Despite Legislation, Threat from Federal Prison Industries Still Looms

Despite legislation aimed at curtailing the activities of Federal Prison Industries (FPI), threats from the government-owned corporation continue to plague the uniform industry and many small businesses. Seemingly unimpressed by recently passed laws stripping it of its mandatory source status, FPI, also known as UNICOR, continues to look for ways to maintain an unfair advantage over the private sector. And as in the past, much of its efforts surround the uniform industry. Think you won’t be affected? Read on.

Last year alone, FPI did over $800 million in business, primarily in the furniture and apparel industries. Its success isn’t due to any extraordinary business expertise, but rather, its unique position. Created in 1934 by President Roosevelt, FPI was given special “mandatory source” status in the government procurement process, forcing “customers” -- government agencies -- in need of a product to purchase it from FPI. This was true even if FPI couldn’t match a private sector employer’s price, delivery time or product quality.

You’ve heard of a captive audience? Well, UNICOR has operated with a captive workforce and customer base. Inmates, earning $1.35 per hour or less, have for years been competing with Main Street businesses which are required to pay prevailing wages and benefits to their employees. Unable to compete, the result has been a loss of contracts and jobs at many manufacturing firms, particularly in the uniform industry. This, together with trade agreements like NAFTA and the recent abolition of international quotas, has served as serious a challenge to what’s left of the country’s textile business. “It’s hard enough for small businesses to be competitive, but when the government starts putting up barriers, then its time for the government to take a look at what’s going on,” says Donna Pierson , director of marketing and communications for the NAUMD, the trade organization that represents the American uniform industry.

The government has taken a look, and has decided to act. The National Defense Authorization Act for FY2002 impacted sales of FPI’s products to one of its biggest customers – agencies of the Department of Defense (DOD).

And in an unusual bi-partisan effort, congress decided to end UNICOR’s mandatory status when the Consolidated Appropriations Bill, H.R. 4818, was signed into law by President Bush on December 8, 2004 . The spending bill is composed of nine appropriation bills with one of these being the FYO5 Transportation/Treasury Bill containing Section 637. The key paragraph states that “none of the funds made available under this or any other Act for fiscal year 2005 and each fiscal year thereafter shall be expended for the purchase of a product or service offered by Federal Prison Industries unless the agency making such purchase determines that such offered product or service provides the best value to the buying agency pursuant to governmentwide procurement regulations.”

This, it was hoped, would reign in the activities of the FPI and diminish the threat to private businesses. Yet the agency has shown its resiliency in the past, and this time appears no different. Faced with the likely loss of business from the DOD and the end of its mandatory status, FPI seems to have found other ways to sustain itself. If not checked, some argue, the FPI’s detrimental effects on the uniform industry will only worsen.

While the laws are designed to limit FPI’s reach into new markets by curtailing its mandatory source capabilities in manufacturing (commodity) contracts, the legislation has broadened FPI’s ability to go after service contracts. And if its current solicitation is an indication, it appears that is exactly what FPI plans to do, albeit in a way unintended by the new legislation. In an apparent side-stepping of the regulations, FPI has put a commodity contract in services contract.

According to the solicitation, FPI intends to contract the services of a private business to provide managed uniform distribution to the Correctional Officer Program for the Federal Bureau of Prisons (BOP). The enabling statutes for FPI expressly state that FPI commodities may be sold only to federal agencies and entities and not to the general public. This limitation is also reflected on UNICOR’s website. Through its solicitation, however, FPI plans the sale of commodities to private individuals (i.e., BOP employees), not a federal agency. According to its proposal, it will manufacture uniforms and provide them to the distribution contractor as government furnished materials. Acting as the subcontractor, the distribution contractor will accept orders from and distribute uniforms to the BOP employees, while collecting all payments. Importantly, BOP employees will make payment through personal checks and credit-card transactions, seeming to demonstrate the “private” nature of the sale, a clear violation of the law.

The BOP, too, may have violated the law in choosing FPI as the sole-source supplier of uniforms for its staff. Under current law, before deciding to purchase an item from the FPI, an agency must conduct market research to determine whether the product is comparable to supplies available from the private sector that best meet the agency’s needs in terms of price, quality and time of delivery. According to sources contacted for this article, this does not seem to be the case.

The solicitation is also noteworthy for another reason. In section H – Special Contract Requirements, the following is stated:

“The contracting officer (CO) responsible for the administration of this contract has the overall responsibility for this contract. The CO alone without delegation is authorized to take actions on behalf of the government to amend, modify or deviate from the contract terms, conditions and requirements.”

Since FPI obtained Non-Appropriated Federal Instrument status in June, 2004, if falls outside the legal jurisdiction of all federal courts. In other words, FPI can change the terms of the contract at any time, and the private-sector business partner will have no legal recourse. Therefore, when it comes to contract disputes, Federal Prison Industries is untouchable.

The situation has many up in arms. Senator Carl Levin (D-Mich.) has offered legislation to make it “absolutely clear” that FPI no longer enjoys mandatory source status for federal agencies and to “reaffirm” the critical requirement that FPI must compete for its contracts. Several manufacturers have threatened lawsuits. Organizations such as the American Apparel and Footwear Association and UNITE have pledged their opposition to the solicitation and contacted congress to voice their concerns. The NAUMD has formed a task force to better understand what the underlying issues are. And we at UniformMarket will update readers as warranted.

To view the solicitation, visit…

http://www2.eps.gov/spg/DOJ/FPI-UNICOR/MMB/CT1703%2D05/listing.html

To learn more about FPI, visit

www.unicor.gov