itself that subverts the Native control. I don't think Indian preference has worked. And, now we have a new policy, a contracting policy and I think it's shown some benefit and it shows, I think, that we can have a situation which Native people can control the service delivery systems by which they receive their services. And, now that's proving to be effective, the BIA is looking for means of trying to subvert the intent and implementation of this act.

I would again reiterate, that I would like to encourage the commission, encourage the committees to be very careful in listening to the Bureau of Indian Affairs in its interpretation of how it should deal with Native groups and Native political structures. We never used to talk about tribes, I feel uncomfortable every time I go to a village and say, "How's your tribe doing?" They don't talk that way. We've got our own structures. Alaska is different and it wasn't adequately provided for and there is a need for remodification of the definition portion of the act. I think there's enough administrative history, enough legislative history to allow the act to be implemented right now rather than to wait until a definition is provided. There is a need for a definition and for it to provide more clarity, but I think there's enough legislative history, there's enough indication for the intent of Congress to come up with the administrative history in the manner in which BIA has dealt with Native people, that we can go ahead now and have some leadership within the Bureau of Indian Affairs to say, "Yes; this was what was intended and we will do it this way," but there isn't. It's been used as a diversion, as a tactic to delay the implementation that Congress intended and what Native people want.

Those are my oral remarks and they're probably about three times as long as the written testimony that I'll provide for you. I will provide written testimony at a later date. [Not received.]

Senator GRAVEL. Thank you very much.

Senator STEVENS. I would hate to see you when you are really prepared. [Laughter.] Let me ask you just one question, I know we're in a hurry, but the AVCP people testified this morning that even if the resolution was not required, they do it anyway. It does not require for you to do it anyway?

Mr. RICHARDS. Senator, this is something that they've chosen for themselves. Harold Napolian was in Fairbanks several weeks ago and Mr. Butler was here, and the area director was here, and explained that he was going to the villages and having received 39 resolutions from each of the villages and BIA comes along and says, "Wait a minute, they're second class cities and they're no good." He's been doing this for 2 years. He spent $80,000 of AVCP's money doing this in order for them to get a contract, and then the BIA jumps in and says, "Well, second class cities aren't recognized. We can't deal with them." That's one problem that he's had, but the area director

Senator STEVENS. He straightened that out.

Mr. RICHARDS. OK. The area director began to say, "Well, it looks like you're proceeding with what we want," and then Harold made it very clear that the reason they're doing it is because it's been a policy determination of the AVCP itself that they don't want to provide the services unless each village says it, not because the regulations read that way and not because the BIA has to be that way, because that's

the way AVCP wants to proceed in a contracting situation. They want to get a resolution from each village. They're not doing it to

Senator STEVENS. Have you made a policy determination for Tanana Chiefs Conference?

Mr. KETZLER. No; we haven't. Through our proposed definition changes in the act, is that we would have the-the villages would have the opportunity to decline.

Senator STEVENS. To opt out; yes.

Mr. KETZLER. To opt out rather than-we want to go to the villages and meet with them, but to have to do it every year, we feel it's a, you know, it's very costly and time consuming, we could put that money into other services. Like Tom says, the AVCP people want to do it on their own, that's fine. We have no policy that we have to. Senator STEVENS. Thank you.

Senator GRAVEL. Did you have any questions?

Commissioner BORBRIDGE. Yes. I certainly appreciate your detailed recounting of your experience within contracting. Having previously gone through some similar experiences, I'm somewhat familiar with them.

Mr. RICHARDS. In March of this year, the Tanana Chiefs Conference, the Tlingit Haida Central Council and the Cook Inlet Native Association called upon the regions currently receiving contracts to operate BIA services and regions that were seeking contracts, to meet together and to discuss some common problems. So, we have met a couple of times with the other regions to discuss the problems that we've had with the Bureau of Indian Affairs, and we are we organized a Contract Managers Association similar to the AFN's [inaudible] Managers, to discuss the problems that we've encountered in managing the BIA contracts. And, it's now recognized as a subcommittee of the AFN Human Resources Committee, and we provide an input for policy decisions by the Human Resources Committee. We've had a very difficult time in trying to receive input in [inaudible due to static in recording equipment] we've finally received the concurrence of the area director, the agreement of the area director that the Tanana Chiefs Conference and the Native regional contractors can fit in on what are called superintendent meetings, the area director and his immediate staff and the superintendents within Alaska would get together periodically. They used to get together once a month to discuss the way in which the Bureau provides services for Alaska Natives, and we frequently make policy determinations during these meetings.

Since we received agreement from the area director last September, that we will be allowed to sit in on the superintendent's meetings, he has not held one superintendent meeting. I don't know how he makes his policy determinations now. I think he makes them for himself. There used to be regular scheduled meetings of the superintendents of the Nome agency, Fairbanks agency, Anchorage agency, Bethel, and Juneau, but since the Native contractors have-we fought very hard and received assurance from the area director that we would be included in all the superintendent's meetings, since we've received that assurance, he's pretty much abolished the meetings.

Senator STEVENS. He's here now. Clay, why?

Mr. ANTIOQUIA. A couple of things, Senator, one is, we did have, in fact, representatives and contractors in at least one meeting, but in the past few months, the last 3 months of the fiscal year and during the transitional quarter, we've been under severe travel restrictions and it's just not been one of the high priorities as far as travel is concerned. So, we've cut them off for awhile.

Senator STEVENS. After the transitional quarter is over, do you intend a renewal?

Mr. ANTIOQUIA. Hopefully if we get-depending on what our 1977 budget looks like, but we plan on getting back together again; yes.

Mr. RICHARDS. Well, it's been since December that we've had one. I think the travel freeze was imposed in April or May, I believe, there was a lapse of time there in which the contractors and the superintendents weren't consulted on any of these area wide decisionmaking. Senator STEVENS. Thank you very much.

Commissioner BORBRIDGE. Mr. Chairman, it just seems to me that this whole matter of audit exceptions, the kind of ongoing technical functions fulfilled by the Bureau during the time that the Native organizations are contracting are extremely important because—the concern I have is that it would be very easy either for the Bureau or some other agency to determine that the whole matter of contracting isn't doable or feasible, and that we've had this exception, there are overruns or audit exceptions and I think it would be very useful for our records, Mr. Chairman, if we were to be advised as to what the ultimate outcome of the audit exception and just how it is anticipated and what this position has actually made in terms of who pays for the $23,000 or so.

Mr. RICHARDS. Our entire travel category is an audit exception. All of our travel. Every dollar we spend on travel is considered an audit exception.

Commissioner BORBRIDGE. And, you have how many villages in the

Tanana

Mr. RICHARDS. Forty-three villages.

Commissioner BORBRIDGE. Forty-three.

Mr. RICHARDS. Well, it's the largest geographical region. It's the second largest in terms of villages. AVCP, you know, has 56. Tanana Chiefs has 43, but we've got our furthest out village is Holy Cross on one end, and up north we have Arctic village at the other end, and down to Tetlin, up to Hughes, Alkakit—(ph)—and Lotna, it's a very large region which encompasses the Yukon River, upper and middle Yukon, upper Tanana and middle Tanana.

Senator STEVENS. In 1960, I sat down with Howard Rock and figured out that it would cost $400,000 for transportation and salary to have consultation with each village in the State within 1 year. Now, the price has got to have gone up since then, but that was at the time they were starting these land claims and we wanted to have a series of meetings in each place.

Mr. RICHARDS. How about the HEW?

Mr. KETZLER, Well, to go a little bit further on some of the problems in contracting; we just got a call yesterday by a gentleman named Mr. Peterson, who is the contracting officer for the Public Health Service in Alaska, and we had a meeting previously and I asked the question; what kind of contracting can we contract under, cost rei

bursable or fixed fee or what, if I recall, I'm not sure, but they thought they could go cost reimbursable with a fee, management fee. And, I said that would be acceptable because we had not in the past experienced any contract that's cost reimbursable where we could make it without an audit exception. So, they were going to make a determination. We got a call yesterday and they said that contracts will be cost reimbursable and there will be no fee, so what they're effectively saying is that, you know, they're going to run us out of business because we are going to go bankrupt.

Senator STEVENS. How many entities, Clay, are you contracting with now? How many different contracts do you have in the State?

Mr. ANTIOQUIA. In the self-determination type contract, Senator, we have 92, that is of last year, that's 1976.

Senator STEVENS. Is that individual entities or is there some overlapping?

Mr. ANTIOQUIA. No; these are individual entities.

Senator STEVENS. How much would it cost to have a meeting of those people with your staff? A statewide meeting to hammer some of these things out and eliminate some of these problems?

Mr. ANTIOQUIA. Well, I would just be guessing, but generally when we try to do something like that [inaudible due to static]. Mr. KETZLER. [Inaudible.]

Senator STEVENS. So, you'll be having another trip to Washington soon?

Mr. KETZLER. I see many of them.

Senator GRAVEL. OK. If there are no further questions, we'll go to Steve Matthew. Mr. Matthew.

STATEMENT OF STEVE MATTHEW, VILLAGE LIAISON OFFICER, HEALTH AUTHORITY, TANANA CHIEFS CONFERENCE

Mr. MATTHEW. Senator Stevens, Senator Gravel, Commissioner Borbridge, Mr. Strong, ladies, and gentlemen, my name is Steve Matthew, I am the village liaison officer of the Tanana Chiefs Health Authority, and due to prior commitments, Mr. Dan Slaby has asked me to give a statement on his behalf.

I would like to speak on behalf of the hope that the intentions of self-determination will be implemented through contractual relationships with the Federal Government.

I assume that the purpose of developing the social welfare and health of our people, the Federal Government chooses to contract with our organization primarily for two reasons: (1) Our people can more directly participate in decisionmaking and policy formation over Federal funds through our tribal organization, hopefully increasing the satisfaction for services delivered; (2) utilization of the tribal organization is an investment in the development of tribal self-government and hopefully increases tribal responsibility.

These reasons would support Federal financing of our health care with an expectation of successful tribal institutional growth. However, two widely held basic values conflict with the realization of a not-forprofit health organization which acts responsibly to meet the needs of our Indian community: (1) Non-for-profit corporation should not

make money; and (2) the concepts of value, ownership and financial integrity have a place in a nonprofit health care organization.

What is remarkable with these misconceptions is that they are opposed to any reasonable prospect for the economic survival of any nonprofit health care organization. Our present contractural relationship with the Federal and State government reflects the impact that these misconceptions have on the financial stability of our organization.

For the past 3 years, the TCHA has provided direct health care services to our people under a negotiated fixed price contract. We have had little difficulty in managing the program and accounting for the expenditure of funding. However, our basic contract for our core staff has been a cost reimbursement subcontract with AFN as prime contractor to IHS. A comparison of our experience warrants our hesitancy to seriously consider cost reimbursement as the most appropriate type of contract. Let me point out to you some of the difficulties with cost reimbursement type contracts:

(1) Our major problem with cost reimbursement type contracts is maintaining an adequate cash flow resulting from-(a) inadequate cash advances for program startup costs. (b) Reimbursement for only "allowable" costs. Many necessary business expenses, for example, interest on bank loans are disallowed.

(2) A second difficulty with cost reimbursement type contracts is that they require a great amount of time accounting for and justifying the expenditures, thus reducing the effort which can be directed toward providing actual health services. Fixed price contracts do not require such massive cost accounting and justification. The energy devoted to providing services under our fixed price contract resulted in a level of service quality that was far above that achieved under the cost reimbursement contracts. Cost reimbursement serves as a useful teaching tool for accounting, but does not provide for improved quality of health service delivery.

(3) It costs more to account for petty items than the actual cost of those items. I think we need to address the issue of the cost effectiveness of cost reimbursement type contracts.

(4) Our experience with IHS these past years leads us to believe that cost reimbursement would tax the ability of the present IHS staff to manage those type of contracts: (a) An accounting procedure was established with the AFN prime contract that was implemented in our subcontract without considering the flexibility of this contract reporting procedure to accept modifications. IHS has required that modifications be made to this contract for program expansion, without additional reporting requirements necessary; (b) cash advances were not provided requiring that the corporation absorb the capital costs of program startup on each of the modifications; (c) project officers were often the primary persons involved in the contract negotiation, and often violated established IHS policies and procedures acting expediently for the benefit of the agency without consultation of either the prime contractor (AFN) or its subcontractors; (d) changes in the reporting procedures of subcontractors were arbitrarily made by IHS without consultations of the prime contractor, and delays in payment threatened if we did not comply: and (e) adequate indirect costs were not encouraged to allow for institutional financial stability.