Native entities and the federal contracting landscape

Many Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), and federally recognized American Indian and Alaska Native tribes—collectively referred to in this article as Native entities—secure revenue through contracting with the U.S. federal government. Since the 1980s, Native entities have developed revenue-generating strategies tailored to their unique economic and legal status, and federal contracting has become a successful revenue-diversification strategy for all three Native entity types. As discussed in previous Center for Indian Country Development research, Native entities have earned $202 billion in contracting revenue in the last four decades. Understanding Native entity participation in the federal contracting landscape over time can help ANCs, NHOs, and tribes gain insight into the business sectors and contracting programs of long-standing and growing importance to their communities.

This article builds on our team’s previous work by assessing trends and statistics in Native entity federal contracting. For our assessment, we examined Native entity contracting revenue¹ through three different lenses. First, we compared revenue earned in 2000–2021 from contracting with the Department of Defense (DoD) versus revenue earned from contracting with civilian federal agencies;² second, we assessed revenue derived from federal set-aside contracting in 2000–2021; and third, we tracked revenue derived from subcontracting in 2010–2021.³ We find a federal contracting landscape that is dominated by DoD spending but shows signs of growth and opportunity in other areas.

Defense versus civilian contracting

The DoD leads the federal contracting market in terms of overall contracting expenditures, offering opportunities to Native entities across a spectrum of agencies and programs. In 2022 alone, the DoD spent over $400 billion on contractors.⁴ From 2000 through 2021, DoD contracts accounted for 67.6 percent of all federal contracting dollars to Native entities.

Figure 1 shows the distribution of DoD and civilian contracting revenue for each type of Native entity, by the U.S. Bureau of Labor Statistics NAICS (North American Industry Classification System) “supersector.” Reviewing this distribution may provide insight into the industries and programs most accessible for each type of Native entity.

The Professional and Business Services sector, which includes services such as engineering, advertising, administrative support, and waste management, makes up most Native entity contracting for both defense and civilian agencies. This sector accounts for the vast majority of defense contracting revenue for NHOs and around half of the defense contracting revenue of both ANCs and tribes.

The Construction and Manufacturing sectors produce important revenue for Native entities, particularly in defense contracting. The construction sector, which includes heavy and civil engineering construction, commercial and residential construction, and specialty trade contractors, makes up roughly 21 percent of Native entity defense contracting revenue and about 2 percent of civilian contracting revenue. The manufacturing sector spans over 20 business categories, including everything from food preparation to computer and electronics manufacturing, and makes up roughly 16 percent of Native entity defense contracting revenue and about 4 percent of Native entity civilian contracting revenue.

Set-aside contracts are a primary driver of Native entity revenue

A second method of understanding the federal contracting landscape for Native entities is through set-aside contracts. These are contracts that federal agencies designate for businesses meeting specific requirements, such as businesses in disadvantaged areas or those that are minority- or women-owned. Set-aside contracts provide an opportunity for Native entities to enter and compete in the federal contracting market and for agencies to meet their procurement goals.⁵ These goals are simply percentage targets for the allocation of federal contracts among certain kinds of contractors.

Native entity federal contracting revenue is concentrated in two main set-aside programs: the Small Business Administration (SBA) 8(a) Business Development Program and the SBA small business set-aside. The 8(a) program was created to “assist small, disadvantaged businesses to compete in the American economy” by annually allocating a goal of 5 percent of all federal contracting dollars.⁶ Under the 8(a) program, contracts may be awarded through a competitive process or, when certain conditions are met, through a noncompetitive sole-source process. Across all Native entities, 8(a) sole-source contracts have, with few exceptions, remained the top revenue producer for the last two decades. From 2001 through 2010, 8(a) sole-source contracting on average accounted for over 50 percent of Native entity contracting revenue, with a brief dip in 2005 below 50 percent. From 2011 through 2021, 8(a) sole-source contracting revenue on average outpaced all other contracting revenue, except in 2012, when contracting by tribes in other categories spiked upward due to a single large contract a tribe obtained with no set-aside.⁷

The SBA small business set-aside program focuses primarily on lower-value contracts, worth between $10,000 and $250,000.⁸ Native entity revenue from this program has remained steady since 2004, with slight growth across all Native entity types. As of 2021, the program accounted for about 18 percent of all Native entity contracting revenue.

Two additional set-aside programs, the Buy Indian Act and HUBZone programs, account for far less of the overall Native entity revenue portfolio. Pursuant to the Buy Indian Act, $20 million to $60 million is set aside annually in Department of the Interior (DOI) contracts for Native entities for supply procurement, services, and certain construction projects.⁹ The HUBZone program is targeted at small businesses located in historically underutilized business zones. The SBA sets aside roughly 3 percent of federal contract dollars annually to qualified HUBZone small businesses.

Although these two programs are not a significant source of overall Native entity contracting revenue today, recent changes may increase Native entity participation. As of March 2022, the Buy Indian Act procurement requirements extend to the Indian Health Service (IHS) in addition to the DOI. By one estimate, the IHS will generate $145 million in new contracting opportunities annually under the Buy Indian Act authority.¹⁰ Further, in 2023 the SBA updated the map of historically underutilized business zones in the HUBZone program to reflect 2020 Census data. The SBA has stated that the new map will expand small business program participation to 3,732 newly qualified communities.¹¹

Figure 2 tracks the share of Native entity prime contracting revenue in each of the set-aside programs from 2000 through 2021. To enable further comparisons, it also provides a breakdown by Native entity type, as in Figure 1.

Subcontracting is a growing opportunity for Native entities

Rather than working directly with a federal agency, subcontractors work with federal prime contractors. Subcontracting allows a business to be involved in the federal procurement process without having to meet the same criteria as prime contractors. Although Native entity subcontracting accounts for only 2 percent of overall Native federal contracting revenue, the amount of revenue generated is growing significantly. Subcontracting has experienced 33 percent annualized growth from 2010 through 2021, as compared to 4 percent annualized growth over this same period for prime contracting.¹²

Figure 3 highlights the significant growth in subcontracting among Native entities since 2010.

While more research is needed to understand the growth in subcontracting, the DoD’s Indian Incentive Program (IIP) may be a contributing factor. Under the program, a prime contractor is eligible to receive a 5 percent rebate on the total amount subcontracted to a Native entity, if the subcontract is worth $500,000 or more. In 2010–2021, 82 percent of Native entity subcontracting revenue came from non-Native-entity prime awardees—a fact that may indicate influence from the IIP.

Looking ahead

Understanding trends in federal contracting revenue provides insight into the business sectors and contracting programs ANCs, NHOs, and tribes rely on. Defense contracting remains the most important source of Native entity federal contracting revenue, with a focus on the Professional and Business Services sector. Set-aside contracts are the driver of Native entity involvement in federal contracting, with the 8(a) program accounting for most revenue. Recent changes to the Buy Indian Act and the HUBZone programs could result in increased opportunity for revenue growth and diversification. Finally, subcontracting is a growing source of Native entities’ revenue. Future work by CICD will explore the benefits and barriers to contracting for Native entities.

Endnotes

1 The term “revenue” as used in this article relies on contracting data that show federal agency obligations and the timing of those obligations. An obligation occurs when a federal agency sets aside funds for an activity and is then legally required to disburse funds associated with that activity. (In this case, the activity would be a contract with a Native entity). While there are some differences with respect to when funds are obligated and when they are realized as revenue by a federal contractor, on an annual basis the timing of the obligation should be close to when the revenue is realized by a contractor. Where possible, we have externally validated revenue reported by Native entities and the timing of obligations on an annual basis. Our assumptions on the timing of obligations and realized revenue appear to be valid when assessed on an annual basis. For more information on federal obligation of funds, see 50 CFR § 80.91, What is a Federal obligation of funds and how does it occur?

2 At the recommendation of one of our data vendors, HigherGov, we restrict analysis to 2000, when the data coverage and availability became more reliable, and onward. By defense contracting, we mean all contracts that were awarded by the DoD. Civilian contracting is thus contracts awarded by all other agencies.

3 For more on dataset construction, see the appendix of our previous article.

4 Based on authors’ calculations of the DoD’s share of approximately $700 billion in total FY 2022 federal contracting. See Bloomberg Government for more on the FY 2022 total.

5 The SBA provides agency procurement goals annually, including goals for 2023.

6 13 CFR § 124.1, 8(a) Business Development.

7 This large contract was awarded to S&K Aerospace, which is owned and operated by the Confederated Salish and Kootenai Tribes of the Flathead Reservation in Montana.

8 These thresholds can change depending on different factors, as explained on SBA’s “Set-aside procurement” web page.

9 The Buy Indian Opportunity, U.S. Department of the Interior, page 2.

10 From a January 20, 2022, Holland & Knight Alert, Indian Health Service Releases Final Rule on Buy Indian Act.

11 From a March 14, 2023, SBA press release, SBA New HUBZone Map Update Expands Small Business Program Participation and Federal Contract Eligibility.

12 The absence of subcontracting data prior to 2010 does not mean that no Native entities earned subcontracting dollars. Rather, this is when we were first able to obtain data on these subcontracts systematically. The Federal Funding Accountability and Transparency Act of 2006 specified a timeline for when prime and subcontracting data would be required to be available, and for subcontracts it began in 2010.