Native corporations keep 8(a) status as individuals face a new test

Alaska Native corporation-owned businesses kept their place in the federal 8(a) contracting program when a new eligibility rule took effect Sept. 10. Alaska Native entrepreneurs applying outside those corporations did not get the same exemption.

The Small Business Administration rule ends a nearly 40-year presumption that members of certain racial and ethnic groups are socially disadvantaged. New applicants to the program who are owned by individuals must now identify a government, university or corporation that discriminated against an identifiable group, certify that they belonged to that group and show that the conduct materially harmed them. That is a substantial burden, requiring an individual applicant to document a specific instance of discrimination rather than rely on group membership.

The change follows a 2023 federal court ruling that found the presumption unconstitutional. Businesses already admitted to the program keep their existing determinations, but the new standard applies to individually owned applications that were pending when the rule took effect.

The rule does not apply to businesses owned by Alaska Native corporations, tribes, Native Hawaiian organizations or community development corporations. That is not an exception the agency created for this rule. Congress wrote separate eligibility terms for those entities into law.

Under federal law governing Alaska Native corporations, a corporation and qualifying subsidiaries are treated as Native-owned and economically disadvantaged when Alaska Natives and their descendants hold a majority of the equity and voting power. An ANC-owned business therefore does not have to prove that one manager or shareholder personally experienced discrimination.

"Statutorily, social disadvantage is not an element of eligibility" for an entity-owned firm, the SBA said in the final rule.

The distinction matters beyond paperwork. The 8(a) program lets qualifying businesses compete for set-aside contracts and, in some circumstances, receive work without a full competition. Federal contracting is a major source of revenue for Alaska Native corporations and supports shareholder dividends, scholarships and other benefits.

The new rule answers only one of the questions hanging over that business model. Alaska News reported in May that the SBA had stopped processing new 8(a) applications from ANC subsidiaries during a broader review of federal contracting. The final rule does not say whether that separate pause has ended. A June proposal had already signaled that the agency planned to preserve the corporate exemption.

Federal spending data also show that statutory eligibility does not guarantee a growing share of government work. Alaska News' analysis found $9.30 billion in prime-contract obligations to firms flagged as ANC-owned from Oct. 1 through June 30 of the current fiscal year, compared with $9.47 billion during the same months a year earlier. Total federal prime-contract obligations grew from about $488 billion to $574 billion, lowering the ANC-owned share from 1.94% to 1.62%.

Those figures do not show why the share fell, and they cannot measure the new rule's effect. The spending window ended six weeks before the rule was published.

Commenters disputed the continued difference between individually owned and entity-owned firms. Katmai Government Services, an ANC-owned company, supported the rule and said it preserved Congress' distinction. Other federal contractors argued that entity-owned businesses receive advantages unavailable to individual owners. The SBA answered that their eligibility is set by statute and falls outside this rulemaking.

ANC subsidiaries keep their statutory route into 8(a), while Alaska Native people applying as individual owners must meet the new evidence test. Whether new ANC subsidiary applications are moving again, and how the SBA will apply the new test to individual Alaskans, remain unanswered.