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Karen Forsland, Alaska district director for the U.S. Small Business Administration, calls the SBA 8(a) program a success in Alaska, and says it is heavily weighted by Alaska Native regional and tribal corporation businesses.
Initially, SBA set up the 8(a) program to help small businesses owned by socially and economically disadvantaged individuals. The program allows certified companies to receive sole-source contracts of up to $3.5 million for goods and services and $5.5 million for manufacturing. However, businesses owned by Alaska Native corporations and Indian tribes, under legislation supported by Sen. Ted Stevens (R-Alaska), and passed in 1989, are exempted from the sole-source caps.
"An increase in 8(a) program participation by Alaska Native Corporation-owned subsidiaries started about that time," Forsland said, "and we had tremendous growth. Over the last five years, though, the number of firms has remained relatively stable with firms entering and exiting the program."
Under the 8(a) program, a qualifying individual or entity must be both socially and economically disadvantaged, have a majority ownership in the firm, and be actively managing the business, said Forsland, and, once approved, the firm can participate in the 8(a) program for up to nine years.
"Our emphasis is to help the companies grow and be successful. It's to get them to the point they can operate without the 8(a) designation."
SBA requires former 8(a) firms to provide revenue data for three years after graduation, and SBA tracks whether the firms are merged, sold or continue to operate successfully.
"A business can participate in the program only once," Forsland said. "SBA requires a business history, and we ask a company to prove its ownership before it is approved to participate in the program. We look at all its governing documents to determine if it's the same company or if it's substantially different."
GRADUATION
So what is happening as Alaska Native-owned businesses graduate from the program or near the graduation point?
Ron Perry, the sitting president of the Alaska 8(a) Association, is himself owner of one of those 8(a) companies and is a shareholder in yet another.
President and sole owner of Microware, Perry said his company graduated from the 8(a) program in February 2006. To prepare for that transition, Perry said, "you start paying closer attention to the competitive mix of clients. SBA watches that mix, and they can't, by law, award you any additional contracts unless you're meeting the requirements.
"We followed those guidelines, and we were fortunate that many of the contracts we were getting were commercial. Almost all of our business in this last year was commercial," Perry added. "Many of the companies we'd worked with as an 8(a) were coming back and hiring us to help them with their IT and communication needs. That helped us fill out our commercial business requirements."
Microware provides business integration, help desk support, wide area and local area networks, telephone systems, computer training, network security and computer mentoring, Perry said.
Teya Tech, in which Perry has a minority ownership interest, is a newly formed 8(a) and a part of Salamatoff Village Corp.
"Teya was just certified in April of 2006," Perry said, "and at this time most of our contracts are primarily on the East Coast. We have a lot of opportunity because Teya has the sole-source capability with no cap. We offer IT, communications, logistics, construction management services, and we're starting to get into physical and electronic security.
"(Through Teya Tech, Salamatoff) currently has contracts to provide construction management services, quality assurance and quality control, and we've just received a contract to provide tactical gear on the East Coast, as well," Perry said.
WHAT ABOUT AFOGNAK?
Afognak Native Corp. is another organization with graduated and budding 8(a)s in its wholly owned subsidiary Alutiiq LLC.
Dick Hobbs, Afognak's president and chief executive officer, said four of Alutiiq's companies have graduated from the SBA program-Alutiiq Management Services, Alutiiq Security & Technology, Alutiiq Manufacturing Contractors, and Alutiiq Global Solutions.
Newly formed 8(a) subsidiaries for Afognak Native Corp. are: Alutiiq International, providing operations, maintenance and construction services for government facilities; Alutiiq-Mele, which provides construction and security for government facilities; and Alutiiq Professional Services, which primarily works for the U.S. Department of Labor operating job corps centers across the Lower 48.
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Hobbs, who also serves as a management committee member of all Alutiiq's subsidiaries, said quite a bit of the former 8(a)s' activity is repeat with federal agencies that had hired them under the 8(a) program, liked their work, and gave them additional contracts through competitive bidding.
"Past performance is critical in today's marketplace," he said. "We certainly build upon that past performance, and use it as part of our access or entree to additional government customers." Expert teaming is the secret to 8(a) success.
To help prepare their current 8(a)s for eventual graduation, Hobbs said, Alutiiq uses a two-step process.
"Because our past performance is most applicable to other federal customers, we look to expand within the federal government," Hobbs said. "Then the next step is to take those same competencies-IT, construction, etc.-and apply them to the commercial marketplace. We've begun that step with the recent acquisition of 3SG, a small IT company in Anchorage, which has an exclusively commercial customer base.
"The 8(a) program is essentially a business development program. It allows us to develop our competencies and create a past-performance portfolio so we are competitive in the marketplace. The next step of our maturation is that competitive marketplace. That's the transition we're going through now," Hobbs added.
MOVING FORWARD
Already on the graduated side of that transition is one of the older 8(a) firms, Bering Straits Development Corp., owned by Bering Straits Native Corp. It's doing fine, according to Gail Schubert, executive vice president for Bering Straits Native Corp. and president of a number of its other subsidiary operations.
"BSDC owns and manages most of Bering Straits' commercial real estate operations, and is actively engaged in construction and related activities in Northwest Alaska. For years, it was BSNC's largest subsidiary until others, engaged in 8(a) work, eclipsed its earnings and size," said Schubert.
"We currently have two subsidiary firms that recently graduated or are nearing graduation-Inuit Services Inc. and Eagle Electric," she said. "Inuit teamed with several graduated 8(a) companies owned by other minority groups, including Hispanics, Korean Americans, ANCs, and women, and won a number of 8(a) contracts with renewable option years attached. It's still performing 8(a) work. ISI is also engaged in commercial non-8(a) work, so we believe it's on track as the program was designed to achieve."
Schubert said ISI works with base operations and supply systems, maintenance, furnishings management, logistics, and HazMat services.
"We were awarded contracts on Elmendorf (Air Force Base)," she said, "and we've taken the expertise from that work and converted it into jobs in other states. Until recently when the work was privatized, we were working with a Hispanic-owned graduated 8(a) company providing administrative support, logistics and facilities maintenance in New Mexico."
Eagle Electric has two divisions, according to Wally Powers, chief financial officer for Bering Straits Native Corp. One division handles Alaska, and the other covers the East Coast.
"The East Coast division performs most of the 8(a) work," Powers said. "The Alaska division does commercial work, most of which is non-8(a).
Although some of the Alaska Native Claims Settlement Act corporations did not enter the 8(a) world of contracting, those that did have found the benefits to be obvious, said Powers.
OPPORTUNITIES
Schubert said she thinks the 8(a) program played a role in the financial turnaround of Bering Straits Native Corp.
"We had come through several years of losses, in part because of the stock market crash and because several of our subsidiaries were not performing as expected and we had some significant losses because of the way projects were bid. We had a large tax bill (partially paid off) with NOLs (net operating losses) credits."
"Subsequently, we reorganized our Anchorage operation and staff. We didn't have a lot to work with when we first got started in the 8(a) program. Fortunately," she said, "we were able to get some good work, and now we're in a much better financial position."
Powers added that Bering Straits had "a tough row to hoe. We were in a recovery mode and a growth mode at the same time. After several years of losses, it was difficult to get the attention of financial institutions and investors. We got there, and now we're beginning to reap the harvest."
Generally, Alaska Native 8(a)s have done well through the program, Perry said. Many have developed partnerships with both large and small companies, sharing knowledge and expertise through joint ventures and teaming arrangements.
"There's probably not a high failure rate in Alaska," Perry said. "The program is not easy to get into, and once you are certified, it takes an average of two-plus years to land your first 8(a) contract. But once you start to develop a performance record and start creating partnerships with other quality firms, business can really take off. A very effective way for newly certified 8(a) companies to get quick success is to seek out and partner with successfully graduating or graduated 8(a) companies," he added.
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