Does the SBA Still Matter?

Which brings us back to Volvo Park. Alutiiq is a subsidiary of the Afognak Native Corporation, which is in turn owned by about 700 Alaskan Natives from the Kodiak Island archipelago, the product of a settlement with Washington over land claims. Alutiiq is also an 8(a) company, meaning it's eligible to "win" federal contracts free of open bidding. But this palliative for urban poverty--8(a) was a response to the race riots of 1967--was always underfunded and, by most accounts, never very successful. In the 1970s, the GAO reported that the only way the harried SBA staff could meet White House targets for 8(a) contracts was to steer work to proven firms. Since then, most of the set-asides have gone to a small fraction of companies.

Twenty-one years ago Congress granted community-owned Alaska Native corporations, as they're called, contracting advantages that other 8(a)s don't have, creating, in effect, a preferred class within a preferred class. Crucially, Alaskan firms aren't subject to the limits on no-bid contracts that apply to other 8(a)s. And while the CEO of a regular 8(a) must be a "disadvantaged" individual, the Alaskans are free to hire whomever they choose to run the business--and usually their choices are rich with experience in government contracting, particularly at the Pentagon. When one Alaskan 8(a) grows too big for the program, the corporation can simply form another one--there's no limit to the number of subsidiaries an Alaskan firm can operate.

Procurement officials at federal agencies gravitate to the ANCs because, says Proffitt, "they don't have to compete contracts and worry about who might win. And because they can meet their goals with one significant contract." Predictably, the Alaskan 8(a) sector is booming: Its share of federal contracting set-asides has grown from $265 million in 2000 to at least $2.3 billion today, about 20 percent of all 8(a) dollars--most of that going to just 20 firms.

After a tour of the Alutiiq offices--a warren of cubicles distinguished principally by the state-of-the-art videoconference system in the conference room and the Kodiak art that lines the corridors--I was led to a modest corner office. I sat down with three white men, the executives of Alutiiq. CEO Dusty Kaser (who has since retired) has a background in construction; executive vice president (now CEO) Dick Hobbs served eight years in the Navy after graduating from Annapolis; senior vice president Ron Hancock served 20. They presided over an expanding portfolio of seven firms that provide the federal government with everything from guards and electronic surveillance systems to IT and "logistics support."

Though handsomely paid, the executives don't take the multimillion-dollar bonuses or stock options that you'd find at their publicly traded competitors. But it wouldn't be illegal even if they did, and that's precisely the point: Alutiiq is a small disadvantaged business in official status only. Certainly Alutiiq doesn't see itself as a small business. "Those contracts that we would pursue," said Hobbs, "they're not coming from the small-business community but from the big-business community." In general, they said, Alutiiq limits its interest to contracts over $3 million, beyond the reach of many small businesses.

Tammy Proffitt, whose team ministers to a few smaller ANCs (but not to Alutiiq, which is promoted by the SBA's Anchorage office) sees no such reluctance among some ANCs to take these smaller jobs. In any case, she adds, "there are lots of firms that can do multimillion-dollar projects." And even if the Alaskans now hunt bigger game, once agencies meet their 8(a) goals, they can with a clean (or cleaner) conscience bundle their remaining buys into packages beyond the reach of other disadvantaged firms.

Naturally, the Alaskans' deal has stoked resentment. The Alaskans defend their prerogatives not simply as remediation for past mistreatment but as a tool to provide for an entire society, not just a single entrepreneur. In 2005, "we returned $11.1 million in dividends to our shareholders," said Kaser. "And we employed 40-some shareholders on staff." Later, he added in an e-mail that "contracting preferences have the potential of doing more for the economic self-determination of our indigenous people than anything else Congress has come up with in over 200 years." It's not our purpose here to judge the propriety of pitting one aggrieved minority against another in a battle over table scraps. But economic development isn't really the SBA's mission--small-business development is.

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