Stalled in Transition - The 638 Contract Government
Revised June 24, 2026
Navajo Nation Has Been Performing BIA Delegated Duties for 50 Years
For 50 years, the Navajo Nation has been carrying out duties delegated by the Bureau of Indian Affairs (BIA) under the Indian Self-Determination and Education Assistance Act (ISDEAA), enacted on January 4, 1975. That law ended the federal policy of termination and launched an era of tribal self-determination.
The ISDEAA offers two main paths. Under Title I—commonly called “638 contracting”—the tribe acts as a federal contractor, bound by BIA rules, manuals, and handbooks. This is considered Self-Determination. Under Title IV—”Self-Governance compacts”—the tribe enters a government-to-government agreement and can replace federal rules with its own tribal laws and policies, exercising greater sovereignty. Title I was always meant to be a temporary capacity test: once a tribe proves it can manage federal funds, it can move to the more flexible Title IV model.
The Navajo Nation was among the first to sign 638 contracts, starting in 1976 for judicial, education, social services, and tribal government support; in 1979 for health, police, and water resources; and for many other programs since. Today, these contracts fund nearly all tribal government operations, with total annual values estimated between $250 million and $1 billion (though no aggregated figure is publicly reported).
Because the Nation is so dependent on these contracts, its focus for five decades has been on surviving annual audits and securing continued funding. The community widely perceives—though without fully grasping the contractual burdens—that central administration now prioritizes Title I compliance above all else. This intense focus on audit survival has unintentionally delayed any serious review of the 1989 provisional governance structure.
The result is a system so administratively complex that it has become a barrier to pursuing Title IV’s operational efficiencies. What was meant to be a transitional bridge to self-governance has instead created a state of dependency and dysfunction—one that now actively blocks the very sovereignty it was supposed to enable.
Limitations of “638” Contracting on Sovereignty and Services
1. Navajo Nation Performs BIA Duties Under Federal Rules
Navajo Nation programs are funded through P.L. 93-638 contracts. Under these agreements, tribal programs step into the specific roles and duties originally assigned to the BIA. The scope of work is not set by the Navajo Nation, but by the BIA’s own interpretation of its trust responsibilities—rooted in the 1868 Navajo Treaty—with only limited room for negotiated supplements. As federal contractors, tribal programs must strictly follow federal laws, policies, and BIA manuals that are attached to, or incorporated by reference in, 638 contract scopes of work.
These “638 Compliance Laws” in the scopes of work essentially become the primary, often even the sole “law” followed by Window Rock programs.
2. 638 Contracts Actually Block Sovereign Functions
Many Diné observe that the Navajo Nation government often looks more like an extension of the BIA than a sovereign body. This is by design of the 638 system. Each contract binds programs to federal rules, making it structurally difficult to add sovereign functions like localized practices or governance innovations. To do so, a program would need separate non-federal funding and a supplemental plan outside the 638 agreement—a logistical hurdle that is rarely workable.
⚠️ A critical gap: 638 funding only covers federal trust responsibilities as the BIA defines them. Vital community needs—language preservation, community-led governance, and family support—are generally excluded because they are not spelled out in the 1868 Treaty. The system thus incentivizes the government to prioritize federal compliance over the lived priorities of the Diné people.
What most Diné do not realize is that the tribal government itself is now administering leases and permits outside the 638 contract system without any federal funding to support that work—the most profound reason why there are no excess sovereignty funds to spare for language preservation or community cohesion.
This situation has its roots in a 20-year legal battle. In the 1980s, the Navajo Nation sued the federal government for bad faith dealing, alleging that the Interior Secretary had secretly aided Peabody Coal in derailing a tribal royalty rate. In 2003, the U.S. Supreme Court agreed there was bad faith but ruled in United States v. Navajo Nation that the federal government could not be forced to pay the tribe financial damages. What followed was the tribe’s determined effort to manage its own leases. After numerous entreaties from the tribe, Congress agreed to treat the Navajo Nation as a pilot in which the BIA would allow the tribe to manage leases and permits as a privilege—not as a contractually delegated duty.
This framing proved to be a tactical trap. By characterizing the management of leases as a government-granted “privilege” rather than an inherent sovereign right, Congress effectively excluded the Nation from the funding streams that would have been triggered under a standard 638 contract. The Nation discovered too late that because it had initiated the request—rather than responding to a federal mandate—it was now responsible for paying for this so-called “privilege” itself.
The Nation began implementing this in 2006 without the necessary administrative infrastructure and with no excess funds to streamline the process or invest in community-driven solutions. The tribe’s solution was to fraction out pieces of land management across existing programs in different tribal divisions—a bureaucratic response to a financial vacuum—forcing the People to scramble from office to office, often with application forms that are frequently lost. For many Diné, this exhausting, circular process has become a primary reason they have given up on the government altogether.
A full discussion of the Navajo Leasing Act and its ongoing impacts is being researched and written by this project’s research team and students.
3. No Reallocation or Carryover
638 funds must be spent within the fiscal year. They cannot be reallocated, invested, or carried forward.
4. 638 Contracts Were Meant to Be Temporary
638 contracts were designed as a short-term bridge to Title IV Self-Governance Compacts. Tribes that pass three consecutive years of clean audits may pursue compacting, which offers greater sovereignty. Yet the Navajo Nation has been stuck in the 638 system for nearly 50 years.
5. 638 Contracts Are Not a Comprehensive Government Structure
Each 638 program is reviewed annually by the federal agency that oversees it—primarily the BIA Navajo Region, along with HUD and IHS for housing and health. Oversight focuses narrowly on compliance with the contract’s scope of work. Over decades, however, the public has come to mistake this limited contract system for a full government structure capable of serving all community needs—including language and cultural growth.
⚠️ Critical Risk: Decades of operating within this narrow federal framework risk entrenching the belief that the BIA’s trust responsibilities define the full limits of what tribal government can do.
6. 638 Contracts Prevent Integrated Services
The program-by-program contracting model is labor-intensive and creates rigid accounting and spending silos. This prevents unified, efficient, and integrated service delivery across the vast Navajo reservation. Additionally, 638 contracts rarely provide enough administrative or indirect cost funding to support adequate services over such great distances.
7. The Single Audit Trap
All 638 programs must pass a “clean audit” under the Single Audit Act for the tribe as a whole to pass its annual audit. This requirement has created a complex administrative maze, forcing central government (“Window Rock”) to focus on compliance over services.
Chapters are defined in the Navajo Nation Code as “political subdivisions” and therefore cannot contract directly for 638 funds. Instead, they receive federal dollars through subcontracts or grants—which still bring them under the Single Audit. When a chapter receives a federal award (e.g., for ARPA or road projects), it becomes a subrecipient, and the Nation is legally responsible for monitoring how those funds are spent. This imposes highly restrictive accounting processes on chapters, adding to the burden. Even when a certified chapter pursues an award directly, Window Rock retains approval and project oversight authority.
A 2024 report by the House Subcommittee on Indigenous Peoples examined BIA 638 contracting and offered a notable recommendation regarding audits. The report suggested that Congress consider applying a Cooperative Audit Resolution and Oversight Initiative (CAROI) system—first established by the Department of Education in 1999 and later expanded to all federal agencies—to ISDEAA contracts and compacts.
CAROI is designed to engage all stakeholders in a cooperative audit process, producing better outcomes through collaboration rather than purely adversarial oversight. However, it does not currently apply explicitly to self-determination contracts or self-governance compacts, creating uncertainty for many tribes. Applying CAROI to the ISDEAA context could help build tribal capacity through the audit process, rather than simply penalizing noncompliance.
Source: House Subcommittee on Indigenous Peoples of the United States. (2024). Advancing Tribal Self-Determination: Examining Bureau of Indian Affairs’ 638 Contracting (HHRG-118-II24)(March 6, 2024).
8. Increasingly Demoralized Local Chapters
Despite years of promises supporting local governance, oversight has become increasingly centralized in Window Rock. On December 29, 2022, the Resource and Development Committee passed RDCD-43-22, which centralized project oversight within the Division of Community Development (DCD)—a move that directly conflicts with the local autonomy promised under the Local Governance Act (Title 26).
The Nation justifies this centralization as necessary to protect itself from audit findings. Chapters are told that local governance is possible—if they help the tribe achieve clean audits. But under 638 accounting rigidity, chapters must resolve every discrepancy, with no discretion to assess “materiality” under the Single Audit Act. As of December 3, 2025, most capital projects at chapters are logjammed, reportedly waiting for signatures from DCD and the Chapter Unit of the Navajo Nation Department of Justice.
Chasing the Clean Audit
The Navajo Nation is currently stuck in a difficult contracting system (Title I) that forces it to manage dozens of separate funding pots, each with rigid, non-negotiable federal rules. To move to a more flexible self-governance model (Title IV), the Nation must first pass three consecutive years of clean audits across all its contracted programs. That goal remains out of reach.
On December 5, 2025, the Navajo Nation Council released a KPMG audit report showing 24 findings across 19 federally funded programs. Eight major programs received qualified opinions due to repeated issues: missing procurement records, weak cost analyses, poor eligibility tracking, subrecipient problems, and late federal reports. Systemic accounting struggles—like incorrect fringe rates, faulty cost allocations, and delayed reconciliations—add to the burden. (Other federal funds from FEMA, DOE, and ARPA only make the audit more complex.)
These audit failures are now the biggest barrier to transitioning from Title I contracting to Title IV compacts.
Instead of rethinking the system, current reform proposals—from the Office of Navajo Government Development and the Navajo Nation Council—accept the fragmented, siloed structure and focus only on centralizing oversight, without integrating services or involving communities.
For example, on December 29, 2022, the Resource and Development Committee quietly passed RDCD-43-22, which stripped local chapters of project oversight and centralized power in the Division of Community Development (DCD)—itself a major 638 program. No explanation was given for how this affects the Navajo Nation’s Local Self-Governance Act (Title 26), which guarantees chapter autonomy. This raises a serious legal question: can an amendment to a plan of operations quietly override an entire law?
Beyond legal and administrative problems, this fragmented system clashes with core Navajo values like K’é and Hózhó—relational law, balance, and holistic well-being. The administrative maze makes it hard for people to access services and disconnects programs from the community.
A real solution requires three simultaneous tracks: Legal/Structural, Administrative, and Cultural/Chapter. But most importantly, the Navajo people themselves must be informed, engaged, and leading the process.
The goal cannot be just a clean audit. The Nation must also ask: Is this system keeping families together? Is it supporting the Diné Life Way and language? Can future generations live and raise their families on Diné bikeyah? The focus must shift from answering auditor questions to asserting Diné sovereignty.
Compacts and the Dream of Self-Governance
638 contracts were enabled in 1975 through Title I of the ISDEAA (P.L. 93-638). The Navajo Nation was among the very first tribes to sign such contracts, beginning in January 1976.
In 1988, P.L. 100-472 added Title III, allowing selected “mature tribes” to transition to Self-Governance Compacts under a demonstration project. The contrast with 638 contracting is fundamental: it is a shift from being a federal agent or contractor to exercising true government-to-government self-governance.
Key Differences Between 638 Contracts and Title IV Compacts
| 638 Contracts (Title I) | Self-Governance Compacts (Title IV) | |
|---|---|---|
| Oversight Entity | The federal agency that funds the contract — primarily BIA Navajo Region, IHS Navajo Area Office, and HUD, among others | Office of Self-Governance (oversees compacts for all DOI agencies) |
| Eligibility | Tribes or tribal organizations; submit requests to DOI for approval | Tribes or tribal consortia; must complete a planning phase and demonstrate financial capacity (three years of clean audits managing a 638 contract) |
| Administrative Focus | Compliance with Indian Affairs Handbooks; programmatic silos to satisfy individual contract requirements | Self-governance; unified, efficient structure able to emphasize services and local governance; audit focuses on internal governance, not minute contract adherence |
| Programs Covered | PSFAs that BIA would otherwise provide to tribes or tribal citizens; tribes assume operation of federal programs nearly in the manner of the federal government | PSFAs from non-BIA DOI agencies may be included if they hold “special geographic, historical, or cultural significance” |
| Flexibility | • DOI approval required for substantial changes • Program-specific—must request each contract individually • Must follow federal procedures, standards, and reporting requirements • BIA retains significant approval and audit authority • Mature contracts (3+ years with clean audits) may be consolidated (25 U.S.C. § 5321(a)(3)) | • Generally may redesign or consolidate PSFAs and reallocate funding without DOI approval • Multi-year block grants toward integrated governmental spending • Funds easily reallocable, carryover, and reinvestable • Can interweave with other funds for innovations, including non-BIA or purely tribal functions |
| Examples of Flexibility | Limited—programs operate within narrow BIA-defined scopes | • Integrate forestry with grazing to restore grasslands and allow livestock experimentation • Create healthcare systems inclusive of non-members who live and work on the reservation • Integrate justice, social services, and cultural programs for holistic dispute resolution • Develop ahil na’anish government with innovative community land stewardship, familial supports, and local governance |
| Rule Waivers | Only specific non-statutory requirements can be waived | Tribes can request waivers of federal regulations to adapt to tribal values |
| Audit & Monitoring | • Single Audit Act compliance (31 U.S.C. Chapter 75; Uniform Guidance 2 CFR Part 200, Subpart F) | • Single Audit Act compliance • No routine monitoring required—tribe assumes oversight and accountability • Reporting limited to annual Single Audit (and IHS Health Status Reports for health compacts) • Maximum exemption: tribe generally not subject to agency circulars, policies, manuals, guidance, or rules unless expressly agreed to in the compact or funding agreement |
Source: Murray, Mariel. Indian Self-Determination and Education Assistance Act (ISDEAA) and the Bureau of Indian Affairs. CRS 2021.
Navajo Nation: Path Not Taken
Twenty tribes were selected for the Title III pilot. The Navajo Nation was not among them, for several reasons:
Following violent political unrest in July 1989, the Navajo Nation government hastily established a foreign governmental structure in December 1989 for “temporary use” —a structure still in place 36 years later, which has deeply complicated its functions.
The Nation’s sheer size and geographic complexity present significant administrative challenges.
Every contracting program must pass a clean audit for three consecutive years—a high bar the Nation has not yet cleared.
Today, stuck for decades in this outdated structure, the Navajo Nation faces a profound poverty rate of 35.8% of households—more than double the U.S. average.
Of the initial 20 tribes in the Title III demonstration project, 7 successfully transitioned to permanent self-governance compacts. In 1994, the ISDEAA was amended again, making permanent self-governance compacts available to all tribes under Title IV.
The Navajo Nation has never publicly discussed pursuing self-governance compacts. In 1994, the Nation requested $1.5 million to plan for transition but received far less. The Nation does, however, authorize indirect healthcare compacts through tribal organizations—a limited but notable exception.
Incomplete List of Navajo Nation 638 Contracts
Below is a partial selection of recent Navajo Nation Council resolutions approving BIA 638 contracts. A complete, publicly accessible list is not provided by either the Navajo Nation or the BIA.
Each resolution sets forth the contract terms and incorporates—by attachment or reference—the federal regulations, policies, handbooks, and laws that the contracting program must follow. The Annual Funding Amount (AFA) is the annual funding received by each program under its contract.
| Program / Division | Resolution | Term | Annual Funding Amount (AFA) |
|---|---|---|---|
| Division of Natural Resources | |||
| Fish & Wildlife | NABIN-53-25 (Nov 2025) | Not specified | $251,996 |
| Natural Heritage | NABIN-54-25 (Nov 2025) | Not specified | $284,166 |
| Fish Hatchery Modernization & Upgrade (one-time construction) | NABIMA-04-23 (Mar 2023) | One-time | $3,000,015 |
| Wheatfields Lake Recreation Area – Design & Engineering | NABIN-58-24 (Dec 2024) | Not specified | $617,615 |
| Safety of Dams (Water Resources) | NABID-66-24 (Dec 2024) | 3 years | $622,400 |
| Water Monitoring & Inventory Program | NABID-65-24 (Dec 2024) | 5 years | $261,922 |
| Division of Public Safety | |||
| Criminal Investigation | NABIO-51-25 (Oct 2025) | 5 years | $4,486,926 |
| Patrol Services | NABIO-50-25 (Oct 2025) | 5 years | $21,906,759 |
| Emergency Medical Services (EMS) | NABIN-46-23 (Nov 2023) | 6 years | $14,223,824 |
| Navajo Agricultural Products Industry (NAPI) | |||
| Farming-related operations | NABIS-44-25 (Sept 2025) | 5 years | $9,663,851 |
| Division for Children and Family Services | |||
| “477 Plan” workforce development pilot (under P.L. 93-638) | NABIJN-33-25 (June 2025) | 5 years (2024–29) | $68,722,886 |
| Navajo Treatment Centers | PENDING | 5 years | $6,569,261 |
| Department of Diné Education | |||
| Johnson O’Malley (JOM) Program | NABIN-49-23 (Nov 2023) | 3 years | $3,865,997 |
| Division of Community Development | |||
| Housing Improvement Program (HIP) | NABID-64-24 (Dec 2024) | 3 years | $2,201,242 |
| Division of Human Resources | |||
| Office of Vital Records | NABIJA-03-25 (Jan 2025) | 3 years | $1,015,435 |
| Department of Health | |||
| DOH: Office of ED, Behavioral Health, Mental Health, Public Health, CHR Program, Infectious Disease Control, Health Education, Public Health Nursing, Environmental Health | NABID-68-24 (Dec 2024) | 10 years | Unspecified |
Observations
| Point | Note |
|---|---|
| Incomplete data | Neither the Navajo Nation nor the BIA maintains a publicly available complete list of all active 638 contracts. |
| Term variability | Contract terms range from 3 to 10 years; some resolutions do not specify a term. |
| Funding range | AFAs vary widely—from under $260,000 (Water Monitoring) to over $68 million (Children and Family Services “477 Plan”). |
| Compliance burden | Each contract incorporates—by reference or attachment—the full body of federal regulations, policies, and handbooks that bind the program, creating a significant administrative load. |
| Program scope | Contracts cover natural resources, public safety, agriculture, family services, education, community development, human resources, and health—demonstrating how deeply 638 contracting permeates nearly all tribal government functions. |