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Analysis: $300M, no-bid Guard contract

By Pamela Hess
Monsters & Critics
August 16, 2006

WASHINGTON, Aug. 16 (UPI) -- Two months after a House committee held a hearing that was sharply critical of the practice of awarding large, no-bid contracts to Native Alaskan owned firms, the National Guard is on the cusp of awarding a five-year $300 million, no-bid services contract to Bowhead Manufacturing.

Bowhead Manufacturing is a subsidiary of Bowhead Holding Co., itself a subsidiary of Ukpeagvik Inupiat Corporation, created in 1973 through the Alaska Native Claims Settlement Act. Bowhead is one of at least seven subsidiaries owned by the Alaska Native Corporation, and part of a growing trend in federal procurement to award contracts to such groups without any competitive bidding because it is fast, easy and legal. The practice also helps government offices meet their small business set-aside requirements, even though Native Alaskan corporations do not have to meet small business parameters to qualify for the work.

In 1971 Congress enacted the Alaska Native Claims Settlement Act to rectify land claims and foster economic development. It created Alaska Native Corporations as the vehicle through which Alaskan Natives would receive land and monetary payments, according to the Government Accountability Office. In 1986, Congress allowed ANC-owned firms to participate in the Small Business Administration's 8(a) program, meant to help foster small businesses owned by historically disadvantaged groups.

But ANCs have a special advantage over other small businesses: there is no limit to the size of contract an ANC can be awarded on a sole-source basis. Other small businesses are held to a $3 million to $5 million limit.

Over the last 20 years, ANCs have spun off multiple subsidiaries to perform government contracts, in some cases teaming with large business that would not otherwise be eligible for the work.

"So what's happened is white guys from Florida go up to Alaska to get someone to go up and get them a no-bid government contract," said Lloyd Chapman, president of the American Small Business League, in an interview with UPI.

The GAO, in testimony to Congress in June, expressed similar concerns. Law requires that ANC employees to perform 50 percent of the work when teamed with a larger corporation, but it is rarely enforced by overworked contracting officers.

"The purpose of this provision, which limits the amount of work that can be performed by the subcontractor, is to insure that small businesses do not pass along the benefits of their contracts to their subcontractors," said David Cooper, the GAO director of the acquisition sourcing and management division. "We found almost no evidence that the agencies are effectively monitoring compliance with this requirement."

No-bid ANC government contracts have grown exponentially over the last five years: in the year 2000 the U.S. government awarded $265 million in contracts to ANCs. By 2005, the amount climbed to $1.1 billion. Over that period the government awarded $4.6 billion in contracts to ANC firms, of which nearly $3 billion were sole-source awards.

The number of ANC subsidiaries created to do the work has also increased dramatically.

According to the Government Accountability Office, in 1988 there was just one 8(a) subsidiary owned by an Alaska Native Corporation. By 2005, there were 154 subsidiaries owned by 49 ANCs. Some subsidiaries are created to assume from older ANC subsidiaries which, under law, can only participate in the 8(a) set aside program for nine years.

The no-bid contracts are legal but some in the small business community and government contend they are being abused, violating the spirit if not the letter of the law.

Cooper testified to the House Government Reform Committee in June that contracting offices use 8(a) awards as quick ways to get work underway. But because they are not competed for best value and best price, they can also cost more. A security guard contract awarded by the Army to ANCs cost about 25 percent more than it would have had it been competed out, and a Hurricane Katrina construction project was also inflated, according to Cooper.

"Without stronger oversight there is potential for abuse and unintended consequences," said Cooper.

In the National Guard's facilities services award to Bowhead Manufacturing, Col. Larry Fields, the National Guard's chief of operational contracting, told UPI the service is compelled by law to give the work to an ANC.

About five years ago, the Ukpeagvik Inupiat Corporation set up a limited partnership between Bowhead and Eagle Support Services, a Huntsville, Ala., company. The partnership was created specifically to approach the National Guard with an offer to perform facilities upkeep and maintenance on equipment, said Field. It was fresh work - the Guard had been performing the work itself until then. The $50 million contract was awarded without competition.

"After we started using it, it was great, an extremely versatile vehicle for us," said Field.

The contract coincided with the war in Afghanistan and then Iraq, wars that tapped the National Guard in unprecedented ways, both increasing the need for maintenance on weapons and vehicles and reducing the ability of the Guard - which was busy fighting - to do the maintenance work itself.

The contract term is up, but the Guard liked the arrangement so well it is now awarding Bowhead Manufacturing - another subsidiary of the same ANC - a $300 million, five-year contract.

Field said the Guard is getting quality service at a good price.

"The (labor) rates being charged by Bowhead Eagle are very competitive - most are covered by the Service Contract Act which sets their rates," Field said.

Moreover, the Defense Contract Audit Agency will be looking at Bowhead's books to determine whether the profit taken by the company is reasonable, Field said.

Even if competition could save the Guard money, Field said the law requires the contract go to Bowhead.

"We have to consider a set aside in every purchase we do. Since we proved (Bowhead) could do this kind of work, it follows therefore we should set this aside as well," Field said.



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