Stalled in Transition - The "638 Contract" Navajo Nation Government

Navajo Nation programs are funded through P.L. 93-638 contracts (the Indian Self-Determination and Education Assistance Act of 1975). 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. Tribal laws that are viewed as within the federal trust duties may be implemented under the scope of work. 

Programs like police, courts, and family services may incorporate the Navajo Nation Code into their 638 contracts—but only after difficult negotiations, and only to the extent that tribal law does not conflict with federal law. The federal framework always prevails. As one former Chief Justice observed, even securing small deviations from federal processes—such as traffic hearings conducted in the ba’ayati method—was a struggle. In practice, the “638 Compliance Laws” in the scopes of work become the primary—often the sole—”law” followed by Window Rock programs.

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 trust responsibility functions—and no more than that—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.

This dynamic extends even to tribal programs that are not funded by 638 contracts, such as the Office of Navajo Elections Administration or the Office of Navajo Government Development. These offices, though performing non-Treaty (sovereign) duties, still operate within the same federal accounting and performance framework as their 638-contracted counterparts. The system’s gravitational pull is so strong that even non-contracted programs default to federal models rather than attempting community-based or traditional Diné structures and methods.

638 funding covers only the federal trust responsibilities as the BIA defines them—nothing more. Vital community needs—language preservation, community-led governance, and family support—fall entirely outside the 1868 Treaty and therefore outside the scope of 638 contracts. Moreover, when the tribe seeks to perform BIA duties on its own initiative—as it did leading up to the 2000 Navajo Leasing Act—those duties are not considered part of any 638 contract scheme and may be entirely unfunded. (See below toggle on ⚠️ Bitter Circumstances of Assuming Federal Land Use Management Role)

The result is a system that actively incentivizes the government to prioritize federal compliance over the lived priorities of the Diné people. After 50 years of stepping into the shoes of the BIA and being told to strictly comply with the contracted scope of work, the Navajo Nation may have begun to believe that this is what governing is, and that the unsupported communities are to blame for not being privately resourceful enough, or inventive enough. 

At practically every chapter meeting, the community continues to press for local governance, language preservation, and continuance of Diné traditional teachings, expressed as immutable Diné Fundamental Laws.

638 funds must be spent within the fiscal year. They cannot be reallocated, invested, or carried forward. This severely limits the tribe in terms of flexibility, growth, and creating community-based funds that might one day leave 638 contracting, and excavation-based royalty dependencies, behind. 

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.

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.

What most community members do not realize is that the tribal government is administering leases and permits outside the 638 contract system without any federal funding to support that work—perhaps the most profound reason why there are no excess funds to spare for language preservation or community cohesion. The tribe does so pursuant to tribal laws that must be “consistent with” federal lease regulations, meaning the federal government maintains oversight and control over the regulatory framework, while the federal government bears neither the costs nor the liability.

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 ruled in United States v. Navajo Nation that no specific trust duty had been breached and, as a result, the federal government was not required 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 program, in which the BIA would allow the tribe to manage leases and permits as a privilege—rather than 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.

NOTE: In many contexts—including the Navajo Nation’s specific history with leasing—Congress and the Department of the Interior have occasionally framed the assumption of management duties as a regulatory “privilege” or an exemption from federal oversight (such as the HEARTH Act or early pilot programs). When treated as a “privilege” or an internal tribal choice, it bypasses the mandatory federal funding streams tied to the formal 638 contracting process, effectively shifting the administrative cost onto the tribal budget. See Josephine Foo, The HEARTH Act and the Navajo Leasing Act, ABA SEER Native Am. Resources Comm. Newsl., Jan. 3, 2019.

The Nation began implementing its privilege in 2006 without the necessary administrative infrastructure or the funds to build it in order 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.

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.

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. See 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).

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.

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.