Office Furniture Industry Challenges FPI In Court

June 5, 2002
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GRAND RAPIDS — A ruling is expected later this year on whether the federal prison system violated its own guidelines when it expanded its production of prison-made office furniture in the early 1990s.

Three office furniture industry leaders, including Haworth Inc. and Herman Miller Inc., claim that Federal Prison Industries illegally expanded its market share from 1991 to 1996. They contend that FPI failed to go through a public-review process required when it expands production capacity beyond pre-set limits that are designed to prevent the government corporation from generating an undue impact on the private sector.

“It is clear that this agency’s actions are unlawful,” said Stephen Ryan, a Washington, D.C., attorney representing the Coalition for Government Procurement.

The Coalition for Government Procurement is a consortium of businesses that sell to the federal government. The group includes Haworth, Herman Miller and East Greenville, Pa.-based Knoll Inc., the third plaintiff in the lawsuit that was filed in Grand Rapids in late 1999.

In oral arguments held July 13 before U.S. District Court Judge Robert Holmes Bell on a motion by government attorneys to dismiss the case, Ryan claimed that FPI executives failed to follow their own guidelines on 21 occasions during the five-year period in question.

The Coalition for Government Procurement wants the court to roll back FPI’s production levels by $330 million over five years.

FPI is an arm of the U.S. Bureau of Prisons that teaches prisoners work skills. FPI employs more than 21,000 federal inmates to produce a myriad of products, including office furniture, that it markets under the Unicor brand name.

FPI sold $546.3 million in goods in 2000, including $118.9 million in office furniture. The North American office furniture market totaled about $13 billion last year.

Between 1991 and 1995, FPI expanded its systems furniture production by 155 percent, from $28 million to $61 million. The agency’s seating production grew 139 percent, from $22.8 million to $54.4 million.

Ryan also contends that FPI executives failed to adequately record plant expansions and production and workforce increases, and once they became aware of the situation, later inflated sales projections to mask FPI’s alleged violations.

“This is an easily factual case once you look at the material,” Ryan told Judge Bell. “The agency completely ignored its responsibility.

“The government has no right to create a prison-industry complex,” he said.

An assistant U.S. attorney representing FPI, Charles Gross, countered that the agency’s increase in office furniture production never represented any undue impact on the industry, although he conceded that FPI executives “didn’t do as good a job as they should have” with their record-keeping.

Gross also rejected Ryan’s contention that the government’s failure to properly track production and capacity increases was intentional.

“While we may not have done everything we could have done, we certainly did not evidence any bad faith in what we did,” Gross said.

Gross argued that FPI’s growing incursion into office furniture did not violate limitations because the industry repeatedly exceeded its own sales forecast. The higher-than-expected sales volumes for the industry negated an increase in FPI’s net market share, thereby avoiding an undue impact on the private sector, Gross contends.

“Each and every time they (FPI) sold less than they thought they would, yet plaintiffs are arguing undue impact,” Gross said.

Gross contended that the industry was well aware of FPI’s growing production levels, but chose to do nothing about it. The litigation came only after another trade group that represents firms that sell quarters and barracks furnishings to the military had some success in court against FPI two years ago.

“They had the information. They just chose not to act on it,” he said.

Bell said he would rule on the government’s motion at a later date. Rulings tend to take at least 90 days, possibly longer, Ryan said after the hearing.

The three companies filed the lawsuit after unsuccessful efforts in Congress over the years to repeal FPI’s virtual monopoly over selling product to government agencies.

“Essentially it is a secondary route to reach a resolution in our long-standing concern with the way in which FPI administers its program,” Herman Miller spokesman Mark Schurman said.

The latest legislative effort to remove what’s known as mandatory-source status from FPI is pending in a House subcommittee. Rep. Pete Hoekstra, R-Holland, expects his measure to come up for a subcommittee and full Judiciary Committee vote next month.

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