and other Native Americans. For more than 200 years, Congress has enacted laws pertaining only to Indians and to persons dealing with Indians and has justified these laws as necessary to fulfill the country's special obligation to its Native people and their descendants. See AFGE vs United States, 195 F. Supp. 2d 4, 78-20 (D.C. 2002), aff'd 330 F3d 513 (D.C. Cir.), cert. denied, 540 U.S. 1088 (2003).

In 1971, Congress passed the Alaska Native Land Claims Settlement Act or ANCSA. ANCSA established ANCs in part to resolve historical land disputes and facilitate entrance into the Western economic system. ANCSA's goals and the means used to effect its intent and deliver its benefits differ from most government programs. ANCSA's main goal is Native American self-determination through building a capital base in order to fully participate in our capitalist society. See H.R. Conf. Rep. 92-746, 92nd Congress. 1st Session, 37, reprinted in 1971 U.S. Code Cong and Administrative News at 2247, 2259.

As ANCSA developed and related events unfolded, there was evidence that Alaska Natives were not receiving all of the benefits from the Act, including lands promised under ANCSA though some are even yet to be conveyed. Due to the vast area and rural nature of Alaska, the lack of economic development opportunities in Native villages and the lack of basic infrastructure in rural Alaska, it was virtually impossible for ANCs to generate economic progress without significant assistance. During the following two decades after the enactment of ANCSA, few of the ANCs created under ANCSA could overcome the geographic and economic barriers that constrained rural economic development. Nor could they significantly expand into Alaska's private-sector economy.

In 1988, Congress began to address some of the shortcomings of ANCSA and recognized that something was still required to achieve its goals. In amending ANCSA, Congress stated that for all purposes ANCs and subsidiaries controlled by ANCs would be considered owned and controlled by Natives as a minority business enterprise. In 1992, Congress further amended ANCSA clarifying that ANCs and the businesses controlled by them would be "economically disadvantaged," which eliminated the need for ANCs or their subsidiaries to prove they are "economically disadvantaged" status. H.R. Rep. No. 102-673, 138 Cong. Rec. 1450, 1456 (1992).

Under the Settlement Act, the ANC-owned companies' eligibility for government contracting preferences was bargained for consideration in exchange for the settlement of Alaska Native aboriginal claim in Alaska. However, ANCSA is not self-actuating. Government contracting opportunities and business development programs only extend to ANCs the chance to participate in government programs. ANCs and ANCSA need the SBA 8(a) Program in order to facilitate ANCSNs goals.

ANCs AND THE SBA 8(A) PROGRAM

The mission of the SBA 8(a) Program is to help small businesses succeed for the future. New companies can benefit from a wide range of services the SBA offers, some of which include support for government contractors, access to capital, management and technical assistance, and export assistance. ANC participation in the SBA 8(a) Program is more challenging to put into context because of special provisions granted to ANCs by Congress.

For instance, because of the ANCs' automatic qualification as "economically disadvantaged," they are treated as part of governmental efforts to encourage Native American participation in federal contracting. Tribes and ANCs are exempt from a $3 million federal cap on no-bid service contracts that applies to other minority small businesses. This key distinction was created by Congress because tribes and ANCs serve large communities and groups of shareholders, while other minority small businesses generally provide benefits to sole proprietors or small groups of owners. ANC-owned 8(a) companies do not have to be run by an Alaska Native, but the parent ANC that is run by a board of directors composed of Native shareholders must control the 8(a) company. The ANC 8(a) company must perform at least 51 percent of the work with their own employees for most federal contracts. In reality, the vast majority of ANCs surpasses that amount and provides employment for thousands of Alaskans, along with people residing in the Lower 48.

In addition, ANCs are allowed to hire the best qualified individual to be in charge of the day-to-day business operations so long as the business entities remain in the control of the Alaska Native shareholders and board of directors of the ANC. Congress also encourages ANCs and tribally owned 8(a) firms to enter into joint ventures so long as the tribe or ANC owns 51 percent or more of the venture with businesses so that the tribe and ANC-owned businesses can take on large contracts, generate greater revenue, develop greater expertise and thus build their own capital base. See H.R. Conf. Rep. No. 100-1070 (1988).

Another factor critical to the success of ANC participation in the SBA 8(a) Program is the regulatory treatment of businesses or separate corporations owned by ANCs. The ability to have more than one company in the 8(a) program at the same time and to be able to create new 8(a) companies as others graduate from the program is an important factor in the success of many of the ANCs. However, these 8(a) companies must remain independent of each other and must remain classified as small for size purposes. The issue of determining the size of a business for purposes of participating in all SBA programs is critical, in particular, for participating in the small-business programs set aside for federal procurement. If two businesses are closely related, or "affiliated," their combined size based on annual revenue or total employees may result in the business being found to be "large" and therefore ineligible for SBA programs. In determining "affiliation," the SBA generally considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships. 13 CFR [section] 121.103(a)(2) (2006).

Business concerns owned and controlled by ANCs will not be found to be affiliated because of common management or ownership. In addition, affiliation will not be found based on performance of common administrative services, such as bookkeeping and payroll, so long as adequate payment is provided for those services. 13 C.F.R. [section] 121.103(b)(2)(ii)(2006).

The SBA 8(a) Program is perhaps the single most important recent means for bringing the challenges and benefits of the United States economy to Alaska Natives. Federal contracts obtained through the SBA 8(a) Program and associated with business development enable ANC-owned businesses to generate revenues and provide benefits for their shareholders from all over the country, which are economic areas and revenue sources that might not be otherwise available to Alaska Natives. Together ANCSA and the SBA 8(a) Program accomplish the purpose of fulfilling the settlement not by guaranteeing a contract to an ANC-owned business, but by allowing them to participate in the Federal Procurement System. The Federal contracts procured under the 8(a) program allows Alaska Natives as a community or group to get around the barriers of isolation and particularly severe geographic, economic and cultural conditions.

According to the Alaska District Office of the SBA, as of April 2006, 165 of 213 businesses certified for the 8(a) program were owned by Alaska Native corporations. The 165 businesses are owned by 64 different ANCs. All 13 of the regional corporations have participated in the SBA 8(a) Program. Since the 8(a) Program began operating in Alaska in earnest after 1990, 43 companies owned by ANCs and certified to participate in the 8(a) Program have graduated or exited from the program and presumably continued to operate. (A company graduates after nine years and exists either voluntary or involuntary after they have grown too large to qualify for the program.) Not all of the businesses are located or operated in Alaska, but the vast majority of the businesses are headquartered in Alaska's cities, towns and villages. Ac cording to the Native American Contractor Association (NACA), a trade association of ANC and tribe-owned businesses, ANC-owned businesses operate in 49 of the 50 states and perform contracts in several overseas locations. One example of the success of Alaska-owned companies providing goods and services to the Federal Procurement System is the recognition of these businesses by Alaska Business Monthly's list of Top 49 companies. Most Native regional corporations and some village corporations make this list each year, which is based on gross revenues of Alaskan-owned businesses.

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