Government Contracts Monitor

Days Numbered for Two Controversial Bush-Era Contracting Policies?

March 19, 2009

In his less than two months in office, President Obama has already taken major steps to refocus the contracting system on transparency and accountability. Now, the Administration and Congress appear ready to scale back two Republican-supported contracting policies – Alaskan Native Corporation preferences and competitive sourcing requirements.

Alaskan Native Corporation Preferences

The first threatened policy is the Alaskan Native Corporation (ANC) small business preference – the policy that:

• Permits tribally-owned and ANC-owned 8(a) small businesses to receive sole source contracts regardless of dollar amount;
• Determines the size of an ANC-owned “small business” independently of its affiliation with the ANC and any of the ANC's other subsidiaries – allowing ANCs to operate multiple 8(a) companies (provided that each company operates under a different primary SIC Code or NAICS Code); and
  
• Presumes that ANCs are economically disadvantaged – meaning that ANCs can have strong financial backing and still be considered a Small Disadvantaged Business (SDB) – so long as it is more than 51% owned by tribe members.

Congress initially codified these provisions to spur economic development in underdeveloped Alaskan communities. Unlike those of most small disadvantaged businesses, an ANC’s profits are assumed to be shared by the entire tribe or community.

However, critics – including the Government Accountability Office - argue the preference has been abused by ANC-operated conglomerates that have reaped millions of dollars in revenue from sole source government contracts, often at the expense of non-ANC small businesses.   

Preferences for ANCs have existed for many years, but they reached their pinnacle under the leadership of one of their primary champions, former Senator Ted Stevens (R-AK), who was a strong supporter of the program.

Now, with Stevens gone and a new political interest in preventing sole source contracts, Congress also seems poised to reconsider ANC preferences.

Competitive Sourcing

Competitive sourcing, the controversial decades-old policy ushered in by Office of Management and Budget (OMB) Circular A-76 and reinvigorated during the last Administration, may have also seen its last days.

According to Circular A-76, competitive sourcing is:

The longstanding policy of the federal government has been to rely on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, commercial activities should be subject to the forces of competition.  In accordance with this circular . . . agencies shall (1) Identify all activities performed by government personnel as either commercial or inherently governmental; (2) Perform inherently governmental activities with government personnel; and (3) Use a streamlined or standard competition to determine if government personnel should perform a commercial activity.

Federal government agencies and federal employees have long complained that the public-private competitions required by A-76 were burdensome and failed to produce cost savings.  Congress created a series of exceptions to the competitive sourcing requirements that have significantly complicated and undermined the process.

The Omnibus Appropriations Act of 2009, contains a provision prohibiting the use of any funds to hold a public-private competition for the remainder of 2009.  Section 737 reads:

None of the funds appropriated or other wise made available by this or any other Act may be used to begin or announce a study or public-private competition regarding the conversion to contractor performance of any function performed by Federal employees pursuant to Office of Management and Budget Circular A–76 or any other administrative regulation, directive, or policy.

It is unclear if passage of the bill spells the death of competitive sourcing or just a temporary cessation of the program. However, considering the well documented missteps in its implementation, elimination of the program seems likely.