BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON EDUCATION AND

THE WORKFORCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 24, 1999

Printed for the use of the Committee on Education

and the Workforce

RECOMMENDATIONS FOR CHANGES IN THE

FEDERAL PRISON INDUSTRIES PROGRAM

Friday, September 24, 1999

House of Representatives,

Subcommittee on Oversight

and Investigations,

Committee on Education and the Workforce,

Washington, D.C.

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

STATEMENT OF BRAD MILLER, BIFMA INTERNATIONAL, TESTIFYING ON BEHALF OF THE COALITION ON FEDERAL PRISON INDUSTRIES COMPETITION IN CONTRACTING *

STATEMENT OF RICHARD M. COYLE, FEDERAL MANAGERS ASSOCIATION, ALEXANDRIA, VIRGINIA *

STATEMENT OF MATTHEW PAGE, SMALL BUSINESS LEGISLATIVE COUNCIL, WASHINGTON, D.C. *

STATEMENT OF LARRY K. MARTIN, AMERICAN APPAREL MANUFACTURERS ASSOCIATION, ARLINGTON, VIRGINIA *

STATEMENT OF GARY D. ENGEBRETSON, PRESIDENT, CONTRACT SERVICES ASSOCIATION OF AMERICA, WASHINGTON, D.C. *

STATEMENT OF JOHN M. PALATIELLO, EXECUTIVE DIRECTOR, MANAGEMENT ASSOCIATION FOR PRIVATE PHOTOGRAMMETRIC SURVEYORS, VIENNA, VIRGINIA *

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

APPENDIX B-THE WRITTEN STATEMENT OF BRAD MILLER, BIFMA INTERNATIONAL, TESTIFYING ON BEHALF OF THE COALITION ON FEDERAL PRISON INDUSTRIES COMPETITION IN CONTRACTING *

APPENDIX C- THE WRITTEN STATEMENT OF RICHARD M. COYLE, FEDERAL MANAGERS ASSOCIATION, ALEXANDRIA, VIRGINIA *

The subcommittee met, pursuant to call, at 9:35 a.m., in Room 2175, Rayburn House Office Building, Hon. Peter Hoekstra [chairman of the subcommittee] Presiding.

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

Staff Present: Becky Campoverde, Professional Staff Member; John Loesch, Professional Staff Member; Patrick Lyden, Legislative Assistant; Michael Quickel, Staff Assistant; Michael Reynard, Media Assistant; Mark Rodgers, Workforce Policy Coordinator; Rob Sterner, Paralegal; Steve Settle, Professional Staff Member; Cheryl Johnson, Minority Counsel/Education and Oversight; Peter Rutledge, Minority Senior Legislative Associate/Labor; and Brian Compagnone, Minority Staff Assistant/Investigations.

Chairman Hoekstra. Good morning. A quorum being present, the Subcommittee on Oversight and Investigations will come to order.

The subcommittee today is meeting to hear testimony in regards to Federal Prison Industries and recommendations for reform that protect law-abiding workers and prepare inmates for a successful return to society with gainful employment.

Under rule 12(b) of the committee rules, any oral opening statements at the hearings are limited to the Chairman and the Ranking Member, and this morning I guess they are limited to the Chairman and Mr. Scott. All other opening statements will be submitted for the record.

Chairman Hoekstra. Today’s hearing is another part in a series of hearings that the Subcommittee has undertaken over a period of several years. Once again, we are going to hear testimony on recommendations for fundamentally changing the Federal Prison Industries’ program (FPI). FPI is the largest inmate work program. Many of us believe fundamental change is necessary to protect law-abiding workers and the firms that employ them.

Such change should better prepare inmates for a successful return to society with better prospects for employment that will pays a living wage. Several of today's witnesses have appeared before the subcommittee during the last Congress. They helped us initiate an assessment of what kind of changes to the Prison Industry programs that should be made.

This morning we will also have the opportunity to hear from a different group of workers, and this is the opportunity to hear from Federal workers who are Federal Prison Industries' captive customers. They must make do with Federal Prison Industries' products and services, when a commercial item would enable them to serve the public better. They must endure delayed deliveries of Federal Prison Industries' products when the superior commercial item is available many times off the shelf, and all too frequently they are forced to pay more for the FPI product, and they are unable to make the best value buy that is expected of them.

The Federal Government has begun implementing many of the purchasing changes that have also been implemented in the private sector over the last number of years. "Better, faster, cheaper, doing more with less," those have also become the watchwords of Federal managers. But what happens with the Federal Prison Industries’ mandatory source requirement, it really does hamstring Federal Government managers in executing the role that we expect of them.

The interesting thing on this, and the exciting thing from my perspective, is that it looks like we are moving through a process that soon will enable the House to be confronted with two very different versions of how to fundamentally reshape Federal Prison Industries. One vision would grant FPI almost immediate access to the commercial market with an unenforceable promise to end Federal Prison Industries' mandatory source status and its other preferences over Federal agencies' customers.

This so-called phase-out would leave FPI with its mandatory source, its captive Federal market for 7 more years. That is contrary to what was stated this morning in Congress Daily. We have gone through the bill, and Congress Daily this morning said that the one, HR 2558, the "Prison Industries Reform Act of 1999," would phase out the preference in 6 months. Maybe the panel will be able to address where that came from this morning, but where that came from I have no idea, because it is not anywhere in the legislation. Even after 5 years, the Attorney General could return everything to today's status quo if FPI failed to grow by more than 20 percent from commercial sales.

This expansionist vision of FPI in HR 2558 would immediately authorize FPI's status as a preferred source, a status which, FPI already claims to have. As asserted by FPI, its status as a preferred source authorizes FPI to enter into sole-source negotiations with a Federal agency. Again, private sector contractors would be precluded from any opportunity to compete for the work. If the work was currently being performed by Federal employees and had been identified for contracting out, Federal employees would be disadvantaged as well. In the competition for their jobs, they would be up against a competitor paying its inmate employees the minimum wage or less, potentially much less.

Left totally unchanged, by HR 2558, is FPI's authority to determine the suitability of its product or performance schedule to meet the mission needs of the Federal agency customer. Think about that. The decision as to whether a product meets the needs of the Federal Government is not made by the management or the employees of the Federal Government, the decision is made by Federal Prison Industries. Having worked in the private sector and sold to the Federal Government, that would be a wonderful opportunity to have, to be able to tell the Federal Government buyer, my product best meets your needs, best meets your delivery schedule, and has the best price. Therefore, you must buy my product.

Remember, unless changed, FPI's price meets the current market price standard as long as it does not exceed the highest price offered to the government for a comparable product; not the lowest, the highest price. No actual purchases by the government need to have been made at the high price, and FPI determines what commercial products are comparable to its product.

The expansionist vision would also provide new commercial market access to FPI's counterpart in the States. This new commercial sales authority is exempt from even the limited protections for non-inmate workers applicable to commercial sales of inmate-furnished products under the Prison Industries Enhancement Program.

Those of us who want to bring real reform to FPI have a completely different vision. It demands that the FPI compete for its Federal agency contracts like any other vendor to the Federal Government. To protect the safety of prison guards and other staff, we do provide the authority for the Attorney General to authorize the sole-source award of a contract to FPI when necessary to maintain the safety of the prison at which the work is to be performed. To prevent abuse of this special authority requires the Attorney General's decision to be supported by findings of the warden of the prison.

Our reform vision also empowers Federal managers and contracting officers. FPI would no longer be able to dictate to the agency that FPI's product and performance schedule meets the buying agency's needs, nor would FPI be able to set its own price. The buying agency could compel FPI's performance to the standards specified by the agency, and FPI would be held accountable for substandard past performance just like any private sector contractor. FPI would no longer be able to maintain its self-sufficiency by availing itself of a portion of its Federal agency customers' operating budgets.

Yesterday, as expected, the Judiciary Committee Subcommittee on Crime recorded by voice vote H.R. 2558. I believe it is mislabeled the Prison Industries Reform Act of 1999. It represents the expansionist view. As the legislative process moves forward, I am confident that Members will opt for the real FPI reform that is supported by organized labor, the business community, and FPI's Federal agency customers whose interests are being given voice today by the Federal Managers Association. The Hoekstra-Frank-Collins-Maloney Federal Prison Industries Competition in Contracting Act, H.R. 2551, provides that fundamental change to FPI.

That is where we are today.

Mr. Scott, I look forward to your statement.

Mr. Scott. Thank you, Mr. Chairman. I am pleased to join you at the hearing. Mr. Roemer has been delayed and will, undoubtedly, have a formal statement of his own, but I would like to state the importance of the Prison Industries' programs. They are important not only to the management of the prisons, but also in terms of reducing recidivism. The prison population will double in the next 7 years, and there are not enough jobs now for the inmates, and I think it is important that whatever we do, that we expand the Prison Industries program to make sure that as many inmates as possible can get meaningful employment.

A lot of the money they earn goes to fund support payments, and restitution of victims, so I think it is a very valuable program, and I hope that we can constructively work together to make it work. And I yield back the balance of my time.

Chairman Hoekstra. Great. Thank you.

Chairman Hoekstra. Let me introduce the panel this morning. We have Mr. Brad Miller, BIFMA International, who is testifying on behalf of the Coalition on Federal Prison Industries Competition in Contracting.

Good morning, Mr. Miller.

Next, we have Richard Coyle, who is from the Federal Managers Association.

Good morning. Thank you for being here.

Next, we have Matthew Page.

He is with the Small Business Legislative Council. Good morning.

We have Larry Martin, who is with the American Apparel Manufacturers Association.

Mr. Martin, good morning.

We have Mr. Engebretson, who is president of the Contract Services Association of America.

Good morning to you.

And we have Mr.Palatiello, who is the executive director of the Management Association for Private Photogrammetric Surveyors. I am getting the name right now. So you have got a lot of big words in there.

Chairman Hoekstra. Mr. Miller.

Mr. Miller. Good morning. My name is Brad Miller, and I am the manager of communications and government affairs for BIFMA International, the Business and Institutional Furniture Manufacturers Association. I am testifying today on behalf of the Competition in Contracting Act Coalition, which is a change from the title there that you were looking at. It is a couple of words short, but still a mouthful. The coalition itself represents 300 manufacturers, labor organizations, and associations across the country, and has partnered with the U.S. Chamber of Commerce to seek a fair and constructive reform of Federal Prison Industries, FPI, also known as UNICOR. I appreciate the opportunity to address this committee today regarding current legislative proposals to reform FPI.

As industry has testified numerous times before Congress, small businesses have closed their doors because they cannot compete with FPI. That is because the government is required to purchase goods produced by FPI, even if the quality is lower or the price is higher than goods produced by private business.

The two bills before Congress, H.R. 2551, the Federal Prison Industries Competition in Contracting Act, and H.R. 2558, the Federal Prison Industries Reform Act, both acknowledge that there is need for change. However, the approaches these two bills take is vastly different and deserves to be examined.

The Competition in Contracting Act Coalition believes that it is possible to have a solution that keeps inmates occupied, but does not unfairly compete with small business. H.R. 2551 embodies that solution. It would require that FPI compete for the work that they are currently given. Like businesses across the country, FPI would have to play by the rules that govern the Federal procurement process. They have had 65 years to get there, and we believe that it shouldn't be that large of a leap.

H.R. 2551 takes into consideration the need to provide a safe environment for men and women who work in our prisons. If FPI sees significant erosion in business, the Attorney General could temporarily preserve work in prison factories to assure that there is enough work to do. It would also provide FPI with an advanced list of procurements so that they can be assured of a fair chance to bid, something the private sector vendors do not receive.

H.R. 2551 makes several structural reforms that place decisions to expand FPI production in a neutral third party. H.R. 2551 would define "reasonable market share" as no more than 20 percent of the Federal market for products and no more than 5 percent for services.

Very importantly, H.R. 2551 would preserve and expand the allocation of profits from FPI sales that go to victim restitution and vocational training. Eighty percent of an inmate's wage can be garnished for victim restitution, payment of court orders, gate fund accounts, or as the Director of Bureau of Prisons otherwise sees fit. H.R. 2551 would add a new requirement that 20 percent of FPI's gross profits be directed into vocational training programs for inmates. This would assure that while inmates are engaged in work, they are also allowed to receive instruction and training to assist them upon release.

FPI repeatedly touts studies that indicate that inmates who work are 25 percent less likely to end up back in prison. The same study also concludes that it is education, vocational training, and work that are factors in reducing future crime, not just work alone. H.R. 2551 would assure that there is training and education to supplement work and according to FPI's own study, that should help reduce recidivism. Seventy-five Members of Congress, the United States Chamber of Commerce and organized labor all agree that H.R. 2551 is a solution that is fair.

Our coalition strongly opposes H.R. 2558. That bill provides for a dramatic expansion of FPI that will do more to harm business than it will to help inmates.

H.R. 2558 would allow the government to use prison labor to compete directly with the American businesses at the same time it would keep in place FPI's monopoly over Federal contracts for at least another 7 years, if not permanently. Mandatory source authority needs to be repealed quickly and with permanence. This is the number one priority of this reform effort.

Under H.R. 2558, FPI would be allowed to sell their goods in the commercial market in direct competition with American business. If FPI determines that there is a foreign source producing a product, FPI is exempt from paying minimum wage. Despite FPI's claims that they will focus on producing goods currently made overseas, there are already indications that this is not the case.

Last month FPI began soliciting private sector partners for the sale of inmate services in the commercial sector. Although this solicitation claims they will focus on services performed off-shore, they are soliciting business for Web page coding, data entry, and digital mapping, all industries in which a majority of the work is performed in this country.

It is ironic that both of these bills, H.R. 2551 and 2558, acknowledge that FPI needs expanded statutory authority to enter the commercial market, yet FPI has granted itself that new statutory authority. H.R. 2558 allows State Prison Industries to sell their goods across State lines. In other words, the bill unleashes nearly 50 State-run enterprises which will use taxpayer dollars to compete with business.

In conclusion, we strongly feel that prisoners should be involved in constructive work, but like companies across the country, inmates must earn that work through a competitive and fair process. H.R. 2551, the Hoekstra-Frank-Collins-Maloney legislation, strikes the appropriate balance in the Federal marketplace by leveling the playing field while at the same time stimulating education and training.

It is that marketplace, the Federal marketplace, which should be our learning laboratory, not the commercial marketplace where H.R. 2558 suggests that we experiment on private businesses and consumers. Thank you.

Chairman Hoekstra. Thank you.

Chairman Hoekstra. Mr. Coyle.

Mr. Coyle. Chairman Hoekstra and members of the subcommittee, I am Richard Coyle, the Zone 2 President for the Federal Managers Association. Zone 2 encompasses the mid-Atlantic States. On behalf of the 200,000 managers and supervisors in the Federal Government whose interests are represented by the FMA, I would like to thank you for inviting us to present our views on the requirement for Federal agencies to purchase certain products from UNICOR. FMA applauds and supports your bill H.R. 2551.

I am currently a full-time Federal employee with almost 20 years of service. I work as a supervisor in the Safety Division at the Marine Corps base at Quantico, Virginia. The views expressed in my testimony are my own in my capacity as a member of FMA's general executive board and not intended to represent the official views of the United States Marine Corps, the Department of the Navy, nor the Department of Defense.

FMA is an association of managers and supervisors in the Federal Government and has members in 25 departments and independent agencies. Mr. Chairman, the main message that FMA wants to convey to you and the members of the subcommittee today is that the Federal managers and supervisors care about how much their agencies pay for supplies. In our view, the FPI mandatory source requirement ties agencies' hands when it comes to making smart business decisions. While rehabilitating prison inmates is an important public policy objective, the costs shouldn't be borne by strapped agency budgets. The requirements should be eliminated.

The FMA is relatively new to this debate. In fact, we voted for the first time at our August midyear conference in Oklahoma City to support legislation to eliminate the mandatory source requirement. The debate to date appears to have focused on the interest of UNICOR's competitors versus the interests of the prisons. We are happy to get together with all our partners here and bring the perspective of UNICOR's customers to this debate.

As taxpayers first and civil servants second, FMA members want to see their tax dollars used in the most productive manner possible. Three factors contribute to our current heightened concern about making the best use of scarce agency resources: Agency downsizing, the balanced Budget Act of 1997, and public-private competition for Federal functions.

Since 1993, the nonpostal executive branch civilian work force has been reduced by over 300,000 positions. The discretionary spending caps imposed by the Balanced Budget Act of 1997 are keeping most agency balances flat or reducing them. Federal functions are being subjected to unprecedented competition with the private sector. The Department of Defense is leading the way with its intention to compete almost 230 Federal positions with the private sector by 2005.

Last year, Congress passed the FAIR Act. Under this law, agencies are required to submit lists to the OMB of positions that are considered commercial activities under OMB's circular A-76. These lists are scheduled to be published in the Federal Register between now and the end of the year. Supporters of increased privatization believe that publication of these inventories will increase pressure on the agencies to allow the private sector to compete for positions on the list.

Of particular concern to Federal managers and supervisors is the fact that Federal contractors are not required to purchase supplies from UNICOR. In our view this represents a significant and growing disadvantage to the Federal sector as we move into high gear to compete with the private sector for our jobs, for our functions.

FPI operates 99 factories at Federal correctional facilities around the country and employs 20,000 inmates. With over half a billion dollars in sales in 1998, FPI is the 35th largest government contractor. FMA applauds the public policy objective of rehabilitating prison inmates; however, the cost of millions of dollars overpaid for pricey and inferior products shouldn't be borne by strapped budgets.

UNICOR produces about 150 types of products and service in five main product categories: electronics, furniture, graphics and services, metals, and textiles. Federal agencies are required by law to purchase these products even though they may be able to secure comparable products faster, better and cheaper from commercial vendors.

A 1998 GAO study of 20 FPI products found that half the items exceeded the market price or were at the high end of the range of prices offered by private vendors. This assessment is consistent with the anecdotal experience of our members. FMA members are also concerned that it frequently takes longer to receive the products from UNICOR than from commercial vendors.

The Federal Government spends approximately $200 billion a year on goods and services. Over $80 billion of that is spent on products. Half a billion dollars in this context is significant. Even more significant, however, is the impact the mandatory source requirement has on line managers with little or no funds to purchase necessary supplies. Federal operations that have to purchase $520 desks from FPI are going to have a tough time competing against contractors that purchase the same desk for under $400.

In conclusion, Mr. Chairman, Federal managers and supervisors are currently receiving two conflicting messages from Washington, D.C. The message from Vice President Gore's National Partnership for Reinventing Government is do more with less. In Congress we frequently hear that the bureaucracy should act more like the private sector. In contrast, the law requires us to purchase over half a billion dollars worth of supplies from a noncompetitive source that frequently charges more than other commercial vendors.

The lament from managers, from supervisors in the field is that this Catch-22 is all too typical of the way the Federal Government operates. Congress and the White House want us to compete with the private sector, but they will not permit us to act like the private sector when it comes to purchasing supplies.

Agencies are working hard to do more with less, compete Federal functions with the private sector, streamline procurement rules and processes, and deliver high-quality service. FMA appreciates the efforts being made to help us be better stewards of the taxpayer's hard-earned dollars by untying our hands when it comes to making smart purchasing decisions. Please continue your efforts towards eliminating UNICOR mandatory source requirement. Thank you again for inviting us, and we look forward to working with you on this important issue.

Chairman Hoekstra. Thank you Mr. Coyle. Thanks for adding a different kind of a perspective to the issue that we are facing. I appreciate it very much.

Chairman Hoekstra. Mr. Page.

Mr. Page. Thank you, Mr. Chairman.

Good morning, Mr. Chairman, members of the subcommittee, I am Matthew Page. I serve as director of legislative affairs for the Small Business Legislative Council. SBLC is an permanent independent coalition of nearly 80 trade and professional associations which share the common commitment to the future of small business. Our members represent the interests of small business in such diverse areas as manufacturing, retailing, distribution, professional and technical services, construction, transportation and agriculture.

I wish to thank the subcommittee for the invitation to testify on this important issue. And even though we hail from opposite ends of the State, I really appreciate the opportunity to provide testimony for a fellow Hoosier, the Ranking Member and Mr. Roemer.

Chairman Hoekstra. Mr. Roemer was a lot friendlier when he thought Notre Dame was going to beat Michigan and Michigan State. Now there has been a cold shoulder.

Mr. Roemer. Mr. Page, I need all the nice comments I can get. Everybody from the State of Michigan, after Michigan State and Michigan defeated the Notre Dame football team, has been ruthlessly badgering me. And now I am hearing from all the other Congressmen, I think 434 others, that are on the schedule for Notre Dame in the future. So I appreciate your kind remarks.

Mr. Page. My friends from South Bend share your same sentiments.

Mr. Roemer. We will hang in there and continue rooting for the Fighting Irish.

Mr. Page. The focus of my testimony deals with the unfair competitive advantages Federal Prison Industries has, especially as it relates to small business. Any reasonable business would love to have the lengthy list of competitive advantages Federal Prison Industries enjoys. Under current law, Federal agencies are required to purchase products through FPI because of its mandatory source status. Inmate employees get paid only a fraction of the prevailing wage in the private sector. There is no penalty or loss of sales, so product quality and delivery time often remain poor. And FPI has the power to specify the price of its goods.

I would also like to point out that FPI has exhibited a track record, which is less than stellar. In 1998, in June, the General Accounting Office issued a report that stated FPI still has notable problems delivering or meeting the customer due dates for the delivery of goods. In the private sector in a manufacturer is delinquent on delivery, the customer has the option to shop elsewhere. However, in the case of the FPI, the customer, being the Federal Government, is held captive and has little or no choice because of mandatory source.

In the world of procurement, people are familiar with the Federal acquisition regulation, otherwise known as the FAR. The FAR dictates how Federal agencies purchase private sector products. Normally the FAR requires a private business seeking a Federal contract to submit a bid. On a competitive basis, these bids are pitted against one another, and based on a full and open competition, the bid, which most efficiently and economically can complete the work, is typically awarded the job. Once chosen, the winning bid must adhere to specific guidelines or otherwise lose the contract. Moreover, the contract winner must sometimes defend its award against protest bids filed by competitors questioning the agency's selection.

Simply put, FPI is not held to the same standard. Under Federal statute, FPI is the mandatory provider. As set forth in U.S. Code 18, section 4124, Federal agencies are required to purchase FPI products if they meet the buying agencies' requirements. All things considered equal, a buying agency may not seek an outside supplier unless FPI cannot meet the buying agency's requirements. Even under such circumstances, the buying agency is required to obtain FPI's written authorization prior to placing an order for a similar item through outside sources. Remarkably, the waiver request requires the agency to justify that FPI product doesn't meet the basic needs of the agency and that FPI has the final say on whether it is a valid request. It is hard to think of any other entity that has such control over certain purchasing powers in the Federal Government.

Let me bring this into focus here with small business. Unfortunately, the issue of unfair competition is extremely familiar to small business. It is especially well known to those small businesses that try to do work with the Federal Government. In fact, during the past three White House conferences on small business, the delegates voted as one of their top priorities enactment of legislation which would prohibit government agencies, tax-exempt and antitrust-exempt organizations, from engaging in commercial activities in direct competition with small business; in other words, unfair government competition.

It should be noted that during the 1995 White House conference, the issue of unfair government competition ranked higher than OSHA regulatory reforms or tax equity for small business, two issues traditionally favored by small business.

Now, what do all of FPI's competitive advantages mean to small business? They translate into lost job opportunities. Let me stress, this is not just a debate rooted in philosophy regarding the role of government. This is a debate based in the reality and the loss of real jobs.

Take, for example, the sometimes cited example of General Engineering Service, Incorporated, a small business producer of missile shipping containers which was stung particularly hard by FPI's competitive advantage. General Engineering Service used to employ 150 workers until FPI forced them to close their doors. Because of the mandatory source status, FPI was able to eliminate small business contractors from providing the Department of Defense its missile shipping containers, something that companies like General Engineering Services had been doing for years. Because of the mandatory source provision, small businesses were eliminated without the benefit of a competitive bidding process, which normally protects the Government from purchasing overpriced or low-quality products. Moreover, FPI took the missile container contract in direct violation of its authorizing statute.

I see that my time is running short here, and I would like to finish up with a few closing thoughts here. We have discussed the two bills before Congress, H.R. 2558 and H.R. 2551, and they have been described pretty well by my colleague Mr. Miller. We feel before FPI is allowed to expand its operations into the private market, FPI needs to be reformed. SBLC believes the new business opportunities H.R. 2558 would create for FPI are ripe for abuse, and we do not feel that Federal Prison Industries has demonstrated the responsibility to refrain from abusing these new privileges, especially ones that would permit sale of FPI goods and services in the commercial marketplace.

SBLC supports the efforts of Members of Congress who are seeking to limit the scope of Federal Prison Industries. Specifically, we support your bill, Mr. Chairman, H.R. 2551, which would truly eliminate the mandatory source standard for FPI as well as place limitations on further market penetration.

Jobs for prisoners should never come at the expense of work for the private sector. Preparing prisoners to respond to emergencies or natural disasters is much preferable than training them to take away market share in the furniture and textile industries. Prisoners should be given technical skills training that could apply to any job as opposed to placing them in full-time jobs that will not translate into jobs outside of prison.

In short, SBLC firmly believes that Congress should be more concerned with ensuring fair business opportunities for law-abiding small businesses rather than expanding market share for a program that has lost its sense of mission.

Mr. Chairman, SBLC thanks you for your dedicated leadership on this issue, and I thank the subcommittee for holding this hearing, and I look forward to working with you as this issue moves forward.

Chairman Hoekstra. Thank you very much.

Chairman Hoekstra. Mr. Martin.

Mr. Martin. Thank you, Mr. Chairman. I am Larry Martin, president of the American Apparel Manufacturers Association. It is a pleasure to be here today, and we commend the committee for its interest in this most important subject.

AAMA is the central trade association for American companies manufacturing clothing. Our members are responsible for about 85 percent of the clothing sold at wholesale in the United States. Our government contracts committee has about 50 companies, all of which have vital interest in your deliberations and in the future of FPI.

AAMA has long been concerned about the adverse impact FPI has had on private sector apparel manufacturers. FPI has been particularly harmful to a small but important group of manufacturers that produce uniforms and personal issue items for the U.S. Military. These companies are mostly small businesses. They sell almost exclusively to the Department of Defense. Collectively they form the critical warm industrial base that ensures a steady stream of supplies to the military in times of national emergency. These companies are threatened with extinction if FPI continues to take a larger share of the shrinking Defense budget for apparel every year.

Congress in 1934, we feel, made a critical lapse when it failed to define the terms of FPI's authority, leaving key mandates intended to minimize competition with the private sector open to interpretation. FPI has taken full advantage of these ambiguities in the law to render its statutory limitations meaningless.

We are grateful for the leadership that you and your colleagues on this subcommittee have provided on this issue. Clearly, FPI's authorizing statute is in need of modernization, and we look forward to working with you and other interested parties to craft a solution to this problem.

We have reviewed both pieces of legislation currently pending before the House of Representatives. As you know, we have announced our support for your bill, H.R. 2551. We do so for a simple reason. Your bill addresses the problem of industry vis-a-vis FPI by providing specific limitations, and perhaps more importantly it takes away the super-preference FPI has enjoyed. Our members are more than willing to compete with FPI on an even field, and your bill would give us that opportunity.

In contrast, the competing bill, H.R. 2558, does not eliminate current abuses under the system, nor does it alleviate the adverse pressures that FPI imposes on industry.

Two key terms in FPI's authorizing statute were intended to maintain a healthy balance between Prison Industries and the private sector. Those two terms are "reasonable share" and "specific product." Congress in 1934 decided that those terms were so clear that they did not require strict legal definitions. FPI has chosen to define the latter term in this way: "a specific product may include many different items." .

It has not suited FPI's purpose to ever provide a definition of reasonable share. In absence of legal definitions of these terms, FPI has not felt compelled to take a literal interpretation of its authorizing statute. As a result, FPI has not constrained itself to a reasonable share of the market for any particular specific product as called for by statute. Indeed, FPI has been authorized by its board to take 100 percent of the market for more than 100 products in the apparel sector alone.

In summary, the status quo is unacceptable. FPI has abused the system to take market share in specific products and specific industries well beyond any reasonable reading of the limitations imposed by statute. We are convinced that FPI doesn't have the institutional will to remedy these shortcomings. The answer is legislation to strictly define FPI's limitations and to force it to compete in the marketplace. H.R. 2551 ensures limitations and competition. H.R. 2558 does not.

Despite the job losses the U.S. Apparel government contracting industry has endured. We are aware of the difficulties of managing a Federal prison population that has swelled to perhaps unmanageable proportions. In recognition of those difficulties, and of the role that FPI may have in alleviating them, we are committed to working with you, Mr. Chairman, and with all other parties involved in the issue to reach a reasonable balance between these serious concerns.

Thank you, Mr. Chairman, for providing us this opportunity to present our views, and we would be pleased to answer any questions that may be asked.

Chairman Hoekstra. Thank you.

Mr. Engebretson. Mr. Chairman and members of the committee, I am Gary Engebretson, President of the Contract Service Association of America, the Nation's oldest and largest association of government service contractors. We appreciate this opportunity to come before you again to discuss the question of the Federal Prison Industries, FPI.

While the goals of FPI, which was established in 1934, are laudable, the manner in which it has aggressively pushed itself into the Federal marketplace and many legitimate businesses out of the same market is not.

Now, two vastly different bills to address the issue of FPI contracting are pending before Congress. Today I would like to share briefly with the committee the views of CSA on these two bills, the McCollum bill, the Federal Prison Industry Reform Act of 1999, known as H.R. 2558, and your bill, Mr. Chairman, the Federal Prison Industries Competition in Contracting Act, H.R. 2551.

At CSA we have studied both bills extensively and have concluded that your bill, the Hoekstra-Frank-Collins-Maloney bill, H.R. 2551, offers the more rational approach, one that is responsive to the needs of the private sector, especially service companies and small businesses, and one which we support.

To date, the concerns about FPI had focused on the manufacturing arena, but as I have testified previously, CSA is forced to enter this debate because FPI sees services as ripe for aggressive expansion into both government contracting and commercial markets. Indeed we are concerned that the McCollum bill, H.R. 2558, would allow the FPI, without exception, to jump into the services arena by defining product to include goods and services. And it would allow the FPI to sell its products and services within the open market in a totally unrestricted manner.

Even without congressional authorization, FPI is moving into the commercial services market as is evidenced in an August 23rd notice in the Commerce Business Daily which stated that the FPI is seeking business partnerships to provide services to the commercial market. This move appears to be solely based on a February 1998 legal memorandum issued by a special counsel in the Department of Justice Criminal Division that held that the FPI is not expressly prohibited from entering the services arena.

To further aggravate the situation, currently FPI does not have to pay any competitive wages or benefits to prisoners, which ensures that they have a leg up on the companies that must comply with the Service Contract Act and other laws and regulations, which, of course, includes in our judgment, the "best value" to the government as well.

My testimony before this subcommittee last April detailed CSA's concern regarding a proposed FPI rule that would have altered substantially the manner in which FPI operates in the Federal market. While the proposed rule was recently withdrawn, I am concerned that certain aspects of it could be enacted through legislation such as this unrestricted expansion into the service market.

I have also been told that FPI wants to be the first in line for commercial activities. If that occurred, there would be no right of first refusal now provided to protect the Federal workers when the private sector wins. If the FPI takes over the activity, the Federal worker is simply out of a job. And I testified to that in the April statement.

Furthermore, one provision of that proposed rule if implemented would have exempted FPI from Federal Acquisition Regulations or the FAR provisions that govern all government contractors and provides protections to the Federal agency customers to ensure quality and timeliness of the product or services provided. Along similar lines, the McCollum bill would exempt the FPI from competition laws or Federal regulations when obtaining products from the private sector. But whether such laws and regulations would still apply to FPI in responding to Federal Government solicitations for products is not clear. I would hope that the far-reaching tack taken in the proposed rule is not duplicated and set in stone in legislation.

As we all know, a key recommendation made in the 1995 House Conference on Small Business was that government mandatory sourcing should be curtailed from competing unfairly with small private sector firms. It is time to act on these recommendations. While I sympathize with concerns raised that there needs to be a transition period, I would like to note that there is no guarantee that the FPI would ever institute a phased elimination as called for in the McCollum bill. That is why CSA supports the Hoekstra-Frank-Collins-Maloney bill, H.R. 2551, which calls for a straightforward and immediate repeal of the mandatory source requirement.

In closing, let me just reiterate that CSA strongly supports the approach taken in H.R. 2551. Not only does this bill force the FPI to follow the same competitive procedures required of all government contractors, it also explicitly prohibits the FPI from selling services to the commercial market.

Finally, I have long advocated improved vocational training, which is extremely important in preparing prisoners for jobs upon release. I applaud your bill, Mr. Chairman, which recognizes the value of vocational training by mandating that a certain percentage of the FPI profits go to such training programs. As the association representing the broadest sector of government service companies, CSA believes that both industry and the government benefit from fair competition based on price and quality of the products or services in question. I look forward to working with you to promote your bill.

Chairman Hoekstra. Thank you very much.

Chairman Hoekstra. Mr. Palatiello.

Mr. Palatiello. Thank you, Mr. Chairman, members of the subcommittee. Good morning. I am John Palatiello, executive director of the Management Association for Private Photogrammetric Surveyors. We are a trade association of more than 130 private companies engaged in professional mapping and related technical support services. When I testified before this subcommittee in August of last year and April of this year, I talked about the threat of Federal Prison Industries' entry into our line of business. In April I discussed the Justice Department legal opinion that would permit FPI to enter commercial services.

I am before you this morning to say that that is no longer a threat, but a reality. As Mr. Engebretson indicated, in August FPI issued a Commerce Business Daily notice indicating that it had the capability for commercial market services for "complete vectorization of maps and engineering drawings." in layman's terms that is scanning and digitizing of paper maps into electronic format to build into geographic information systems. As I indicated later, this is work not only done related to public health, welfare and safety, but also intelligence and national security.

In the same CBD notice, FPI indicated that it is concentrating its efforts on performing commercial services work that is currently being performed outside the United States. However, FPI has erroneously come to the conclusion that mapping services fall within this category. In fact, I recently contacted a number of Federal agencies to determine the extent of Federal contracting activity in the specific services that FPI claims is being done outside the United States, and I can document more than 40 firms under contract to four major Federal agencies that have these services within their scope of work.

A number of these agencies have told me that they have done site inspections, tours and visits to the firms to verify that, indeed, this work is being done within the United States.

Federal mapping contracts are subject to the Service Contract Act. It requires the payment of a Labor Department-determined prevailing wage. If a firm were to send its Federal contract work offshore, take advantage of the lower wage rates in other countries, fail to pay the prevailing wage rate that is required of that contractor under the Service Contract Act and then try to pocket the difference, that firm would be in violation of Federal law. If FPI knows that this practice is occurring, I would urge them to report those companies to the Labor Department and to the enforcement offices of the Justice Department. If FPI is unaware of this practice, how can they make the claim that this work is going offshore?

What troubles us about H.R. 2558, Mr. McCollum's bill, is the fact that FPI is authorized to determine for itself whether a service is going offshore. There is no requirement for a market study, no consultation with the private sector, no requirement for any findings and determination or any public comment. Now, there have been some alterations made in the amendment yesterday with regard to the role of their advisory board, but still FPI gets to issue a death sentence to my members, and they get to be judge, jury and prosecutor.

Above all I believe that mapping is an inappropriate activity for Federal Prison Industries. First of all, Federal mapping contracts are not awarded to the lowest bidder. We are governed by the so-called Brooks Act, which requires awards based on the firm's demonstrated competence and qualifications. There is a definite public health, welfare and safety factor to the type of work that my members do.

Secondly, as I stated before this subcommittee before, these are imaging technologies. This can easily be transported by people who are trained with these skills into counterfeiting, and why they are teaching prisoners this type of skill is beyond me.

Finally, when you are taking these paper maps and converting them into electronic format, the work they are working on, this has access to information about individuals' homes, their property values and their tax assessment. I don't think that is information that you want to put in the hands of people who are incarcerated.

And most recently, FPI was included as a subcontractor on contracts awarded by the National Imagery and Mapping Agency. These contracts provide a variety of military and intelligence applications that end up in the production of highly classified maps. Your bill has specific provisions that would prohibit FPI from entering those lines of business. Mr. McCollum's amendment yesterday made an effort to address that, but there are huge loopholes in the provisions that he added.

I would also express my concern that the McCollum bill provides a specific and blanket exemption from the Competition in Contracting Act and the Federal Acquisition Regulations. I think that is a terrible precedent, and it is not in the taxpayers' best interest, and it is certainly not in the firm's best interest. Firms that do government work are used to complying with CICA and the FAR, and to introduce a new set of rules for firms that want to do business with FPI is costly in terms of the learning curve. To begin exempting individual Federal agencies from the FAR and from the normal procurement process, I think, is tantamount to pulling a thread that will ultimately unravel the entire cloth.

I would echo the concerns expressed by Mr. Coyle and Mr. Engebretson, and I would hope that whatever legislation that ultimately comes out of this process provides a specific exemption from FPI competition for any activity that any Federal agency inventories pursuant to the FAIR Act.

Finally, I think philosophically I believe that it is the role of Congress and the government to act as an umpire among competing interests in the private sector. It is not the role of government to be the opposing team. That is precisely what FPI has become. I thank you for the opportunity to testify.

Chairman Hoekstra. Thank you very much.

Chairman Hoekstra. Let me just make a couple of comments. Why are you back? Many of you have referenced this series of hearings. This is a moving target. Each and every week or each and every month, I have additional colleagues coming up to me on the floor and saying, "what are you doing on Federal Prison Industries?" Because they just came into my district, and they have had a huge impact on a business and employees in my district.

And that is why we are here, and we are also hoping that we are going to get some legislative action in this Congress.

I was reading the history on Federal Prison Industries, and I hope Mr. Roemer doesn't remember this as we go to have another debate on another issue, but the history of the unions actively opposing Federal Prison Industries was at the same legislative history, and their other major points at that time were Davis-Bacon and service contract industry. And, Mr. Palatiello, you brought that up, and I am sitting here thinking maybe I ought to support Davis-Bacon because it came out of the same history. I am with you on Federal Prison Industries.

Mr. Roemer. We will work on you.

Chairman Hoekstra. That is what I am afraid of.

But actually one of the individuals from the AFL-CIO sent me the history on Davis-Bacon and the Service Contract Act, and I was reading the history on those two. I think it was in the 1930s that those were the top two priorities for organized labor, Davis-Bacon and Prison Industries.

Mr. Palatiello. Mr. Chairman, if I may comment, regardless of what one's position is on the Davis-Bacon Act or the Service Contract Act, the fact of the matter is it is the law of the land today, and it is what all of us who are Federal contractors or our members who are Federal contractors have to abide by. To have another competing entity in there that doesn't have to comply with those same laws is the crux of the problem. That is part of the unfair advantage that Federal Prison Industries has.

So you can have a healthy debate in the Congress as to whether the Service Contract Act or the Davis-Bacon Act should continue, but as long as it is the law of the land, it ought to apply evenly across the board.

Chairman Hoekstra. I just found it interesting that they come out of the exact same history, and that a program at the AFL-CIO, the Chamber, NFIB, and all of your organizations' support an issue that 65 years later we are still struggling with; whereas, Davis-Bacon and Service Contract Act both passed in that framework.

I yield to my colleague Mr. Hilleary.

Mr. Hilleary. Thank you, Mr. Chairman. And thank you all for being here. I share the Chairman's concerns. I have more problems than I have time to talk about here. Briefly, in my district and with FPI, and I think it is one of those government agencies that is stereotypical, probably the worst I have ever seen with government taking a little bit of power and just going nuts with it. So I appreciate your testimony, and I agree with it wholeheartedly.

I was just going to ask Mr. Martin if you could just go back and talk about the term or the phrase "specific product" and how FPI has really abused that interpretation. And if you could just go back and embellish or expand on just the out and out horror that has happened to your industry from that.

Mr. Martin. Thank you, Mr. Hilleary. The FPI defines "specific product" as a specific product that may include many different items.

Under that definition, a specific product could be men's cotton shirts, of which there are millions and millions sold in the United States every year, but only a very small, small portion of those shirts are sold to the Department of Defense. So FPI could take a half a percent of the men's cotton shirt market, and it could be all the cotton shirts that the military wears.

We think that the definition needs to be narrowed down to pertain to the percentage of the DOD cotton shirt market rather than the entire market. None of our members that I know of who make cotton shirts for the military make cotton shirts for the commercial marketplace. They are totally dependent upon the DOD business.

Chairman Hoekstra. If the gentleman would yield, this is what happened to the missile container thing, right? Where they defined the container business as being a huge market, took a small share of it, and it happened to be all of the missile container market, and I think the company in Georgia goes out of business?

Mr. Martin. Yes. We have a list, which I would be glad to submit for the record, of something over 100 items in the apparel industry, which FPI has taken the authority to provide 100 percent of the DOD needs.

Mr. Hilleary. Well, just recently I had a gentleman from a factory that this is all he has left. I had a factory close here recently. But, I had this other gentleman call me 2 weeks ago and said that FPI was now claiming yet another product line, and as you say, that is all they are down to in many of these little factories, and they are small businesses, and in many cases, if they close, in the aggregate maybe a job is reproduced somewhere else because of NAFTA and everything else, but in little bitty places like places where I represent, I don't think that job is going to reappear there.

Mr. Martin. Mr. Schwalb, Director of FPI, was quoted in a recent issue of Manufacturing News stating that we favor the Hoekstra bill because our industry is being squeezed by imports. Well, our broader industry obviously is being squeezed by imports, but people, companies which provide goods to the U.S. Military are subject to the Berry amendment which forbids the military from buying apparel and other items which are made offshore. Therefore competition for our military contractors is not located in China or Honduras, it is located in that Federal prison in Georgia.

Mr. Hilleary. That is true. I was trying to point out that all they have left is DOD contracts because of this offshore competition. I appreciate you gentlemen being here very much. Thank you, Mr. Chairman.

Chairman Hoekstra. I thank the gentleman. Another colleague that has been helping on this bill and is a supporter, and I appreciate it, and I was down in Indiana a couple of weeks ago, I went down I think it was Wieland Furniture. I am not sure which small little town that was in Indiana.

Mr. Roemer. We have a lot of those.

Chairman Hoekstra. In Mr. Souder's district. It is a small company that I think they have calculated that they have lost the opportunity to employ 15 additional people in this small community, where I think they are the largest employer, strictly because of Federal Prison Industries. And I know with office furniture and that and other industries in Indiana, a number of companies have been hit hard by FPI and its mandatory source.

I yield to Mr. Roemer, and thank you for your support.

Mr. Roemer. You are welcome, Mr. Chairman.

I ask, first of all, for unanimous consent for my opening statement to be entered in the record.

Chairman Hoekstra. Without objection.

Mr. Roemer. Thank you.

Mr. Roemer. Secondly, I want to salute you for your leadership, and you are traveling around the country to bring Members of Congress and people's understanding on this issue forward and up to speed so we can address a problem that many Democrats and Republicans and people in the industry and taxpayers and employers and employees care deeply about. And as reflected by the cosponsorship of the bill, we have a wide breadth of liberal and conservative and Republican and Democrat cosponsors on this bill.

My first question would be to anybody on the panel. Certainly as a sponsor of this bill, I think this is very good legislation, and maybe it is even perfect legislation, I don't know. But if it is not perfect--

Chairman Hoekstra. Do you want my opinion?

Mr. Roemer. I could guess. You might want to enter your opinion in the record, but I just think it is perfect. If it is not perfect, any suggestions as to how we might further improve Mr. Hoekstra's bill and the bill that I cosponsored?

Mr. Engebretson. If I could start off, I think that the bill covers many of our concerns. My concern is that are we getting the proper support from the other Members of Congress? As I look at the McCollum bill, it is dangerous, and it just really makes me upset the fact that it passed out of markup yesterday. So with that, I think that probably the thing we should do is to put our forces together and even work harder to try to get this bill to the floor and hope we have a good debate, and then we win.

Mr. Roemer. Mr. Martin?

Mr. Martin. The elimination of the preference is so overwhelmingly important to our industry that other things are window dressing. The bill solves the problem that we believe we face.

Mr. Roemer. Mr. Page?

Mr. Page. My only concern is that there is a confusion that may exist among Members that these bills are similar, and I would have to say that a distinction needs to be made that especially when it comes to mandatory source status as has been described in this hearing and through testimony, they are not compatible. And I think it is up to the people at this table as well as others to make sure that your colleagues are aware that even though these bills deal with the same subject matter, they are not compatible.

Mr. Roemer. You mention, Mr. Page, the difference in the mandatory source status. Mr. McCollum's bill requires that inmates, excluding those already in the program, must be paid at least the minimum wage for their labor. Do you think this is an effective provision? What do you think the impact of his mandate is?

Mr. Page. I think it is a step in the right direction over current law, or at least over the current standard as it is right now. As you know, the inmates are paid a fraction of the minimum wage, somewhere around $1 per hour, and I think this is something that will start to create an even playing field among the competitors for these contracts.

Mr. Roemer. Anybody else want to answer that or further reflect on some of the problems of the McCollum legislation?

Mr. Palatiello. I would only offer two points. One is, as my colleagues have indicated, I represent a service industry, so the mandatory source issue is not as critical to us. But the big difference between the two bills is that your bill specifically prohibits FPI from entering into the commercial services market. Mr. McCollum's bill specifically authorizes them to enter the commercial services market. As I indicated in my comments, I think the bill is near perfection. It is excellent legislation. The only addition that I would make, as I indicated, was the provision with regard to the FAIR Act and to make sure that FPI is excluded.

It seems to me that if Congress in its wisdom has said that Federal agencies should inventory their commercial activities and make a determination as to whether in-house government performance or private contractor performance provides the best value to the government, then the competition ought to be between those two entities, and FPI ought not participate.

I was intrigued by Mr. Engebretson's comments. It is one, frankly, that I had not thought of; that is, under this current OMB process on contracting out, Federal employees have the right of first refusal. So if a contractor comes in and takes over something that is being done for the government, the contractor has an obligation to reach out, and any new-hires have to first try to come from the government. What are we going to do, put Federal employees in prison so they can continue to do their job under the right of first refusal? It doesn't make sense for FPI to be a player in that process.

Mr. Engebretson. If they would advance into the service industry, of course, we do have many small companies it would impact. Crown maintenance would be one of their main targets, and we have many companies that do this for the company. Food service, if it is mandatory for FPI to be considered and get the work sole source, it is going to impact our small companies that do food service. We can go on and on.

Mr. Miller. Mr. Roemer, in reflecting on the bill, I do think it is exactly the right measure. I think you are headed down the right path.

The problem you are facing at the Federal level is being mirrored at the State level. I am sorry Mr. Scott left, because in his State of Virginia just yesterday there was a hearing, and their correctional industries director, who has mandatory source status, was quoted as saying that the program needs the captive market to further its mission of teaching the work ethic. And when we focus on mandatory source status,that is what we are up against. They are not really teaching the work ethic; they are teaching captivity.

So, in terms of anything additional that you could do with your legislation to make it better, maybe entertaining Congressional Daily's proposal to make it a 6-month phase-out, would be a good addition instead of the 7 years or however long the other people who have looked at this bill claim it would take to simply compete. And as I had said in my remarks, I think 65 years is a good opportunity to learn how to run a factory.

Mr. Roemer. Thank you, Mr. Miller.

I want to thank the panel again for their help and their expert testimony.

Mr. Coyle?

Mr. Coyle. Just one small comment. In 7 years, the Marine Corps will have competed almost half of its civilian positions, so we don't have that long to wait. We are very interested in your bill as opposed to the other.

Mr. Roemer. Our perfect bill; right?

Mr. Coyle. Absolutely.

Chairman Hoekstra. I am not sure it is a perfect bill, but it is kind of interesting when you have worked on it for 3 years, and you have had Hoekstra, Maloney, Frank and Collins, you know, coming together on it, you can imagine how tough on most issues it would be for me and Barney and Carolyn to get together on an issue. And we have had a lot of good input and dialogue, and the bill has gone through a series of revisions over the last 3 our 4 years as we have gone through the debates, and as we have gone through the hearings, and as we have gotten input, and as Prison Industries has continued its march forward.

So if you have got any suggestions, we are more than open to listening, because I think the bottom line is let’s not kid ourselves, it is going to pass the Judiciary Committee. Mr. Engebretson, we are going to be worried about that. But we are gearing up to make sure that this is a substitute on the floor, and I think we have got a really good shot with the kind of support that we have, the broad-based support. When you have got the Chamber, you have the AFL-CIO, you have got Mr. Frank, Mr. Hoekstra, Mr. Roemer, Mr. Schaffer, Mr. Hilleary. It has got a good broad-based support and I think we will have a very, very interesting debate on the floor of the House. Because, if the House is going to be the group that is most responsive to its constituents, we all have a number of examples in our districts where people are no longer employed because, through a mandated process of the Federal Government, they have lost their jobs.

Mr. Coyle, you have all brought some interesting statements that this is an evolving process, but it is the first time your organization has had the opportunity to testify and talk about this issue. What brought you guys to the point where you actually debated this at your conference in August?

Mr. Coyle. The realization that every line item, every dollar that we spend is being scrutinized through this commercial activities process, this inventory process. And it means a lot to us. It means a lot for every desk that we buy that costs $500 from UNICOR that we can get for less than $400 elsewhere, at Staples or Wal-Mart or some other place. That is the kind of thing that brought it to our conference.

Chairman Hoekstra. And it jeopardizes your jobs.

Mr. Coyle. No question.

Chairman Hoekstra. The process that the Federal Government is going through is that they are looking at the cost that it takes for you or your departments to deliver a product or a service versus the cost of doing it in the private sector. You are saying in this and many other cases you are being forced to compete with one hand tied behind your back.

Mr. Coyle. Exactly.

Chairman Hoekstra. And if you can't compete with one hand tied behind your back, you are going to lose your job.

Mr. Coyle. That is right. I have a small example. I purchase prescription eyewear, safety glasses, for all personnel on the Marine Corps base that need them, and I buy them through UNICOR. I am required to do that. And it takes me about 8 weeks to get a pair of safety glasses that I order for the plumber over there in the maintenance shop.

Well, if I were able to go to an optometrist in town to buy the glasses, I would be able to have them in 2 or 3 days and for a less cost; rather than an average of $60, I could get them for under $50.

Chairman Hoekstra. And you wouldn't have to carry the inventory. You are probably forced to carry inventory if it is an 8-week delivery.

Mr. Coyle. Absolutely, these are prescription. Now we are forced to have a guy wear his regular glasses with goggles until they come in. It is not smart management to have to do that kind of thing. Whereas my competition, and this is ironic that I am sitting here with some of these great people. I don't normally get the opportunity to do that, to work together with you all, and I appreciate that. But my competition does not have to buy through UNICOR. The person that wants to take over the safety business at Quantico would not have to go and buy their products through UNICOR. So it makes a difference to me and my job.

Chairman Hoekstra. I have seen some of FPI’s catalogs. They make all kinds of products.

So your mentality now is what, is the waiver process? Or have you just given up on a lot of this stuff? The glasses for your plumber, I mean, have you given up and said, I am not going to ask for a waiver?

Mr. Coyle. Sir, I cannot get a waiver for that. That requires in the contract an annual contract. But I will give you an example. We attempted to buy a new piece of furniture for our office. And again, this is a very small thing, but it is governmentwide.

Chairman Hoekstra. If you are from Indiana or Michigan, we think buying office furniture is a very big thing, not a small thing.

Mr. Coyle. In our office we have the cubicles, the modular furniture, and in the safety business we review all construction demolition and renovation projects on the Marine Corps base, so we deal with a lot of blueprints, big pieces of paper. Now we put them on the copier and flip the pages because we don't have a table. So we tried to buy a drawing table. We couldn't buy one that suited our needs because of our cramped office space. We needed something that matched the furniture that we had that was able to be stowed away; it would fold down and hang level with the wall.

Well, UNICOR said that that was not acceptable, that they had something that was just as good for us, although it was this huge drafting table that would be in the middle of the aisle when we were not using it. That is an example where they stepped in and said, no, we have something that meets their need, when, in fact, it does not meet our need.

Chairman Hoekstra. Sure it does. They said it did.

Mr. Coyle. Well, you are absolutely right, sir.

Chairman Hoekstra. Thank you.

Mr. Schaffer.

Mr. Schaffer. Thank you, Mr. Chairman.

You know, FPI asserts that if it is forced to compete for its Federal contracts, it will fail, and inmates will be idle. But they also suggest that they should be able to expand further into the commercial market as an opportunity to compete more. It seems somewhat ironic in my mind. I just wanted to get anybody's response.

Mr. Miller. Well, I will start on that. The issue that I keep going back to be is the Federal marketplace where they are active today versus this whole issue of the commercial marketplace. And to use a correctional analogy, it is the same as if the difficulties you have with FPI today is the same as if you had a riotous or a hard-to-manage prison, and you were trying to deal with that hard-to-manage prison, and someone were to come along and say, well, let them out, then you don't have the hard-to-manage prison. But you have a hard-to-manage society, and that is what we are afraid of is that you are going to move from the Federal marketplace to the commercial marketplace at great risk when the key ought to be making the Federal marketplace or, in the analogy, making that Federal prison work, taking care the of the problems and making it function.

So that is where our Competition in Contracting Act

Coalition has come together on the mandatory source status first as the most onerous aspect of their operation. But then the many other problems that have been cited by my colleagues are problems that Congress rightfully needs to confront, and the learning laboratory ought to be confined to the Federal marketplace. That is where they ought to be able to get it right first.

Mr. Schaffer. Any others?

Mr. Engebretson. Congressman Schaffer, I have a hard time understanding that they think they are going to go out of business. If you take a look at the record, it points that the products they sell are generally higher than the private sector products. They are paying less for the labor. When you are paying less than $1 an hour for labor, I just don't understand how they can say they are going to be going out of business. And then they are now rated 35th as far as manufacture to the government. If you look at all of this, then it is very poor management on their part if they cannot stay in business.

Mr. Martin. It would seem to me also that FPI has failed utterly to fulfill its mandate to diversify among industries. The fact is that Federal prisons basically are participating in only five industries in the United States and that they have not explored the options that are available to them.

Mr. Schaffer. You know I came here late, and I am sorry. I am cosponsor of the bill and pretty much in agreement with the Chairman as to the direction that the committee ought to take. And maybe some of you addressed this in your testimony or perhaps in other questions, and if that is the case, I apologize, but I want to ask a question that is maybe not fair, but I think as citizens you may have observations.

We do not deal with corrections in this committee either for that matter, but the argument is a pretty simple one on the other side, and that is that these guys are in prison, they are idle, and we have to keep them busy with something and give them some marketable skills so that when they get out and give them some chance.

What is your opinion on this? What should we be doing with these inmates as a citizen? I don't want to see the government compete with the free market, that is wrong, but what do we do with these guys behind bars?

Mr. Miller. Just in terms of your Committee on Education and the Workforce, I think that obviously if within society we have people who end up in correctional facilities for whatever reason, lack of opportunity, lack of education or training, whatever the driver is, at the Competition in Contracting Act Coalition we have always tried to be very supportive of constructive activity for that population which will, according to the statistics, be returning to our neighborhoods. And so the vocational education and training that is mandated by your bill, I believe, is another great step in that direction, and it takes away from what even some former prisoners tell us they believe almost throughout the prison system is a busywork type of operation. That it is not real world.

In our particular industry, office furniture, I know of not one company, and I have asked, that has hired people from the FPI training program. You know, so it is not real world, and it needs to be, whatever the activity is, a real-work ethic, a real training opportunity, and equip those persons with the skills that they will need to make the society better.

Mr. Martin. If I may, we concur with the idea that prisoners should work. And I think everybody at this table would. The question is who bears the burden, and to what extent is that burden borne? We had an executive from one of our companies testify before another committee earlier this year, and a member of the committee asked him if he was not guilty of "not in my backyard" syndrome, and he said, actually it is not in my backyard. They are in my kitchen, and they have the refrigerator door open.

We are willing to pay our share of the burden, but we think it needs to be spread.

Mr. Schaffer. I don't have any further questions. Thank you all.

Chairman Hoekstra. One of the things that you have gone through that triggered my attention was that is it correct that the McCollum bill opens up all 50 State prison operations to interstate commerce?

Mr. Miller. That is our understanding.

Chairman Hoekstra. That will be an interesting thing, because I know what Governor Engler is going to do is Governor Engler is going to look across the border and take a look at everything that is made in Indiana and make sure that it ain't made in Michigan and say, let's get the prisoners making that stuff. And the people in Indiana, they are maybe not as bright as we are, they probably just make the stuff that is made in Indiana.

Mr. Roemer. That is why I am looking for improvements in the bill, so Indiana does better.

Chairman Hoekstra. That struck me that is going to create a very interesting dynamic because the Governors in these states are not going to give the directive to their prison officials to say, open it up, let's make stuff that we make in this State. Let's open up Prison Industries, but let's make sure that we make stuff in the prisons that is going to be made in Illinois or Wisconsin or down South or whatever, but let's make sure we don't do stuff that we build here in our State. And you are going to get 50 States looking at 14 other States for product opportunities, which just kind of strikes me as having a whole lot of, well, maybe for Mr. McCollum intended consequences, but for me unintended consequences. This is kind of a frightening little thought as to what this will do.

Mr. Martin and then Mr. Miller.

Mr. Martin. Well, as a matter of fact, you can buy prison-made blue jeans on the Internet today. It is a frightening prospect, but it is already occurring on the Internet situation.

We quite agree with you, it would create a very complex situation.

There is another anomaly. It is illegally imported goods into the United States that are made with prison labor, but we can export prison-made jeans from Oregon to Japan.

Chairman Hoekstra. Mr. Miller?

Mr. Miller. I was just going to comment that I agree. I think it is a Pandora's box. I think too much energy is being expended thinking about the various ways the Federal marketplace might be, I mean, the commercial marketplace might be changed to provide, I think, what Mr. Schaffer was asking for, opportunity or for activity to keep the prisoners busy. I think idleness is always cited as one of the things that correctional officials try to address. And we believe that if you go back to the Federal marketplace, and if you require some creative thinking from Federal Prison Industries, if you mandate that, they may take a look at disaster relief. I mean, Hurricane Floyd just hit North Carolina. We had no prisoner teams out sandbagging or trying to save homes or businesses. There is no difference, in my personal opinion, between taking a work detail to sandbag an overflowing river or participate in some kind of constructive, totally good to all of us activity than having them break rock. We have never suggested that should be done.

I don't believe we need smaller rocks. I believe we need constructive activity with the prisoners, and you can do it, but you have to have a creative edge. In Michigan they have talked about building homes and giving them to Habitat for Humanity, building them within the prison.

Chairman Hoekstra. If we could take rocks and make it into sand and transfer it into Lake Michigan before the high water levels, we might take that sand.

I think it is an interesting dynamic with the 50 States getting into the business and competing with each other, hit me as we were going through this today. That is ugly.

Mr. Roemer. I want to go back to something that Mr. Miller said about some of our prisoners making manufactured housing in the prisons. I have a big manufactured housing industry in Elkhart County that I am not sure would like that, but I have a prison on the outskirts of my district that does a host of different things.

But I am concerned about something you said in your statement, and I want to make sure that I understood it right and then see how we can improve it, because I think the Hoekstra bipartisan legislation is looking at ways to get at what you said.

I think you said that in your area of furniture, that you don't know of anybody in the furniture business that has ever hired somebody from the vocational and educational training programs from the FPI; is that right?

Mr. Miller. That is correct. And I have asked as we were developing our coalition my counterparts in other associations if they have ever checked with their memberships to see if there is this list or success story roster. And I went the further step of asking the director of Federal Prison Industries Mr. Schwalb, and he said, no, that is not their responsibility to keep such statistics. But if there were success stories, I think he would have it in his vest pocket.

Mr. Roemer. So how would you help us with our legislation to better equip, which I think you said about 10 minutes ago in your opening statement, which I completely agreed with, that we want to make sure that those people that are coming out of prison have some of the skills and the vocation and the work ethic and the discipline to then contribute in society. Those people that can't come out, we don't want them coming out. If they have been sentenced, they are harmful to society, they are not going to come back out, we hope. But those people we want to come back into our neighborhoods and into our society with some skills that the businesses can tap into, and, you know, benefit from and not have to completely retrain. How do we try to set up this conducive cooperation without having there be competition?

Mr. Miller. We have taken a look at the prison industry that we know today, and although they believe it is a business, we do not believe it is a legitimate business because of the mandatory source status. When you remove mandatory source status, and they are required to be businesslike, which their Internet site, by the way, says, their marketing material says, they are as good as anyone else, so there is a disconnect there. Someone is not being truthful if they are as good as everyone else and they would flatly fail if you removed mandatory source. So as you do that, as you remove the mandatory source status and they are forced to be competitive, they would also be forced to probably hire some people, professional management, within the Justice Department Federal prison factories, people who have had real-world experience to run the facility to be competitive, to bring in better equipment, state-of-the-art equipment, and take what FPI always tells us is a nonefficient work force and to make them more efficient. And you thereby impart those skills in that process alone.

But the other half of, I think, reaching the whole person in that work force is not just being competitive and doing the right thing to make the product, but I think having the rest of their soul fulfilled with the idea that it is okay, it is good to make something that can be given away, whether it is a foreign aid item. Today's FPI says it is not doable. It is unthinkable because there is no money coming back to us from that. But if you were to do what businesses do and always try to be good corporate citizens, and they were forced to do that, too, I think it is different than just look at their bottom line and how many prisoners and where are we going to target today.

Mr. Engebretson. Congressman Roemer, if I could add to this, picking up from Mr. Miller's statement, we would hire prisoners if there was a certain part of this vocational training program that would bring them up to a level that we know that we could place some trust in what was done after they were brought into the field. And let me explain what I mean. Let's say we set up a system where the prisoner has to meet certain criteria before they can go into the program to be in the vocational school, and let's say then they go through the vocational school, and they are training them to come out and in our case be put on a service contract, which then, if the FPI was forced to compete in the process like our companies have to compete, and they have to follow the rules and regulations that our companies do, you now get a fair program moving so that people that would be trained in the vocational school and go into then the service work with the FPI, and if these people then came out, our companies would look at them seriously to hire them because they have gone through a process to prove themselves.

And I think that really is the question. Do you want somebody that is on the work force that you can trust? And by putting it through the vocational process, you would develop this. That is why going back and forcing the FPI to take their money, instead of worrying about a big profit base, if they took the money and put it back, as you are suggesting in the bill, to build this vocational training program, I think we will have better results, and we will have good people coming out that society will accept.

Mr. Roemer. That is certainly one of the purposes of our legislation is to try to get at that through the educational and vocational components of our bill. And I thank the panel again.

Mr. Chairman, without objection, I have some extraneous materials Mr. Scott left that I would like to enter into the record without objection.

Chairman Hoekstra. Without objection--

Mr. Roemer. Thank you.

Chairman Hoekstra. so ordered.

Chairman Hoekstra. Mr. Schaffer, did you have anything?

Mr. Schaffer. I do have another question for Mr. Coyle, if that is acceptable to the committee.

Chairman Hoekstra. Go ahead.

Mr. Schaffer. You know, FPI is content in the claim that they are self-sustaining and they fund their operations from sales. But given the mandatory source status, and other preferences, they are self-sustaining by overcharging, and not just you, but all Federal agencies. That has been sustained and proven by the GAO report and some others, the inspector general of the Department of Defense as well.

This is really about making part of the Marines' budget FPI's as well. Do you have any comment about that?

Mr. Coyle. That is right, sir. They pick my pockets. That is pretty much what it comes down to. They help themselves to their fair share of my budget, no question about it.

Mr. Schaffer. You know what might be helpful for me, and I suspect also for the bill's sponsor and for the committee, is to try to quantify that in something other than dollars. How many flack jackets could you buy if you were able to purchase equipment on the open market? How many rounds of ammunition does this come down to? I don't know if you can do that here.

Mr. Coyle. Certainly, I cannot do that off the cuff, but that would be an interesting prospect, and maybe we could look at something like that for you.

Mr. Schaffer. That is really the only other question I had. If there is any other comments anybody else would like to make while that light is green?

Mr. Page. I would like to add something. We were talking about what do we do about training of these inmates and whether or not the jobs they have been tasked to do translate into jobs outside the prisons. Maybe this is a new idea, and I don't know that the committee is aware of this, but I believe that the unions and several corporations are in the beginning stages of partnership where they are trying to define what are basic job skills. I mean, people outside, union members, the shop workers in conjunction with the corporation and business owners trying to come up with a set of standards that are universal that may, in turn, be applicable to the type of skills that these inmates could learn or be a part of this training program so that upon release, they have the marketable skills that are needed to manufacture any of these types of jobs.

I would be happy to try to find some more information for the committee if that is something that you all would be interested in, but it seems that it might be a novel idea where there is an actual organization or group of people who are trying to come up with the set skills that are needed to work in today's work force.

Mr. Schaffer. That would be helpful. Thank you.

Mr. Palatiello. Mr. Chairman, let me comment on two questions that you asked and Mr. Roemer asked. First of all, I would recommend that the Subcommittee go back and read the testimony of Mr. Nolan from the hearing that you held last summer. Mr. Nolan represents Prison Fellowship, and I was incredibly moved by the story he told about the failure of Prison Industries because of their lack of teaching the correct skills. You have to remember the demographics of people who unfortunately end up in incarceration. These are people who can't read, can't write, dropped out of school, have no family support system, don't know how to maintain a checkbook. So even if you teach them some sort of job skill, they don't have life skills, and that is fundamental to rehabilitation.

And I think that the prison system is missing the boat on that entire set of skills that we should be training people on. And I am sympathetic to the need that the prison establishment has to keep people busy, to keep them occupied for security reasons, and also the rehabilitative aspect of incarceration.

The other point I would make, Mr. Hoekstra raised the issue of the State prisons, and I would ask, if I can, that the AP article that Mr. Miller mentioned before that I found in the Fairfax Journal yesterday about the Virginia experience, if we could put that into the record, I would like to, because the discussions that I have had with Mr. McCollum and his staff and with the officials of Federal Prison Industries, they always look at things in a macro viewpoint. Well, you have this multitrillion-dollar economy, and we are only doing a couple of hundred million dollars, you guys really can't explain. But when you start looking at an individual industry-by-industry analysis, even if they start taking a few hundred thousand dollars out of a particular industry, it is significant, because I know the ones that I represent, it is the cumulative effect of Federal Prisons, State prisons, universities compete with us, government agencies compete with us.

So when you look at what the market share of the private sector has, it is relatively small, and any little piece becomes significant. And I am concerned when I hear the testimony of my colleagues about how there becomes expansion within certain product lines. I want to limit Federal Prison Industries' involvement now while they are small because I don't want to have to come back here in 10 years and have to tell the story that some of these folks told or tell the story that Mr. Hilleary's constituents tell where I have members literally going out of business. I want to reform it now when it is a little problem, before it becomes a big problem. So I think we do have to look at these in a micro level as well.

Chairman Hoekstra. Mr. Roemer, any comments?

Mr. Schaffer?

I would like to thank the panel for coming. And just kind of summarize, what I think we have heard today is this problem is there, and it is growing. It is not getting any smaller, it is getting bigger. I am hearing it from my colleagues each and every day.

Mr. Coyle, thank you very much for adding the perspective of Federal workers and how this not only threatens your jobs, but costs the taxpayers money each and every day.

I am very concerned about the element in the McCollum bill of unleashing 50 State Prison Industries to go around and go job shopping in the 49 other States. I think that is just very, very problematic. And then recognizing that I am expecting that within perhaps within the next 6 weeks, this will be a debate that we will have on the floor, and I am looking forward to working with my colleagues on being successful when we get this issue on the floor.

I ask unanimous consent that the record will remain open for the standard amount of time. And without objection, so ordered.

The subcommittee will be adjourned. Thank you.

[Whereupon, at 11:20 a.m., the subcommittee was adjourned.]