Buy Indian Act: 105 Years (And Counting) Of Frustration

In 1910, William Howard Taft lived in the White House, the Chicago Cubs were just two years removed from back-to-back World Series titles, and Arizona had yet to be admitted to the Union.  That summer, Congress passed the Buy Indian Act, a statute authorizing a special federal contracting program for Indian-owned businesses.

Since then, it has been mostly downhill.  It took the Bureau of Indian Affairs (BIA) 103 years to issue regulations implementing the Act’s contracting preferences.  Now that the regulations are finally in place, the Buy Indian Act program is suffering from lack of effective oversight and implementation.  In fact, a recent GAO report found that the BIA and the Indian Health Service could not even clearly articulate whether Buy Indian Act set-aside contracts take priority over other set-asides.

If the Buy Indian Act is ever to live up to its potential, significant changes are needed.

The Buy Indian Act and Its Implementing Regulations

The Buy Indian Act provides that “[s]o far as may be practicable Indian labor shall be employed, and purchases of the products (including, but not limited to printing, notwithstanding any other law) of Indian industry may be made in open market in the discretion of the Secretary of the Interior.”  25 U.S.C. § 47.  Although the Buy Indian Act originally applied only to the Department of the Interior (which houses the BIA), Congress transferred certain Indian healthcare functions to the Department of Health and Human Services in 1955.  As a result of the transfer, HHS’s Indian Health Service became able to use the Buy Indian Act.

In 1975, IHS published regulations implementing the Buy Indian Act.  The regulations, which are currently set forth in the IHS’s FAR supplement beginning at 48 C.F.R. § 370.501, specify that IHS “shall utilize the negotiation authority of the Buy Indian Act to give preference to Indians whenever the use of that authority is authorized and practicable.”

Under IHS’s regulations, there are two main criteria to qualify as an Indian-owned business.  First, “the degree of Indian ownership of an Indian firm shall be at least 51 percent during the period covered by a Buy Indian contract.”  And second, “a contractor shall not subcontract to other than Indian firms more than 50 percent of the work under a prime contract awarded pursuant to the Buy Indian Act.”  The provision of “materials, supplies, or equipment” is exempt from this limitation on subcontracting.

IHS’s regulations specify that “[c]ontracts awarded under the Buy Indian Act are subject to competition among Indians or Indian concerns to the maximum extent practicable.”  When the IHS “determines that competition is not practicable,” the agency must prepare a written justification for the non-competitive award.

The BIA’s regulations, set forth in its FAR supplement in 48 C.F.R. Part 1480, state that the agency “must use the authority of the Buy Indian Act . . . to give preference to Indians whenever the use of that authority is authorized and practicable.”  The BIA’s regulation specify that acquisitions of supplies, services, and covered construction that are subject to commercial item or simplified acquisition procedures are to be set-aside “exclusively” for Indian Small Business Economic Enterprises; that is, businesses that are both Indian-owned and “small” within the meaning of the SBA’s regulations. Most acquisitions above the simplified acquisitions threshold “must be set aside exclusively for” Indian economic enterprises so long as there is a reasonable expectation that offers will be received from two or more responsible Indian-owned firms.  Small business status is not a prerequisite for such acquisitions.

The BIA’s regulations specify that the prime contractor under a Buy Indian Act set-aside “shall not subcontract to other than responsible Indian economic enterprises more than 50 percent of the subcontracted work .  . ..”  The prime contractor is also required to comply with the standard limitations on subcontracting under FAR 52.219-14.

The GAO Report

On July 9, 2015, the U.S. Government Accountability Office released a report (GAO 15-588) regarding the implementation of the Buy Indian Act by the IHS and BIA.  In its report, titled Bureau of Indian Affairs and Indian Health Service Need Greater Insight Into Implementation at Regional Offices, the GAO concluded that the BIA and IHS are not effectively implementing certain portions of the Buy Indian Act.

The GAO noted that the set-aside program under the Buy Indian Act differs from other government set-aside programs in key respects.  Most notably, the BIA and IHS are the only agencies permitted to use the set-aside program, whereas most other set-aside programs are available government-wide.  Further, “while the Small Business Administration negotiates with federal agencies to establish goals for contracting with various categories of small businesses, the Buy Indian Act does not have any of these goals associated with it.”

After providing an overview of the Buy Indian Act, the GAO identified several significant problems in its implementation.

First, it is unclear to what extent the Buy Indian Act takes precedence over other set-aside programs.  BIA stated that contracting officers are required to prioritize the Buy Indian Act, but “this policy is not currently documented.”  At IHS, officials stated that “because of difficulties meeting small business goals, the agency prioritizes awarding contracts to vendors that help the agency meet its federally mandated small business goals, and that awarding contracts under the Buy Indian Act is secondary to those goals.”  Additionally, “since June 2005, there has been an effort within the agency to encourage Indian-owned firms to seek status under set-asides other than the Buy Indian Act, such as women-owned or veteran-owned small businesses.”  However, “IHS was unable to provide documentation related to this practice, and was only able to produce a 1995 policy that, contrary to what we were told, indicated that the Buy American Act takes precedence over other set-asides.”

Second, “both agencies rely on firms to self-certify their status as Indian-owned.”  Although self-certification is not inherently problematic (the small business set-aside program is also a self-certification program), neither agency offers a truly independent system for challenges to those self-certifications.  The BIA’s regulations call for challenges to be filed with the Contracting Officer, although appeals are permitted to higher levels of the Department of the Interior.  The IHS’s regulations do not include any protest mechanism at all, and IHS vaguely reported that it “handles challenges according to the protest procedures set out in the Federal Acquisition Regulation.”  Presumably, IHS means the agency-level protest procedures set forth in FAR 33.103.

Third, “BIA and IHS headquarters have limited insight into the Buy Indian Act implementation in the regional offices.”  For example, “[w]hen asked about how frequently challenges to [Indian-owned status] occurred or how they were resolved, BIA and IHS officials told us they would have to consult with regional offices to provide this information.” The GAO continued: “[g]iven this lack of insight, it is difficult for BIA and IHS officials to know whether the Buy Indian Act is being consistently applied among the regions, or for the agencies to determine the extent to which mechanisms to implement key requirements are working as intended.”

The GAO made three specific recommendations for improvement.  These included clarifying and codifying policies for using the Buy Indian Act, collecting data on regional offices’ implementation of the Buy Indian Act, and including Buy Indian Act contracts as part of the regular procurement process.  The BIA and IHS largely concurred with the GAO’s recommendations and stated that they would make efforts to improve.

Finally, the GAO analyzed data regarding the use of the Buy Indian Act, and found that “[u]se of the Buy Indian Act represents a small percentage of both BIA’s and IHS’s annual contract obligations.”  In Fiscal Years 2012, 2013, and 2014, Buy Indian Act procurements represented only 9%, 7%, and 12%, respectively, of the BIA’s total contract obligations.  IHS barely used the Buy Indian Act at all: Buy Indian Act procurements accounted for less than 1% of the agency’s contract obligations in all three years. Though both agencies did award contracts to Indian-owned firms using other authority, the large majority of each agency’s contract obligations were for non-Indian firms.  IHS fared particularly poorly, awarding 83%, 86%, and 87% of its contracting dollars to non-Indian firms in fiscal years 2012, 2013, and 2014, respectively.

The Road Ahead: Suggestions for Buy Indian Act Improvement

The world has changed quite a bit since the Taft Administration, but one thing remains the same: the Buy Indian Act is not all that it could be.  What can be done to improve it?

The GAO report offers a good starting point, and it is encouraging that the BIA and IHS have said that they will make changes in response to the GAO’s feedback.  In my view, however, the GAO report does not go far enough in addressing ways that the two agencies could improve implementation of the Buy Indian Act.  Here are a few more suggestions to both agencies improve:

  • Standardize the Two Agencies’ Buy Indian Act Regulations. In most government set-aside programs, the same set of rules applies, regardless of agency.  But in the Buy Indian Act world, the BIA and IHS have separate regulations, with many differences.  As a whole, the IHS’s regulations are much less-developed than the BIA’s (although, to be fair, the BIA had the advantage of an additional 38 years in drafting its regulations). As noted in the GAO report, even the definition of “Indian-owned” varies between the two agencies.  It makes no sense that a company could be eligible for one agency’s Buy Indian Act contracts, but not the other’s.
  • Implement a Certification Program. Instead of relying on self-certification, the BIA and IHS should consider a formal certification program, like the sort used in the SBA’s 8(a) and HUBZone programs, as well as the VA’s SDVOSB program.  While formal certification can come with its own frustrations, it would—if done right—help ensure that Buy Indian Act contracts truly are going to Indian-owned companies.  And while they are at it, the BIA and IHS should consider adopting a protest system that allows for independent review of challenges to Indian-owned status.  After all, size protests go to the SBA—not the contracting officer.
  • Adopt Goals. Just as the VA has a special relationship with veterans, IHS and the BIA have a special relationship with Indians.  The VA has robust goals for contracting with veteran-owned companies.  So why are there no goals in place for the BIA and IHS to do business with Indian-owned companies?  It would not be difficult for the agencies to adopt goals for contracting with Indian-owned companies, which would serve not only as useful benchmarks, but would incentivize contracting officers to maximize Indian contracting.
  • Prioritize Indian Contracting. The BIA and IHS should use the Buy Indian Act to prioritize Indian contracting whenever possible.  This means clearly defining in the regulations that Buy Indian Act procurements take priority over other set-asides.  If the agencies are concerned about missing their small business goals, they can adopt a procedure favoring Indian-owned small businesses—as the BIA has already done with some procurements.

The first 105 years of the Buy Indian Act have been frustrating for nearly all concerned.  But with some changes, perhaps the Buy Indian Act can yet live up to its promise.

This article was first published on Law360 on August 10, 2015. 

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