ment is what the contracting officer defaults against. He says, you don't do what you were supposed to do so I will cancel the contract; that's the way all Government contracts operate. In these regulations, you have a concept called reassumption. What you do not have is a standard of what you must reassume against. That was stated earlier today but not precisely. What you have got to do is recognize that in the reg, it makes a statement that the tribal contractor will operate at the level of an IHS standard. If he doesn't, he will get reassumed. But the Government activities today, and this is just a matter of fact, no Government activity operates at the standard that the book says it ought to operate. There must be a recognition, No. 1, that the contract application should indicate and be recognized by all the parties including the Secretary that the tribal contractor probably will not operate at the standard that the agency establishes that it ought to work at nor would it operate at the standard that the agency is operating in. But it will operate at some level below that. What ought to be negotiated in the award of the contract is what that level will be below the current operation level and how long the Secretary will permit that to go on. Will he permit a grace period of 3 months, 6 months, or a year and that ought to have a bearing on the health and welfare of the people. If you don't have that, you have an almost automatic reassumption where you have a contracting officer put in the position of saying, you have a contract now and you are not doing as well as we did. Of course, they will not do as well. That is what Mr. Clark meant when he said you have to be prepared to take a short-run loss for a long-run gain. It is critical and I hope the committee makes that point to the Agency. Senator ABOUREZK. That was very beneficial testimony and I appreciate it very much. I am sorry the time has expired; but I appreciate very much your contribution this morning. Thank you. [The information referred to by Mr. Clark follows:] ALASKA FEDERATION OF NATIVES, INC. ORGANIZATION, HISTORY, AND PROGRAMS The Alaska Federation of Natives, Inc. was organized under the laws of the State of Alaska as a non-profit organization to promote the physical, social and economic development well-being of the Alaska Natives. It was organized as a confederation of many Native groups in Alaska joining together as the Alaska Federation of Natives to carry the case of all Alaska Natives to Congress to secure a fair and just Land Claims Settlement. Upon realization that the Congress of the United States recognized the validity of the Alaska Native Claim and enacted Public Law 92-203 thereby providing for the largest single settlement to any Indian tribe or organization in history, the Alaska Federation of Natives reorganized as in incorporation and continued to strive for equality of life for Alaska Natives, as well as to assure complete adherence to the provisions of the Alaska Natives Claims Settlement Act. Most people concerned with Native affairs in Alaska are rightly preoccupied with the issues surrounding the implementation of the Land Claims Settlement Act. However, even though the Regional Native Corporations established under the Act are legally bound to management and investment of their capital assets and land management, Native leadership is also extremely aware and vitally concerned for the social betterment of the Native people and the improvement of the systems which provide health, education and other social services. Because of its diverse and varied interests, the Federation currently restructured its organization into two components. As previously stated, the Regional Native Corporations are legally bound to financial management, investment of capital assets and land management. Representtives of these Regional Native Corporations comprise the Board of Directors of AFN, Inc., and direct the mainstream of their concern toward implementation of the Land Claims Settlement Act. The second component deals in the human resources aspects of Native life and their activities are directed by the Human Resources Committee, whose membership is comprised of representatives of the Regional Native Associations which might be properly conisdered the non-profit arms of the Regional Native Corporations. Under this organizational structure, the Alaska Federation of Natives, Inc., as the central statewide organization, serves and speaks on behalf of a constituency of an estimated 75,000 Alaska Native citizens. ALASKA FEDERATION OF NATIVES, INC., Re Regulations for Public Law 93-638. Dr. EMERY A. JOHNSON, Assistant Surgeon General, Director, Indian Health Service, Rockville, Md. DEAR DR. JOHNSON: The Alaska Federation of Natives hereby submits comments on the Department of Health, Education & Welfare regulations that will implement P.L. 93-638, the Indian Self Determination and Education Assistance Act. This document is the result of the combined efforts of the Natives from the twelve regions of Alaska who met in Anchorage September 23-26, 1975. The intent is to comment on how the regulations for P.L. 93-638 can best be drafted to successfully execute Indian self-deterination as per the policy set forth in the Act. Your consideration of our comments will be highly appreciated. Sincerely, SAM KITE, President. COMMENTS AND RECOMMENDATIONS ON PUBLIC LAW 93-638-PROPOSED REGULATIONS BY ALASKA FEDERATION OF NATIVES, INC. Section 36.204. Definition of "Indian Tribe" I PROBLEM IDENTIFIED Definition of "Indian Tribe" in Title I of the Act and Section 36.204 of the proposed regulations does not account for unique Alaskan situation. II ANALYSIS The definition of “Indian Tribe”, although it includes “. . . any Alaska Native village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) . . .", is ambiguous due to the current infrastructure unique to Alaska Native organizations currently contracting for trust resources. The current definition may be interpreted in such a way that the eligibility in Alaska to contract is limited to only Alaska Native village or regional or village corporation, with the exclusion of both the Native associations and the Non-profit Regional Corporation. In Alaska, it is these latter two groups which are now contracting to operate Federal programs. It is the position of the Alaska Federation of Natives, Inc. that Congress in its declaration of policy under P.L. 93–638 did not intend to exclude those organizations that have been contracting with the Indian Health Service and Bureau of Indian Affairs in Alaska. Recommendation.-It is for the rationale outlined above that Section 36.204 of the proposed regulations be amended to read as follows: "'Indian tribe' means any Indian tribe, band, nation, or other organized group or community, including any Alaska National Regional Association or village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians." Section 36.208. Evaluation Criteria Section 36.233. Assumption, Reassumption of Contract Programs I PROBLEM IDENTIFIED Neither the application for the contract, nor the policy on reassumption, include a requirement for the standard of performance against which the tribal organization shall be contractually required to conform. II ANALYSIS The most essential element of any contract is a meeting of the minds of the two parties upon the scope of the work to be accomplished and the quality which is expected. In a normal Government contract, the failure of a contractor to conform to the contract performance requirement may result in a default. However, the default is based upon the failure of the contractor to meet a standard which is defined and which he was aware of and agreed to prior to contracting. Reassumption stands as one of the most critical elements of the regulations. It represents a default by the tribal contractor on the contract and to his people. It has overtones infinitely more serious than a normal default in Government contracting. In order to achieve any rationale for a normal reassumption under the Act, it will be essential to first establish in the application and the contract some quantative or otherwise objectively measurable standards to which the tribal contractor will be expected to perform. This is an extremely important concept, since it is unlikely that any Government agency is today operating at the efficiency level at which the books say it should be operating. In most cases, it is operating at a substantially lower efficiency level. The larger the Federal organization, the more likely we are to have significant gap between standard and actual performance. As we all know, HEW is a very large organization. When a tribal contractor assumes a responsibility currently being performed by the DHEW, it must be on the basis of some mutually agreed level of performance. The level of performance may be the current level of DHEW operation, or it might be at some lower level. Most certainly the contract performance standard for the tribal contractor cannot be any higher than the current actual DHEW operation performance. It must be understood by all parties at this time that the application for a contract will often indicate a level of performance which for an agreeable period of time, will be lower than current operation level as well as lower than either party agrees to accept at some given time in the future. The fact that the application indicated indicates a standard lower than that currently in force by the DHEW cannot be a basis for declination of the application. The Secretary must recognize that there is a learning curve problem. He must recognize that the very unavailability of funds promised and anticipated under Section 104 of the Act precludes the tribal contractor from assuming any function at the level of its present performance. In other words, the failure to provide Section 104 funds, plus the normal learning curve that would be present in ANY takeover such as this, demands a grace period from reassumption. The period should be spelled out in the contract. During that period there would be no reassumption except where there was an immediate threat to life or health. The application will include the level to which the tribe can operate and the length of time it will take to reach an acceptable level. It is the question of the (1) agreed operating level and (2) the length of time to reach an acceptable level that will be the area of discretion which the Secretary should have in the application process. While this approach recognizes that there will probably be a short run drop in native services, the parties will make their recommendations and decisions based upon the particular situation and the short and long run benefits to the Natives within the Congressional intent of the Act. It is to be noted that Section (6) (i) already provides the very danger of which we speak above, to wit: "(i) The contractor's proposal must demonstrate the capacity to meet minimum health program and professional standards established by IHS for each major health service activity of the IHS. The Director will establish and make available to any prospective contractor the minimum standards for each major health service activity of the Indian Health Service." The Secretary has very conveniently included a requirement in the evaluation criteria which could probably justify the declination of first proposals. He is saying that the tribal contractor's proposal must demonstrate the capacity to meet standards that are established by IHS for each major health facility. It does not say that the IHS standards are being met by the HEW people or facilities currently doing the job. Such a requirement is absolute balderdash. It reflects either a gross lack of knowledge of the practical problems of a takeover, or a calculated method of achieving either zero awards or maximum reassumption rates. This paragraph demands from the Indians more than the IHS can now provide. It represents an incredible requirement which can only be interpreted as being contrary to the spirit of the Act and the intention of the Congress. Everyone who is a part of this gigantic undertaking had best understand that, in most cases, the level of service will go down before it goes up. Therefore, paragraphs like this must be eliminated or carefully amended. Recommendation.-Amend Section 36.208 (6) (i), Evaluation Criteria, and Sections 36.115 and 36.233 by adding the following sentence: "The fact that the services to be offered by the tribal contractor are at a level below those currently being delivered by the Government is not in and of itself a basis for declining to contract or for reassumption." Section 36.233. Assumption and reassumption of contract programs and Clauses 16 and 30 Assumption and reassumption of contract programs I. PROBLEM IDENTIFIED The clause represents an absolutely outrageous proposal by the DHEW, which raised anew a substantial question of whether their problem is the lack of technical skill in the contract area-which is easily correctable, or their motives. II ANALYSIS One should note that Part III which includes Section 36.233 is identical word for word with the contents of clause 16, in Part IV. This means that the DHEW chose not to accompany this clause with any explanation in the policy section of the Rules. They merely placed the clause in both sections and left it up to the Indians to attempt to fathom the rationale, if any, behind the words. To begin with, Paragraph (b) of Clause 16 is a direct violation of the Law. Section 109 specifically provides that the Secretary can immediately rescind .. a contract only if he finds that there is an immediate threat to safety. Further, if the threat is only in handling of funds, that he may rescind only after a hearing. For some inexplicable reason, HEW has introduced a new concept: suspension. HEW provides in 16(b) that if there is a funds management problem and that the contracting officer decides that he must protect funds which he decides will be expended contrary to the best interests of the Indians, he can, pending rescision proceedings and without a hearing, “. . . suspend in whole or in part Federal assistance under the contract . . .". There is no practical difference between immediate rescision of a contract and suspending all Federal assistance. The proposed regulation provides that HEW can then determine whether costs incurred by the contractor are allowable after the suspension. The suspension procedure places an unconscionable burden upon an Indian contractor. The contractor may have a going program with obligations to vendors and sub-contractors. The HEW then suspends the contract unilaterally and provides no administrative avenue for obtaining reimbursement for costs incurred after the suspension. Suspension is, in reality, a rescision since the flow of Federal funds is stopped. It is also either a termination for convenience or a breach of contract. There is no way for the contractor to reasonably protect himself from financial exposure to his subcontractors when the contracting officer has the unilateral authority to stop work with impunity. The suspension is an act which would not be tolerated by any government contractor under normal government contracting rules. One can imagine the wrath of the Boeing Company if they were advised that the contracting officer can keep them in suspension, without protecting them from financial exposure with their subcontractors-leaving Boeing to make the day to day decisions on whether to continue with the obligations under the contract-and retaining on an after the fact basis the right to determine wheher the costs incurred by Boeing during the suspension were allowable. Furthermore, with respect to cost exposure it is quite different from the BIA coverage in Section 401.74 and Section 14H-70.616. There does not seem to be any legal reason why the tribal contractor should be exposed to financial risk during the period which the DHEW calls suspension. Recommendation. The concept of "suspension" be dropped and in its place we include something similar to a convenience termination under which the con tractor will be financially protected during any turbulent reassumption. If for some reason DHEW must continue with suspension pending the consolidation of all regulations, it must be changed to eliminate all financial exposure to the tribal contractor during the suspension period. Clauses 25. Insurance I PROBLEM IDENTIFIED HEW has unfairly placed the entire insurance burden on the contractor. II ANALYSIS AND RECOMMENDATIONS By this clause, the Government has required that the tribal contractor indemnify and hold harmless the Government against all loss, cost, damages, claim expenses or any liability whatsoever because of a wide range of liabilities. The insurance clauses for cost reimbursement contracts and the policies which support those clauses generally are based upon factors such as, for example, the cost of insurance, the likelihood of liability, and the probability of negligence on the part of the insured. In contracting with a Government contractor, the Government might find that the cost of insurance is so great under the cost reimbursement contract, that the Government will act as self-insurer for at least a portion of any possible liability. A catastrophic accident, for example, would cost too much to insure against and yet a contractor who falls victim to such an accident or liability could easily be wiped out. Furthermore, the victims of such catastrophy might have nowhere to turn for remedy. The proposed procedures require the Native tribal contractor to take out certain minimum insurance. It has then stated that whatever liability the tribal contractor might be exposed to above the insurance coverage must be borne by that contractor. Further, that under no circumstances shall the Government be liable for any financial risk since it will have been held harmless by the contractor. In furtherance of Sections 102 (c) and 103 (c) of the Act, the HEW requires that the carrier waive soverign immunity within the limits of the policy, apparently presuming that sovereign immunity would be the bar to recovery against any claimant above the limits of the policy. The claimants in many cases may be Natives, insured in some manner under the contract. For their protection, the tribal contractor should take out insurance coverage far in excess of the floors set forth in the clause. If such is possible, the cost could be significant and would be an allowable cost under the contract. There might, of course, be a budget problem wherein adequate insurance for protection of the Natives might not be available. Furthermore, when the tribal contractor enters the marketplace subjecting himself to a wide range of policies and regulations similar or identical to general Government contractors, a serious question must arise as to the extent that any tribal sovereign immunity would exist to bar successful recovery against the tribal contractor. Claimants in such litigation might not only be Alaskan Natives, with whom a trust relationship still exists, but commercial firms throughout the State of Alaska for whom the financial integrity of the tribal contractor, or the regional corporation or the AFN, Inc. means absolutely nothing. In this regard, the attention of the HEW is called to the provisions of the Armed Services Procurement Regulations (ASPR) 10-502, Self-Insurance, and ASPR 7-203.22, a contract clause titled "Insurance-Liability to Third Persons." That DOD policy and the accompanying clause requires that the cost reimbursement contractor maintain certain insurance coverage. However, it permits, with the approval of the Government, that the contractor be reimbursed under certain circumstances for liability to third persons. In effect, the Government, recognizing that the cost reimbursement contractor and subcontractor are really his agents, and that their costs are actually his costs, agrees to be the self-insurer under those circumstances spelled out in the contract. 7-203.22-ARMED SERVICES PROCUREMENT REGULATION 7-203.22 Insurance-Liability to Third Persons. INSURANCE LIABILITY TO THIRD PERSONS (1966 DEC) (a) The Contractor shall procure and thereafter maintain workmen's compensation, employer's liability, comprehensive general liability (bodily injury) and comprehensive automobile liability (bodily injury and property damage) |