Tuesday, November 10, 2009

Rise of the Native National Security Corporation

Native American corporations, led by dozens from Alaska, are coming under fire in Congress for their preferential access to billions of dollars in defense, intelligence, and homeland security contracts – and because of the often shoddy, largely unaccountable work on national security and homeland security contracts.

Another related concern is that these preferential contracts – granted without the normal open bidding process – are actually performed by other corporations who receive subcontracts from the Native American corporation, which functions largely as a vehicle to secure contracts, not implement them.

Two of the main critics of the Alaska Native Corporations (ANCs) that have captured major national security contracts are Sen. Claire McCaskill (D-Mo.) and former senator and current Secretary of State Hillary Clinton. ANCs were created in the wake of the Alaska Claims Settlement Act of 1971.

Since 2000 ANCs have captured large military and homeland security contracts even though these corporations have only minimal in-house experience in the much of their contracted jobs. The Chenega Corporation, which partners with the infamous Blackwater (recently renamed Xe Services), lists the “strengths and services” of its “Intel and Military Operations” on its corporate website:

• Transformation and future force development
• Support to Intel and special operations
• Operational readiness, asymmetric warfare and C4ISR support
• Weapons system engineering and logistics
• Operational analysis, concept of operations development
• Linguistics, debriefers, and translation services

Two federal initiatives – one by the Small Business Administration and the other by the contracting oversight committee of the Senate Homeland Security Committee – are investigating the pillaging of federal defense and homeland security contracts by ANCs and their subcontractors. But neither the efforts of the SBA to reform its own contracting regulations nor the work of Senator McCaskill’s subcommittee have gained much media attention or public support – in part because of the esoteric nature of these preferential contracts and in part because of the power of the national security industry that has benefited by partnering with ANCs.

Overview of the Alaska Native National Security Bonanza 

Contract awards to ANCs increased by 916% from 2000-2008, rising from $508.4 million in 2000 to $5.2 billion in 2008. A sharply declining percentage of ANC contracts are performed in Alaska. In 2008 approximately 80% of the contract dollars went for work outside Alaska – with Virginia being the leading state for ANC operations

The first volume of a two-part report recently prepared for the Senate Committee on Homeland Security and Governmental Affairs for Senator McCaskill found that ANC federal contracts have been increasing at a 33.6% annual rate since 2000 – six times greater than the overall increase in federal contract spending.
The value of federal contracts did rose rapidly during the Bush administration – up $149% in eight years – but the dollar amount of ANC contracts jumped more than 900%.

Despite their being multimillion corporations, the ANCs still depend on their officially designated status as small businesses to rake in billions of dollars in preferential federal contracts. ANCs receive a disproportionate share of 8(a) or federal small business contracts. Between 2000 and 2008, ANCs received $12.1 billion in federal contracts through the 8(a) program. In 2008, awards to ANCs constituted 18% of all federal contract dollars awarded through 8(a) prime contracts. Also in 2008 nearly three-quarters of all federal contracts were awarded to ANCS under the government’s small business procurement practices.

There are federal regulations that limit the amount awarded in small business contracts. As a rule, sole-source 8(a) contracts must be valued under $5.5 million for goods or $3.5 million for services. That’s not a problem for the ANCs, which are exempt from this restriction because of their special Native Alaskan status. ANCs captured a flood of 8(a) contracts in 2000-2008 valued more than the stated maximum.

 In that eight-year period the federal government issued $6.3 billion in contracts to ANCs like Ahtna, Chugach, ASRC Management Services, and Chenega that far out-stripped the $3.5 million set by the federal government to give preference to small businesses. Generally, sole-source 8(a) contracts must be valued under $5.5 million for goods or $3.5 million for services. ANCs, which are exempt from this restriction, received $6.3 billion in 8(a) contracts valued at more than $3.5 million each between 2000 and 2008.

 Key Findings of the Senate’s Homeland Security
Contracting Oversight Subcommittee T

The key findings (below) of the contracting oversight committee are alarming. They point to widespread and systematic abuse of preferential contracting by the ANCs and their subcontractor partners. 

 • ANCs are now among the largest federal contractors. In 2008 four ANCs – Arctic Slope Regional Corporation, Afognak Native Corporation, NANA Regional Corporation, and Chugach Alaska Corporation – were among the top 100 recipients of federal contract awards. 

• ANCs are big businesses.
The majority of the Alaska Native Corporations surveyed by the Subcommittee exceed the size requirements applicable to other 8(a) companies. 11 out of 19 surveyed companies have had annual revenues higher than the Small Business Administration’s limit since 2002. 

• ANCs have created multiple 8(a) subsidiaries. The ANCs have taken advantage of the exemption from the size requirements to create multiple 8(a) subsidiaries. Over the last 9 years, the 19 companies surveyed by the Subcommittee have enrolled 248 subsidiaries, joint ventures, or partnerships in the 8(a) program. 

• ANCS are awarded multiple large federal contracts on a sole-source basis. Between 2000 and 2008, ANCs received $6.6 billion in 8(a) sole-source contracts valued at more than $3.5 million each. The single largest ANC 8(a) contract is the $1.13 billion Inter-Service Supply Support Operations Program (ISSOP) contract that was awarded by the Defense Department to FSS-Alutiiq, a joint venture of Arctic Slope Regional Corporation and Afognak Native Corporation, in 2002. 

 • ANCS are passing work through to subcontractors. The Afognak Native Corporation can be viewed as a case study of how ANCS create subcontracts to pass work to large, non-Native companies. Nine subcontractors alone received more than 70% of all subcontract awards under Afognak contracts. For 91 individual contracts collectively worth more than $827 million, Afognak paid subcontractors more than 50% of the total prime contract revenue on each contract. 

• ANCs employ a relatively small percentage of shareholders. The 19 Alaska Native Corporations that provided information to the Subcommittee employ more than 45,000 individuals throughout their corporations. Of these, approximately 2,400 employees – 5.2% - are shareholders (or relatives of shareholders) of the employing corporation. On average, nearly 95% of ANC employees are not ANC shareholders. 

 • ANCs have relied heavily on highly-paid, non-Native executives. Of the 13 corporations that provided detailed information to the Subcommittee regarding executive compensation for non-Native executives, 69% of executive compensation was paid to individuals who were not shareholders in the Native Corporations. The information produced to the Subcommittee also shows that for one or more years between 2000 and 2008, eight Alaska Native Corporations paid their Chief Executive Officer, who was a shareholder, substantially less than a non-shareholder holding a lower-ranked position. 

* Little Trickle-Down to ANC Community Members or Shareholders. One of the primary rationales for the ANC contracting preferences is that they provide economic support and other benefits for Native shareholders and communities. The Subcommittee’s investigation shows that the 19 ANCs have provided cash, scholarships, preservation of cultural heritage, or other benefits valued at approximately $720.1 million over the last nine years to members of the Alaska Native community as a result of federal contracts. On average, that amounts to a value of $615 per person per year. 

 Border Security Bonanza Boondoggle

 The awarding of homeland security, defense, and intelligence contracts to ANCs has been on the upswing since the late 1990s but has experienced a major up-tick since 2001 when national security outsourcing has become core to post-Sept. 11 national security and operations.

It’s not that there is a new federal emphasis on doing business with Native America corporations. Rather, it’s simply that there has been a surge in outsourcing as a result of hurried attempts by DOD to keep the Iraq and Afghanistan wars going while the military itself is overstretched, and also as the result of a dramatic surge in homeland security and intelligence contracting.

 From the beginning of this upswing in outsourcing, ANCs have been plied with federal contracts. Some of the most stunning problems with this outsourcing to ANCs have been associated with border security. One of the earliest cases of wasted money and failed projects that came to the attention of government investigators and brought unwanted attention to one of the Democratic Party’s rising stars in intelligence, defense, and homeland security issues – U.S. Rep. Silvestre Reyes (D-Tx.), who represents the El Paso area.

 Like many of the Native American national security contracts, a 1998 Border Patrol contract for border electronic surveillance with Chugach Development Corporation also involved a non-ANC subcontractor, International Microwave Corp. The Integrated Surveillance Intelligence System (ISIS), which was to be deployed along portions of the southern and northern borders, was a predecessor of the Border Patrol’s current SBInet. T

The chief promoter of ISIS, which operated through two successive no-bid contracts, was Rep. Reyes, who served as district Border Patrol chief of the El Paso sector before his election to Congress in 1997. Reyes was closely tied to the project not only through his role in Congress but also through family members who found high-level jobs at Chugach and later ISIS (and still later in the management of L-3 Communications, which bought IMC).

Questions about Reyes' campaign financing and possibly related contracts have surrounded the congressman's persistent and longtime support for high-tech electronic surveillance along the border, involving two no-bid contracts. Since coming to Washington in January 1997 Reyes has been a key advocate of constructing a "virtual fence" along the southwestern border, despite the all-too-real multibillion dollar price tag and absence of hard data that the billions result in improved border security.

Although the oversight problems with ANC contracting – and with border electronic surveillance projects – had existed since the late 1990s with the launching of the ISIS pilot project, it wasn't until the Inspector General (OIG) of the federal government's General Services Administration in December 2004 released an audit of the border electronic surveillance project that some of the details of the electronic surveillance project were publicly revealed.

The audit focused on the Border Patrol's relationship with the two ISIS contractors, starting with the Alaska native-based Chugach Development Corp. (headquartered in Virginia) and continuing with its successor, International Microwave Corp. Rebecca Reyes, daughter of Rep. Reyes, directed the ISIS project for the two contractors.

According to GSA, the audit review of ISIS encountered serious management issues that undermined the value of the more than $200 million that had been spent on the surveillance project.

The GSA inspector general found, among other things, that ISIS suffered from: "lack of competition in the awarding" of the contract, "inappropriate contract for construction services," "inadequate contract administration and project management," "providing equipment without contract approval," and "ineffective management controls."

The GSA inspector general's audit concluded that the government had paid for "shoddy work" or "for work that was incomplete or never delivered." Official inattention to the contracted project "placed taxpayers' dollars and … national security at risk."

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1 comment:

faculty for workplace justice said...

Sorry for leaving my off topic comment here, but i just heard you on Fresh Air and felt tremendous admiration for the work you do. i also felt tremendous rage and despair, but that's another matter. thank you. (i'm signing through a blog i and others ran some time ago because your blog doesn't have the option for individual commenting, but i'm speaking here solely as myself).