FPI Concedes Change Is Needed

April 12, 2004
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WASHINGTON — A nearly decade-long push to end a federal corporation’s stranglehold over government contracts has reached a new level, as a U.S. Senate subcommittee last week began weighing reform legislation.

Even the head of Federal Prison Industries Inc. conceded that the corporation’s privileged status should eventually end, a change that would provide the private sector an opening to compete for more federal contracts that now are filled with prisoner-made products.

The question for lawmakers is how to do it while maintaining inmate employment levels that help to reduce recidivism and stem other problems as the prison population continues to grow.

“Prisoners should have work opportunities that build their job skills and enable them to make a successful return to society upon their release. However, it is only fair that our small business owners and manufacturers be able to compete for these federal contracts if they can offer competitive products and services,” U.S. Sen. Debbie Stabenow, D-Michigan, said during testimony April 7 before a subcommittee of the U.S. Senate Committee on Governmental Affairs. “Our manufacturers are not asking for an advantage or to exclude FPI from competing. All they want is the opportunity to compete fairly and on equal footing for these contracts.”

The subcommittee listened to two hours of testimony last week but did not vote on the measure, a similar version of which easily cleared the U.S. House late last year. The panel will continue to gather comments through this week on the reform bill that seeks to end Federal Prison Industries’ virtually monopoly over the sale of numerous goods to the federal government.

Created in 1934, FPI is an arm of the U.S. Justice Department’s Federal Bureau of Prisons that employs nearly 21,000 inmates to produce some 300 products, including textiles, electronic and automotive components, and office furniture, sold under the Unicor brand name. The corporation has 112 factories operating in 71 federal prisons and pays inmates 23 cents to $1.15 an hour.

Reform efforts are targeted primarily at ending so-called mandatory-source status that requires federal agencies, when applicable, to buy from FPI, unless granted an FPI-approved waiver. Critics of the federal corporation contend that mandatory-source status unfairly blocks private-sector competition for many federal contracts.

“That we are prohibited from competing as a business is absurd,” said Sen. Carl Levin, D-Michigan, the chief sponsor of the reform push in the Senate.

The push to reform FPI took on heightened importance in West Michigan last year. The continued downturn in the office furniture industry led to thousands of job losses since 2001 and a 25 percent growth in the federal corporation’s office furniture sales in the 2003 fiscal year.

Previous reform efforts pushed by Levin that ended mandatory-source status in 2002 for purchases by the Department of Defense — by far FPI’s largest customer — and later by the Central Intelligence Agency put a major dent in the sale of office furniture and, to a lesser extent, FPI’s overall revenues.

The sale of office furniture, once FPI’s largest product category, declined 30 percent during the 2003 fiscal year that ended Sept. 30. According to the corporation’s annual audit report, sales dropped $217.8 million to $151.9 million. In the previous year, as the private sector’s office furniture industry’s sales plunged, FPI’s furniture business grew 24 percent.

Overall, across all product categories, FPI’s revenue fell 1.7 percent in FY 2003, from $678.6 million to $666.7 million, according to the audit, after growing 16.3 percent the previous fiscal year.

As a result, FPI had to close or downsize 13 factories, reduce inmate participation by 2,000 and reduce staffing by 97 positions, Bureau of Prisons Director and FPI Chief Executive Officer Harley Lappin told lawmakers.

To U.S. Rep. Peter Hoekstra, R-Holland, the leading proponent of FPI reform, the corporation’s decline in office furniture is “a clear indication that we’re having an impact.”

“It also says when FPI has to compete against the private sector, they can’t compete, which is what we’ve said all along,” Hoekstra said. “It’s good to see them feel the same pain as the office furniture industry.”

Nobody offering testimony on the issue disagreed that FPI provides needed job training, helps to reduce recidivism and better prepares inmates to re-enter society.

The debate, rather, has centered on the potential impact on prison security and recidivism rates if prison jobs decrease and prisoners sit idle as a result of the reform push and what lawmakers can do to avoid that outcome.

Lappin said the Bureau of Prisons is sensitive to effects FPI has on the private sector and that “any negative impact of the FPI program on the private sector should be minimized.” FPI directors favor continued reforms and an end to mandatory-source status, as long as the Bureau of Prisons “is able to maintain its ability to provide job skills, training and work experience to a growing federal inmate population” that’s projected to increase from the current 176,000 to 215,000 by 2010.

“If the FPI program is not able to maintain its viability as a correctional program or is not able to maintain adequate levels of inmate enrollment, there will be a negative ripple effect,” Lappin testified. “This is a complex public policy issue with no easy answers.”

In response to private-sector concerns, FPI has been making internal reforms to reduce its reliance on mandatory-source status, reduce capacity in office furniture, textiles and electronics, create new job areas for inmates, and minimize the impact on the private sector, Lappin said. Those internal changes by the FPI board of directors contributed to the revenue decline last year, he said.

Legislative reforms also could have an effect on the businesses that last year supplied FPI nearly $500 million in raw materials, equipment and services, Lappin said. That includes $56.1 million on supply contracts in Michigan, according to subcommittee testimony.

Each of us — each of our businesses, our employees, our suppliers — are directly in the path of efforts by some in this Congress to turn back 70 years of success with Federal Prison Industries and force it, instead, into an impossible competition with the private sector,” said Andrew Linder, the owner of Power Connector, a small electronics business on Long Island with 76 employees that supplies components to FPI.

Reform advocates say FPI could sustain volumes by focusing on new product categories and services where it wouldn’t have private-sector competition from U.S. firms.

The Bush administration remains neutral on the pending legislation in the Senate, Lappin said, and the similar measure sponsored by Hoekstra passed in the U.S. House in November.    

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