Little Big Companies
News: How did corporations like Halliburton get millions in government contracts designated for small minority businesses?
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In Wainwright, Alaska, a village of about 500 Inupiat Eskimo north of the Arctic Circle, most people live off the land, hunting whale and caribou when the weather allows, drilling holes in the ice for smelt in the spring. About half the residents seek out jobs in the mainstream economy, and among that group, one in five is out of work. One of the few employers in town is the Olgoonik Corporation, a company owned by the tribe, whose business until recently consisted mostly of running Wainwright’s hotel, general store, and gas station.
But lately, Olgoonik has emerged as a rising giant in the world of federal contracting. Since 2002, the company has won more than $225 million in contracts for construction work on U.S. military bases and embassies from Alaska to Kosovo. Because Olgoonik is tribally owned, it was able to get the contracts without any competition. But that doesn’t mean the people of Wainwright have been doing the actual construction; instead, much of the work is being performed by Halliburton, Olgoonik’s non-native partner in the contracts.
Partnerships between multinational companies and tribal businesses, most of them Alaska native corporations, have skyrocketed in recent years—in large part because of a provision in federal law that exempts tribal companies from rules that apply to other minority-owned businesses. The system was established in the mid-1990s to help native communities, where unemployment rates often exceed 40 percent. But it has also become a way for large corporations with no Native American ownership to receive no-bid contracts, an avenue for federal officials to steer work to favored companies, and a device for speeding privatization. “It’s a loophole gone wild,” Charles Tiefer, an expert in federal contract law, recently told the trade journal Washington Technology. “I have seen little evidence that this produces jobs in Alaska as opposed to profits for those entrepreneurs skillful enough to exploit it.”
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A Mother Jones analysis of federal contracting records shows that no-bid, or “sole-source,” awards to native companies have risen dramatically since the late 1990s (see chart). Back in 1999, the largest tribal firms received just $195.5 million worth of no-bid work, or roughly 3 percent of the awards under the federal government’s program to assist small and minority-owned companies. By 2003, however, large tribal companies were getting $1.3 billion worth of contracts without any competition, accounting for nearly 15 percent of the minority program. Bruce Pozzi, a spokesman for Olgoonik, says the company decided to “jump on this bandwagon” after it realized how much money other native companies were making. Olgoonik has 175 employees, but only 7 of them are tribal members and thus shareholders of the corporation.
Tribal companies enjoy several benefits that other minority firms don’t. They can be considered small businesses even after winning billions of dollars in contracts, and there is no limit to the size of the no-bid awards they can win (other minority companies can bypass competition only if the value of the contract is less than $3 million). “It’s going to be a huge problem,” says one veteran Pentagon official, noting that when the system was set up, officials assumed that it would be used for occasional small contracts, not as a way to bypass federal competitive-bidding rules for $100 million projects. “Nobody thought they would be doing everything under the sun.”
Not true, says Michael Brown, a soft-spoken former Navy officer who is known as the “godfather” of tribal contracting: The recent explosion in federal work is exactly what he hoped for when he began working in 1982 as the chief executive for a subsidiary of the Arctic Slope Regional Corporation, one of the Alaskan tribal companies established by Congress in 1971. Founded with nearly $1 billion in assets and 44 million acres of land between them, these Alaska native corporations depended on fishing, logging, and mining, all industries in decline; so Brown began lobbying officials in Washington, D.C., for the contracting exemptions. He encouraged federal officials to visit villages that lacked not only jobs, but plumbing or sewer systems, arguing that the scale of poverty demanded significant federal help. “There are really two Alaskas,” he says. “There is Anchorage, and there are the villages.”
Brown found an ally in Alaska’s senior senator, Ted Stevens, the powerful Republican head of the Appropriations Committee. As the tribal loopholes began to grow, Stevens also formed personal ties to the native companies. His brother-in-law, William H. Bittner, is a prominent lobbyist for many of the largest tribal firms, and the senator himself is an investor in an Anchorage office complex leased to Arctic Slope, the state’s largest tribal corporation and the largest company in Alaska.
In many ways, Brown’s goals have been met. Though unemployment has continued to rise among Alaska natives, federal contracts have brought tribes millions of dollars that pay for social programs, scholarships, and, in some cases, annual dividends to tribal members. Some tribes have used the exemptions to seek out contracts that can create jobs on their reservations: A consortium of the Shoshone, Chickasaw, and Navajo tribes, along with tribes in North Dakota and Hawaii, recently won a $50 million project to digitize military technical manuals, employing about 500 Native Americans in 10 tribes.
But in many cases, the biggest winners from the contracting exemptions are non-native companies. Under the federal rules, between 15 and 50 percent of the work must be done by employees of the tribal company. But tribes can also form joint ventures with other firms, allowing them to classify many of the non-native companies’ employees as their own. In some of the largest contracts, native corporations have simply taken over services the federal government wanted to privatize. In one $2.2 billion project to run part of the military’s mapmaking division, two Alaska tribes brought in their own managers to rehire and oversee hundreds of federal employees, a process in which many workers lost their civil service benefits. “Very little changes,” says Peter Fagan, a contracting consultant who has worked with tribal companies. “You just get new hats and business cards.”
One of the tribal companies’ key selling points is their ability to bypass the bidding process—a fact that worries experts, who note that without competition it’s hard to ensure that taxpayers are getting their money’s worth. “There are so many ways of screwing the system,” says one former marketing executive for a tribal company. “There is a real possibility of hiding a lot of money in these subcontracts.”
In one project that has drawn criticism, two large security companies—Wackenhut Services and Vance International—partnered with Alaska native firms on no-bid contracts worth more than $180 million to provide private security guards for Army bases. Most of that work was awarded after Wackenhut and Vance had tried to get similar contracts through competitive bidding—and lost. At the time it got the deal, Wackenhut had just been reprimanded for underperforming on some of its existing federal contracts.
Wackenhut’s native partner, Alutiiq Security and Technology, keeps its offices in Chesapeake, Virginia, and Charleston, South Carolina, thousands of miles from its more than 600 tribal shareholders on Alaska’s southern coast. The tribe has expanded its federal contracting business from a staff of 12 in 2001 to more than 3,000, most of them in the lower 48; it distributed $3.1 million in dividends to tribal members in 2003. Dusty Kaser, chief executive of Alutiiq Security’s parent corporation, says Alutiiq has been getting the contracts on its own merits, not because of its partners. “It is offensive that individuals would suggest Alaska native corporations are being used,” said Kaser, a civil engineer who is not a member of the Alutiiq tribe. “Alaskan natives can and do run efficient operations.”
Perhaps the biggest recent boost for some tribal companies has come from an unlikely source—the Pentagon’s desire to speed up contracting in Iraq, where officials have turned to native corporations to award military and reconstruction contracts without competition. S&K Technologies, a tribal information technology company from Montana, and Chugach McKinley, a subsidiary of an Alaska native company, have won no-bid contracts to employ and oversee civilians assisting military operations in Iraq and Afghanistan. And last year, attempts by a Pentagon official to use the Inupiat firm Nana Pacific to channel a wireless telephone contract to a company represented by his friends led to inquiries by the Defense Department’s inspector general. That deal never went through, but Nana was awarded a $70 million contract last March for work on the Iraqi port of Umm Qasr. Company president Janet Reiser says the majority of the port work is being done by Nana’s own employees, about 10 percent of whom are Native Alaskans. “We are a company of the highest integrity,” she says. “We are not a shell or a sham for anybody.”
Back in Alaska, Olgoonik Corp. president John Hopson Jr. is hoping that the tribal company’s partnership with Halliburton will eventually generate jobs, or at least dividend checks, for tribal members. So far, he says, the only impact on Wainwright has been some funds to remodel the town’s hotel and store. “These contracts are done internationally and nationally, and not in the community,” says Hopson. “The impact jobwise is not as significant as we thought it would be.”
Michael Scherer is the Washington correspondent for Mother Jones.
