Changes to the SBA’s 8(a) program: An interview with Lance Morgan

By Stephanie Woodard


Originally published in Indian Country Today in November 2010.

Tribal economies have already been impacted by recent restrictions placed on sole-source federal contracts they obtain through the Small Business Administration’s 8(a) program, according to Lance Morgan, chairman of the board of the Native American Contractors Association and CEO of Ho-Chunk, Inc., a successful company owned by the Winnebago Tribe of Nebraska, of which Morgan is a member. “Contracts Ho-Chunk was negotiating are already in question,” said Morgan.

           The 8(a) contracts — for tribally owned firms, Alaska Native Corporations (ANCs) and Native Hawaiian Organizations — make up 1.3% of sole-source federal contracts, mostly originating from the Defense Department. Senate Armed Services Committee member Senator Claire McCaskill (D.-Missouri) supported the initial set of restrictions, via soon-to-be-implemented Section 811 of a defense appropriations bill.

            Now, McCaskill has introduced legislation that would further limit contracts for ANCs to the amounts handled by individual small businesses. Here’s what Morgan had to say:

Indian Country Today: The new bill was not as sweeping as feared.
Lance Morgan: Yes, by focusing on ANCs, she seeks to divide and conquer. She’ll eventually come after the rest of us, though.

ICT: How does a federal no-bid contract work?
LM: The term “no-bid” does not occur in the federal lexicon. It’s pejorative, a code word if you will, used to make these legal agreements sound shady. The correct language is “sole source,” and it involves a federal contracting official checking with the local SBA about the proposed contractor’s past performance, then negotiating the total cost and profit margin. An experienced contracting official knows what things cost. It’s not like a tribe says, “Give us a million dollars.” There are no secrets in this process.

ICT: Why are some federal contracts structured this way?
LM: The government may need a company with special expertise or may need to move quickly. Bidding out a project can take a year; a large military contract may take several years. However, let’s say a natural disaster occurs, or water must be delivered to soldiers; in cases like these, the government looks to faster-moving sole-source contracting.

ICT: Some ANCs have been criticized for working with non-Native firms. Doesn’t that validate criticism that Native enterprises may be “pass-throughs” to non-Native companies?
LM: That’s another code word. Partnering is the standard in federal contracting. Large contractors typically bring in small firms to make highly specialized contributions. Small contractors grow by developing relationships and collaborating, which helped us expand at Ho-Chunk, Inc. Native enterprises are being criticized for adhering to the industry standard. That said, whoever’s directing a project executes the bulk of it for regulatory and financial reasons: the SBA requires the prime contractor to do at least 50% of the work, and the narrow profit margin on federal sole-source contracts — just a few percent — means you can’t make money unless you do as much of the project as possible. There’s no incentive to give the work away.

ICT: There’s also been criticism about hiring of non-Native employees.
LM: Native firms can use primarily tribal members for projects performed on their homelands, such as manufacturing. But for a service contract, you go where the government needs you. You can’t pack up 100 tribal members and ship them to a distant locale. No non-Native company is required to use only employees who reside around its headquarters. Only Native companies are held to this standard.

ICT: Non-Native employees — notably some ANC executives — appear to include bad actors, who’ve bilked companies.
LM: So go after the bad actors, which the SBA is already doing through increased oversight.

ICT: How did consultation with the tribes unfold over Section 811, which affects all three types of tribal groups — in Hawaii, Alaska and the Continental 48?
LM: In the case of 811, which requires Native businesses to get additional approvals for contracts above $20 million, consultation occurred after the law was passed. The tribes never knew the change was coming. It affected all of Indian country and was subject to no public debate. I think the consultation opened some eyes but essentially was meaningless. It’s no wonder 811 was added behind closed doors: though the language looks generic, it applies only to Native people, so is race-based.

ICT: Section 811 doesn’t stop Native enterprises from getting big contracts.
LM: The additional hurdles will be difficult for some Native companies. And if $20 million sounds like a lot, remember these may be multi-year projects with tiny profit margins. Again, the hurdles are race-based. They ensure tribes never play with the big boys. Twenty years ago, mainstream contractors would throw us a bone, give us menial jobs. Now, they may be our subcontractors, and they don’t like it.

ICT: How did the Winnebago Tribe of Nebraska get into the 8(a) program?
LM: The federal government talked us into it. At Ho-Chunk, Inc., we spent $700,000 and three years to get our company up and running. Now, they’re pulling the rug out from under us. The Forest County Potawotami, the Confederated Salish and Kootenai Tribes, the Navajos, the Cherokees and others are in similar positions. Other tribes were considering contracting, but now can’t, because of 811. The tribes are hardly living it up, you know. We have incredible problems to solve.

ICT: Senator McCaskill has claimed she’s on your side, both in the matter of 811 and the new bill to restrict ANCs.
LM: If she cared about Native people, she would not destroy the economies we’ve built. She scoured the universe of Native contracting for problems and chose the weakest opponent. She isn’t scrutinizing any big mainstream players, some of whom have horrific problems, including Boeing, a big contributor of hers. I see her complaints about ANCs as a smokescreen for eventually eliminating the entire tribal program. And frankly, I don’t see widespread support in this country for making the poorest Americans even poorer.

ICT: She’s said she’s for “direct payments” to the tribes in place of businesses.
LM: That bill will never be introduced. We don’t want it anyway. We want to fix our problems ourselves.

ICT: What’s next?
LM: Senator McCaskill is a bully, and everyone knows you stand up to a bully. We’re going to fight her on this one.