• The Indian Incentive Program -- Get 5 Percent Back from Uncle Sam
  • May 18, 2004 | Authors: Michael A. Hordell; Laura L. Hoffman
  • Law Firm: Pepper Hamilton LLP - Washington Office
  • Federal Acquisition Regulation (FAR) Part 26 (Other Socioeconomic Programs) contains implementing clauses stating that Indian, 1Alaska Native or Native Hawaiian organizations should have the "maximum practicable opportunity" to participate in performing government contracts (FAR 26.102 (Policy); see also Department of Defense FAR Supplement (DFARS) 252.226-7001 (Utilization of Indian Organizations, Indian-Owned Economic Enterprises, and Native Hawaiian Small Business Concerns))2. To encourage contractors to use Indian organizations as subcontractors or suppliers, Congress traditionally provides $8 million annually for the Department of Defense Indian Incentive Program to be paid to contractors as an incentive for using Indian organizations as subcontractors or suppliers on a contract with the federal government.

    The Indian Incentive Program, based on Section 504 of the Indian Financing Act of 1974 (25 U.S.C. § 1544), is intended to provide opportunities to Indian organizations3 and Indian-owned economic enterprises4 by providing for the payment of 5 percent of the amount subcontracted to an Indian organization or Indian-owned economic enterprise at any sub-tier, when authorized under the terms of the contract. DoD contracts with prime contractors that contain FAR 52.226-1, Utilization of Indian Organizations and Indian-Owned Economic Enterprises, are eligible for these incentive payments so long as the prime contract amount is over $500,000 and involves the expenditure of appropriated funds. See Section 8021 of Pub. L. No. 108-87, the Defense Appropriations Act for FY 2004; see also 68 Fed. Reg. 56,561-56,563 (Oct. 1, 2003). Sub-tier contractors, with a subcontract valued at $500,000 or more, who subcontract to an Indian-owned firm are also eligible for the incentive payments by inserting DFARS 252.226-7001 into the contract. See DFARS 226.103 (Procedures), DFARS 226.104 (Contract clause), and Section 8021 of Pub. L. 108-87, the Defense Appropriations Act for FY 2004.

    Note that the clauses referenced above may be added at any time during the performance of the contract.5 If the prime contract already contains a clause requiring a subcontracting plan (such as FAR 52.219-9 (Small Business Subcontracting Plan)), FAR 52.226-1 can simply be added by bilateral modification. If the prime contract does not have a clause requiring a subcontracting plan, the prime contractor should develop a subcontracting plan and thereafter the contract should be bilaterally modified to include FAR 52.219-9 and 52.226-1.

    So long as the prime contract contains the requisite clauses, the process is relatively simple. The contractor submits a request for incentive payment to the appropriate DoD Contracting Officer (C.O.). This request should cite the use of FAR 52.226-1 or DFARS 252.226-7001, as appropriate. Included with the request should be copies of subcontractor's invoices (or other proof of payment, such as cashed checks), documentation demonstrating that the subcontractor is 51 percent Indian-owned, and certification that the owner or business is Indian (see www.acq.osd.mil/sadbu/iip/Participate/index.htm (May 12, 2004)).

    The C.O., subject to the terms of the prime contract and the availability of funds, will authorize the incentive payments and seek funding in accordance with agency procedures (see FAR 26.103(f) and FAR 52.226-1(c)). The C.O., after review and verification of the documents submitted by the prime and Indian-owned enterprise, forwards the request to the DoD Small and Disadvantaged Business Utilization (SADBU) Office, which supplies the funding.6

    The FAR allows Indian organizations to self-certify. See FAR 26.103(a), FAR 52.226-1(b)(1), and DFARS 252.226-7001(c). If the C.O. has questions on the validity of the Indian-owned business or the Native American, he or she may request from the person/business in question a copy of a Tribal certificate. If the C.O. still has doubts, or if an interested party files a challenge to the certification, the matter will be referred to the Bureau of Indian Affairs for a decision. See FAR 26.103(b)-(d), FAR 52.226-1(b)(1), and DFARS 252.226-7001(d).

    The present 5 percent rebate program started in FY97. Claims for payment may go back to that period if the contract is open and performance is being made by the prime contractor. See www.acq.osd.mil/sadbu/iip/FAQ/index.htm (May 12, 2004). Once the performance is completed and/or the contract is closed, the prime contractor cannot file the claim. Id.

    Recently, commercial off the shelf (COTS) contracts became eligible for rebate when the subcontracted items are produced or manufactured in whole or in part by an Indian organization, Indian-owned economic enterprise, or Native Hawaiian business concern. See Section 8021 of Pub. L. No. 107-248, the Defense Appropriations Act for FY 2003; see also Section 8021 of Pub. L. 108-87, the Defense Appropriations Act for FY 2004.

    1 "Indian" is defined as "any person who is a member of any Indian tribe, band, group, pueblo, or community that is recognized by the Federal Government as eligible for services from the Bureau of Indian Affairs (BIA) in accordance with 25 U.S.C. § 1452(c) and any 'Native' as defined in the Alaska Native Claims Settlement Act (43 U.S.C. § 1601)." See FAR 26.101 (Definitions), and FAR 52.226-1.

    2 See interim rule published at 68 Fed. Reg. 56,561-56,563 (Oct. 1, 2003). This rule affected DFARS clauses 226.103, 226.104, and 252.226-7001. The amended clauses set forth in the Federal Register should be utilized by a contractor or C.O.

    3 An "Indian Organization" is the governing body of any Indian tribe or entity established or recognized by the governing body of an Indian tribe for the purposes of 25 U.S.C. Chapter 17. See FAR 26.101 and FAR 52.226-1.

    4 An "Indian-Owned Economic Enterprise" is any Indian-owned (as determined by the Secretary of the Interior) commercial, industrial, or business activity established or organized for the purpose of profit, provided that the Indian ownership constitutes not less than 51% of the enterprise. See FAR 26.101, FAR 52.226-1, and DFARS 252.226-7001.

    5 See DoD Web site at http://www.acq.osd.mil/sadbu/iip/index.htm, http://www.acq.osd.mil/sadbu/iip/FAQ/index.htm (May 12, 2004).

    6See DoD website at http://www.acq.osd.mil/sadbu/iip/Participate/index.htm (May 12, 2004).