Final Settlement Agreement Appendix 2 - Distribution Percentages for Each Class Member

Case 1:90-cv-00957-JAP-KBM Document 1306-3 Filed 09/16/15 Page 1 of 22 Ramah Navajo Chapter, et al., v. Jewell, No. 90-cv-957 (D.N.M.) Final Settlement Agreement Appendix 2 - Distribution Percentages for Each Class Member This appendix describes the methodology for allocating shares of the Net Settlement Amount to each Class Member.1 The allocation described herein was developed by Dr. Eugene Ericksen, a Special Consultant to NERA Economic Consulting and an Emeritus Professor of Sociology and Statistics at Temple University, and Dr. Michael Larsen, an Associate Professor of Statistics at George Washington University. Professor Ericksen was retained by the Department of Justice, and Professor Larsen was retained by Class Counsel.2 1 The Net Settlement Amount is defined in § II.N of the Final Settlement Agreement (“FSA”) as “the amount available for Distribution to Tribal Contractors after the Reserve Account and attorneys’ fees, costs, and other expenses have been deducted from the ‘Settlement Amount’….” The Settlement Amount is defined in § II.M of the FSA as “$940,000,000.00, plus post judgment interest ….” As explained below, for purposes of this Appendix it is assumed that the Net Settlement Amount will be $854,600,000. 2 Eugene Ericksen and Michael Larsen are professors of statistics who specialize in the design and construction of statistical samples. Each has published scientific papers in the area of sampling, taught graduate level courses in statistical sampling, and designed and constructed many actual samples in applied settings. Professor Ericksen has been an associate editor of the Journal of the American Statistical Association, and in 1991 he was elected to be a Fellow of the American Statistical Association. He was appointed by then-Secretary of Commerce, Robert Mosbacher, to advise him on whether or not to adjust the results of the 1990 Census for the disproportionate undercount of racial minorities. In April 1997 he published an article, “Problems in Sampling the Native American and Alaska Native Populations” that grew out of his work on a panel of the National Academy of Sciences on that subject. Professor Larsen served as the Executive Editor of Chance magazine from 2008 to 2010, and he currently serves as an associate editor for three different journals. He served on a National Academies of Sciences Panel on the 2010 Census and Steering Committee for a Workshop on surveying nonprofit organizations about research and development. He is currently a member of the standing committee for reengineering the decennial census. In 2010 he was elected to be a member of the International Statistical Institute. In 2012 he was elected to be a Fellow of the American Statistical Association (ASA) and currently serves on the ASA Fellows committee. He was elected Chair-Elect for the ASA Survey Research Methods Section for 2015 and President-Elect for the Washington Statistical Society for 2015-16. In 2009, he co-authored a published article entitled “Research Synthesis: Research Strategies for Surveys of American Indians.” Case 1:90-cv-00957-JAP-KBM Document 1306-3 Filed 09/16/15 Page 2 of 22 The parties’ goal is to allocate the Net Settlement Amount based on the amount of Contract Support Costs (“CSC”) that was paid to each Class Member during the period 1994 through 2013 (the years covered by the settlement). The allocation plan also addresses years in which Class Members had Indian Self-Determination Act (“ISDA”) contracts3 but received little or no contract support costs according to the BIA database of CSC payments. In recognition of their substantial contributions over the years to the prosecution of the action and the negotiation of this settlement, the allocation also awards each Named Class Representative an incentive payment of a twenty percent (20%) increase in its Distribution Percentage. The table in § 6 of this Appendix sets forth the Distribution Percentages as defined in § II.R. of the Final Settlement Agreement. These Distribution Percentages will be used to allocate shares of the Net Settlement Amount to Class Members. That table does not provide dollar amounts that will be paid to each Class Member. This is because the actual Net Settlement Amount will not be known until the Court rules on Class Counsel’s cost reimbursement request and fee application, and until the Court approves or modifies the parties’ proposal that a $4 million Reserve Account be established. For purposes of this Appendix, the parties’ statisticians have assumed that the Court will approve Class Counsel’s fee application (seeking a fee of 8.5% of the Settlement Amount) and request for reimbursement of $1.5 million in costs, and that the Court will also approve the parties’ request to establish a Reserve Account of $4 million to cover future costs of implementing the settlement. These assumptions produce an estimated Net Settlement Amount of $854,600,000.00, and the Class Member share percentages set forth in § 6 of this Appendix are based on these same assumptions. 1. Sources of Information The parties used two sources of data to develop and implement their allocation plan: (i) the BIA payment database, which contained records of payments made to each Class Member from 1994 through 2012; and (ii) for 2013, BIA’s 2013 Shortfall Report (“SFR”). The parties also used these two data sources to determine the years in which each Class Member had an ISDA contract, and the amounts of CSC paid to each Class Member each year. BIA records show that 645 separate tribal entities had ISDA contracts at some time during the period 1994 through 2013. The statisticians identified a population of 9,409 “CSC years,” i.e., the total number of years in which Class Members received CSC payments. The data showed that not every Class Member had an ISDA contract in every year between 1994 and 2013. Additionally, the parties determined that the average amount of the CSC underpayment was different each year. For this reason, the parties’ statisticians determined that it would be efficient to take a sample of all of the Class Members by each 3 “Contracts” as used in this Appendix also includes ISDA self-governance funding agreements. 2 Case 1:90-cv-00957-JAP-KBM Document 1306-3 Filed 09/16/15 Page 3 of 22 fiscal year, and then determined that they could use data derived from the sample to allocate the Net Settlement Amount across each of the 20 years at issue. 2. The Basis for Allocating the Net Settlement Amount The parties’ statisticians used statistical sampling as the basis for determining how much of the Net Settlement Amount to allocate to each fiscal year. The statisticians randomly selected Class Members for each year from 1994 through 2012, and the parties’ accountants examined each contractor’s contract documents from the sampled year to determine the sampled contractor’s CSC underpayment for that year. The parties relied on three important factors in developing their sampling plan and distribution plan. First, BIA has databases that show the amount of CSC paid to all Class Members in all years at issue, so the parties agreed to select samples from the BIA database. Second, amounts appropriated for CSC and the percent of CSC paid varied by year, so the statisticians stratified the sample selection by year to account for these differences. Third, the size of payments to Class Members each year ranged from hundreds of dollars to millions of dollars, so the statisticians used probability proportional to size sampling to account for these differences in size.4 This information produced a sampling frame from which the parties’ statisticians selected a sample. The statisticians used the smallest sample sizes that would still produce reliable estimates. The statisticians selected a sample of 108 selections over the 1994–2012 time period. Each party then retained expert certified public accounting firms experienced in government contracting matters to conduct an independent forensic evaluation to determine the amount of CSC that should have been paid to each sampled Class Member in that sampled year.5 The accountants then compared the amount of CSC that should have been paid to the amount of CSC that was actually paid to produce a “CSC ratio” for each sampled Class Member in that year. Because the government’s accountants and Class Counsel’s accountants worked independently and reached different conclusions about the size of the underpayments, the ratios they developed for each sampled Class Member differed, although typically not by large amounts. The parties’ statisticians then calculated the 4 The statisticians used both stratification and probability proportional to size sampling (PPS), described in standard textbooks on survey sampling. Stratified sampling divides the population into groups called strata and then samples independently within strata. PPS sampling weights each entity in the population by size, thus increasing the probability that larger entities will be selected. In this case, the statisticians used the years in the BIA database to define strata and assigned a weight to each Class Member within each year based on the size of the CSC payment reported in the payment database. CSC payment information for the 2013 year was not available when the parties’ statisticians selected the sample. 5 The Class retained REDW, LLC, of Albuquerque, New Mexico. Defendants retained Cotton & Co. LLP, of Alexandria, Virginia. 3 Case 1:90-cv-00957-JAP-KBM Document 1306-3 Filed 09/16/15 Page 4 of 22 Distribution Percentages set out in § 6 of this appendix using the methods described below. 3. Allocating the Net Settlement Amount for Each Fiscal Year The parties’ statisticians averaged the accountants’ CSC ratios for each sampled Class Member in the sampled year and then, for each sampled year, averaged the CSC ratios of all Class Members sampled in that year to produce a CSC ratio for each year from 1994 through 2012.

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