WASHINGTON – From Iraq reconstruction to Hurricane Katrina, poor contracting oversight enables Alaska Native corporations to capitalize on multimillion-dollar no-bid deals at a potential cost to taxpayers and small businesses, a federal audit says.
A draft report by the Government Accountability Office, obtained Tuesday, indicates gaps in the overseeing of federal contracts, which have boomed in recent years in part due to provisions backed by Sen. Ted Stevens, R-Alaska.
The review of 16 no-bid contracts found that administration agencies routinely picked Alaskan firms — which can be designated legally as "small and disadvantaged," regardless of their size — to bypass burdensome competition requirements and fill small business quotas.
At the same time, government officials did little to determine if the Alaskan firms might be gaining an unfair competitive advantage or serving as illegal fronts for large businesses that were doing a majority of the work.
"There is clearly potential unintended consequences or abuse," said the GAO report, which was being circulated for comment and possible revision before its expected release later this month. It quoted unnamed agency officials who called the process an "open checkbook" and said they would be "laughed out of the office" if they raised compliance concerns.
They include a $145 million State Department contract with Kuk Construction LLC, which is working in a joint venture for security work with Halliburton subsidiary Kellogg Brown & Root, which has separately been criticized for no-bid work in Iraq. Another questionable contract was a $60 million NASA contract for technical services with Akima Corp., recently cited separately by auditors for inflated prices for Hurricane Katrina classroom work.
Raul Cisneros, a spokesman for the Small Business Administration, which has primary responsibility for certifying Alaskan firms and monitoring their contracts, responded that the SBA is still reviewing the draft report. The agency will submit its comments to the GAO "by April 19 as they required."
"We trust the GAO will consider our comments before the report is released," Cisneros said.
Rep. Tom Davis, chairman of the House Committee on Government Reform, said his panel would hold a hearing in June to investigate possible fraud and waste in the Alaska contracts. The committee already has planned a separate hearing on Katrina contracting in the coming weeks.
"The potential for abuse with these contracts is, and has been, a concern," said Robert White, spokesman for Davis, who requested the GAO audit.
Created under a 1971 law aimed at resolving historical land disputes, Alaska Native companies have picked up more no-bid government work in recent years as dwindling, time-strapped agency staffs turned to them as a way to fulfill small business goals.
From 2000 to 2004, the number of ANC contracts awarded jumped fourfold to $1.1 billion, of which 77 percent were awarded without competition. The firms have won contracts to train security guards in Iraq, maintain scanning machines at ports and borders and operate search-and-rescue boats in the South Pacific.
ANCs enjoy several contracting privileges that were written into law partly at the behest of Stevens, the powerful Senate Appropriations member and former chairman who has helped make Alaska one of the top recipients of federal largesse.
The companies, for example, are exempted from a $5 million cap on no-bid contracts imposed on other small and disadvantaged firms, and they don't have to be run by Native Alaskans.
Profits go to shareholders and the Alaskan community in the form of dividends, scholarships, jobs and training. Stevens and the Native Alaskans have said they receive preferential treatment to improve the lives of their community.
But in the GAO report, auditors said they found no evidence that the SBA or the contracting agencies were effectively monitoring ANC's subcontracting arrangements with large firms to see if ANCs were the ones getting the primary benefits.
Agencies also told auditors that they often awarded ANC contracts — including one $80 million construction agreement with the Energy Department — based on an understanding that it subcontract with large firms the government actually wanted.
"As a result, there is an increased risk that an inappropriate degree of the work is being done by large businesses rather than by the ANC firm," the GAO draft report said.