BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON EDUCATION AND

THE WORKFORCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, OCTOBER 5, 2000

Printed for the use of the Committee on Education

and the Workforce

OPENING STATEMENTOF CONGRESSMAN VAN HILLEARY, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

STATEMENT OF RANKING MEMBER TIM ROEMER, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

STATEMENT OF CONGRESSMAN FRANK A. LoBIONDO, 2^ND DISTRICT OF NEW JERSEY, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, D.C. *

STATEMENT OF MAJOR GENERAL (USA RETIRED) CHARLES R. HENRY, PRESIDENT, LFR LEVINE-FRICKE, INC., EMERYVILLE, CALIFORNIA *

STATEMENT OF GEORGE H. ALLEN, DEPUTY COMMANDER, DEFENSE SUPPLY CENTER PHILADELPHIA, DEFENSE LOGISTICS AGENCY, PHILADELPHIA, PENNSYLVANIA *

STATEMENT OF MICHAEL E. MANSH, PRESIDENT, ASHLAND SALES AND SERVICE, CO., KENTUCKY *

STATEMENT OF DONALD DeROSSI, PRESIDENT, DeROSSI & SON CO. INC., VINELAND, NEW JERSEY *

STATEMENT OF JOSEPH M. ARAGON, CHAIRMAN, BOARD OF DIRECTORS, UNICOR, FEDERAL PRISON INDUSTRIES, PRESIDENT, ProServ CORP., AURORA, COLORADO *

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN PETE HOEKSTRA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

APPENDIX B - WRITTEN OPENING STATEMENT OF CONGRESSMAN VAN HILLEARY, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

APPENDIX C - WRITTEN STATEMENT OF CONGRESSMAN FRANK LoBIONDO, 2^ND DISTRICT OF NEW JERSEY, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, D.C. *

APPENDIX D - WRITTEN STATEMENT OF MAJOR GENERAL (USA RETIRED) CHARLES R. HENRY, PRESIDENT LFR LEVINE-FRICKE, INC., EMERYVILLE, CA *

U.S. House of Representatives

Subcommittee on Oversight and Investigations

Committee on Education and the Workforce

Washington, D.C.

The Subcommittee met, pursuant to call, at 10:12 a.m., in Room 2175, Rayburn House Office Building, Hon. Peter Hoekstra, Chairman of the Subcommittee, presiding.

Present: Representatives Hoekstra, Hilleary, Tancredo, Roemer, and Scott.

Staff Present: William Montalto, Special Counsel to Representative Hoekstra; Steve Settle, Professional Staff Member; Faith Cristol, Professional Staff Member; Whitney Rhoades, Staff Assistant; Jo-Marie St. Martin, General Counsel; Patrick Lyden, Professional Staff Member; Mike Reynard, Deputy Press Secretary; Deborah Semantar, Office Manager; Cheryl Johnson, Minority Counsel/Education and Oversight; Peter Rutledge, Minority Senior Legislative Associate/Labor; and Brian Compagnone, Minority Staff Assistant/Labor.

Mr. Hilleary. [Presiding.]

A quorum being present the Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce will now come to order.

Good morning, I am Congressman Van Hilleary. I am sitting in for our Chairman, Mr. Hoekstra, who has a guest Chaplain from his district opening the House session in the Capitol this morning, so he quite properly put religion first and will be here shortly.

Under rule 12(b) of our Committee rules, any oral opening statement at this hearing is limited to the Chairman and Ranking Minority Member. This allows us to focus on hearing from the witnesses sooner and helps Members to keep their schedules. Therefore if other Members have statements, they will be included in the record. As is normal for this Subcommittee I ask for unanimous consent to keep the official record open for 14 days following this hearing. During this time our witnesses are welcome to supplement their comments and interested parties can be afforded an opportunity to submit their views for the record. Without objection, so ordered.

I guess this will be a good time to submit the Chairman's statement for the record. I will make an opening statement, and then we will yield to Mr. Roemer for his opening statement.

Mr. Hilleary. I would like to start by thanking our colleague, Congressman Frank LoBiondo and other witnesses we will hear from today, for coming by.

The topic of the hearing, Federal Prison Industries is one pretty close to my heart and to the people in any district. In particular, Federal Prison Industries' involvement in the textile industry directly affects many of my constituents back home, two of whom are here this morning, and I would like to take the liberty to introduce them. My mother and father are here this morning, Bill and Evelyn Hilleary. They just happen to be in town this week. My father has been in the textile business for about 50 years, just turned 75 this weekend, so this is near and dear to his heart too. I thank you all for coming.

I feel the real issue at hand when we begin to talk about FPI, or Federal Prison Industries, is competition. Competition works. It is what has blessed our country with the great economy and prosperity that we have had. While other countries sometimes are dependent on regulation and intervention into private markets has been a problem, we have resisted it. As a result, we have prospered at times when others have had nearly a decade of recession.

Competition is fair to both consumers and producers alike. If the price is not right, the quality is not good enough or the product can't be delivered on time, consumers take their business elsewhere and producers are forced to get their act together.

We take competition for granted in this country. However, when the Federal Government does decide to intervene, competition unfortunately is not always a factor in that intervention.

As most of you know already, FPI is a government-run business and employs convicts in Federal Prisons and they enjoy a unique status. Under a 1934 law, FPI is entirely exempted from the requirement to compete for Federal contracts.

According to the law, Federal agencies, such as the Department of Defense, must buy certain products from the FPI, unless the directors at FPI give them a waiver. This is true even if Federal Prison Industries can't match a private sector's employer's price, can't deliver on time or has an inferior product. Federal agencies are still required to make purchases from Federal Prison Industries.

In 1996, former master chief petty officer of the Navy, John Hagan, testified before the House National Security Committee about problems the Federal Prison Industries monopoly on government furniture contracts has caused. He testified, "speaking frankly, the Federal Prison Industries product is inferior or costs more, and takes longer to procure. Federal Prison Industries has, in my opinion, exploited their special status instead of making changes, which would make them more efficient and competitive. The Navy and the other services need your support to change the laws and have Federal Prison Industries compete with private sector furniture manufacturers. Without this change, we will not be serving sailors or taxpayers in the most effective and efficient way."

I believe this testimony is right on. Furthermore, we have serious concerns about the loss of private sector jobs to Federal Prison Industries. I believe prisoners should never be given jobs at the expense of law-abiding, hard-working people. For example, in the 4th District of Tennessee, which I represent, textile manufacturers are losing contracts every day to FPI. This comes at a time when textile plants are facing serious problems from competition with Mexico. In my view, they shouldn't have to worry about losing business to federal prisoners.

That is why we are holding this hearing today. We need to learn more about the effects that face not only Tennessee textile businesses, but also those all across the country. Ironically, one of the arguments that supporters of FPI claim is that they help prisoners develop job skills so that they will be more productive when released. However, if we don't do something fairly soon to rein in this agency, in my opinion, there will be no textile jobs to go to when they are out of prison.

The issue of jobs and the harm to private industry businesses has led to an unusual alliance in opposition to Federal Prison Industries. Presently, both the AFL-CIO and the Chamber of Commerce want the present practices of FPI changed.

I personally agree this is an unfair practice and it should change. Last year I cosponsored House Resolution 2551 introduced by Congressman Pete Hoekstra, who chairs this Committee. H.R. 2551 would require FPI to compete for Federal contracts just like any other private sector business. It also strengthens the requirements for assessing the negative impact Federal Prison Industries has on private businesses and their law-abiding workers. In addition, I have also firmly opposed H.R. 2588, a bill before Congress that would grant Federal Prison Industries the authority to sell goods

manufactured in prison on the open market.

Just last week, this Committee heard testimony that made it clear that FPI was selling surplus Federal equipment, especially computers, that were needed by schools, police departments, fire departments, senior citizen homes and nonprofit agencies. Small business owners who refurbish computers also showed that they have been hurt by FPI in their practice of getting used computers at no cost from the Federal Government and selling them in the open market.

This is an issue we have before us today. What effect has FPI had in the domestic textile industry, and what role should they play in the future? I am excited about this hearing and in what effects it has on so many Americans. And at that, I will just reserve the balance of my time. Turn it over to Mr. Roemer.

Mr. Roemer. Thank you, Mr. Chairman, for the very articulate opening statement. I too would like to join in welcoming your parents, Mr. and Mrs. Hilleary, to this Committee. I am sure you are very happy and proud of the Chairman today. "Chairman," sounds pretty good, doesn't it? Are you going to get the seat back, Chairman Hoekstra or are you going to let him stay with his parents here?

Mr. Hoekstra. Would the gentleman yield?

I think Mr. Hilleary is doing such a fine job. He will keep the chair for the hearing today and I do worry that he will do a good job. He may never give it up, but I believe he is the Chairman for the day.

Mr. Roemer. He is our honorary chairman, and we join in welcoming his parents, who I am sure are proud of his public service to the country this morning, as well. I welcome my esteemed colleague from the State of New Jersey, Mr. LoBiondo, to hear his testimony this morning. And I welcome the Chairman, Mr. Hoekstra, who has returned from the House floor, welcoming the chaplain from, Michigan.

I was very disturbed by the testimony that we heard last week. It is clear that the selling of refurbished computer equipment is not something that the Federal Prison Industries is entitled to do. We have bipartisan legislation in Congress where Democrats and Republicans agree on this, where the Chamber of Commerce and the AFL-CIO agrees on this. And there is wide bipartisan support for us making sure that American jobs are not taken away by the work of the FPI. In this first instance, that FPI has alleged authority to sell in the private sector, which is an extremely dubious claim.

But even if such authority should exist, the selling of refurbished goods is, by no stretch of the imagination, the performance of a so-called service. Clearly in that case, FPI has exceeded their legislative authority. I am also concerned that with regard to the proposed military clothing production expansion, that FPI should not exceed their authority in this case as well. FPI must operate within the laws and the limits that Congress has placed on the corporation.

As I stated emphatically last week, neither American employers nor American workers should be subject to unfair competition from prison labor. And we want to be very clear on that. Again, I look forward to hearing from the witnesses. This is clearly a matter that merits the attention of this Subcommittee and I commend both our Chairmen this morning for calling this hearing. I yield back the balance of my time.

Mr. Hilleary. Thank you, Mr. Roemer. We have with us today a group of individuals who I believe will share the insights that they have gained over many years of experience in dealing with this program. We are going to have two panels today. The first one will be composed of our friend and colleague, Congressman Frank LoBiondo, who represents the 2nd District in New Jersey. And I know you have got a big keen interest in this subject, Congressman LoBiondo.

So please testify and take as long as you want.

Mr. LoBiondo. Thank you, Mr. Chairman. I appreciate the opportunity to be with you today. Mr. Roemer and I have worked on many issues together. Congressman Hoekstra, thank you. This is an important issue to many of us.

Mr. Chairman, let me state, right off the bat, that I am opposed to any further expansion of the Federal Prison Industries and I am opposed to FPI preferential treatment in competing with the private sector for Federal contracts. You will soon hear from a constituent of mine, Mr. Donald DeRossi, who owns and operates DeRossi & Son Company of Vineland, New Jersey. Mr. DeRossi has been a very long-time friend and he is going to describe the impact that this expansion would have on his business and other private uniform producers if it would be allowed to go through. The DeRossi & Son Company has been a positive presence in my district, since the mid 1920's. This company specializes in the production of U.S. military uniforms and employs approximately 180 dedicated men and women. DeRossi & Son is a highly regarded small business in my district. They are one of the top small business contractors in southern New Jersey and the recipient of the 1998 Small Business Administrator administrative award. I was pleased to take part in awarding it to Mr. DeRossi, which was a very high honor for him and for me.

I am certain my colleagues on this Committee will benefit from his real world experience on this issue. In its December 14th letter to the American Apparel Manufacturers Association, FPI announced its intent to expand into the manufacture of military uniforms. This proposed expansion into the manufacture of military uniforms is unnecessary and excessive because within the Department of Defense alone, FPI already provides over 100 different textile products. Furthermore, with 1999 revenue of $522 million it is difficult to argue why FPI needs to expand its textile operation, which could and probably would lead to significant job losses in the uniform manufacturers industry.

Mr. Chairman, I have served on the Small Business Committee since I first came to Congress in 1995. I am, therefore, very familiar with the issue of the FPI's expansion into other industries and its impact on small businesses. I recall hearings held during the summer of 1996 when the Small Business Committee was considering legislation to eliminate the mandatory source requirement. This legislation unfortunately never made it before the full House for consideration, and we are again debating this issue 4 years later.

Mr. Chairman, I agree that inmate labor may serve a useful purpose. However, it should not come at the experience of private sector jobs. The current Federal procurement process locks out law-abiding citizens and small community businesses from certain Federal contracts, and instead gives them to convicted felons. If a textile factory such as DeRossi & Son bids on a Federal contract and is locked out of the bidding process due to the Federal Prison Industries, able-bodied men and women will be out of work. This is wrong, and this is bad public policy. Jobs and revenue would be going to convicted felons instead of law-abiding, hard working men and women.

Mr. Chairman, as a little aside, let me say while we are talking directly about the jobs, and I am sure that this would be the case for many small businesses across the country involved in the manufacturing of military uniforms, what we can't measure if Donald DeRossi is put out of business because of a bad policy like this, is what it means to the community. Donald DeRossi has been a valued member of the community who has given to countless individuals and charities. How do we begin to measure the impact on the Federal Government to have to make up for people like Donald DeRossi who would be out of business?

We as Members of Congress looking to emphasize all that is good in America have to take into consideration this type of situation. An individual like Donald DeRossi shuns the limelight, but there are countless, countless, countless stories in the community about what he has done to help people. And how do we make that up? How do we make up those lost jobs?

In my district, which is a rural part of the State, it covers a third of the State of New Jersey, manufacturing jobs are hard to come by. Some of the people who work in Mr. DeRossi's business have not known another job. Some of them have worked for generations, passing jobs from parents to sons and daughters. Where do they go? What do they do? How do we answer this? How do I walk back home and walk down Landis Avenue in Vineland and run into my constituents and explain that we in the Federal Government allowed this to happen? This would be a disgrace.

I am very proud to join with you, Mr. Chairman, in cosponsoring Mr. Hoekstra's bill H.R.2551. I think this is an issue that we need to move on. I hope we have the ability to move that forward. I would like to state my strong opposition to FPI's expansion into the manufacture of military apparel.

And in the interest of time, Mr. Chairman, I will cut the balance of my statement, but I hope the Committee understands how strongly I feel. I thank you again for the opportunity and thank you for allowing my constituent, Mr. DeRossi, to testify here today.

Mr. Hilleary. Thank you, Frank. Thank you for that testimony. I couldn't agree more with what you said. It has had the same effect on many businesses in my district. It is just devastating. Thank you for coming by and testifying.

Mr. Hoekstra. Mr. Chairman, I would like to thank our colleague for that testimony and for cosponsoring the bill. We also have a resolution that we are developing condemning the action that FPI have taken in the surplus computers incident that was exposed last week. I think that you are finding out in a very brutal way with what may happen to some of your constituents, this is an agency that is out of control. They don't have any respect or regard for the law or for our constituents.

We are going to work with you and we are going to rein these people in. As you know our Ranking Member, Mr. Roemer, has been a great help on this issue, and as he mentioned, we have great support for this. The disappointing thing is that although each and every day we pick up more cosponsors, we pick up more cosponsors because FPI are putting more Americans out of work in districts around the country. And as more Members find out how this agency is run and the practices that they are engaging in, they sign onto our bill very, very quickly. If it wasn't for a couple of people here in the House, this legislation would have moved this year, and if we don't get it moved this year it will be at the top of the docket when we are back here in January. So thank you very much for your help.

Mr. LoBiondo. Thank you again for your leadership. Besides co-sponsoring the bill, if I am fortunate enough to be back in the 107th and you put together an action team, please put my name on the list to whip other Members to get involved and have this as one of our first actions in the next Congress. Thank you.

Mr. Hilleary. Is there anyone else on the Committee that would like to comment on Mr. LoBiondo's testimony?

Mr. Roemer. He doesn't need to stay for any comment. Frank thanks for your passion and your eloquence in talking about two things that I agree with. One is the fairness principle that American workers, whether they are in Indiana or New Jersey or any other State, should not be thrown out of their jobs because FPI or somebody else has exceeded their legislative authority. That is not meeting the fairness threshold.

And secondly, in the Midwest, and I am sure it is the same as in New Jersey, we treasure as the backbone of most of our community manufacturing jobs, making things that we can then sell to Americans and sell overseas to do something about our trade deficit. If we put these people out of jobs, and they are 45 and 55 and 58 years old, what do we do about the trade deficit? What do we do about these people's families? What do we do about the whole concept of being fair to these people? So I appreciate your passion on this issue.

I hope that Democrats and Republicans can continue to work in a bipartisan way addressing this issue just as the Chamber of Commerce and the AFL-CIO want to work together on this issue. So thank you again.

Mr. LoBiondo. Thank you, Tim. I know it is not the focus of this hearing so I hope it is not inappropriate, but I raise the point with my colleagues that we will probably have to fight the battle again with those who would allow military uniforms to be made in other countries. That is something that is equally wrong. It is a topic for another day, but we need to join together to protect American jobs; it is the right thing.

Mr. Hilleary. Thank you, Frank. Thank you, Mr. Roemer. I would like to invite the second panel to come and please be seated. As much as I hate to reject the generosity of my Chairman after my long and distinguished tenure with the gavel, I have to go to another meeting in a few minutes. We will be starting again in just a moment.

Chairman Hoekstra. [Presiding.]

Let me introduce the second panel to the audience. We have Mr. Michael Mansh, who is with the Pennsylvania Apparel Corporation, Fort Washington, Pennsylvania. Thank you for being here. We have Mr. Donald DeRossi, who is the President of DeRossi & Son Company from Vineland, New Jersey. I think you are Mr. LoBiondo’s constituent? Thank you for being here. We also have Major General (USA Retired) Charles Henry, who is the President of LFR Levine-Fricke, Inc., Emeryville, California. Thank you for being here. We have Mr. George Allen, who is the Deputy Commander of the Defense Supply Center of the Defense Logistics Agency of Pennsylvania. Finally, we have Mr. Joseph Aragon, who is Chairman of the FPI Board of Directors, President of ProServ Corp. from Aurora, Colorado. Thank you for being here as well.

We are going to begin with Mr. Henry, Mr. Allen, Mr. Mansh, Mr. DeRossi and Mr. Aragon. Your full written testimony will be submitted for the record without objection. Without objection, so ordered. Your testimony starts out with the green light for 5 minutes. With about a minute left it turns yellow, and then red and your 5 minutes are up. Historically we have had a weak gavel, but yesterday we had a hearing and we had three or four members of the panel who stretched my patience and spoke for close to 15 minutes.

So take the red as a signal to wrap it up if you can. I think you have all been advised that we would like to restrict oral statements to around 5 minutes. But if you take a bit longer than that, Mr. Roemer will probably start gaveling!

We will begin with you, Major General Henry. Thank you for being here.

Major General Henry. Mr. Chairman, I thank you. My name is Chuck Henry. I am a retired Army Major General and I am here wearing a few hats with you. One, I am the former Deputy Director of the Defense Logistics Agency and the Commander of the Defense Contract Management Command. In that capacity, during the period of 1988 to 1993, I was the senior acquisition executive for the Defense Logistics Agency responsible for purchasing all food, fuel, clothing, and medical supplies for our armed services. In the capacity of the Defense Contract Manager, I oversaw the creation of that command from Army, Navy and Air Force for $780 billion worth of contract management.

So I come to you as a procurement officer and I have some comments about the way that we buy material for our armed forces. I certainly support the comments of the Chairman and your leadership, and what you and Mr. Hilleary have done in this, and the comments that we heard earlier. I would like to talk for a few moments about what I consider most important. It is how we outfit our troops to go and fight the next war. In July of 1988, Saddam Hussein was not very important to me. I was the guy that was spending $13 billion of taxpayer money a year in these categories. On August the 2nd of 1990, all of a sudden, we added a significant emotional event to our lives. The President immediately put 200,000 troops in the desert, and that put a tremendous burden on the system. My colleagues from DSEP here will be able to talk a little bit about how they buy this material.

But the point was that we wrapped, and we surged immediately on a straight up margin. No one outside the DSEP group is really concerned about clothing. The guy that was in my job is the last guy in the United States Government that is responsible for putting clothing on the backs of American troops. I said then and say before you here today, if you don't have the proper clothing and equipment, you cannot send troops to war. It is a war stopper.

So I bring it back to the point that when we look at the procedures and the rules for the Federal procurement process, they are all designed to create a level playing field. The level playing field means that we have about 50 contractors in the defense commercial apparel business. And it is a very fragile business. They are protected by the very amendment, we heard about a moment ago from the Congressman, and that is another fight for another day.

But without the Berry amendment, all of the work would go overseas. I cannot believe that the guy that is in my old job could fight the next war if he had to deal with China in order to get underway. What we have is a situation where we need to protect the base. A warm sustaining base spread over the number of items would allow the guy, wherever he is, to be able to wrap and surge, and that is the name of the business.

The next war, Mr. Chairman, will be a come-as-you-are war. Even with the best of our planning, we still don't get it right. We think we do, we put enough money in, but you take the draw-downs and you take the conflicts that you have every day regarding how much money you have, what requirements you place and how much you buy. We don't have large warehouses to store these items on the shelf. So we have to depend upon a base that we know we can rely upon.

I will mention a couple of points that I noticed. In 1992, my last year in uniform, Federal Prison Industries was picking up a little over $16 million worth of business. There is a billion on the totality of it all. In 1999, I noticed that they had picked up over $83 million. This is a quantum leap. By the same token it is very important that when you issue a contract you have to be able to depend upon the item coming in on time according to the conditions of the contract. In every other situation in a commercial contract, if these gentlemen sitting here at this table are delinquent, or if they cannot produce quality, they are terminated and the contract is placed somewhere else.

Federal Prison Industries is exempt from that. We have a monopolistic society here. Federal Prisons Industries can reach in and grab whatever item they want to, and then they can deliver it to these gentlemen when, where and how they want to. We cannot go to war in the next conflict in this kind of environment.

Chairman Hoekstra. Thank you. Mr. Allen.

Mr. Allen. Good morning, Mr. Chairman.

I am George Allen, Deputy Commander, Defense Supply Center Philadelphia. It is my privilege to come before you and the other Members of this Committee and testify on this matter. I appreciate the opportunity very much and it is my intent to address the questions that you raised in the letter of invitation. I am here representing the Defense Logistics Agency because of the role that we in Philadelphia, as a part of the Defense Supply Center, play for the Agency and the Department of Defense in contracting with FPI and other businesses for the supply of clothing items among the other things.

It is our mission, as General Henry stated, to ensure that combat readiness and the sustaining of America's fighting forces is paramount in our minds. We do that by providing world-class logistical support, to be prepared in peace, but most importantly to do what is needed in war.

The Subcommittee’s invitation to testify requested that we provide information concerning three points. I will provide the information in the order it was requested. The first issue is, the Federal Prison Industries share of prison awards. The information relates to the FPI's position as one of our largest individual suppliers, both overall and with respect to work clothing, which is the area where FPI is considering production expansion. FPI is clearly our biggest producer.

Of the $814 million in clothing and textile contracts we awarded in FY1999,

$82 million or 10 percent was awarded to FPI. Of the $809 million in contracts that were awarded for FY 2000 through August, we estimate as of a few days ago that through the end of the year they will receive about $56 million.

I provided the Subcommittee with some historical data that goes back to FY 92, and it batches this data that General Henry showed. In short, FPI went from $17 million in 1992 to $82 million, which was their high last year, and $56 million this year. Clearly this illustrates a growing level of business. In FY1999, our largest commercial supplier received awards of $42 million compared to the $82 million FPI received. In FY1988, our largest commercial supplier received $52 million in awards compared to $56 million for FPI.

The second information request deals with our concerns regarding the adverse impact FPI production expansions may have on our industrial base. In order to support contingencies, Bosnia for one, Kosovo for another, Desert Storm, as the General has mentioned, our production base is made up of only viable domestic sources. And I might add that these sources are in strict compliance with the Berry amendment provisions and the Buy America Act.

We account for between 80 and 100 percent of the business of those domestic firms with which we regularly do business. Our contracts usually represent the difference between remaining in business and going out of business for those folks. In addition to the orders we provide via the contracts, we provide support for the socioeconomic programs that are designed to assist many small disadvantaged and minority businesses. We currently award about half of all of our contract awards to small and minority businesses. Increasing FPI's share of our awards will, in fact, reduce our awards to other businesses, both large and small.

The third request for information item concerns our assessment of FPI as a supplier. You asked us to give you information regarding FPI's past performance and its impact on our ability to meet surge requirements as compared to commercial suppliers. We have reduced our reliance on inventory. When I take as a point of reference General Henry's command, we had over $2 billion worth of inventory in the system. Today, we are under $1 billion. We have reduced the inventory by approximately 55 percent. We have done that by increasing our emphasis on on-time delivery. A contractors past performance has become one of the single most important elements in our decisions when we are making awards to commercial suppliers.

As General Henry noted, since FPI's mandatory source, it is not permitted to consider past performance in the award process. We do track FPI's performance, discuss it with the FPI management team on a monthly basis, and work with them to improve their performance on a regular basis. Our records indicate that from 1992 to 1999, FPI has an average contract delinquency rate of 31 percent compared to commercial industries, and 9 percent for the items made by both parties. For FY 2000 through July, FPI has a 21 percent delinquency rate compared to the commercial industry's rate of 8 percent.

The impact of these delinquencies has been seen in operation Joint Endeavor, and in Bosnia and has precluded us in some cases from filling the full requirements for body armor, cold-weather trousers, and cold-weather undershirts. With the current emphasis on past performance in making best value awards to our suppliers, FPI would find it difficult to feed on an open competition basis. Perhaps the most serious concern, however, is our ability to meet the surge production when we have to send our men and women into war. The importance of this aspect of our mission is often forgotten in peacetime and the fragile state of the supporting industrial base is easy to forget, except if that is your sole responsibility, as General Henry mentioned.

We manage this by means of industrial mobile station contracts called directed contracts. In fact, I believe we lead the Department of Defense in the directed contracts business. In fiscal year 1999, we awarded $84 million in directed contracts. By "directed," we mean they are directed at certain commercial industries in order to maintain a live production base, which will enable us to surge on those items needed most if we go to war. FPI has had some success, in fact, in meeting peacetime requirements, and they are a valued supplier. We believe they do not have the flexibility needed to reach emergency requirements, however, if called upon.

In order for private sector suppliers to be able to provide this increased production, they have to be up and running at the time of the emergency. Any increase in requirements going to FPI decreases our ability to maintain a warm base and a viable economic entity in the private sector.

In closing, Mr. Chairman, we welcome the opportunity to be an integral part of FPI's prison rehabilitation process by providing meaningful work. However, it has to be realized that the Defense Supply Center Philadelphia also has the mission to serve the Armed Forces and needs to ensure timely product for both peacetime, and more importantly, for emergency needs. And I will be happy to answer any questions at the appropriate time.

Chairman Hoekstra. Thank you. Mr. Mansh.

Mr. Mansh. Good morning. I am Michael Mansh, President of Ashland Sales and Service Company. I appreciate the opportunity to come before you today to discuss the impact the expansion of the production of work clothing for Federal Prison Industries has had on our business. Ashland Sales and Service has been both the prime contractor and subcontractor for the Defense Logistics Agency for the last 35 years. We are a small business employing approximately 110 people, primarily women, down from a high of 165 people in 1997, in an economically depressed region of eastern Kentucky. Many of our workers provide the sole means of support for their families.

With the downsizing of the U.S. military over the last several years, we have gone from being 100 percent reliant on DOD contracts to a mixture of government and commercial work. The transition has been difficult and expensive. With the dramatic increase in offshore production, commercial contracting work is becoming less plentiful.

Our plant produces lined and unlined outerwear. Up until 1997 we had primarily manufactured three products for the Department of Defense. One of these was a utility jacket for the Navy. From 1997 through 1998 we produced in excess of 1 million of these jackets for the Navy. In February of 1995, we were informed that FPI had exercised its super preference, and took 100 percent of the requirements for the utility jackets. We were allowed to complete our existing contract, which utilized 40 percent of our workers.

While current law prohibits FPI from taking more than a reasonable share of a specific product, it has found a way to take 100 percent of this product, and is presently authorized to supply 100 percent of DOD's needs for more than 100 other specific products. This super preference enjoyed by FPI amounts to a set-aside which supercedes preferences for the blind, handicapped, disadvantaged or small businesses such as ours, and allows FPI to take these contracts away from private industry, which would otherwise bid on them. In 1997, FPI was awarded a long-term contract for the utility jackets, which effectively eliminated the item for us.

On the other items, FPI has exercised its preference on a second one, and we believe it is inevitable that it will do so on a third one. Based on the information available to us, it appears we have lost or will lose all three of these items. We strongly oppose any expansion of FPI's manufacture of work clothing for the following reasons: The domestic apparel industry has already been impacted by the increase in offshore manufacturing in low wage countries with thousands of jobs lost. FPI is using its preference to take work away from an industry, which has simultaneously been besieged by low cost imports and faces stiff competition in the domestic market for an ever-decreasing share of government and commercial work.

We are unable to see the benefit in training prisoners for work in an industry that is shrinking and where there will be no demand for job skills learned by the prisoners. The Department of Defense needs to maintain a strong manufacturing base to provide military clothing needs, both in peacetime and in a mobilization environment when surge capabilities are needed. The continuing increase in Federal Prison Industries market share will only further reduce the already shrinking industrial base and impede DOD's ability to accomplish its mission.

While we understand there are some potential benefits of FPI's program for the prisoners and U.S. taxpayers, we believe the apparel industry should not be a targeted market. We and most others in the apparel industry are small businesses that have supported the U.S. military for many years and are already struggling for survival. There are many markets for other products that are expanding and would provide much better prospects for prisoners after their release and would be more cost effective for taxpayers. As is evident from the information provided, we have lost a minimum of 60 percent of our work to FPI. We hope that an investigation of FPI's actions will show the irreparable harm it is causing to the government contracting apparel community by taking jobs from our hard-working taxpaying employees and giving these jobs to Federal prisoners.

Thank you.

Chairman Hoekstra. Thank you very much. Mr. DeRossi.

Mr. DeRossi. Good morning, Mr. Chairman. I would like to thank you for giving me the opportunity to appear today. My name is Donald DeRossi, and DeRossi & Son Company is a family-owned small business concern established in 1927.

The company has approximately 160 employees, of which approximately 120 are minorities and 113 are women. The company operates strictly on its own merits. It owns the land, building and machinery. It does not receive any Federal money, loans or grants. The company has received several awards from its customer, DSCP. In 1998, we were named small business contractor of the year and we received the United States small business administration award for excellence. I can say without hesitation that my company has never been late in any of its deliveries, nor have any of the products produced by its employees ever been rejected by the government in over 50 years. We are consistently considered a best value producer by Defense Supply Center Philadelphia. This, gentlemen, is our story, and we are very proud of it.

It is obvious that for a company to have a reputation of this caliber, its employees must be honest, God-fearing, hard working, taxpaying, and law-abiding citizens. I thought it was appropriate to give you the background of my company since many small businesses that do business with the government have a similar story.

Gentlemen, please tell me how taking away work from these hard-working, honest people who have spent 20 to 30 years working in the needle trades industry and giving it to convicted felons is helping the moral character of the Nation? Hypothetically, if UNICOR FPI took any item we make or any more of the items that we currently make, many plants would experience drastic permanent layoffs or simply close.

Due to imports, and NAFTA, the needle trade industry is in very bad shape. Shops are closing every day. There is simply no civilian work to turn to if one loses Federal work. It is all being produced in China, Mexico, and related countries. If you are going to attempt to train inmates, try a growing industry, one that can afford to lose volume and is able to really employ inmates when they are released. Don't kill an industry that is already experiencing hard times and cannot afford to lose any more volume.

Furthermore, the mission statement of UNICOR states in its last sentence it must minimize potential impact on private business and labor. This was established June 23rd of 1934. I submit to you that times have changed. We are trying to encourage our people and our children to work at an honest living. Yet, there is a very serious attempt to take that work away from law-abiding citizens and give it to convicted criminals.

What an example to set for our children and grand children. I find it hard to believe that any inmate is going to work in a needle trade plant when they get out of prison. I would like to note the statistics of that fact. However, I don't believe they have any information of that type. Therefore, why train inmates in an industry where they cannot find employment when they are released due to the weakness of the industry? I believe and know the inmates do not even receive minimum wage. How are we supposed to compete? In fact we can't compete with FPI. They simply carve out the certain volume of the market that they want, and that is all there is to it.

In dress shirts, for example, they have taken the total requirement task force open market. In our SIC codes, 2311 and 2337, which is dress clothing for men and women of the Armed Services, there are only three or four companies like ours around. This part of the market cannot afford a reduction in volume. The FPI has always gone after work clothing. Now, ever so silently they mention dress clothing. Why? Well, we all know the need for more prisons, so I must assume that they want to have the taxpayers pay to build the prisons and then have the prisoners take the work away from the taxpayers. I hope you can see what we are up against. I believe that every citizen in this country is against taking work away from honest citizens and giving it to convicted criminals.

Thank you for your time.

Chairman Hoekstra. Thank you very much for being here. Mr. Aragon.

Mr. Aragon. Good morning, Mr. Chairman. Thank you for the opportunity to be here to provide the Federal Prison Industries Board of Director's perspective on these matters.

I regret that I wasn't able to attend last week and respond specifically to the issues that were brought up on computer recycling. Although had I been here then, I would speak on behalf of the board members, and tell you that we take our responsibilities very seriously. We certainly would never authorize or allow any misconduct on behalf of Federal Prison Industries. One of our members is the Assistant Attorney General for Administration and the ethics officer for the Department of Justice, Mr. Steve Colgate. At each of our hearings, whenever anybody brings up an issue of impropriety, or illegality, he stops them in their tracks and asks to hear about it because we are not going to tolerate it.

Again, thank you very much for the opportunity to speak here today. I want to offer particular thanks to two Congressmen from my home state of Colorado. Mr. Schaffer, and Mr. Tancredo, who I am proud to say is my Congressman, thank you for being here, sirs. Mr. Chairman, I will refer to Federal Prison Industries as either FPI or our trade name, UNICOR.

I serve as the Chairman of FPI's Board of Directors, a board that the President of the United States appointed me to approximately 6 years ago. By way of introduction, let me first provide with you a brief overview of the Board of Directors. Pursuant to Federal statute, FPI's Board of Directors is composed of six members representing industry, labor, agriculture, retailers and consumers, the Secretary of Defense and the Attorney General. The board consists of a wide variety of accomplished individuals each of whom have been appointed by this President and serve without compensation.

The President appointed board members are selected to govern FPI's operations and advance its mission by establishing general policies and long-range corporate plans. Together we are responsible for administering all aspects of FPI's operations, key aspects of which are approving FPI's financial operating plans, approving the establishment and activation of new factories, and reviewing and approving all FPI's proposals to expand its production pursuant to the guidelines of process.

Mr. Chairman, following 13 years of my personal government service, including Vietnam-era military service, I founded our small minority-owned business which we are proud to say also was a contractor for the Department of Defense as well as being the Small Business of the Year for Colorado a few years ago. Our family members have operated this company for the past 16 years.

The majority of FPI’s board of directors is also employed in the private sector and is also keenly aware of the challenges that those in the private sector and small businesses in particular face. We take great strides to be responsive to the concerns and interests of a vast segment of private sector groups ranking from professional trade associations and individual corporations to organized labor groups, public officials and individual private citizens.

We do so while guiding FPI on a course that will ensure its self-sufficiency in the future. As a member of the board, I can state unequivocally that we take our position and representative status very seriously when making decisions regarding FPI's operations. We are constantly struggling with the challenges of balancing the needs of FPI while minimizing the impact on the private sector. Pursuant to Federal law, we are called upon on the one hand to provide employment to the greatest number of inmates who are eligible to work in Federal prison, but on the other hand, we represent a segment of society that often has competing interests. The task is compounded by the continuing dramatic growth of the Federal inmate population.

When FPI proposes a new product or to significantly expand production of an existing product, a very important way in which the board fulfills its responsibilities through the guidelines process is that FPI staff first conducts a market impact study. The market study identifies and considers the number of vendors currently meeting the requirements of the Federal Government, the proportion of the Federal market for the product currently served by small business, small business disadvantage, and the business or businesses operating in labor surplus areas.

FPI also considers the size of the Federal and non-Federal markets for the product, the projected ability of the market to sustain both the FPI and private vendors and the trends of the commercial market for a comparable product. Before FPI even prepares a market study, FPI typically seeks preliminary input from affected parties to determine whether or not, and to what extent, it will propose an expansion. As encouraged by FPI's current board of directors, this is an additional opportunity that FPI affords to potentially affected parties to provide input.

In this case I want to emphasize in front of the Committee today a decision has not yet been made by FPI as to whether it will seek a proposal to expand in the military clothing area. Rather, FPI recently sent letters to potentially affected parties including our customer, the Government, seeking preliminary information in order to determine whether FPI would consider further expansion in this area. Copies were also sent to the Small Business Administration, AFL-CIO, the American Apparel and Footwear Association, and, as I said before, FPI's principal customer, the Defense Supply Center in Philadelphia. If FPI does decide to pursue the proposed expansion, it will be required to prepare a market impact study, announce in the Commerce Business Daily, and invite comments from private industry and organized labor. FPI also directly notifies those trade associations affected and allows them to provide comments. The Board is provided copies of the market impact study, all comments, and then holds a hearing at which the public can come and provide testimony.

After consideration of the above process and after considering all comments received, the Board renders a decision, which is also published in the Commerce Business Daily. The Board respects the diligent efforts of FPI management and staff and FPI's fulfillment of its mission very much.

In evaluating proposals to expand, we recognize FPI's need to employ inmates. At the same time we are also cognizant of FPI's role, and appreciate FPI's efforts to also ensure that there is not an adverse impact on private industry.

In summation, Mr. Chairman, I would also like to say that as to the matter of the work that FPI performs in the community, perhaps many distinguished Members of Congress, as the gentleman testified earlier, have prisons and typically Federal prison in their districts. The unions that represent the officers who do that selfless work all support FPI and the work that we do because it keeps the prisons safe not just for the inmates but, more importantly, for those taxpaying citizens that work in those institutions to keep society safe.

Thank you very much for this opportunity, Mr. Chairman. I am certainly interested in responding to any questions. I thank you for graciously allowing our Chief Operating Officer, Mr. Schwalb, to handle any technical issues that I may not be as conversant on.

Chairman Hoekstra. I wasn't sure we agreed to that. But we will see how we go. That may be an agreement that you have reached.

Mr. Aragon. Mr. Montalto was the one

Chairman Hoekstra. Mr. Montalto and I will have a discussion after the hearing. There is a reason why we wanted you here as the Chair of the Board of Directors and why we want to address questions to you and not Mr. Schwab. But we will cross that bridge when we get to it.

Only the Board may approve an expansion that it determines is a reasonable share of market, I believe is the appropriate quote. FPI statute does not define the term. The Board makes the determination on a case-by-case basis, relying on guidelines contained in a self-drafted policy. Could you describe in your own words your understanding of the policy of what constitutes a reasonable share of market?

Mr. Aragon. Well, Mr. Chairman, we do take that on a case-by-case basis, through the guidelines process, which was enacted by Congress before my term on the Board in the late 1980s I believe. But the guidelines process does provide some direction as to how we make the determination of what a reasonable share of the market is. I can tell you that depending on the industry we typically try and keep it 30 percent or less if at all possible.

I heard testimony earlier, Mr. Chairman, about the 100 percent market share in a particular area. It is a fact in some cases, that there are areas where at the request of our customer, we do provide 100 percent of the market share. Things such as military helmets, Mr. Chairman, that are needed by the military but only on an infrequent basis. Those are examples of what I believe are several areas where there are not domestic manufacturers of those products because there is not a steady requirement by the government to produce them. And so we, at the expense of business operations that the private sector can't afford, take the responsibility to provide things such as helmets when the government needs them. In that case, we do provide 100 percent.

We try and limit it to prevent as much impact as we possibly can on the private sector. Many times this Board, as our record demonstrates, has listened to testimony in our public hearings and told UNICOR they couldn't do what they wanted to do.

Chairman Hoekstra. We do have testimony before this Committee from April 21, 1999 when Mr. Rich Capell related an exchange that he had with FPI. Let me read from the hearing transcript.

"In the course of a task force hearing, we agreed and had a proposal with Federal Prison Industries that 10 to 15 percent was reasonable. The Board of Directors agreed with that, but I will come back to that in a minute." "Back to the meeting I had with the Board of Directors of Federal Prison Industries. I had an agreement from the entire Board. The Chairman of the Board looked me in the eye and said we had agreed and there will be no further expansion in any of these products, not just mine, without a discussion between Federal Prison Industries, the customer, which is the Defense Department, and the affected industries. He looked me in the eye and made that deal. I walked out of the room." "Not 2 weeks later, they decided that instead of taking 10 percent of my product, they needed 50 percent of my product. I in no manner implied that the FPI's Board of Directors lack integrity. I think they have great integrity. I don't think they have a clue as to what Federal Prison Industries does. They only know what the staff of Prison Industries tells them."

Do you have a comment on that?

Mr. Aragon. I certainly do, Mr. Chairman. Although you don't mention whom that Chairman was, I presume it was me, if it was a hearing that was held in the last several years. This is a circumstance where I do not know the specific amounts and market share that was at issue.

I would again appreciate the opportunity to have Mr. Schwalb's input if we are going to speak about the exact amount of market share and how that process worked. But I can tell you that all Board members do have a tremendous amount of integrity. And if we made a representation to someone who testified in that manner, then I believe that we probably fulfilled that requirement. We do oversee the work of industries and we do make sure that they follow the direction of the Board.

Chairman Hoekstra. I am glad they follow the direction of the Board.

Major General Henry, can you share a story that you have about an understanding that was reached with Michael Quinlan, a former Director of the Federal Bureau of Prisons and the CEO of FPI?

Major General Henry. I am sorry, Mr. Chairman.

Chairman Hoekstra. I think you want Steve Lamar. Who has the chart outlining what we would call promises made promises broken and the American Apparel Footwear Association, the post merger name for the American Apparel Manufacturers.

Major General Henry. Sir, I am sorry I don't have the specifics.

Chairman Hoekstra. Steve, do you?

Steve Lamar. The chart is in the Members' packet.

Major General Henry. Thank you. Momentary lapse in what you were talking about, Mr. Chairman, I am sorry.

You will notice on the chart the recent FPI clothing expansion. If you look at the time line from 1995 to 2000, you see about 15 percent that was targeted by the former FPI CEO, Michael Quinlan. Now, if you look at the line from 1995 at the far left when the deal was cut, you will notice that the progression of that line as it moves across the spectrum to 1996 goes down. Then you see a quantum leap to almost 50 percent of the items, which in that case was work clothing, and it has leveled off to 50 percent all the way over to the year 2000. The same could be said for protective clothing, as you will notice on the chart. The point is that under the Freedom of Information Act, I think the records show that FPI has taken 100 percent of the market for 106 specific items.

I understand that the workings of the Board for the Board Chairman is a constant pressure between the job they have and trying to balance the force with this fragile defense market. I, too, in my past, sat on the committee that made purchases for the severely handicapped and the blind, and a similar process such as that worked. That is the point that I would make, Mr. Chairman.

Chairman Hoekstra. Mr. Aragon, I am assuming that the Board has approved all those expansions of the 106 products to 100 percent of market share?

Mr. Aragon. Mr. Chairman, I would need to see the list, but it doesn't ring accurate in terms of 106 items having 100 percent of the market share. I would need to see it and understand it.

Chairman Hoekstra. We will prepare that data for you and give you with an opportunity to provide a written response to it. Again we would like to see the notes of the Board deliberations on those approvals, because we would like to know that the Board is watching exactly what is going on.

I just have a couple of other questions. Last week the Subcommittee heard what I thought was very disturbing testimony, and I believe we had bipartisan agreement on this issue. Mr. Scott even agreed that at the least it raised an issue of concern regarding the impact of FPI's increasingly large appropriation of excess computer equipment from Federal agencies. These are computers that under an executive order were targeted to go to inner city schools, low-income schools and those types of things. FPI takes this equipment for free, overhauls it and then sells it through retail outlets and Web sites.

You are well aware that FPI's activities in this area have led to a criminal investigation by the Inspector General, so I am not going into that recognizing the limitations that we have when there is an ongoing criminal investigation. What we want to know, because this is a significant expanse, is how big is Federal Prison Industries this year?

Mr. Aragon. I believe the number I heard referred to earlier is in the ballpark of $520 million or so, sir.

Chairman Hoekstra. Right. Our understanding is that this year, Federal Prison Industries will requisition through this surplus product category, somewhere in the neighborhood of $800 million or the value of $800 million worth of equipment.

So we requested copies of any Board resolutions or actions indicating that the Board authorized the commercial sale of computer or other types of equipment obtained by FPI from excess government equipment. Can you tell me how many documents there are that clearly outline the Board action approving this activity?

Mr. Aragon. I cannot tell you exactly how many documents there are, Mr. Chairman. I will say that when Mr. Montalto and I discussed this for the first time 2 days ago and he brought this to my attention, I immediately asked the staff to prepare a response to provide to you, sir.

Regarding the comment of how many items we had, I believe I heard the Major General say that 106 items or 100 percent of the market share was something that was negotiated with Mr.Quinlan in 1995. I know I was appointed to the Board in 1994, and since that time, Dr. Kathleen Sawyer Hawk has been the Director. So I am not aware of what occurred with Mr. Quinlan.

Major General Henry. My I correct the record?

Chairman Hoekstra. My time is almost up.

Mr. Aragon. Yes, sir. I didn't respond to your question.

Chairman Hoekstra. Did the Board approve Federal Prison Industries selling surplus equipment to the private sector? Did the Board know that the computers were taken from excess equipment? Did you authorize those computers to be taken by FPI from the schools, and sold through private outlets?

Mr. Aragon. Mr. Chairman, this is an area that this Board has very keen knowledge of. The Board is very well aware of what the practice has been with the computer products. It was this Board's direction to FPI to find other sources of work for our inmates. We are proud of the fact that we recently won an award for computer remanufacturing. We recently won the White House Closing the Circle Award because of the good service that we provide. These computers are not seized from schools, Mr. Chairman.

Chairman Hoekstra. They are being seized by surplus agencies; otherwise they would have gone to schools.

Mr. Aragon. Well sir, two meetings ago, at my direction, the Board met at Marianna, Florida, which is where one of the computer recycling facilities is, so that we could personally monitor what was going on. The Board's perspective was that those computers were filling landfills, and dumps, and that we would be performing a public service by employing these inmates, doing something that wasn't done before.

So we take the computers that are just government surplus, break them down, and teach employees skills. I believe it is accurate, that in a tractor-trailer load of computers, Mr. Chairman, the only thing that we can't recycle are batteries that could be put in a little paper bag. After recycling them, Federal Prison Industries and staff provide them to schools that ordinarily wouldn't have computer systems. Not only do we provide them to schools free of cost, but also our employees volunteer to help install them in those schools, Mr. Chairman. And to the extent that we do make them available for sale, there is a little front-of-the-factory retail shop where local constituents can walk up and buy computer parts. But that is only because it is too expensive, Mr. Chairman, to be able to recycle them otherwise. Those funds are used to subsidize the cost of operating Federal Prison Industries, so the tax dollars are then diverted.

Chairman Hoekstra. There are specific Board activities and resolutions approving this expansion?

Mr. Aragon. Yes, sir, and guidance from the Department of Justice, about our legal authority to do those things.

Chairman Hoekstra. You can forward those to us, too.

On what date and with what documents did the Board approve that action? Did the Board approve sales in the private sector, and sales on the Web site?

Mr. Aragon. Mr. Chairman, I believe I am accurate in saying we did. I can't tell you what form that would take in terms of a formal resolution, but the Board is certainly aware of the overall management of that program. I will provide that to you just as soon as I can, sir.

Chairman Hoekstra. That is even more disappointing than I thought, because I hoped that maybe you didn't know about it. Actually knowing that you knew makes it even more disappointing that you would flaunt it and go and sell into the commercial and private sector, which is I believe a direct violation of where you can go. It puts a fear into me as to what else this Board will do to move into the private sector and move significantly beyond the computer sector or the government sector. It seems as if the Board is running far a field of the management of Federal Prison Industries.

I would hope that you make a commitment that 100 percent of these computers find their way into schools at no cost. I would like to see the details as to exactly how many computers are going into schools and how much is being sold into the private sector. But 100 percent of this equipment should go into schools, which is where I think the President has intended them to go.

I hope that you stop any expansion or proposal of expansion into the apparel industry. I am hoping that the House will make a resolution before we adjourn this year on the computer issues. I think it is high time to take a serious look at the management of Federal Prison Industries, and with your testimony today, maybe it is high time to take a look at the Board of Directors as well and the direction that you are going in.

Mr. Roemer.

Mr. Roemer. Mr. Aragon, you have stated for the record that your Board, with advice or counsel from the Department of Justice approved the sales of recycled, refurbished computers to the private sector; you are clear about that?

Mr. Aragon. Will you let me just make sure?

Mr. Roemer. Just answer yes or no.

Mr. Aragon. Yes, as I have testified, Mr. Roemer.

Mr. Roemer. The United States Code, Title 18, Crimes and Criminal Procedures, says this in section 4122, Administration of Federal Prison Industries: Federal Prison Industries shall determine in what manner and to what extent industrial operations shall be carried on in Federal penal and correctional institutions for the production of commodities for consumption in such institutions or for sale to departments or agencies of the United States but not for sale to the public in competition with the private enterprise.

Now, it defies logic and common sense to me that you could interpret that and for the public good or a public service, break a public law. That is pretty clear to me. How can common sense and logic justify a reinterpretation of what this clearly states?

Mr. Aragon. Mr. Roemer, I have a document from the U.S. Department of Justice, Criminal Division, that I would like to submit to you as soon as I get finished discussing it. It is dated January 10th, 1994, and is the general litigation and legal advice section, to the General Counsel of the Federal Prison Industries from the chief of that division at the Department of Justice. The specific subject is what you have just addressed; the subject is application of 18 U.S. Code 1761(a) to prison recycling.

It specifies in significant detail over 8 pages, which you probably don't want me to read into the record, where that authority derives from.

Mr. Roemer. I would like to have it submitted for the record. I am interested in reading the interpretation, although I think it references a different part of the Code than I just read to you.

Mr. Aragon. It references that section as well, Mr. Roemer. It references each of those questions that you just raised, or that part of the Code.

Mr. Roemer. I am very curious to see how they can have that interpretation when this clearly states that the commodities for consumption in such institutions are for sale to departments or agencies of the United States but not for sale to the public in competition with the private enterprise.

Mr. Aragon. You are speaking of U.S. Code 4122(a), sir.

Mr. Roemer. I am. I am very anxious to read how that was interpreted. I guess you can get lawyers to interpret anything, but I sure read that as pretty straightforward. You are not allowed to provide refurbished computers, and we are waiting for a CRS counsel to interpret this. I don't see how you could have found a way that defies logic and common sense to sell these.

Mr. Aragon. Mr. Roemer, the concluding paragraph of the two pages in the legal decision that covered that, concludes in this manner: In other words this legislation which is 4122(a), was drafted by the Department of Justice to clarify the provisions of the Haas-Cooper bill dealing with manufactured goods. This legislation did not suggest any coverage for or provide any new definition of manufactured goods.

I guess that isn't the concluding paragraph; but certainly, as I say, there are many pages of information here.

Mr. Roemer. So manufacturing would not be clarified or classified as remanufacturing?

Mr. Aragon. I was on the wrong section.

Mr. Roemer. I think you were.

Mr. Aragon. But we did take direction from the Department of Justice.

Mr. Roemer. You made my point. I think that the law is clearly stated, and I am not sure how your Board or how the Department of Justice 1994 letter attempting to supposedly clarify this has accomplished that. I think it is, rather, confusing to everybody here who hopefully will use common sense and logic and fairness as principles here.

I just want to come back to your statement, Mr. Aragon. I think I can paraphrase you accurately. You said that you determined this to be a public good and a public service, and convicted criminals would help our school children by refurbishing these computers.

Mr. Aragon. Computers that otherwise would simply fill landfills and not provide any public good. The Board is very sensitive, Mr. Roemer, to the fact that we don't want to cause an impact.

Mr. Roemer. Are there other companies doing that now?

Mr. Aragon. I am uncertain, Mr. Roemer.

Mr. Roemer. Then how could you decide when the law states that you are not supposed to compete with the private enterprise, that this was a public good and that you were not competing with any other private-sector companies in the United States which the law states you are not supposed to do?

Mr. Aragon. I am uncertain as to whether there are private companies that perform that service. It has been a very difficult program to manage and to construct, I know.

Mr. Roemer. I should think, Mr. Aragon that your Board of Directors would be able to clearly tell you that before you made a decision to go in and compete with the private sector.

Mr. Aragon. I am unclear as to what you are saying. I do represent the Board of Directors.

Mr. Roemer. This whole conversation has been somewhat unclear. But the law clearly states that you are not supposed to compete with the private sector selling a product.

Isn't that what we just read?

Mr. Aragon. Again, Mr. Roemer, we are functioning under guidance provided by the Department of Justice that has determined that we have the legal authority to do what we are doing with the computer recycling.

Mr. Roemer. You cite a 1994 letter that states that you have the authority to do this.

Mr. Aragon. Yes, sir.

Mr. Roemer. Do you have attorneys on the Board of Directors that advised you as to whether or not this was within the law?

Mr. Aragon. As I mentioned in my testimony earlier, one of our members is the Assistant Attorney General for Administration, the Chief Ethics Officer for the Department of Justice, the Chief Financial Officer for the Department of Justice, and he was very much aware of the computer recycling. Although the six-member Board does not have its own counsel, we do have access to counsel.

Mr. Roemer. Did he write a letter specifically advising you on the interpretation of this law?

Mr. Aragon. I was referring to Mr. Colgate, the Assistant Attorney General for Administration. He is not counsel to the Board. He is a Board Member. I am unaware of any letter that he wrote specifically on this project, but I can say that he has participated in some of the discussions and presentations that have been made to the Board

Mr. Roemer. How often does the Board meet?

Mr. Aragon. Typically we meet every 2 to 3 months; quarterly, I would say.

Mr. Roemer. There are six Board members meeting three to four times a year.

Mr. Aragon. More often, as the need may require. But typically I would say four to six times a year.

Mr. Roemer. Has he been at all these meetings to give you his legal and ethical interpretation?

Mr. Aragon. No, sir, as I said before and I will state as emphatically as I can, Mr. Colgate is not counsel to the Board. He is a Board Member who happens to be the Attorney General's designee for the boards appointed by the President.

I am not representing, Mr. Roemer, that Mr. Colgate has offered legal advice to the Board. I am not representing that he has been at every Board meeting. I am simply saying that the Boards in total have reviewed the computer-recycling program. I believe we have the authority to do so and that we are performing a public good. We are putting inmates to work in something that otherwise would not be performed, and employing those inmates in areas where we won't have to take jobs from other businesses.

Mr. Roemer. I know we have got to go vote. I yield back.

Chairman Hoekstra. All right. We will recess and be back in a few minutes to continue.

Thank you.

[Recess.]

Chairman Hoekstra. The Subcommittee will come to order.

Mr. DeRossi, Major General Henry we are not ignoring you.

Mr. DeRossi. That is all right.

Chairman Hoekstra. The disappointing thing is we have heard this story before, and know about renegade outfits putting small businesses and American workers out of business. We have heard it over the last 3 or 4 years, and it continues to come out. So it is not that we are not interested, we are very interested, but at least I think Mr. Roemer and I have spent most of our time focusing on figuring out exactly what Federal Prison Industries is doing. We recognize that at this point in time, they are the ones that have to be reined in, and I am just waiting for the day when Federal Prison Industries decides to go into Mr. Aragon's business, and he will be here clamoring to protect his workers.

Mr. Aragon. They are in my business, sir, and I support it.

Chairman Hoekstra. Well, I am waiting for the day when they come in and decide to take 100 percent of your business like they are doing in other businesses.

Mr. Tancredo.

Mr. Tancredo. Thank you, Mr. Chairman.

Mr. Chairman, it has been my experience as a Member of the State legislature some years ago to look into the practices of Prison Industries at the State level. I should tell you that the testimony that has been presented here and the information provided to our Committee in both this hearing and others is not unique in terms of the kind of problems that private vendors face in competition with a monopolistic organization like Prison Industries.

So I hope that the light we are able to shed on this particular problem is bright enough and wide enough in spectrum so that it can be used by Members of State legislatures across the country in trying to determine the appropriate balance that needs to be maintained between keeping prisoners gainfully employed, on the one hand, and on the other hand protecting private entrepreneurs.

Mr. Aragon, I certainly appreciate the service you provide as a volunteer member of this board. It is an unpaid position. Your public service is commendable. But I also share the concerns of my colleagues about Prison Industries. On the one hand, I know you are under great pressure to be entrepreneurial and to find new markets and ways in which we can keep a burgeoning prison population employed. And the difficulty that you must face in trying to determine exactly how that can be done in the face of each step you take, being careful not to trod on someone's toes in the private sector is a daunting task. However, I think the information we have certainly indicates that the concerns of this Committee are justified regarding what FPI has done.

Recognizing that there are other members of the panel, as the Chairman has indicated, I guess I would direct some of my questioning to Mr. Allen in particular.

It is presently the practice by FPI, as I understand it, Mr. Allen, that its product and schedules meet your mission needs. The reasonableness of the price it will charge DLA, is their decision to make. It is also my understanding that most procurement professionals believe that not the government, but the seller, should make this kind of purchasing decisions. I mean, it only sounds logical and so self-evident that it almost seems trite. We recognize the peculiar position that Prison Industries is placed in by not having a "reliable" work force and, therefore, we have to make special considerations for them.

What is your professional opinion as to the actions that the government should take in terms of taking away the FPI's mandatory source status and its ability to dictate product suitability, schedule and price?

Mr. Allen. Sir, I think in an earlier part of your comments you used the word "balance." We do have some arrangements with Federal Prison Industries, which are beneficial to us, and I am going to take a couple of minutes to answer your question, because it is not a simple question in all cases.

We do have, in two particular instances, an agreement with Federal Prison Industries where we share the production base for a couple of very important items. While they own 100 percent of the allocation, if they so chose they could claim 100 percent of the production base for battle dress uniforms, trousers in particular. They do not do that by agreement with us. We are able to have them perform a portion of that, and we have a portion of that performed in the private sector as well. That is a very useful agreement for us.

We need that agreement. We need that balance. We need to protect the interests of the Department of Defense in managing the industrial base. That is our mission. We need to protect the capability to go to war when it is necessary. So what we need is the capability to do our mission.

I would defer to the Committee, I would defer to the Administration on other public policy matters, but I simply would reiterate to you that what we need in order to meet our mission is the opportunity to participate in decisions and the opportunity to manage the production and the supply of items in such a way that we can go to war when we need to go to war. I think perhaps without going any further, without stepping too far a field from my membership in the Department of Defense, I suggest the word "balance" is perhaps the right term.

Mr. Tancredo. Well, if I might, Mr. Chairman, just for a second follow up.

Are you saying that it is your opinion that in order to maintain that balance, that this kind of preferential treatment has to be given to FPI?

Mr. Allen. Not necessarily. No, I am not saying that preferential treatment has to be provided. I would suggest the example of the agreement with FPI.

The agreement, however, is granted to us by FPI. It is not something we were able to insist upon. We have an agreement with them where we share the production of some very critical items, and that is very useful for achieving our mandate, and useful for FPI to give prisoners productive work. That is something we have remedied under an agreement with them, essentially because they allowed us to. They understand our issues and have accommodated those requirements.

Mr. Tancredo. Thank you, Mr. Chairman.

Chairman Hoekstra. Mr. Scott.

Mr. Scott. Thank you, Mr. Chairman.

Let me first say a word about the computers issue. Mr. Aragon, I don't think we even get to the debate of whether it is good policy or bad policy. I think there is a lot to be said about taking things that would otherwise be trashed and converting them for productive use.

I think the question is whether or not you are within your statutory authority. There seems to me at least a good argument to be made, whether it is accurate or not, that you are outside of your statutory authority. Apparently you are relying on a 6-year-old legal opinion. I think everybody would be well served if you had that opinion updated and reviewed prior to the criminal investigation taking place. I think it is totally inappropriate to have that policy debate under the cloud of a criminal investigation when you have honest differences of opinion. I think everybody would be well served if you would have your attorneys review that particular opinion.

Mr. Aragon. Yes, sir, we will, Mr. Scott. I appreciate your comments on that.

Mr. Scott. Thank you.

Mr. Chairman, I think there is a significant public interest in having a full and viable Prison Industries. Those inmates who are involved in Prison Industries are much less likely to commit future crimes when they get out, and I think the public has an interest in not being robbed, raped or murdered. If the Prison Industries can help lower the future crime rate, I think there is a public interest in that. I don't think the public expects us to take actions that may increase the likelihood that they may be victims of crime. So we have, in my judgment, an obligation to keep as viable a prison industries program going as possible.

In light of that, Mr. Aragon, there is a question raised as to whether prisoners getting out could get jobs in the apparel industry. Can you comment about the likelihood of a person getting a job, having been trained in the apparel industry in the Prison Industries program?

Mr. Aragon. Yes, I would be happy to speak to that, Congressman.

I will get to the job in the apparel industry momentarily, but I will say that two of the critical things that Federal Prison Industries does is, first, it prepares people to be able to function in the work force.

There are two requirements to get into Federal Prison Industries, and Federal Prison Industries is the most preferred job in a Federal prison, even though the top pay is a little over $1 an hour. An inmate has to have an applicable education level, so people who oftentimes cannot even read or write are inspired to take advantage of the educational programs in an institution. That helps prepare them for the community once they are released, and most eventually are released.

Second, it teaches them how to hold a job. They have to get up in the morning, they have to go to work, and many of them do not have that capability, or that skill. It keeps them out of trouble, because if they get into trouble in an institution, they lose their Federal Prison Industries job, and go back to the bottom of the list. It helps, again, to keep our institutions safe.

As to specific jobs in the apparel industry, we have a quandary as well in Federal Prison Industries, because our task is to keep people working. So oftentimes, for instance, in the apparel business, or in the textile business, our motivation is to keep as many inmates working as possible. In the private sector, if I own a factory that manufactures textiles, my interest is going to be in making sure that I can get maximum production from one person. That may be the highest level of technology where one person supervises an operation that produces a multitude of goods.

In prisons, we downplay that so we can employ more people. Our technology in prisons is often much older as it was generations ago in the private sector. However, to the extent that there are U.S. jobs in the textile industry in this country, we do prepare our inmates to be able to perform those jobs. In fact, we take great pride not just in textiles, but also throughout the gamut of our work programs in helping marry up inmates with private sector jobs that they performed in the institutions upon release.

Mr. Scott. Are they able to get jobs in the apparel industry when they are released?

Mr. Aragon. Yes, sir.

Mr. Scott. You mentioned an elaborate process by which you evaluate the impact on the private sector. Does that process take into account whether or not there are existing contracts that you will be essentially taking from private industries, rather than going into a new area where no one presently is doing that work? Does your process differentiate between those kinds of contracts that are presently being held by clearly identifiable people?

Mr. Aragon. Certainly, Congressman, that is absolutely the case. Those clearly identifiable people stand about 10 feet in front of me at these public hearings and make their point, which as a minority small business owner myself, I take very much to heart. Many times we have had presentations by those people who tell us they are going to be devastated because there is only six companies making this product or X companies making this product, and it is their lifeblood.

Mr. Scott. And after you hear that, do you try to go into another area where you are not tripping over somebody that is presently involved in the work?

Mr. Aragon. Absolutely, Congressman, we desperately look for jobs in other areas. One of the things that the Board has very strongly supported is the authority to repatriate so much of the work; for example, as in the textiles industry, that has gone offshore.

Mr. Scott. We have people here who have employees doing the work, and you cancel their contract and put them in a position where they not only lose their clearly identifiable contract, but they have to fire clearly identifiable employees as a result of the contract being taken. The question is whether or not that is a major consideration when you start looking for work to do.

Mr. Aragon. Congressman Scott, Mr. Schwalb just provided me with a clarification on my prior comment. We never add products currently being produced under contract. I should have clarified that earlier.

Mr. Scott. When they would hope for an extension of the contract, not in the middle but at the end of the contract, is the fact that work is presently being done on the contract a major consideration when you consider which direction you are going to go in?

Mr. Aragon. Yes, Congressman, it is.

Mr. Scott. I yield.

Chairman Hoekstra. I thank the gentleman for yielding.

I think Mr. Roemer and I had an agreement. We knew there was going to be another vote. We will try to finish the questioning and wrap it up.

Mr. Schaffer.

Mr. Schaffer. I will try to get all my questions in as quickly as I can.

I want to go back to the computer refurbishing business again. We held a hearing last week on the issue of the increasing impact FPI has with regard to the extensive appropriation of computer equipment.

The most startling part, as Mr. Roemer mentioned before, was that FPI sells these computers on the open market not just to government agencies or specific contractors, but also to the general public, both at a retail level and also on the Internet. FPI's activities regarding the taking and use of this equipment has led to a criminal investigation by the Inspector General. I don't want to go into all of the details of that, because it is ongoing, but the Committee did request, through staff, copies of the resolutions or other actions that were taken by the Board to authorize the commercial sale of computers and equipment.

Mr. Hoekstra asked about that in general, and you seem to indicate that the Board was knowledgeable about it. But I want to know, did the Board ever take any formal action such as a vote or take a formal position that is of record to approve these kinds of sales? The staff told us no such Board action existed. I want to know if you recall any formal action the Board took to approve these kinds of sales?

Mr. Aragon. The formal action that the Board took that I am certainly aware of, Congressman Schaffer, was in approving the program that exists to remanufacture or "demanufacture" the computers.

Mr. Schaffer. Somewhere in that approval was it explicit that you, in fact, did approve the commercial or retail sale to the general public?

Mr. Aragon. As I told Mr. Montalto two days ago I am having it researched to see what the specific language is, Congressman. I certainly will provide it when we get it.

Mr. Schaffer. Even still, having said that, you are here today, and we are trying to get our hands on the official action that took place by Board Members that caused this policy decision to be made and this whole activity to begin. It is of concern to me that this paper trail is not well established within FPI. How can an entire new line of business be undertaken, staff members appointed, dollars budgeted, all presumably without any clear establishment of where this authority comes from or how and when the Board made the decision at an official level to begin the process to approve it?

Mr. Aragon. Well Congressman, with no disrespect to this Committee or this institution, if this Committee were seriously interested in the Board's position on computer remanufacturing, we should have been invited to the hearing last week and would have been able to present properly there. I would have been able to have, as Mr. Montalto assured me, Mr. Schwalb, who is on the Committee roster today, speak to the specific facts, and I could give you clearer information.

As Mr. Montalto pointed out, I do have a day job, and as anybody else who chairs an organization is aware, staff does the work, and the Board's responsibility is oversight. We have provided oversight in this matter. Again, if this Committee were interested in the facts on the computer issue, we would have been invited last week to testify when this issue was on the docket.

Mr. Schaffer. I yield back to the Chairman temporarily.

Chairman Hoekstra. No. You will have plenty of opportunity.

I would like to see the detailed accounting of the business plan where you approved this. I would like to see the formal notification. This is an expansion of $500 to $800 million, and your staff tells us that those documents are not available. Now you come here today and say you didn't have the opportunity to research them.

This is not brain surgery. There should be a business plan, and I would like to see the business plan. I would like to see the business plan by the close of business tomorrow. This should not be brain surgery. This is a huge expansion, and I am looking forward to having this information.

Mr. Aragon. Mr. Chairman, the figure you just spoke to, $800 million or whatever the number was, is absolutely inaccurate, and I came here today to testify on the matter that this Committee has on its agenda. So I was not prepared to testify on computers, and that is exactly why I told Mr. Montalto if those kinds of questions came up, I need to be able to refer to staff, but that has been disallowed. I am sorry I can't speak with more authority on the computer program itself. But I will provide you as much information as I can, Mr. Chairman.

Chairman Hoekstra. We don't want to miss the closing statement.

We are looking forward to FPI providing the information. I can tell you that because of the actions of the Board, and of Federal Prison Industries, a low-tech sweatshop may end up closing Mr. DeRossi's business because your job is to employ people. He has a business, he has a plant, he has equipment, and he employs American workers. He is probably trying to buy the latest equipment to stay cost-productive or cost-competitive to provide the best quality products to people like Mr. Allen, and you are going to potentially put him out of business, like you have put the container manufacturer in Georgia out of business; like you are putting people out of business or taking jobs away from people in west Michigan; like you took the glove manufacturer out of New York City and took jobs away from that. Mr. DeRossi is next on the list.

I think it is about time that you stop and recognize that there are American workers that you are putting out of business each and every day, and that there is a growing consensus within this Congress that it has to stop. Because of your actions, you are going to end up with the worst program and less opportunity because FPI just does not listen, and that is a huge problem.

Like I said, you want the opportunity to give us the information on the computers, great. You will have a letter today. We would like the business plan and the notes of the meetings by close of business tomorrow that indicate the thorough analysis that you have performed regarding the computers. This Committee will be more than willing to take a look at it, and we will be more than willing to have you come back here and justify the decision and the decision making process when we get the position.

Thank you very much.

We have a passion for protecting American workers. This continues to be an outrage, and there is a broad bipartisan agreement. We have the UAW, Ann Hoffman, Unite, the U. S. Chamber and NFIB sitting out there. It is time that Federal Prison Industries takes a look at what they are doing. They put together the most unique coalition here in Washington, which will soon be one of the most powerful coalitions for change in doing the right thing.

With that, I have to run and vote. I can't say good-bye to you except from right here. Thank you very much for being here. The Subcommittee is adjourned.

Whereupon, at 12:20 p.m., the Subcommittee was adjourned