October 10, 2010
The Small Business Administration's surprising decision this month to suspend tech vendor GTSI points out why federal contracting privileges granted to small businesses — and especially Alaska native corporations (ANC) — need to be overhauled.
An investigative report by The Washington Post this month alleges that technology vendor GTSI used an ANC and another small business as fronts to win no-bid contracts intended for small businesses. GTSI, with more than $762 million in revenue last year, is no small business.
Small business advocates say such abuse is frequent. The volume of ANC contracting alone is far beyond what officials have been able to police.
However well-intentioned Congress was in passing the ANC legislation in the 1980s and '90s, it's now clear that endowing them with unrivaled contracting privileges has created a monster.
The government grants 8(a) contracting privileges to small disadvantaged businesses, allowing them to receive no-bid contracts. But ANCs' privileges do not disappear once the firm grows beyond a certain size. No matter how big they get, they can continue to operate as a small and disadvantaged business; and they can set up multiple subsidiaries that also get 8(a) status.
The predictable result is that overworked, understaffed acquisition officers use ANCs as a convenient mechanism to bypass the regular procurement process. From 2000 to 2008, ANC contract awards grew six times faster than other federal contracting in that period. ANCs now are among the government's biggest vendors, receiving annual contracts valued in the hundreds of millions and even billions of dollars.
Other companies have seen that they can get in on this action by working closely with ANCs as subcontractors, in some cases providing virtually all of the work besides the overall management of the contract. With ANCs as front companies, big firms can skirt procurement rules requiring competitive bidding and all its related costs and delays.
That's what GTSI is reported by the Post to have done with EG Solutions, a subsidiary of the ANC Eyaktek, as well as with a non-ANC small business called MultiMaxArray. The SBA suspended GTSI based on concerns surrounding the company's relationship with MultiMaxArray, a vendor on the Homeland Security Department's small business set-aside contract, FirstSource.
The entire small business contracting program must be overhauled, and all these businesses — including ANCs — should be treated alike. SBA's rules defining small businesses are exceedingly complex, varying from industry to industry, inviting confusion. These definitions should be simplified. Privileges should expire when a business grows beyond a given size. No-bid contracts should be capped at a dollar amount that is proportional to the annual revenue that defines a business as being small, reflecting the fact they are intended for small companies.
Sen. Claire McCaskill, D-Mo., Congress' loudest critic of ANCs, vows to offer a reform bill to trim ANC privileges. All lawmakers who truly stand for responsible federal spending, regardless of party, should join — and expand — that effort to cover all special set-asides that are subject to abuse.