FPI Foes Push Their Advantage

June 27, 2003
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GRAND RAPIDS — Now that one skirmish is resolved, backers of efforts to reform Federal Prison Industries are hoping to score an eventual victory in the broader war.

And the $6 million contract to furnish the Federal Aviation Administration headquarters, which FPI agreed to relinquish to Steelcase Inc. amid a swirl of controversy as a “customer goodwill gesture,” could very well provide the ammunition they need.

Supporters of reform say the incident involving the contract, which Steelcase initially won and FPI took away after reviewing and then matching the company’s bid, provides the stark example they need to better make their case.

“The fire is increasing in the kitchen,” said Brad Miller, manager of communications and government affairs for the office furniture industry trade group BIFMA. “It just alerted more people to how they function, and giving (the contract) back doesn’t take away the damage that was done.”

The issue involving the FAA contract arose as legislation is pending once again in Congress to reform Federal Prison Industries, an arm of the U.S. Justice Department’s Federal Bureau of Prisons that employs more than 21,700 inmates to produce some 80 products, including textiles, electronic and automotive components, and office furniture sold under the “Unicor” brand name.

In 2002, as the office furniture industry’s sales continued to plummet, FPI’s furniture business grew 24 percent to $217.8 million.

At issue for industry executives is a provision that’s known as mandatory source status, which requires federal agencies to buy from Federal Bureau of Prisons unless granted a waiver — by Federal Bureau of Prisons. Executives have complained for years that the provision unfairly blocks their corporations from competing for federal contracts.

In a conference call last week with brokerage analysts, Steelcase President and CEO James Hackett termed mandatory source status an “inane concept” that needs to go.

“We and others in the industry continue to labor for reform,” Hackett said.

Upping the reform push in recent years is FPI’s venture into new business sectors to compete with the private sector.

Legislation sponsored by U.S. Rep. Peter Hoekstra, R-Holland, to change FPI’s business practices is pending in the House Judiciary Committee, where it’s expected to come up for consideration soon after the July 4 recess, said Dave Yonkman, Hoekstra’s press secretary.

Jon Brandt, press secretary for U.S. Rep. Vern Ehlers, R-Grand Rapids, sees the controversy over the FAA contract as strengthening the hand of reform backers.

“It gives us a very strong example of what the problem is. I think we’ve been lacking that throughout the whole process. It couldn’t be more stark,” Brandt said.

Even as he gave up the FAA contract to Steelcase because of the controversy, the head of FPI asserted the agency did nothing wrong.

The issue arose from a resolution the FPI board of directors passed in March that directed the agency to grant waivers to mandatory source status “in all cases where the private sector provides a lower price for a comparable product that FPI does not meet.”

To determine whether the private sector provides that lower price and a compatible product, FPI required federal agencies to submit to it the private vendor’s winning bid for a project, FPI Chief Operating Officer Steve Schwalb wrote in a June 19 letter to the FAA releasing the contract.

Schwalb wrote that the Steelcase bid, which the agency matched to the penny for each and every product category, did not contain final design specifications. Therefore, he wrote, FPI acted properly and did not use proprietary information to match Steelcase’s bid.

“I believe that any objective review of this situation would conclude that neither was the information submitted to FPI proprietary, by any commonly accepted definition of the word, nor did FPI engage in any impropriety,” Schwalb wrote.

He attributed the controversy to “misunderstanding and confusion among many about how the process was to work” under the March FPI board resolution, which got its first test with the FAA contract. The FPI board, he wrote, will revise procedures to avoid any further misunderstanding.

Rick Yeates, vice president and general sales manager for Steelcase, wouldn’t comment directly on Schwalb’s assertion, but said FPI management has misinterpreted the intent of the March board resolution.

The issue comes down to fundamental fairness, Yeates said.

“We believe the way they interpreted and communicated what federal agencies have to do is not right,” Yeates said. “That’s why we fought this so hard and we’ll continue to fight to win the war.”               

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