$8.07 billion. This is the number of total contract obligations awarded in 2023 by the Department of Interior (DOI) and the Bureau of Indian Affairs (BIA). While $2.67 billion of these obligations were awarded to Indian Economic Enterprises (IEEs) and Indian Small Business Economic Enterprises (ISBEEs), only $615.5 million (7.6%) of these obligations were set-aside under the Buy Indian Act for IEEs and ISBEEs to bid on.
The Buy Indian Act is a century-old federal law that aims to specifically promote economic development in Native American communities. It does this by “requiring” certain federal agencies to give preference (i.e., set-aside or sole source contracts) to Native American-owned businesses when purchasing goods and services. The purpose of this Act is similar to the purpose of the SBA’s socioeconomic programs for HUBZone, WOSB, SD/VOSB, and 8(a) businesses.
For over 100 years, the Buy Indian Act basically languished unused. As the numbers above show, it has finally begun to provide some of the promised benefits to the Native community. But the Act itself, and the regulations implementing it, have some catching up to do.
Enforcement Issues
For starters, the Buy Indian Act lacks the same accountability that SBA’s programs possess. The Act requires BIA and the Indian Health Service (IHS) to set-aside contracts to IEEs/ISBEEs “when practicable.” This means that set-aside contracts under the Buy Indian Act are only required if doing so is workable—they are not sure-fire requirements.
The same is true of the SBA’s programs. But there is a huge difference. The SBA programs have goals set annually by Congress. These are statutory goals that require the federal government to direct a certain percentage of contracting dollars to small businesses and socioeconomic concerns.
The Buy Indian Act has no such goals. This lack of goals coupled with the discretionary wording of regulations combine to reduce the overall positive impact of the Act’s preference for IEEs and ISBEEs. The delta is significant. Only 7.6% of contracts under the Buy Indian Act were set-aside as compared to the 26.5% of awards that were set-aside to small businesses under SBA’s regulations in 2022. (To be fair, all contracts valued between $10,000 and $250,000 are automatically set aside for small businesses—another accountability mechanism missing from the Buy Indian Act.)
Joint Venture Questions
Setting up an IEE or ISBEE joint venture also comes with some frustration. Again, unlike SBA’s regulations which set forth very particular guidelines for joint ventures between small and socioeconomic businesses, the Buy Indian Act does not have its own joint venture regulation or guidelines.
So, the question is, can an IEE or ISBEE create a joint venture? Sure! We just don’t know exactly how.
For that reason, IEEs and ISBEEs must be cautious. A joint venture must be carefully tailored to comply with very specific ownership and control criteria that, at first glance, are not as obvious as they may seem.
The first step in forming a joint venture is easy. For a joint venture to qualify for an IEE or ISBEE set-aside, one of the venturers must be an IEE or ISBEE. An IEE is (1) owned by one or more Indians or Federally Recognized Indian Tribe(s), (2) Indian ownership in the business must be no less than 51%, (3) the Indians must, together, receive at least 51% of the earnings from the contract, and (4) the management of the daily business operations must be controlled by one or more individuals who are Indians. (An ISBEE is and IEE that is also a small business.)
The second step, while on its face seems fairly straightforward, is not so simple. Once the joint venture has established its IEE or ISBEE business partner, the IEE or ISBEE must own at least 51% of the Joint Venture interest itself. Seems fairly simple, right? Wrong.
In 1990, the Government Accountability Office (GAO) upheld a determination from BIA that a joint venture was not an Indian enterprise even though one of the joint venture partners, which was 55 percent Indian-owned, owned 51% of the joint venture. BIA determined that because no part of the other joint venture partner was Indian-owned, the joint venture itself was only 28% Indian (55 percent of 51 percent). Ultimately, what that means is that the joint venture must independently qualify as an IEE/ISBEE.
With this in mind, let’s walk through a couple of examples to play this decision out.
Let’s say that below, Business A (an IEE) wants to form a joint venture with Business B (a non-IEE). As an IEE, Business A must be at least 51% Indian owned. For this example, Business A is 75% Indian-owned. Business A also has 51% ownership in the Joint Venture. No portion of Business B is Indian-owned. While the Joint Venture is 51% owned by the IEE, based on the GAO case, the overall Indian ownership in the Joint Venture as a whole would only be 38.25%. According to GAO, this violates the rule that, together, at least 51% of the contract earnings must be realized by Indians.
Let’s switch things up a bit. Business A (the IEE) is still 75% Indian Owned and Business B is still not Indian-owned. However, Business A now owns 68% of the joint venture. Here, the Joint Venture meets the standard because (1) the IEE owns at least 51% of the joint venture, and (2) 75% of Business A’s 68% ownership in the Joint Venture equates to Indians owning exactly 51% of the joint venture (i.e., receiving 51% of the contract earnings). Of course, a potential problem may be convincing Business B to agree to a 32% ownership stake. That said, there are ways to incentivize such ownership structures.
Let’s get crazy. Say Business A, the IEE, is 55% Indian-owned and Business B, while not an IEE, is 47% Indian-owned. Business A has a 51% ownership stake in the joint venture. This satisfies the requirement that the IEE own at least 51% of the joint venture. However, the question remains whether, together, does 51% of the earnings from the contract go to Indians? Technically, yes. 47% of Business B’s 49% ownership interest in the Joint Venture equals 23.03%, while 55% of Business A’s 51% ownership in the Joint venture equals 38.05%. Together, this equals 51.08% ownership among Indians.
That said, the looming question in this scenario is whether the IEE itself (and the Indians who own the IEE) must be the ones to earn 51% of the contract earnings or whether Indians together, between the two venturers, must earn at least 51%? The answer to this question is unclear.
To our knowledge, the arrangement above has never been examined. However, based on the 1990 GAO case above, so long as the approach “furthers[] the spirit of the Buy Indian Act” an approach like the one directly above could pass muster.
Of course, the agencies that use the Buy Indian Act could simply pass regulations to explain how IEEs and ISBEEs could joint venture. A Buy Indian Act Joint Venture regulation similar to the SBAs would establish the exact criteria necessary to form a compliant Buy Indian Act Joint Venture. The agencies could also clarify whether the status of IEE/ISBEE (regardless of the breakdown of Indian ownership within the IEE/ISBEE itself) is what matters, or whether the percentage breakdown of Indians together, between two venturers, is what rules the roost. To me, the former rationale makes the most sense because it tracks with SBA’s joint venture rules where status alone is enough (so long as the qualifying entity owns at least 51% of the Joint Venture).
…..
If you’ve made it this far, your head is likely spinning. That’s okay—this stuff is confusing! There are a lot of unknowns associated with the Buy Indian Act. There are also many areas for improvement. That said, the Act itself has benefited the Native community for some time now. Overall, the preference established under the Buy Indian Act has resulted in billions of dollars being set aside for IEEs and ISBEEs. This is a good thing!
If you have any questions about the Buy Indian Act, joint ventures, or any other aspect of federal contracting, do not hesitate to reach out to our office. We’d be happy to help!
The Buy Indian Act is finally working—but confusion remains was last modified: October 27th, 2023 by