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MONDAY, JUNE 9, 2003

Congress can create special preferences for American Indian and Alaska Native-owned businesses without violating the U.S. Constitution, a federal appeals court ruled on Friday.

In a unanimous decision, the D.C. Circuit Court of Appeals upheld a Native contracting provision in the 2000 Department of Defense appropriations act. Citing Supreme Court precedents dating back to the early 1900s, a three-judge panel said the law doesn't discriminate on the basis of race.

"The [Supreme] Court's decisions 'leave no doubt that federal legislation with respect to Indian tribes, although relating to Indians as such, is not based on impermissible racial classifications,'" wrote Judge A. Raymond Randolph, an appointee of former President George H. W. Bush.

Although the court was quick to point out that it decided the case on narrow grounds, the provision at issue has been included in appropriations acts before, and after, fiscal year 2000. It allows DoD to award contracts to firms with at least 51 percent Native ownership without going through a competitive bidding process that non-Native businesses are subjected to.

The preference policy is also part of a larger trend that has put large military-related projects in the hands of Native businesses. In December 2001, the National Imagery and Mapping Agency, a DOD agency, awarded a $2.2 billion, non-competitive contract to a joint venture of two Alaska Native corporations. It is considered the largest outsource to a Native-owned company.

Last Friday's decision revolved around a $170 million contract to Chugach Management Services, a joint venture of Chugach Alaska Corporation, a regional Alaska Native corporation, and Afognak Village Corporation, a village corporation. The Air Force awarded the contract, for maintenance work at Kirtland Air Force Base in New Mexico, pursuant to the 2000 act.

The American Federation of Government Employees, which is the largest labor union representing 600,000 federal employees, and other labor interests challenged the law as unconstitutional. "This statutory preference has led to tremendous abuse as multi-million dollar corporations -- technically 51 percent Native-American owned -- obtain sole source contracts without giving federal employees a chance to compete for their jobs," said AFGE President Bobby L. Harnage at the time of the May 2000 lawsuit.

In March 2002, U.S. District Judge Ricardo M. Urbina ruled in favor of the federal government and Chugach, which intervened as a defendant. The labor interests appealed to the D.C. Circuit, saying the law should be tested under a "strict scrutiny" analysis typically used in race-related cases. The appeals court rejected this reasoning, concluding that laws affecting American Indians and Alaska Natives should be reviewed under a "rational basis" analysis.

Chugach Alaska, owned by about 2,000 shareholders, emerged from bankruptcy three years ago. It has since been named one of the top 49 businesses in Alaska.

Last year, a Chugach subsidiary was awarded a $2.5 billion contract, to be shared with two partners, for public works, engineering, aviation and marine-support services at a missile testing facility in the South Pacific. The contract was secured competitively. In May, another Chugach firm won a $3.3 million non-military contract to take over maintenance and operations at Midway Atoll National Wildlife Refuge, also in the Pacific.

Get the Decision:
Amer Fed Govt Empl vs. USA (June 6, 2003)

Lower Court Decision:
Amer Fed Govt Empl vs. USA (March 29, 2002)

Relevant Documents:
Kirtland Litigation Briefs and Other Information (AFGE)

Relevant Links:
Chugach Alaska - http://www.chugach-ak.com
American Federation of Government Employees - http://www.afge.org/Index.cfm

Related Stories:
Native corp close to $2.5B contract (09/09)
Alaska Native deal criticized (6/14)
Native Corp. survives bankruptcy (5/30)