Controversial 8(a)s: it's good for the goose, but is it good for the gander?

"THE LITTLER GUYS ARE ALWAYS LOOKING FOR A POSSIBILITY TO PARTNER. THEY WANT TO KEEP AN OPEN DIALOGUE WITH THE LARGER BUSINESSES. FOR INSTANCED CHUGACH MAY GET A BIG CONTRACT, AND, IF YOU KNOW SOMEONE THERE AND CAN GET A PIECE OF THAT CONTRACT, IT KEEPS THE MONEY IN THE STATE."

RON PERRY PRESIDENT ALASKA 8(A) ASSOCIATION

In May 2005, a Bristol Bay Native Corp. subsidiary won one of eight national U.S. Department of Defense Nunn-Perry awards. The award, given to SpecPro for its mentor-protege relationship with a Hispanic-owned small business, Terra Health, recognized SpecPro for its outstanding program performance. SpecPro teamed up with Terra Health at the behest of BBNC's board, which held the goal that SpecPro become a business mentor for an 8(a) firm.

"SpecPro had grown under a similar arrangement with a larger government contractor," said company President and Chief Executive Officer John Reeder, "and the relationship with Terra Health seemed like a good fit."

Under the Air Force's mentor-prot6g6 program, the government reimbursed SpecPro for mentoring expenses, and provided the protege's employees with university training for three years. Evidently, the relationship has paid off for both mentor and protege. Terra Health's staff grew from approximately 65 to 325, and its revenue went from $1.65 million to $10.95 million. SpecPro went from 175 to 411 employees, and its revenue climbed from $19 million to $40 million annually over the first two years of the relationship.

Although the SpecPro Terra Health relationship seems to point toward the success of the mentor-protege and the 8(a) set-aside programs, acceptance of that view gets mixed reviews.

A BIG ADVANTAGE

Under the Small Business Administration's 8(a) program, most small disadvantaged contractors are eligible for sole-source contracts up to a cap of $3 million for goods and services, and $5 million for manufacturing. Alaska Native, Native Hawaiian and American Indian organizations, however, now have no sole-source limit for federal contracts. Alaska Native corporations are automatically included in the sole-source program, and although tribal and Native Hawaiian organizations have to go through the qualification process, they can access the special sole-source provisions, as well.

Ron Perry, president of the Alaska 8(a) Association and owner of his own business--Microware Inc., a certified 8(a) company--feels the no-threshold provision is justified.

"In my opinion, the no-threshold provision can be justified because the profits from those contracts must be split among many individual shareholders," Perry said. "That number can go into the thousands.

"As an individual 8(a)," Perry said, "I go out and earn for myself. I enjoy 100 percent of the net profit."

Perry, also a Cook Inlet Region Inc. shareholder, said he believes the government is getting a fair price for the products and services. He says there are service-level agreements and guidelines put in place within procurement contracts to assure performance.

"Departments don't just go out and give away sole-source contracts," Perry said. "Contacting officers do their homework, and make these decisions based on the analysis they conduct. The law already requires that.

"The customer knows what to expect, and the business has to provide it," Perry said.

As far as the opinions members of the 8(a) association hold, Perry said it's a "mixed bag." There are members who come down on both sides of the fence. Many are aligning themselves with Native corporations before they graduate from the 8(a) program, so they can continue the business they currently have as subcontractors to the larger corporations, according to Perry.

"The littler guys are always looking for a possibility to partner. They want to keep an open dialogue with the larger businesses. For instance, Chugach may get a big contract, and, if you know someone there and can get a piece of that contract, it keeps the money in the state," Perry said.

POTENTIAL FOR ABUSE

Associated Builders and Contractors is a national trade association with 80 chapters and 25,000 members nationwide, most non-union construction contractors. Its Alaska president, Rebecca Logan, said she finds the whole 8(a) program very interesting.

"From my perspective, it's a program that started out with the best intentions, but it has the potential for a lot of abuse. We need to be very careful of what we're doing," Logan said. "I truly think the competitive bidding process is the best process for everyone because it gives you the best person to do the job at the best price. When you sidestep the process, something has to give," she added.

One of the issues that have arisen among contractors scrutinizing the no-cap, sole-source program is that of bonding.

BUILDING ON TRUST

The Native corporation has to have 51 percent of a venture and the other partner has 49 percent, but the Native corporation asks its partner to provide the bond. A bit like a marriage, the partners have to build a relationship on trust.

Perry, though, said he feels it's the simplest way to cover bonding issues for the Native corporations. Professional partners, such as Lockheed Martin, have plenty of bonding muscle, he said, and are happy to enter into mentor-protege relationships with qualified corporations.

"The Native businesses then have the ability to use their mentors' bonding capacities, and they're teaming up with reputable, financially solid partners."

Perry also pointed out that government departments are not forced to use the sole-source program.

"It's not a one-grocery store town," he said. "If a department doesn't like it, they don't have to use it. But they are using it, so that tells me that government agencies that are using the 8(a) program are satisfied with the contracts."

'LOOPHOLE GONE WILD'

That may not be entirely true, though, according to a January 2005 article in Washington Technology magazine. The article, by Patience Wait, says that "thanks to the special rules (under the 8(a) regulations), a federal agency can avoid the costly, time-consuming process of competitive bidding...."

Many businesses, both national and local, believe there's plenty of this type of contracting going on in the federal government.

One such critic of the regulations' generosity to tribal corporations, Charles Tiefer, former solicitor of the House of Representatives, former assistant legal counsel to the Senate and now a professor at the University of Baltimore School of Law, sums it up for many non-Native corporation businesses in an interview with govexec.com in the spring of 2005: "It's a loophole gone wild."

Perry disagrees, saying such statements by "apparently" educated people are irresponsible. He's met with General Accountability Office analysts, and believes their report will show the program works very well.

"The requirements and regulations are getting more complex, and that will continue," Perry said. "There are more minority competitors, and they're hungry for business. Contract consolidation is very real; it's not going away."

Perry also said his organization (Alaska 8(a) Association) is one of the few groups that can be constructive and actually help 8(a) businesses learn appropriate strategies for thriving under those business realities.