By Robert O'Harrow Jr.
Washington Post Staff Writer
Thursday, October 7, 2010; 9:01 PM
Alaska native corporations would lose their special contracting privileges under legislation that Sen. Claire McCaskill (D-Mo.) intends to introduce next month, a move that will stir debate about the billions of dollars' worth of federal set-aside contracts that the companies receive.
More than 200 of the corporations, known as ANCs, were created by Congress in 1971 to settle land claims and help improve life for tens of thousands of impoverished native people. The Pentagon and other agencies have spent more than $29 billion over the past decade on contracts with ANCs, which can receive deals of any size without competition and do not have to be run by Alaska natives, under rules pushed through in the late 1980s by then-Sen. Ted Stevens (R-Alaska).
But relatively little of the money from the contracting boom has gone into shareholder pockets, as shown by audits, annual reports and congressional documents.
McCaskill said in an interview that she thinks ANCs have been "masquerading as a solution to the problems in Alaska" without providing sufficient benefits to taxpayers or native shareholders.
When told about McCaskill's proposed legislation, Sen. Mark Begich (D-Alaska) said he would "clearly oppose" it as "misguided" and "shortsighted." But he said he will review reform proposals that strengthen the ANC program.
Sen. Lisa Murkowski (R-Alaska) said she is also against the proposed changes.
"I would oppose and fight any legislation that strips Alaska native corporations, Indian tribes and native Hawaiians of the contracting preferences afforded to them," she said. "We must reform the program to ensure it works the way it was intended."
Executives from three large ANCs - who last month proposed their own reforms - said McCaskill's approach goes too far and would harm Alaska natives. The reformers have called for caps on contracts awarded without competition, more transparency on how money is distributed to shareholders and greater penalties for abuses.
In a statement, the executives from Arctic Slope Regional Corp., Cook Inlet Region Inc. and Doyon Ltd. said "that extreme efforts will serve no purpose other than eliminating economic opportunities."
"As corporations that represent the interests of thousands of Alaska Native shareholders and their descendants, we recognize that change to the 8(a) program is necessary," the statement said. "We've proposed real and reasonable reforms and stand ready to make them reality."
Last year, McCaskill led a hearing of the Senate subcommittee on contracting oversight that included testimony that ANCs were prone to waste and abuse, sometimes by non-native executives. Her proposed legislation comes a week after a Washington Post examination found that the federal government has long known about the problems but largely ignored them because ANCs were a convenient way to do business and because of a shortage of well-trained contracting oversight workers.
McCaskill said she will formally introduce the bill when Congress returns after the elections in November. She said the bill, which does not yet have a co-sponsor, is a starting point for reform discussions.
"Legislating is a process of compromise," she said. "What we need to do is be honest about this."
In a related move this week, McCaskill called on the Small Business Administration's inspector general to "initiate an investigation into potential violations of federal statutes and regulations applicable to Alaska Native Corporations" relating to The Post's ANC reporting last week, according to a letter dated Oct. 6.
McCaskill cited details about H. James Nunes, a non-native Bethesda man who earned more than $15 million in recent years while working as a consultant for Sitnasuak Native Corp., raising questions about whether he may have withheld information required by the government. She also said she is "discouraged by the [SBA's] continued failure to adequately manage and oversee ANC participation in the 8(a) program."
Nunes's attorneys told The Post last week that he earned his money by making Sitnasuak profitable and disclosed all relevant information to the government.
"Mr. Nunes provided only management services to SNC," said Jason Raofield, Nunes's attorney. "All management fees paid to Mr. Nunes were fully disclosed in annual reports filed with SBA."
The proposed legislation will be a source of intense discussion in Alaska, where the ANCs are an important part of the state's economy and political life.
Under McCaskill's proposal, ANCs would still be eligible to participate in the 8(a) program, under the same rules as other businesses, limiting the size of the contracts they could receive. They would also have to demonstrate their social and economic disadvantage like other small businesses. ANC subsidiaries that get federal contracts would have to be run by individuals who are socially and economically disadvantaged.
Supporters of the program have said that ANCs are beginning to use their contracting benefits to increase direct payments to shareholders and provide other benefits. The 12 regional ANCs recently reported paying $171 million in dividends to shareholders in 2008, a sharp increase over prior years.