Federal Prison Industries Competition in Contracting Act of 2001

SPEAKERS       CONTENTS       INSERTS

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72–146 PS

2001
FEDERAL PRISON INDUSTRIES COMPETITION IN CONTRACTING ACT OF 2001

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIME

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ON
H.R. 1577

APRIL 26, 2001

Serial No. 11

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Printed for the use of the Committee on the Judiciary

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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, JR., WISCONSIN, Chairman
HENRY J. HYDE, Illinois
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
CHRIS CANNON, Utah
LINDSEY O. GRAHAM, South Carolina
SPENCER BACHUS, Alabama

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JOE SCARBOROUGH, Florida
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL E. ISSA, California
MELISSA A. HART, Pennsylvania
JEFF FLAKE, Arizona

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California

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TODD R. SCHULTZ, Chief of Staff
PHILIP G. KIKO, General Counsel

Subcommittee on Crime
LAMAR SMITH, Texas, Chairman
MARK GREEN, Wisconsin
HOWARD COBLE, North Carolina
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
ASA HUTCHINSON, Arkansas,
Vice Chair
RIC KELLER, Florida

ROBERT C. SCOTT, Virginia
ANTHONY D. WEINER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts

GLENN R. SCHMITT, Chief Counsel
SEAN MCLAUGHLIN, Counsel
ELIZABETH SOKUL, Counsel
BOBBY VASSAR, Minority Counsel

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C O N T E N T S

HEARING DATE
    April 26, 2001

OPENING STATEMENT

    The Honorable Lamar Smith, a Representative in Congress From the State of Texas, and Chairman, Subcommittee on Crime

WITNESSES

    The Honorable Pete Hoekstra, a Representative in Congress From the State of Michigan

    Stephen M. Ryan, Esq., Manatt, Phelps and Phillips, LLP, Washington, DC

    Michael E. Mansh, President, Ashland Sales and Service Company, Philadelphia, PA

    Philip W. Glover, President, Council of Prison Locals, American Federation of Government Employees, Johnstown, PA

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

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    M.E. Ray, Warden, United States Peninentiary, Leavenworth, KS: Prepared statement

    Steve Schwalb, Assistant Director, Industries, Education and Vocational Training, Federal Bureau of Prisons: Prepared statement

    The Honorable Howard Coble, a Representative in Congress From the State of North Carolina: Prepared statement

    The Honorable Pete Hoekstra, a Representative in Congress From the State of Michigan: Prepared statement

    Stephen M. Ryan, Esq., Manatt, Phelps and Phillips, LLP, Washington, DC: Prepared statement

    Michael E. Mansh, President, Ashland Sales and Service Company, Philadelphia, PA: Prepared statement

    Philip W. Glover, President, Council of Prison Locals, American Federation of Government Employees, Johnstown, PA: Prepared statement

    Letters of Concern From Wisconsin Businesses

    John Palatiello of the Management Association for Private Photogrammetric Surveyors: Prepared statement

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    U.S. Chamber of Commerce: Prepared statement

    T. Howard Noel of the Council on Federal Procurement of Architectural and Engineering Services: Prepared statement

    American Apparel and Footwear Association: Prepared statement

    Lawrence Skibbie of the National Defense Industrial Association: Prepared statement

    Gary D. Engebretson of the Contract Services Association of America: Prepared statement

    Bob DeGroft of the Independent Office Products and Furniture Dealers Association: Prepared statement

APPENDIX

    Material submitted for the record

FEDERAL PRISON INDUSTRIES COMPETITION IN CONTRACTING ACT OF 2001

THURSDAY, APRIL 26, 2001

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House of Representatives,
Subcommittee on Crime,
Committee on the Judiciary,
Washington, DC.

    The Subcommittee met, pursuant to notice, at 9:07 a.m., in Room 2237, Rayburn House Office Building, Hon. Lamar Smith (Chairman of the Subcommittee) presiding.

    Mr. SMITH. The Subcommittee on Crime will come to order. Good morning to you all. We welcome our witnesses today.

    In just a minute, I will recognize Members of the Committee for their opening statements, but I want to say for the benefit of our witnesses and for the benefit of those in the audience, as well, while this could not be a more important hearing, it is going to be, of necessity, a relatively short hearing because the Judiciary Committee has a bill on the floor at 10 and we, according to Committee rules, are going to have to be finished by that time. So those here can rely on the fact that this will be about an hour in length, which should be plenty of time to hear from our witnesses and ask questions, as well.

    I will recognize myself for an opening statement.

    Today, the Subcommittee holds a hearing on H.R. 1577, the Federal Prison Industries Competition in Contracting Act of 2001, introduced by Congressman Pete Hoekstra. The Federal Prison Industries program, commonly called FPI, employs about 20 percent of the total Federal prison population. It is self-supporting from the sales of its goods and services. The prisoners who work in them earn income to support their families, pay restitution and fines, and make payments to victims' compensation funds.

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    The principal purpose of State and Federal Prison Industries programs is to teach work skills to inmates so that when they are released from prison, they will be more likely to find and hold jobs and less likely to repeat their crimes. Several State and Federal studies have shown that inmates who work in Prison Industries programs have significantly lower recidivism rates than those who do not.

    But as clear as the public benefit of this program may be, it is also clear that the 1930's legislation that governs this program is today producing some unintended consequences. Current law restricts the FPI program to only sell its goods to the Federal Government, and so it places a disproportionate burden on those private businesses that compete for the Federal Government's contracts for those goods, and current law requires the government to buy specified quantities of certain goods from FPI and in so doing prevents competition for those government contracts. Because of these aspects of the law, I believe it is appropriate for us to review the statute that governs this program.

    In today's hearing, we consider a bill that would amend the statute governing FPI. This bill would eliminate the mandatory source preference that requires the Federal Government to buy some of the goods that Federal prisoners produce. Instead, it would require FPI to compete for all of its business with the Federal Government and give Federal contracting officers final decision authority of what products their agencies will buy from FPI.

    We welcome our witnesses, particularly our colleague, Congressman Hoekstra, and look forward to hearing their testimony in just a minute.

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    I will recognize the Ranking Member, Mr. Scott of Virginia, for his opening statement.

    Mr. SCOTT. Thank you, Mr. Chairman. I am pleased that we are having a hearing on the Federal Prison Industries program. It is an important program with substantial effects upon the safety and economic interests of hundreds of thousands of lives, including Federal prisoners, their dependents, correctional personnel, businesses, their employees, and not the least of which, victims of crime, both current and potential.

    As we have seen from bills and hearings on this issue in prior Congresses, the issues are complex and generate heated debate among those various interests. Former U.S. Attorney Edwin Meese, former U.S. Secretary of Labor Ray Marshall, policy analyst and Texas A&M economics professor Morgan Reynolds, Harvard economist Richard Freeman, corrections guru Warren Cikens, and economist Tom Petersik and others have all written and spoken extensively about the importance of prison industries. We could benefit greatly from the views of people such as these today, and I certainly would have sought them were it not for the truncated procedure that we are now working with in the Judiciary Committee Subcommittee hearings. I know this is not your fault, Mr. Chairman, but being relegated to just one witness means that we cannot hear from all these different views and different perspectives on this important issue.

    How can we possibly feel that we have considered the issue, first of all, without hearing from the Federal Bureau of Prisons, the entity responsible for operating the Federal Prison Industries? I certainly do not feel competent to assess the implications and effects of the bill before us without hearing from BOP. While I would like to know the criticisms of FPI's operations, I consider it unproductive, if not unseemly, for us to hear only one side of the story without the benefit of the other side.

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    FPI jobs have proven to be an important asset to the Federal prison system. Not only do they keep inmates productively occupied, which reduces inmate idleness and the violence and disruptive behavior associated with it, but also provides inmates with on-the-job training and work experience that develops job skills and a strong work ethic for employment once they leave prison. With the elimination of parole, Pell grants for college classes, and other traditional behavioral incentives in the prison system, prison industries has become all the more important as a behavioral incentive.

    We recently learned how important the people who run the prisons think FPI is to their responsibility during our visit to the Lewisburg and Allenwood prisons. I have a letter here from Warden Mickey Ray of the Leavenworth, Kansas, maximum security facility, which I would like to make part of the record. It says that if the legislation were enacted which effectively eliminated FPI, we would lose the single most effective program for maintaining safety and security in his institution.

    [The material referred to follows:]

A.eps

    Mr. SCOTT. Research has confirmed the value of FPI as a correctional program. For example, a long-term post-release employment study by the Bureau of Prisons found that inmates who were released as long as eight to 12 years ago who participated in industries work or vocational training programs were 24 percent less likely to be recommitted to Federal prisons than a comparison group of inmates who had no such opportunity. State studies in Ohio and Maryland have further confirmed these findings, and I would like to place these three studies in the record at this time.

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Mr. SMITH. Mr. Scott, without objection, those studies will be made a part of the record, as well as the letter you referred to from the Department of Justice.

[The material referred to follows:]

B.eps

C.eps

D.eps

E.eps

F.eps

G.eps

H.eps

I.eps

J.eps

K.eps

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L.eps

M.eps

N.eps

    Mr. SCOTT. Thank you, Mr. Chairman.

    In the year 2000, FPI workers paid $2.5 million in fines, victim restitution, family support, and other legal obligations. Over $410 million was paid in raw materials in 2000, resulting in the support of approximately 5,000 private sector jobs. Indeed, all of the $566 million in revenue collected by FPI in 2000 went back into the general stream of commerce through either purchase of raw materials or FPI inmate salaries, FPI employee salaries. All of this occurs at no cost to the taxpayer.

    We will hear today, no doubt, a number of complaints about the operations of FPI. Since we will not hear from FPI, I think it is important for us to have as broad a context as possible in which to consider these complaints.

    FPI captures approximately 3.2 percent of the Federal market for those Federal Supply Classification codes in which it operates. This represents one-quarter of 1 percent of all the Federal procurements. The domestic office furniture business is approximately a $13.5 billion operation nationally. FPI captures about 1.7 percent of it. Of course, this amount would hardly register as a percentage of the entire domestic furniture market. Under questioning during the 1999 hearings on FPI before this Subcommittee, representatives of both the office furniture industry and the apparel industry conceded that FPI sales represented an insignificant percent of the total market in America. I would like to offer the relevant pages of the transcript of those hearings as part of this record.

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    Mr. SMITH. Without objection, so ordered.

    [The material referred to follows:]

O.eps

    Mr. SCOTT. FPI is required to diversify its product line and operate so that no single private industry bears an undue burden. It is also charged with reducing to a minimum competition with private industry or free labor. The Federal agencies can obtain a waiver of this requirement to purchase FPI goods and services if FPI is unable to make the needed product or provide the required service within the time frames or quantity or quality specifications. Such a waiver is issued 90 percent of the time that it is requested. Annual revenue for those waivers equals approximately $456 million, which goes into the private sector suppliers.

    So, Mr. Chairman, I think we must certainly be open to ways to better ensure that FPI is working and operating within its boundaries set by Congress, and the fact that FPI has any business at all means that a private sector may not get that business. This alone, however, should not signal that something is broken.

    We have not had a chance to read the legislation before us. As we do, we will read it with an open mind toward supporting any proposal which improves the operation of FPI with the caveat that any such proposal should first do no harm to the current level of inmate work opportunities, particularly in light, Mr. Chairman, of the significant increase in prison population that we expect to see in the next few years. I think the population is expected to go from about 150,000 to almost 200,000 inmates, and obviously we will need more jobs for them rather than less under FPI. Thank you, Mr. Chairman.

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    Mr. SMITH. Thank you, Mr. Scott.

    Mr. SMITH. We have also been joined by and welcome the gentleman from Wisconsin, Mr. Green, and the gentleman from North Carolina, Mr. Coble, and I understand, Mr. Coble, you have an opening statement, and you are recognized for that purpose.

    Mr. COBLE. Mr. Chairman, I will be very brief, and not unlike most days up here, I say to you and to the Ranking Member, we have to be at five places simultaneously. Today is one of those days, so I will probably be coming and going.

    Conceptually, Mr. Chairman, I am not in disagreement with FPI. I mean, to rehabilitate prisoners, I think we all sign on to that. I have become subjectively involved, however, because I represent about 45,000 textile and furniture workers in the private sector back in my district, and I will go to my grave, Mr. Chairman, believing that FPI enjoys a leg up. The mandatory source rule is one of my pegs on which I hang my hat.

    I have talked about this before, and I think we need to, without, to coin a phrase, without throwing the baby out with the bath water, I think we need to examine this very carefully to be sure that FPI is not extending its tentacles too onerously into waters that ought to be certainly reserved in part for the private sector. That is my problem.

    I will put my detailed statement in the record, Mr. Chairman, without objection, and I thank you for recognizing me.

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    Mr. SMITH. Without objection, the gentleman is welcome to put into the record any extension of his remarks and they are appreciated.

    [The prepared statement of Mr. Coble follows:]

PREPARED STATEMENT OF THE HONORABLE HOWARD COBLE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. Chairman and Members of the Subcommittee,

    Federal statute authorizes Federal Prison Industries (FPI), the government corporation that employs federal inmates, to sell the goods and services produced by these inmates to federal agencies but not to the public in competition with the private sector. Federal law also mandates that federal agencies purchase FPI products. This requirement is generally referred to as ''FPI's mandatory source status.''

    While I support efforts to train prisoners to become productive members of society, I strongly believe that such efforts should take great care not to threaten the jobs of hard-working taxpayers. This issue is especially important to the 6th Congressional District of North Carolina, home to more than 40,000 textile and furniture workers, since two major classes of items produced by FPI are textiles and furniture. The mandatory source status gives FPI an unfair advantage over private manufacturers contending for federal contracts. Therefore, many of my constituents are deprived of employment opportunities in order to give work to federal inmates. In addition, the furniture industry in North Carolina is already competing with an increasing number of furniture imports arriving to the U.S. from countries such as China.

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    For these reasons, I am greatly concerned about FPI's proposal to begin selling inmate-furnished services in the commercial marketplace. I am equally concerned with FPI's publication of a regulation that professes to be a codification of ''existing standards and procedures utilized to accomplish FPI's mission.'' It is my opinion that FPI is in need of reform before it is allowed to expand.

    In previous Congresses, I have sponsored and cosponsored legislation to do just that. During the 105th and 106th Congresses, I cosponsored the Federal Prison Industries Competition in Contracting Act (H.R. 2758 and H.R. 2551, respectively). These bills would have removed FPI's mandatory source status for products sold to the federal government, and I will support any such reform efforts again during the 107th Congress.

    Hardworking, taxpaying citizens of the 6th District of North Carolina who are employed in the furniture and textile industries can compete with anyone in the world. They should not have to compete with their own government which is using their tax dollars to train federal prisoners how to be textile and furniture workers. It is not fair and is not right.

    Mr. SMITH. We will now go to our panelists, and let me introduce all of them. The first is Honorable Pete Hoekstra, Member of Congress, Second District of Michigan, United States House of Representatives; Mr. Stephen M. Ryan, Manatt, Phelps and Phillips, Washington, D.C.; Mr. Michael Mansh, President, Ashland Sales and Service Company, Philadelphia, Pennsylvania, and Mr. Philip W. Glover, President, Council of Prison Locals, American Federation of Government Employees in Johnstown, Pennsylvania.

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    Again, we welcome you all. Mr. Hoekstra, you are up first, and we do understand you are going to have to leave after your testimony because of another conflict, but we appreciate your being here today. This is obviously your bill that we are considering and so we look forward to your comments and you are recognized for that purpose.

STATEMENT OF HON. PETE HOEKSTRA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

    Mr. HOEKSTRA. Thank you, Mr. Chairman. I would like to submit my entire statement for the record.

    Mr. SMITH. Without objection, we will do that.

    Mr. HOEKSTRA. I want to thank you for scheduling this hearing so early in the session. I understand that this is only the third hearing that you have held. Thank you very much for putting us on the radar screen this early in the year.

    Also, Mr. Scott, I look forward to working with you through this session of Congress as we will continue the dialogue on how to move forward and, hopefully, get a result in this Congress, perhaps that we can all agree on. But let us move the ball down the field and let us keep the dialogue open on this issue as we will keep the dialogue open on the issue of education and other issues that we have the opportunity to share interests in.

    As you requested, Mr. Chairman, I introduced my bill, the Federal Prison Industries Competition in Contracting Act of 2001, which is now H.R. 1577, this week. I think it is an improved version of the bill that we had in the last Congress. Many of the improvements are an outgrowth of the protracted discussions that we have had in the last Congress and the negotiations that we had with the former Chairman of this Subcommittee.

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    They are fully supported by the Federal Prison Industries Competition in Contracting Coalition. This is a coalition from both the business community and from organized labor, specifically headed by the AFL-CIO. It is one of the more unique coalitions here in the House, where we bring business and labor together in that kind of support.

    Most notably, this bill continues to provide a soft landing for FPI. It provides a 5-year transition period during which it must adjust to the loss of its mandatory source status and move to one where it can actually compete effectively for the business.

    Other provisions of H.R. 1577, such as the bill's provisions to enhance opportunities for inmates to obtain modern hands-on vocational training linked to remedial education, are included because access to such opportunities has been shown to improve the prospects for obtaining a job that pays a living wage upon release. We share your objective that when prisoners are in prison and they are on the path to being released, they need the skills to be successful in that transition and get a job when they go back into society.

    Other provisions of the bill, such as those related to inmate wages, grew out of suggestions made by Pat Nolan on behalf of Chuck Colson's Prison Fellowship Ministries. They try to recognize the concepts of restorative justice by increasing amounts deducted from inmate wages allocated to the payment of victim restitution. They give greater priority to the funds the inmate can allocate to staying in touch with his or her family. They enable the inmate to build a gate fund, savings that will increase the likelihood of a successful return to society.

    FPI's continued advocacy for authority to sell products and services in the commercial market will likely continue to generate a new round of intense discussions. Business and organized labor remain steadfastly opposed on very practical grounds as well as issues of fundamental principle. However, providing new work opportunities by allowing inmates to help with the public service activities of nonprofit organizations has been accepted in concept, but has not yet been placed on the table or in the bill.

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    I am again privileged to have Representative Barney Frank as the principal Democratic cosponsor, with Representatives Mac Collins and Carolyn Maloney as the lead bipartisan cosponsors. We are again privileged to have Jim Sensenbrenner and Howard Coble as original cosponsors. Thank you, Mr. Coble, for all the work and assistance that you have provided. We also look forward, Mr. Frank and I, to having the opportunity to demonstrate to Mr. Conyers that this version of the bill is even more worthy of his cosponsorship than the bills he has cosponsored in the 105th and 106th Congresses. And finally, Mr. Chairman, we also hope that we will be able to demonstrate to you that this bill is worthy of your support as you cosponsored similar bills in the previous two Congresses.

    I just want to share one example with you recently in my district. The Social Security district office in my hometown, Holland, Michigan, transferred or was moving to a new space. Although the office is within miles of manufacturing facilities of some of the nation's most prominent office furniture manufacturers, one company which recently announced that it may lay off 1,000 workers in the month of June, the Social Security office had to be furnished with FPI product. FPI was a month late in delivering their product, which delayed the move for a month. The Social Security Administration had to pay $13,500 in rental for the new space as well as rental on the existing space.

    FPI justified the delay on the basis that its production was shut down while it converted to a new computerized inventory system. Fortunately for my constituents and for Social Security beneficiaries, the Social Security Administration recognizes that it cannot just suspend operations for a month during computer systems upgrade. They recognize that there would be consequences. FPI has no such concerns.

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    The bottom line with this is that when we create a false environment, the taxpayer suffers, Federal employees suffer, and our constituents and folks that are making similar products suffer. FPI believes and wants to be able to compete in the private sector, but yet says that if its mandatory sourcing is removed, it cannot compete in the government sector. There are some inherent contradictions in the positions that they have taken.

    What we want to have happen is to allow our constituents to have the opportunity to compete for this business We have the business groups, the labor groups, we have Federal employees groups who have all come on board and said, this is the direction that we need to take.

    There are a lot of questions. You have been generous with your time. Thank you very much. We look forward to having the dialogue with you to take care of perhaps some of your concerns and Mr. Scott's concerns, but also the concerns of folks in the private sector who are losing the opportunity each and every day. Thank you very much.

    Mr. SMITH. Mr. Hoekstra, that is a generous offer. We will take you up on it, and thank you for your testimony today.

    [The prepared statement of Mr. Hoekstra follows:]

PREPARED STATEMENT OF THE HONORABLE PETE HOEKSTRA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

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    Mr. Chairman (Mr. Smith of Texas), I thank you for scheduling today's hearing on Federal Prison Industries (FPI) and the need to bring about fundamental change to the corrosive manner in which the program operates today. Such reform has remained sorely needed for far too long. With you as the new Chairman of the Subcommittee on Crime and Jim Sensenbrenner as the new Chairman of the Judiciary Committee, the prospects for actually moving forward on such reform are much improved.

    As you requested, I introduced the ''Federal Prison Industries Competition in Contracting Act of 2001'' (H.R. 1577). H.R. 1577 is an improved version of the bill in the 106th Congress (H.R. 2551). You and the members of Subcommittee were furnished a summary of the bill along with the bill text. Many of the improvements are an outgrowth of the protracted discussions conducted in the last Congress with the former Chairman of this Subcommittee. They are fully supported by the Federal Prison Industries Competition in Contracting Coalition, both from the business community and by the AFL-CIO on behalf of organized labor. Most notably, it provides a ''soft landing'' for FPI. A five-year transition period during which it may adjust to the loss of its mandatory source status with safeguards against abuse.

    Other provisions of H.R. 1577, such as the bill's provisions to enhance opportunities for inmates to obtain modern ''hands-on'' vocational training linked to remedial education, are included because access to such opportunities has been shown to improve the prospects for obtaining a job that pays a living wage upon release. Other provisions, such as those seeking to expand job placement opportunities for inmates, were included at the suggestion of the AFL-CIO. They are still in their rudimentary stages and will benefit from the assistance of members of this Committee, especially the Ranking Democratic Member, my colleague from Michigan, who are dedicated to giving inmates the most help possible in making a successful return to society. Individual inmates and their families, as well as society at large, will benefit if we better prepare inmates to make a successful reentry into society. Other provisions of the bill, such as those related to inmate wages, grew out of suggestions made on Pat Nolan on behalf of Chuck Colson's Prison Fellowship Ministries. They try to recognize the concepts of ''restorative justice'' by increasing amounts deducted from inmate wages allocated to the payment of victim restitution. They give greater priority to the funds the inmate can allocate to staying in touch with his or her family. They enable the inmate to build a ''gate fund,'' savings that will increase the likelihood of a successful return to society.

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    FPI's continued advocacy for authority to sell products and services in the commercial market will likely generate a new round of intense discussions. Business and organized labor remain steadfastly opposed on very practical grounds as well as issues of fundamental principle. Providing new work opportunities by allowing inmates to help with the public service activities of nonprofit organizations has been accepted in concept, but has not been placed on the table.

    I am again privileged to have Rep. Barney Frank as the principal Democratic co-sponsor, with Rep. Mac Collins and Rep. Carolyn Maloney as lead bipartisan co-sponsors.

    We are again privileged to have Jim Sensenbrenner and Howard Coble as original cosponsors. Mr. Frank and I look forward to having the opportunity to demonstrate to Mr. Conyers that this version of the bill is even more worthy of his cosponsorship than the bills he cosponsored in the 105th Congress and 106th Congress. Finally, Mr. Chairman, we hope that you will again find yourself able to lend your support to our bill, as you did in the 105th and 106th Congress. It remains a firm foundation upon which you and other Members of the Committee can structure fundamental FPI reform.

    Today, I plan to share with the Subcommittee the records of five oversight hearings I conducted during the 105th and 106th Congress, while I chaired the Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce. I believe that these hearings and other assessments further demonstrate that the current FPI program must be fundamentally reformed. Those reforms are provided in the H.R. 1577, the ''Federal Prison Industries Competition in Contracting Act of 2001.'' That view is shared by a broad coalition that encompasses virtually all segments of the business community joined with organized labor, led by the AFL-CIO. It includes a number of the Federation's affiliated unions, whose members feel just as strongly as Mr. Glover that FPI cannot be allowed to continue to operate as it does today.

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    The current FPI system is fundamentally unfair to private-sector firms, large and small. Under FPI's mandatory source status, they are foreclosed from being able to even bid on more than a half a billion dollars worth of federal contract opportunities funded with taxpayer dollars. Law-abiding private-sector workers are deprived of job opportunities in the name of providing work opportunities for inmates. During my testimony before this Subcommittee in the 106th Congress, I recounted a series of specific examples. Other testimony received today will amplify that theme.

    FPI's federal agency ''customers'' are also victims under the current system. They, and the taxpayer dollars charged to their care, are made prisoners by FPI's array of preferences. Under FPI's mandatory source status, FPI's captive federal agency ''customers'' are required to purchase products offered by FPI, even if the agency can obtain a commercial product that better meets its needs, get it more quickly, and get it at a lower price, even a substantially lower price. A buying agency must actually obtain FPI's permission, a waiver, before being able to get the ''best value'' for the taxpayers' money.

    Under its Depression-era authorizing statute, FPI, rather than the buying agency, has the power to determine whether FPI's offered product and delivery schedule adequately meets the buying agency's mission needs. FPI, rather the buying agency, determines the reasonableness of the price that the buying agency will have to pay to FPI. FPI can compel the buying agency to accept its offered price, so long as FPI's offered price is less than the highest price offered to the government, regardless of whether any purchases were actually made at that price.

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    These preferences allow FPI to perpetuate the myth of being self-sustaining. Under the current system, FPI can help itself to the appropriated funds of its captive federal agency customers. Too frequently, Federal agencies must accept products of lesser quality at a higher price than are competitively available from the commercial market, and receive them late.

    Dollars appropriated for military readiness or quality of life can be unilaterally diverted by FPI. When we are demanding that Federal managers and employees do ''more with less'' and do it ''faster. better, and cheaper,'' it should be no surprise that the Federal Managers Association supports our FPI reform legislation.

    Recently, the Social Security District Office in Holland, Michigan transferred to new space. Although the office is within miles of the manufacturing facilities of some of the nation's most prominent office furniture manufacturers, that Social Security office had to be furnished with FPI product. FPI was a month late in delivering their product, which delayed the move for a month. The Social Security Administration had to pay $13,500 in rental for the new space as well as rental on the existing space. FPI justified the delay on the basis that its production was shutdown while it converted to a new computerized inventory system. Fortunately for Social Security beneficiaries, the Social Security Administration recognizes that it can't just suspend operations for a month during computer system upgrades. They recognize that there would be consequences. FPI has no such concerns.

    The failures of the current system does not stop with its unfair treatment of business and workers and FPI's authorized exploitation of federal agencies. The current system even fails the inmates used to justify FPI's excesses.

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    We should do more to prepare inmates for a successful return to society. Many inmates need access to remedial educational opportunities. They need more access to modern, ''hands-on'' vocational education opportunities that will prepare them for jobs that will pay a living wage. This has repeatedly been suggested by organized labor and the business community. Most prison industry jobs may impart fundamental work skills such as learning to be on time, work as part of a team, and complete an assigned task. The same skills can be learned as part of inmate work details that help maintain and run the prisons. Coupled with appropriate vocational and remedial education programs, helping to run the prison kitchens, the laundries, doing electrical, plumbing and carpentry repairs and alternations are long-term work opportunities that can steadily develop practical skills that are actually marketable upon release.

    Why did FPI have 6,149 inmates, nearly one-third of its workforce, engaged in textile manufacturing during 1999, when unemployment among skilled textile workers remains substantially higher than the national average due to foreign imports? The answer does not lie in FPI's desire to impart technical skills to improve job prospects upon release. The answer lies in the fact that a $1 billion military clothing market is there for the taking without any consequences for FPI. Rather, the consequences are suffered by the small group of American suppliers capable of meeting military requirements, and their non-inmate workers, as you shall shortly hear. The consequences are also borne by the Department of Defense which has to watch as successive FPI expansions steadily erode the industrial base that supports military readiness, a base that probably can't be rebuilt.

    H.R. 1577 addresses these problems by simply making FPI compete for its government contracts and to fully perform them like any other supplier to the government.

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    FPI says that loss of mandatory source will result in massive inmate idleness. Only 20 percent of inmate work opportunities are provided through FPI. The vast majority of inmates work at helping maintain and operate the correctional institutions in which they are incarcerated.

    FPI asserts that it will lose work for the inmates employed by FPI if they lose their mandatory source status. This assertion squarely contradicts the statements annually made in FPI's report to the Congress that FPI only delivers its federal agency customers a high-quality product, on-time, at market prices. From my business experience, that's the description of a successful competitor. Both can't be true.

    I also urge you to ask the proponents of letting FPI compete in the commercial market to explain how FPI can say with a straightface that it will be able to successfully compete in the rough-and-tumble of the commercial market, but it can't compete in the federal market. Generally, the laws prescribing the federal procurement process place get emphasis on according fair treatment to all prospective suppliers.

    As I mentioned before, H.R. 1577 does not alter many of FPI's other advantages over its private-sector competitors. FPI's highest wage of $1.23 per hour is about one-quarter of today's federal minimum wage. FPI's facilities, its workshops, are constructed with appropriated funds as part of prison construction. FPI can take, at no cost, excess government equipment for use in conducting its industrial operations.

    FPI has a $20 million line-of-credit at the U.S. Treasury at rates well below rates available to a Fortune 100 firm, much less any small business.

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    Within the government market, federal agencies would be required to solicit an offer from FPI for any product or service that FPI is authorized to sell by its Board of Directors. Small businesses in your district will tell you that they have to find government contract opportunities, an increasingly daunting task.

    H.R. 1577 provides special authority for the award of a contract to FPI on a non-competitive basis when the work is needed to maintain safety. This provision was expressly included for the protection of guards, like Mr. Glover, and other prison staff. It is permanent.

    So that FPI doesn't abuse this authority, the decision to allow FPI to take the contract must be supported by the warden at the prison where the work is to be performed. FPI asserts that the authority will not be used. I simply can't believe that any warden would voluntarily endanger any staff member simply to avoid making the determination required to support the sole-source award of the contract to FPI to continue the flow of needed inmate work. More realistic are the fears of the business community: that the ''safety value'' authority will be abused.

    As I mentioned earlier, H.R. 1577 provides a five-year period for FPI to adjust to the loss of its mandatory source status. During this transition period, federal agencies would be able make a non-competitive award to FPI, if the buying agency determines that FPI's offered product and delivery schedule meet its mission needs and that FPI's offered price is fair and reasonable as compared to market prices. Use of this authority would be subject to annually decreasing caps. The caps are quite generous. Ninety (90) percent in the first year. Eighty-five (85) percent in the second year. Seventy (70) percent in the third year. Fifty-five (55) percent in the fourth transition year and 40 percent in the final transition year.

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    Some urge that we must guarantee FPI sufficient business to guarantee work for the 20 percent of the inmates currently employed by FPI and to guarantee expansion of FPI work opportunities to 25 percent of the inmate population.

    Are these guarantees to be made at the expense of law-abiding workers and the firms that employ them? Are these jobs to be guaranteed at the expense of federal agencies and the taxpayer dollars entrusted to their care?

    Despite the benefits of inmate work opportunities in combatting idleness and helping to prepare inmates for a successful return to society, guaranteeing government contract work or commercial contracts to FPI, at any price, is simply too much for most in the business community and in the labor community. It certainly doesn't ring true to me.

    Having said that, I am confident that the business community and organized labor will evaluate any proposal with an open mind. What they have seen to date, simply didn't make the grade.

    Mr. Chairman and Members of the Subcommittee, I look forward to working with you on promptly advancing this bill, early in the First Session of this Congress. Action has been blocked too frequently in the past.

    Mr. SMITH. Mr. Ryan?

STATEMENT OF STEPHEN M. RYAN, ESQ., MANATT, PHELPS AND PHILLIPS, LLP, WASHINGTON, DC

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    Mr. RYAN. Thank you, Mr. Chairman. I am here this morning representing a series of groups. First of all, I am representing the Coalition for Government Procurement, which is a group of 340 businesses in a variety of industrial sectors, particularly the office furniture market, and I also have the pleasure of representing the Federal Prison Industries Competition in Contracting Coalition, which allows me to wear the tunic of the business community and the belt and sword of the AFL-CIO, which is not often seen in these quarters.

    My experiences with FPI are colored by the fact that I have represented industry in litigation with them, and the focus of my litigation has been facts and not opinions. It has been not feelings but the actual results of the activity. I just want to share a tiny bit of that experience with you, which is that in the 1990's, the agency ran amuck. It operated completely inconsistently with the statute that Congress amended in 1988 and with the agency's own adopted regulations that it posted to respond to Congress's changes in the 1988 amendments.

    You do not have to accept my word on that. You can accept the word of the United States District Court for the District of Columbia that ruled in favor of industry on summary judgment that FPI had failed to follow its own statute and had illegally expanded by tens of millions of dollars in the area of dormant quarters furniture.

    The agency, frankly, has never genuinely accepted responsibility for the fact that there were no internal controls in the 1990's. Let me just give you one example of that. Their own self-adopted regulation required that they track the expansion of equipment and inmate labor. They did not. There were routine violations where inmate labor exceeded the amount that was permitted in the guidelines. There were new factories added that were not consistent with the guidelines. There was plant equipment added and there was never a basis established to even assess whether that addition violated the guidelines.

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    Right now, I am involved in a case that has the exact same legal theories, just a different set of factories and facts, in the United States District Court in Michigan, and on July 19, we will argue for summary judgment in that case and I suspect it will be granted. But whether it is granted or not, quite candidly, the Congress of the United States has failed to police this agency and to ensure that the 1988 amendments that this Committee sponsored and the resulting regulations were followed. Let me give you just two specific examples today of how I think abuses are occurring.

    There is a policy right now at FPI called pass-throughs, that is, where the goods are made without one turn of a screw of prison labor, without any prison person even seeing the product, and it is sold under the mandatory source provision to Federal agencies. These pass-throughs go directly from the vendors who are the partners of FPI at their factories directly to Federal customers as if they were prison-made goods, but there is no inmate labor in them.

    I estimate that in the 1990's, there were literally tens of millions of dollars, approximately $25 million worth of such goods. I cannot tell you the exact number because FPI has literally no internal control system. They did not track such expenditures and could not provide in District Court a number approximating that, except when ordered to do so by the court, studying it for a single year. That single year indicated that the volume was approximately $2.25 million, or $2.5 million. If you multiply that out for the 1990's, you get approximately $25 million in furniture alone that was made without prison labor but sold under mandatory source.

    Similarly, FPI has a procedure where a prison-made product can have 99 percent content not prison made. That is, private sector vendors can make 99 percent of the product and that would pass as being a prison-made product under the current regulatory scheme.

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    I must tell you that when you bring such abuses that I do not think any of you, frankly, would want to defend to people in your district, whether they were involved in this issue or not—it is not something a Member of Congress could defend—when you bring these to the agencies' management, quite frankly, they have not fixed these problems. If they want additional authority from this Congress to go into selling in the commercial marketplace, it seems to me they ought to be asked to obey the existing law and existing regulations before they ask you for any additional authority.

    Our groups support strongly Congressman Hoekstra and Mr. Frank's bill, H.R. 1577. We believe, frankly, that that is an appropriate and balanced way to stop what is, in essence, a subsidy of the Defense Department budget being used to subsidize the Justice Department. I see my time is up, so I will stop.

    Mr. SMITH. Thank you, Mr. Ryan, for your testimony.

    [The prepared statement of Mr. Ryan follows:]

PREPARED STATEMENT OF STEPHEN M. RYAN

    Mr. Chairman and Members of the Committee, I am honored to present you with the views of the Coalition for Government Procurement, a broadly-based non-profit group of approximately 340 member companies who are government contractors from industries as diverse as information technology, health care to furniture. I am also privileged to represent the Federal Prison Industries Competition in Contracting Coalition, a group made up not only of businesses located throughout the United States, in many sectors of both the manufacturing and service economies, but also the AFL-CIO on behalf of organized labor.

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    Over the past six years, I have personally had significant experience working on issues related to FPI, in opposition to FPI's expansions and in examination of the aggressive methods in which FPI has been allowed to do business. For example, I am currently representing the Coalition for Government Procurement in a lawsuit in the U.S. District Court for the Western District of Michigan. In that suit, we are seeking relief from FPI's past illegal expansion of $450 million dollars in office furniture production. I also represented the Quarters Furniture Manufacturers Association (''QFMA'') in their suit against FPI in U.S. District Court for the District of Columbia concerning FPI's past unlawful expansion of $44 million in military Dorm and Quarters Furniture. In that now concluded case, the Court made a judicial finding of summary judgement for industry confirming the claims of unlawful expansion by FPI. Each of these cases involves FPI's significant, unauthorized and illegal expansions in furniture production, but the procedural and methodological problems they reveal are not unique to furniture. They are systemic in nature and will require fundamental legislative reform in addition to real oversight by FPI's Board of Directors and Congress.

    FPI has only grudgingly been forced to admit that they did not follow the statutorily mandated procedures regarding expansion and did not properly analyze their increased production in the different furniture lines. Rather, FPI has failed to take responsibility for their illegal expansions and acknowledge the impact FPI's expansions have had on the private sector and their workers.

    My testimony is based on my direct experiences with FPI over the past six years. My primary concern is that for too long, FPI has operated without adequate oversight or controls. The lack of controls has enabled the agency to not only to illegally expand production of authorized items but also unilaterally expand its claimed authority into other lines of business that were previously prohibited. These include; selling services to the federal government and the commercial market; entering into ''partnerships'' with private companies through which FPI passes through large volumes of non-prison made products to captive Federal agency ''customers'' and forcing prime construction contractors to use FPI products in ''turn key'' construction projects. In none of these areas has Congress broadened FPI's authority or has FPI engaged in a formal rule-making process. In general, these expansions in authority are not even supported by explicit actions from FPI's Board of Directors. In the one time that FPI did try to expand through formal rule-making procedures, it voluntarily withdrew the rule after receiving vociferous opposition from its federal agency ''customers'' and industry.

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    I respectfully recommend that this Committee use more frequent oversight hearings to ensure that FPI's actual practices are more thoroughly scrutinized. Ultimately we hope that the Committee will conclude, as we have, that the current system needs fundamental reforms. It is beyond tinkering and repair. It cannot be fixed without the fundamental reform proposed in the Hoekstra-Frank-Maloney-Collins bill, which we unreservedly support.

    I have the following observations about what is broken:

FPI'S MANDATORY SOURCE AUTHORITY NEEDS TO BE ELIMINATED.

    Under current law, Federal agencies are required to buy the products that FPI manufactures unless they receive permission from FPI to procure the item elsewhere. Federal customers who buy FPI's products rightly complain about poor quality, high prices and late deliveries. If FPI were a private company competitively selling its products, its customer problems would certainly lead its past performance rating to be poor. FPI, however, ultimately does not need to improve its products or customer service because FPI is not required to compete for government business.

    FPI's mandatory preference is contrary to the principles that govern federal procurements. For sales made to Federal agencies, FPI is not subject to the Federal Acquisition Regulation, except for Subpart 8.6, or the Competition in Contracting Act, passed by Congress in 1984, to establish the central principles of Federal procurement. The core principle is that Federal agencies are required to purchase goods through competitive procurements that create the best value for the Federal agency and the taxpayer dollars they are spending. The Federal agency cannot compel FPI to meet the agency's contractual terms and conditions regarding price reasonableness, product quality or timeliness of delivery.

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    FPI alone decides what price it will charge Federal agencies for the goods it compels them to purchase with the sole limit being that FPI's price cannot exceed the highest price at which a comparable product was offered to the Federal government. Numerous studies prepared by the General Accounting Office and the Department of Defense Inspector General concluded that the price for FPI manufactured goods was significantly higher than that for similar commercial products from the private vendor. For some Systems Furniture, electronic and electrical cable components, FPI was found to have charged 15% more than private suppliers of comparable products. FPI charges 42% more than commercial vendors for some of the textile products that have been reviewed.

    This price inflation effectively creates a system through which every federal agency, most significantly the Department of Defense, is forced to underwrite the Federal Prison Industries by buying FPI's products that are not competitive with the private sector. This is how FPI can claim to be self-supporting. FPI does not receive direct appropriations but rather cuts into the appropriated operating funds of its captive agency customers. This ''unfunded mandate'' should be ended.

    FPI's mandatory source permits it to grow and increase its market share solely by increasing production rather than becoming more competitive. The effect of this has been seen in the office furniture industry where FPI has dramatically expanded its office furniture production from 1988 to 2000. In 1988, FPI produced only $65 million worth of office furniture. This year, FPI plans to sell more than $230 million of office furniture to the federal government.

    To reform FPI, Congress must eliminate the mandatory source and require FPI to compete with the private sector. Given FPI's labor rates of .23 per hour to over a $1.15 per hour this should not be hard to meet, even with FPI's additional cost and inefficiencies of using an inmate workforce in a prison setting. While this would require FPI to improve its quality and customer service, it would greatly improve the value received by the federal government and will ultimately help FPI meets it mission of employing federal inmates without unduly impacting the private sector.

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FPI SHOULD NOT BE ABLE TO PICK WINNERS AND LOSERS.

    FPI and its Board of Directors alone dictate what products it will produce and sell to the Federal government under its mandatory source preference. The Board has the responsibility to determine what percentage of FPI's production capacity will be dedicated to each product line.

    FPI's statute requires that it not operate in such a way as to create a disparate impact on any one private industry. In their focus on creating inmate jobs, however, FPI has lost sight of this requirement and remains overly concentrated in certain industries. For example, FPI has exercised this discretion to maximize its impact on two important industries—textiles and furniture manufacturing. These industries generally employ workers such as veterans or high school graduates who have been left out of the New Economy. Every job that FPI creates for an inmate, at 23 cents an hour, has the potential to displace an American worker who is trying to make a decent wage to support their family. The basic corrupting assumption of the FPI program is that it is self-supporting. This is how the agency was initially sold in 1934 when it was created during the Great Depression. This enduring ''myth'' is the primary source of the significant distortions of FPI's mission.

    Given FPI's track record, we do not believe it is appropriate at this time to consider any general legislation that would give FPI and the Board the authority to enter the commercial market. If Congress gives FPI authority to expand in the commercial market it is inevitable that FPI will do what it has done before and exploit the authority, while not conforming with equal zeal to the restraints and protections contained in the law. Legislation has been introduced, which FPI supports, that would allow FPI to sell products to the private sector that ''would otherwise'' be made with foreign labor. We exist in a global marketplace. There are very few, if any, industries whose products are exclusively created overseas. Before granting FPI new authority, Congress must improve the procedures by which the Board of Directors approves products and service for the Federal market.

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    Let me also make some specific recommendations:

    1. FPI's Must Not be Permitted to ''Retroactively'' Approve Past Violations of Its Statutes. From 1990 to 1995, FPI engaged in a pattern of activity designed to maximize its production of furniture, and probably many other products, without undertaken the Board review required under FPI's statute. Pursuant to statutory direction, FPI published guidelines governing its operations in January of 1991. These, guidelines require FPI to conduct an expansion impact assessment in any instance where it opened a new factory without closing an old one, or increased inmate labor by more than 10%, or created a 10% increase in plant size or equipment capacity. If any of these conditions existed, FPI's market share was then to be analyzed to see if it had increased by levels other than ''significant'' pursuant to the guidelines. If these thresholds were exceeded, FPI's Board was to meet to review the proposed ''significant'' expansion prior to any actual expansion being implemented.

    With respect to the expansions on revealed to the Court in the QFMA case, FPI never followed these guidelines and never developed the mechanisms to comply with the analyses the guidelines required. FPI opened new factories and increased inmate employment without following the required process for any of its product lines. FPI never tracked equipment capacity or plant size or even bothered to develop the baseline for each of these categories.

    When FPI began to engage in the significant expansion procedures, some of the guideline violations were so dramatic FPI recognized that it had previously expanded without authorization. Rather than reverse these expansions, FPI adopted procedures through which it ''retroactively'' placed these unauthorized expansions before their Board and sought the Board's approval. FPI has never been willing to forthrightly admit these violations. In fact, FPI stonewalled for years before the first judicial finding held them responsible and refused to accept as valid the ''retroactive approval.''

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    This retrospective Board approval of unauthorized expansion violates well-settled administrative law principles. It seeks to simply retroactively approve unlawful conduct. The court reviewing FPI's practices in the QFMA case similarly found that: ''It is well settled that an agency cannot rely on post hoc rationalizations to support an agency decision...the difficulty with relying on post hoc decisions is that it ignores the fact the agency may not have made the same decision had it received timely comments.''

    Despite this clear ruling by the United States District Court for the District of Columbia, FPI is continuing to make the same argument—that it has the authority to retroactively approve a prior illegal expansion—in the on-going case before the U.S.D.C. for the Western District of Michigan. In essence, FPI has claimed that unless it has been specifically precluded from acting a certain why by Congress, there are no limits on what it can do. This ''employ inmates at any cost'' mentality pervades FPI's practices. FPI forgets that regardless of how noble its mission may be, it is a federal agency and is bound by the same rules and restraints as every other federal agency.

    FPI must not be permitted to continue to engage in practices where it routinely violates its statute and operating guidelines and then asks the Board of Directors to ''rubber-stamp'' and legally rationalize actions completed years ago.

    2. FPI Must Not Be Permitted to Sell Non-Prison Made Goods Using It's Mandatory Source Preference. FPI has admitted that it uses ''pass-through sales'' to fill some of the orders that its takes from its federal customers. Pass through sales are those where FPI substitutes goods made entirely with non-prison labor for the goods which are produced in part by inmate labor. Although FPI has stated that such sales are contrary to its mission and not in its best interests, FPI's discretion to fill orders from Federal customers with goods made entirely by non-prison labor is unlimited. FPI has no written policy limiting the use of pass-throughs, has never engaged in a rule-making procedure to establish a policy governing when it is permitted to use pass-throughs. FPI has not published or developed any written guidelines governing its practice of substituting office furniture made entirely with non-prison labor for goods made with prison labor produced to fill orders from Federal customers. Furthermore, the Board of Directors has never ratified or approved any policy directive concerning the substitution of products or services made entirely with non-prison labor for goods made with prison labor produced to fill orders from Federal customers.

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FPI initially claimed the only instances where it used non-prison production is when ''long term disruption'' at a Federal Correctional Institute upset production schedules, and FPI cannot meet its self-created mandatory source ''customer'' demand. That claim is incorrect. In fact, FPI has subsequently enunciated a long list of instances where it has used pass-throughs in the past. These include instances where;

fog, which is routine in the area of a particular prison at certain times of the year disrupts operations at an FPI facility;

customers requested compressed lead times;

there has been machinery failure at one of FPI's production facilities;

FPI could not meet the customer requirements after FPI accepted the order;

FPI experiences tooling problems with an internal factory;

FPI's customers have requested accelerated due dates; or

FPI experiences work stoppages at one of its facilities;

Because FPI has deliberately chosen not to have any control system, of policy or even collect the data to know the volume or specificity of such activity, it is equally possible that FPI has aggressively and deliberately ''overbooked'' its sales capacity using mandatory source, and when it predictably cannot meet its schedule, resorts to giving its supplier ''partners'' the benefit of the mandated sales. FPI's explanations are legally irrelevant, because nothing in FPI's statute or rules would suggest FPI could use its extraordinary authority to make such transfers of federal business taken through its mandatory source status.

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    Congress needs to immediately stop this FPI behavior.

    3. FPI Must Limit the Amount of Non-Prison Made Components Used in FPI Products. During recent depositions of FPI management, we discovered that FPI considers a good to be ''prison-made'' and requires a federal agency to purchase the product, even if 99% of the product was made with non-prison labor. In essence, FPI is buying components from its private sector partners, assembling them with prison labor and selling them to federal agencies as ''prison-made products.'' While this may make for profitable business sense, and is similar to private practices, this policy does nothing to increase inmate employment.

    On January 29, 2001, I wrote to the Chairman of FPI's Board asking that they reconsider and clarify their policy on their extensive use of non-prison made components. I specifically asked that the Board set guidelines fixing the amount of non-prison made components that could be used in FPI's products and deemed ''prison made.'' Last week, I received a response from the Board stating that FPI may re-examine this policy. The Board should require FPI to develop guidelines limiting this practice through its formal rulemaking process. This will ensure that all industries are covered by any procedure and all interested parties are engaged in any decision. The best remedy, however, is for FPI's authorizing statute to be amended consistent with the Hoekstra-Frank-Collins-Maloney bill.

    4. There Must Be Greater Congressional and Institutional Oversight of FPI's Activities. FPI's Board has been given broad statutory authority by Congress. The Board determines what products FPI will produce. The Board decides when to expand production in a product line. The Board ensures that FPI employs the maximum number of inmates possible without adversely affecting private industry.

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    I have a great deal of respect for the difficulties faced by FPI's current Board of Directors. They serve in an unpaid capacity and are required to oversee a career staff that is expansionist at any cost. I am concerned, however, that historically the Board has been far too deferential to the agency it is empanelled to oversee and that the record of the agency's management does not justify this trust.

    FPI's staff, however, has usurped, or been delegated, a great deal of the Board's authority. Today, FPI's staff decides the product line in which it will expand production, drafts the Impact Study that presents the history of FPI's production of the product and justifies the expansion, and then drafts the Board decision authorizing the expansion. According to testimony in our lawsuit, the Board's input in its own decision is inappropriately limited—in one example—to a page of notes transcribed by FPI's Chief Operating Officer and editing the expansion decision.

    Simply put, the Board is the informational captive of the agency staff. First, the Board was not adequately informed of repeated instances where FPI's expanded production in violation of its operating guidelines and did not adequately review the methodology FPI used. In addition the methodology adopted by FPI often grossly understates FPI's market share in the specific product lines. This is achieved by unrealistically puffing up the numbers used for the size of the Federal marketplace for individual commodities. Sworn testimony by experts in litigation indicates the FPI assumptions and numbers are highly unrealistic.

    This Committee will be asked to consider legislation that grants FPI additional authorities and allows FPI to produce products for sale to the private sector provided that they only displace ''foreign workers.'' Given FPI's past track record, we are concerned about any legislation that would grant new authority to FPI based on administrative determinations reached largely through FPI agency staff work. While the Board has shown some new signs of openness, it would be unwise to give FPI a broad delegation of authority until they have demonstrated a proven track record of properly managing current responsibilities and accepting clear responsibility for mitigating the impact of past violations.

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    The Hoekstra-Frank-Collins-Maloney bill reconstitutes the Board of Directors and provides clear standards regarding consideration of expansion proposals and for public comment and independent analysis to offer real protections.

    5. FPI Must Not be Permitted to Lobby Congress Outside the Normal Channels. We believe that FPI currently lobbies Congress directly and uses appropriated funds for inappropriate coordination with the Correctional Vendors Association. With regards to FPI's direct lobbying, we are concerned that FPI is approaching Members of Congress and advocating on specific bills without undertaking the normal clearance procedures required by the Executive Office of the President through OMB. Such lobbying has in the past falsely given the impression that FPI is advancing the Administration's position on legislation when it has not been authorized to do so.

    Second, we are concerned about inappropriate coordination between FPI and the Correctional Vendors Association (''CVA''), an association of FPI supplier ''partners.'' While the CVA has every right to lobby on behalf of its ''customer'' agency, FPI is prohibited from using government funds, including staff, telephones and computers to communicate it lobbying needs to companies aligned with its interests. We have written undeniable anecdotal proof that FPI has coordinated activities with CVA in the past and urge the Committee to ensure that it does not continue to do so. FPI's industry partners have become a part of a ''prison industrial complex,'' whose economic well being is enhanced by maintaining FPI's mandatory source authority, and other special preferences in the federal procurement process.

    6. FPI Must Not be Permitted to Sell Its Goods or Services to the Private Parties Receiving Federal Construction Contracts. FPI is explicitly forbidden to sell to ''the public in competition with private enterprise.'' 18 U.S.C. §4122(a). FPI, however, for its own administrative convenience and to increase its sales, has taken the position that it can require private parties to buy goods from FPI that are destined to be used by the government.

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    So long as the current statute is based on mandatory source FPI has the authority to require their federal customers to use FPI products or seek a waiver from FPI's mandatory source preferences. The problem is that FPI is going to private contractors after a federal construction contract has been awarded and trying to impose their mandatory preferences on them. This affects the rights of the subcontractors who have been chosen by the general contractor and disturbs the terms of the general contract that was competitively bid.

    FPI originally sought to extend its authority and apply its mandatory preference to subcontractors through a formal rulemaking. FPI was forced to withdraw the proposed rule because of strong objections raised by FPI's federal customers, especially the General Services Administration. This withdrawn rule implies that FPI is without authority in this area.

    FPI has, however, repeatedly contacted federal contractors and told them that they are required to purchase FPI's products. FPI has also forced these contractors to accept contracts of adhesion that are not negotiated but are written by FPI and contain terms that are unduly favorable to FPI. These include terms that allow FPI to terminate the contract for FPI's convenience or terms that allow FPI, the subcontractor, to terminate the contract if they deem the contractor to be in default of its obligations. These terms are not typically found in a government contract negotiated at arm's length. These contracts, which each include the same language, give FPI rights in relation to the contractor that ordinary subcontractors do not receive. It is unlikely that any commercial entity not subject to coercion from FPI would ever voluntarily accept such contract terms.

    Having been forced to accept FPI as a supplier, the prime contractor must suffer the consequences of delayed or non-conforming performance by FPI that may be imposed by the buying agency. The prime contractor has no recourse against FPI as a government-owned corporation.

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    Congress must make it clear that FPI cannot continue to engage in this practice and has no authority to directly impose its products to the private sector contractor who have become a government prime contractor.

    7. FPI Should Not Be Permitted to Sell Services In the Commercial Marketplace. In the 1996 decision to expand Case Goods production, FPI's Board forthrightly stated that FPI was only permitted to sell goods to the federal government. In an Orwellian reversal two years later, however, FPI released a memorandum entitled, ''Sale of Services by Federal Prison Industries, Inc. (FPI) in the Commercial Market'' Issued by the Assistant Attorney General for Administration (who is one of the five members of FPI's Board). The memorandum attached a copy of a previously unreleased legal opinion by a Special Counsel in the Office of Enforcement Operations in DOJ's Criminal Division, dated February 2, 1998.

    That legal opinion held that the general statutory prohibition on the sale in interstate commerce of products made in whole or in part by prisoners, does not prohibit inmates from furnishing services as distinct from products. While ''services'' was not defined, the opinion purported to remove any Federal statutory restriction on the commercial sale of services by FPI and by prison industry programs operated by the States and their local governments. FPI moved quickly to make such sales based on the self-serving opinion of its own lawyers. Such an informal change to longstanding statutory interpretation dating back to 1934 were utilized to permit FPI to sell services in the commercial marketplace without Congressional action. Given that FPI's principal legislative goal is being granted authority to sell the results of inmate labor in products and services in the commercial market should give this Subcommittee great pause regarding the legal adequacy of FPI's self-generated authority.

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    I would also call the Subcommittee's attention to another piece of countervailing evidence. The Executive Order creating FPI specified that FPI could sell products and services. The subsequently enacted Congressional statute, however, addresses only products. FPI's authority to sell services in the government market can be questioned in this way, much less their authority to sell services to the commercial market. I will be pleased to submit a copy of E.O. 6917 issued by President Roosevelt on December 11, 1934.

    How can the private sector deal with self-serving opinions produced by one DOJ office to support a sister agency? It should be no surprise that there was no discussion of a service economy in 1934, when none existed. A robust ''service'' economy now exists, and FPI wants its share. The fact that FPI's authorizing statute does not prohibit commercial sale of services should not create a presumption that Congress intended in 1988, or at any other juncture, to permit FPI to furnish undefined ''services'' in interstate commerce. Even if ''services'' was not a critical component of the economy in the 1930's when FPI was chartered, the presumption that FPI's statute is a limited grant of authority is the key to any proper analysis.

CONCLUSION:

    Through my experiences in dealing with FPI, I have come to the conclusion that FPI has strayed from its primary mission—educating and training federal prison inmates—to increase the likelihood of their successful return to society. Rather, FPI is focused on staging a profitable business that creates an off-budget fund to expand operations and build more prison factories.

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    The Federal prison system and federal government procurement has changed a great deal since FPI was created in 1935. While the need to have new ways to reduce inmate idleness has grown with the inmate population, so has the corrosive manner in which FPI has been permitted to foreclose legitimate private companies from competing to supply goods and services to the federal government. Before granting FPI new opportunities to compete unfairly with private firms, the Congress must fundamentally reform FPI's abusive authorities in the federal market. Hoekstra-Frank-Collins-Maloney bill FPI Competition in Contracting Act of 2000 is the solution we support.

    I appreciate your giving me the opportunity to testify and I look forward to answering any questions you may have.

SUMMARY

    Over the past six years, I have personally had significant experience working on issues related to FPI through different cases challenging FPI's significant, unauthorized and illegal expansions in furniture production. These cases reveal procedural and methodological problems that are systemic in nature and will require fundamental legislative reform in addition to real oversight by FPI's Board of Directors and Congress.

    FPI'S MANDATORY SOURCE AUTHORITY NEEDS TO BE ELIMINATED: To reform FPI, Congress must eliminate the mandatory source and require FPI to compete with the private sector. While this would require FPI to improve its quality and customer service, it would greatly improve the value received by the federal government and will ultimately help FPI meets it mission of employing federal inmates without unduly impacting the private sector.

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    FPI Should Not Be Able to Pick Winners and Losers: Congress must improve the procedures by which the Board of Directors approves products and service for the Federal market.

    FPI's Must Not be Permitted to ''Retroactively'' Approve Past Violations of Its Statutes: FPI must not be permitted to continue to engage in practices where it routinely violates its statute and operating guidelines and then asks the Board of Directors to ''rubber-stamp'' and legally rationalize actions completed years ago.

    FPI Must Not Be Permitted to Sell Non-Prison Made Goods Using It's Mandatory Source Preference: FPI has admitted that it uses ''pass-through sales'' to fill some of the orders that its takes from its federal customers. Although FPI has stated that such sales are contrary to its mission and not in its best interests, FPI's discretion to fill orders from Federal customers with goods made entirely by non-prison labor is unlimited. Congress must ensure that this policy is stopped.

    FPI Must Limit the Amount of Non-Prison Made Components Used in FPI Products: FPI is buying components from its private sector partners, assembling them with prison labor and selling them to federal agencies as ''prison-made products.'' While this may make for profitable business sense, and is similar to private practices, this policy does nothing to increase inmate employment and should be prohibited.

There Must Be Greater Congressional and Institutional Oversight of FPI's Activities:

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    FPI Must Not be Permitted to Lobby Congress Outside the Normal Channels: FPI currently lobbies Congress directly and uses appropriated funds for inappropriate coordination with the Correctional Vendors Association. FPI, as a Federal agency should be bound by the same lobbying rules as other agencies.

    FPI Must Not be Permitted to Sell Its Goods or Services to the Private Parties Receiving Federal Construction Contracts: FPI is explicitly forbidden to sell to ''the public in competition with private enterprise.'' 18 U.S.C.§4122(a) and Congress must ensure that FPI is not permitted to violate this statute.

    FPI Should Not Be Permitted to Sell Services In the Commercial Marketplace: FPI's authorizing statute does not prohibit commercial sale of services should not create a presumption that Congress intended in 1988, or at any other juncture, to permit FPI to furnish undefined ''services'' in interstate commerce. Even if ''services'' was not a critical component of the economy in the 1930's when FPI was chartered, the presumption that FPI's statute is a limited grant of authority is the key to any proper analysis.

    The Federal prison system and federal government procurement has changed a great deal since FPI was created in 1935. While the need to have new ways to reduce inmate idleness has grown with the inmate population, so has the corrosive manner in which FPI has been permitted to foreclose legitimate private companies from competing to supply goods and services to the federal government. Before granting FPI new opportunities to compete unfairly with private firms, the Congress must fundamentally reform FPI's abusive authorities in the federal market. Hoekstra-Frank-Collins-Maloney bill FPI Competition in Contracting Act of 2000 is the solution we support.

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    Mr. SMITH. Mr. Mansh?

STATEMENT OF MICHAEL E. MANSH, PRESIDENT, ASHLAND SALES AND SERVICE COMPANY, PHILADELPHIA, PA

    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 adverse impact that Federal Prison Industries has on our business. Briefly, I would like to share three perspectives on the way FPI has affected our business and employees.

    Ashland Sales and Service has been both a prime contractor and subcontractor for the Defense Logistics Agency, Defense Supply Center, Philadelphia, 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. Our plant produces lined and unlined outerwear. Up until 1997, we had primarily manufactured products for the Defense Supply Center, Philadelphia.

    Our main product was the utility jacket for the Navy. From 1987 through 1997, we produced in excess of one million of these jackets for the Navy. In February 1995, we were informed that FPI had exercised its super-preference and had taken 100 percent of the requirements for the utility jackets. We were allowed to complete our existing contract, which utilized 40 percent of our workers. In 1997, FPI was awarded a long-term contract for the utility jackets, which effectively eliminated the item for us, and a substantial chunk of our business.

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    My company also runs a factory in Buckhannon, West Virginia, employing about 80 folks to make trousers for several commercial customers. Although there are a number of products that this factory can make for the Federal Government, which would help ensure this factory's viability, we are prevented from even bidding on those contracts because they are owned by FPI.

    Finally, my company subcontracts work to a factory in Macon, Georgia, to produce shirts. That factory now employs around 80 individuals, down from a high of 160. This factory was forced to let half its staff go when FPI took contracts that we were supplying. Because we no longer had the work, we could no longer pass subcontracting work along to this factory in Macon, Georgia.

    These are just the examples I have encountered in my own business. Others in the industry have even more painful stories. Some have been forced into subcontractor relationships with FPI to keep a portion of their previous business, because FPI is not competent enough to satisfy all the requirements of a particular contract that they insisted upon taking. Others have lost whole factories when FPI took their product lines. We have even witnessed a sort of domino effect, where Company A, whose products are not directly threatened by FPI, still loses business because FPI has taken all the contracts of Company B, which has no choice but to start competing against Company A to stay alive.

    This damage is compounded because there are few opportunities in the commercial apparel market for companies like mine. Although I have been lucky enough to replace some—and I emphasize some—lost government contracts with commercial work, many of my competitors are not so lucky.

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    The domestic apparel industry has been dramatically impacted by the increase in offshore manufacturing in low-wage countries with thousands of jobs lost. FPI is using its super-preference to take work away from an industry that 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.

    Moreover, FPI's activities come at the expense of a strong manufacturing base that the Department of Defense deliberately sought to cultivate for its peacetime military clothing needs and to ensure surge capabilities for emergency mobilization. However, according to testimony last October by George Allen of the Defense Logistics Agency, the continuing increase in FPI's market share will only further reduce the already shrinking industrial base and will impede DoD's ability to accomplish their mission.

    For the record, I support the mission of FPI to keep prisoners occupied and contribute to their rehabilitation so they can be productive members of society, but I do not believe this mission is of such paramount importance that it should come at the expense of jobs of law-abiding private citizens. Nor should it thwart other policy objectives, such as the promotion of small and disadvantaged enterprises or business opportunities for the blind and handicapped. Yet, this is what is occurring because FPI's super-preference remains unchallenged.

    The time for FPI reform is now. I urge this Committee and this Congress to undertake and pass reform legislation to correct the imbalance that FPI has caused as soon as possible. On that note, I am pleased to learn that Congressman Hoekstra has just reintroduced legislation to achieve this balance through meaningful reform of FPI. I look forward to swift enactment of that legislation. Thank you.

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    Mr. SMITH. Thank you, Mr. Mansh.

    [The prepared statement of Mr. Mansh follows:]

PREPARED STATEMENT OF MICHAEL E. MANSH

    Good morning ladies and gentlemen. I am Michael Mansh, President of Ashland Sales and Service, Co. I appreciate the opportunity to come before you today to discuss the adverse impact that Federal Prison Industries has on our business.

    Briefly, I would like to share three perspectives on the way FPI has affected our business and employees.

    Ashland Sales and Service has been both a prime contractor and subcontractor for the Defense Logistics Agency (Defense Supply Center, Philadelphia) 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. Our plant produces lined and unlined outerwear. Up until 1997, we had primarily manufactured products for the Defense Supply Center, Philadelphia.

    Our main product was the Utility Jacket for the Navy—from 1987 through 1997, we produced in excess of 1,000,000 of these jackets for the Navy. In February of 1995, we were informed that FPI had exercised its ''super-preference'' and had taken 100 percent of the requirements for the Utility Jackets. We were allowed to complete our existing contract, which utilized 40 percent of our workers. In 1997, FPI was awarded a long-term contract for the Utility Jackets, which effectively eliminated the item, and a substantial chunk of our business, for us.

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    My company also runs a factory in Buckhannon, West Virginia employing about 80 folks to make trousers for several commercial customers. Although there are a number of products that this factory can make for the federal government—which would help ensure this factory's viability—we are prevented from even bidding on those contracts because they are owned by FPI.

    Finally, my company subcontracts work to a factory in Macon, Georgia to produce shirts. That factory now employs around 80 individuals, down from a high of 160. This factory was forced to let half its staff go when FPI took contracts that we were supplying. Because we no longer had the work, we could no longer pass subcontracting work along to this factory in Georgia.

    These are just the examples I have encountered in my own business. Others in the industry have even more painful stories. Some have been forced into subcontractor relationships with FPI to keep a portion of their previous business because FPI is not competent enough to satisfy all the requirements of a particular contract that they insisted upon taking. Others have lost whole factories when FPI took their product lines. We have even witnessed a sort of domino effect where Company A, whose products are not directly threatened by FPI, still loses business because FPI has taken all the contracts of Company B, which has no choice but to start competing against Company A to stay alive.

    This damage is compounded because there are few opportunities in the commercial apparel market for companies like mine. Although I have been lucky enough to replace some, and I emphasize some, lost government contracts with commercial work, many of my competitors are not so lucky. The domestic apparel industry has been dramatically impacted by the increase in offshore manufacturing in low wage countries with thousands of jobs lost. FPI is using its super-preference to take work away from an industry that 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.

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    Moreover, FPI's activities come at the expense of a strong manufacturing base that the Department of Defense has deliberately sought to cultivate for its peacetime military clothing needs and to ensure surge capabilities for emergency mobilization. However, according to testimony last October by George Allen of the Defense Logistics Agency, the continuing increase in FPI's market share will only further reduce the already shrinking industrial base and will impede DOD's ability to accomplish this mission.

    For the record, I support the mission of FPI to keep prisoners occupied and contribute to their rehabilitation so they can be productive members of society. But I do not believe this mission is of such paramount importance that it should come at the expense of jobs of law-abiding private citizens. Nor should it thwart other policy objectives such as the promotion of small and disadvantaged enterprises or business opportunities for the blind and handicapped. Yet this is what is occurring because FPI's super preference remains unchecked.

    The time for FPI reform is now. I urge this Committee and this Congress to undertake and pass reform legislation—to correct the imbalance that FPI has caused—as soon as possible.

    Mr. SMITH. Mr. Glover?

STATEMENT OF PHILIP W. GLOVER, PRESIDENT, COUNCIL OF PRISON LOCALS, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, JOHNSTOWN, PA

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    Mr. GLOVER. Mr. Chairman and Members of the Subcommittee, my name is Phil Glover. I am the President of the Council of Prison Locals, American Federation of Government Employees. I do not run Prison Industries, but all of the employees that work in it are in my union.

    We have 97 local unions representing 100 facilities in the Federal prison system. Our Members include correctional officers, caseworkers, food service workers, mechanical services personnel, and Federal Prison Industries employees. These are law abiding, tax paying citizens working in the toughest law enforcement beat in America. These employees of the Federal Government deserve the full support of the Congress in order to go home every day to their families and friends. This issue is a big factor in that ability.

    I want to first thank the Committee for allowing me to share prison workers' views on this issue. Over the years, it has become increasingly important for inmates to work. With minimum mandatory sentences, elimination of parole, three strikes and you are in laws filling prisons at record levels, it must be understood how work programs help in managing the inmate population. Most prisons in the Federal sector are overcrowded, between 30 percent to sometimes 70 percent or more. Management of the population is handled in a number of ways. Education, vocation, recreation, and work programs all combine to assist us behind the fences and walls in order to keep the prison system safe.

    Federal Prison Industries has grown since 1934 to become one of our most valued programs. Twenty-five percent of the eligible inmate population works in FPI. This keeps inmates productive for 7.5 hours per day in large numbers, sometimes more hours should overtime occur. Additionally, inmates working in FPI have an incentive for staying clear of problems with correctional staff. They are less likely to have incident reports or disciplinary problems, which would eliminate them from the FPI work program.

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    During several hearings on this matter, FPI has been accused of moving in and taking contracts. I certainly do not know about all that. I am a correctional officer by trade and a voluntary union official. But at one hearing in particular, it was stated that a missile container contract was taken by FPI and put a company out of business. I decided to check this out for myself and found that FPI does not make missile containers. It never has and never set up to make them. In a $13.5 billion domestic furniture market, FPI sold $230 million in product, only 1.7 percent of the total market. This seems a very small amount in the big picture of things.

    The Committee Members should be cautious. My organization has agreed that changes may be needed to FPI. I have always urged caution. Even in supporting the McCollum-Scott bill last year, we stated that this should be a slow process, thought out. To change 60 years of industry programs with our huge populations, Congress should go slow.

    If you look at what is commonly referred to as Prison Industries Enhancement programs in the States, or PIE programs, they provide less than half the level of employment to inmates than Federal Prison Industries does for the Federal sector. We believe this contributes to a much more safe environment in the Federal system.

    For those on the Committee that are considered supporters of law enforcement, I say to you this is a big law enforcement issue. Over the past decade, laws have been stiffened. Police have been added to the streets. Prosecutors and judges have little choice on prosecuting or sending people to prison for longer and longer sentences. We correctional professionals are generally forgotten in that mix.

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    While we are in the process of bringing 28 new Federal medium- and high-security prisons online over the next three to 5 years, our budget has been basically flat-lined by the administration this year, and now Congress again considers changes to Federal Prison Industries mandatory source, a program which generated only $566 million in an economy of $9 trillion. This paid salaries for employees, inmate salaries, and paid out 72 percent to small and minority-owned businesses in local communities for goods and services.

    Every time this issue is discussed, people come out to eliminate mandatory source and to have us compete in the Federal market. Last year, when Congressmen McCollum and Scott suggested we compete everywhere, it was decided that was not a good idea, either. Again, what is the compromise?

    When you consider that you have 150,000 inmates in a system and rising to 190,000, we must find a way to keep inmates productive. The Federal prison system is run well by staff. However, we must have tools. Should the move to eliminate mandatory source be successful without replacing it with a working system, as it appears H.R. 1577 does, it will be disastrous for prison employees. We cannot simply warehouse people.

    I just want to say one other thing while I have just a short amount of time. I have worked with AFL-CIO on this issue. I have worked with AFG on this issue. And for those to speak for them here at this hearing, I do not think are getting the entire picture. They are walking a line, trying to make sure that correctional staff are safe. They represent 170,000 of us. And they also have free labor to deal with. So they are not blatantly saying, get rid of this. They are walking a line just like everybody else, and I hope that is noted.

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    Mr. SMITH. Thank you, Mr. Glover.

    [The prepared statement of Mr. Glover follows:]

PREPARED STATEMENT OF PHILIP W. GLOVER

    Mr. Chairman and members of the subcommittee, my name is Philip W. Glover, President, of the Council of Prison Locals, American Federation of Government Employees, AFL-CIO. I am the elected representative of all Federal Prison workers nationwide. We have 97 Local Unions representing 100 facilities in the Federal Prison System. Our members include, Correctional Officers, Case Workers, Food Service Workers, Mechanical Services and Federal Prison Industries Employees. These are law abiding, taxpaying citizens working the toughest law enforcement beat in America.

    These employees of the Federal Government deserve the full support of the Congress in order to go home everyday to their families and friends. This issue is a big factor in that ability.

    I want to first thank the committee for allowing me to share prison workers views on this issue. Over the years it has become increasingly important for inmates to work. With minimum mandatory sentences, elimination of parole and three-strikes-and-you're-in laws filling prisons at record levels it must be understood how work programs help in managing the population. Most prisons in the Federal sector are overcrowded between 30 percent to sometimes 70 percent over capacity. Management of the population is handled in a number of ways. Education, vocation, recreation and work programs all combine to assist us behind the fences and walls.

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    Federal Prison Industries has grown, since 1934, to become one of our most valued programs. Twenty-five percent of the eligible inmate population works in FPI. This keeps inmates productive for seven and a half hours per day in large numbers, sometimes more hours should overtime occur. Additionally, inmates working in FPI have an incentive for staying clear of problems. They are less likely to have incident reports or disciplinary problems which would eliminate them from the FPI work program.

    I have testified to this before in front of the sub-committee. So, I would like to take this opportunity and discuss a few other issues.

    During several hearings on this matter FPI has been accused of moving in and taking contracts. I certainly don't know about all of that. I am a Correctional Officer by trade and a voluntary union official. But at one hearing in particular, it was stated that a missile container contract was taken by FPI which put a company out of business. Interestingly enough, I decided to check this out for myself and found that FPI doesn't make missile containers—not now, not ever. In a 13.5 billion dollar domestic office furniture market, FPI sold 230 million dollars in product. Only 1.7 percent of the total market. This seems a very small amount in the big picture of things.

    I say this because the members of this committee should be cautious. My organization has agreed that changes may be needed to FPI. I have always urged caution. Even in supporting the McCollum bill last year, we stated that this should be a slow process. To change sixty years of industry programs with our huge populations, Congress should go slow.

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    If you look at what's commonly referred to as the Prison Industries Enhancement program (P.I.E.), it doesn't keep inmates in the states working at even half the level as the Federal Program. This directly correlates, I believe, into a much more safe prison system for everyone.

    For those on the committee that are considered supporters of law enforcement, I say to you, this is a big law enforcement issue. Over the past decade, laws have been stiffened, police have been added to the streets, prosecutors and judges have little choice on prosecuting and sending people to prison for longer and longer sentences.

    We, Corrections Professional's are the one's generally forgotten in that mix. While we are in the process of bringing 28 new federal medium and high security prisons on line over the next three to five years, our budget this year has been basically flatlined by the administration. And now, Congress again consider's changes to Federal Prison Industries ''mandatory source'' a program which generated only 566 million dollars in sales last year in a 9 trillion dollar economy. This paid salaries for employees, inmate salaries, and paid out 72 percent to small and minority owned business in local communities for goods and services.

    Every time this issue is discussed, people come out to eliminate mandatory source and to have us compete. Last year, when Congressman McCollum suggested we compete everywhere, it was decided that wasn't a good idea either. And so here we are again. What is the compromise?

    When you consider that we have 150,000 inmates in the system and rising to 190,000 we must find a way to keep inmates productive. The Federal Prison system is run well by the staff. However, we must have tools. Should the move to eliminate mandatory source be successful without replacing it with a working system, it will be disastrous for prison employees. We can not simply warehouse people.

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    It seems to us that public policy sometimes has to outweigh the needs of business. In this case, the government has decided to incarcerate offenders at very high rates. The Correctional Worker didn't make that decision. Law's were generated to punish people. What we request from this committee and the Congress as a whole are the tool's necessary to keep the population managed. Cutting mandatory source with no clear cut alternative is not the way to go about it.

    I thank you for your time and would be happy to answer any questions that I can.

    Mr. SMITH. I would like to recognize several Members who have joined us. They are Mr. Conyers, the Ranking Member of the Full Judiciary Committee from Michigan, Mr. Delahunt of Massachusetts, and Mr. Keller of Florida.

    I have had the opportunity to meet with many individuals involved with the issues that we are discussing today, so in the interest of time, I am going to save my questions for the end, if there is, in fact, time, and yield my time to the gentleman from Wisconsin, Mr. Green.

    Mr. GREEN. Thank you, Mr. Chairman. I appreciate that.

    Let me begin, if I can, by associating myself with the remarks of Congressman Scott, my colleague, and also Mr. Glover. Mr. Glover, I find what you said particularly meaningful and important. You have a job and you represent people who perform a job which I find incredibly challenging. I cannot imagine what they must confront on a daily basis. I agree with you of the terrible importance of making sure that inmates do have these working opportunities because I do think it helps with rehabilitation and preventing recidivism. So I think that is very important.

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As to my questions, Mr. Mansh, what you talked about in terms of job displacement obviously is very, very important and we are all very sensitive to it. However, in my case—I come from Wisconsin, Northeastern Wisconsin—I have received letters from some 30 businesses which have grown up there because of FPI and their workers obviously are no less important than the workers that you are referring to.

[The material referred to follows:]

LETTERS OF CONCERN FROM WISCONSIN BUSINESSES

L1.eps

M1.eps

N1.eps

O1.eps

P1.eps

Q1.eps

R1.eps

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S1.eps

T1.eps

U1.eps

V1.eps

W1.eps

X1.eps

Y1.eps

Z1.eps

A2.eps

B2.eps

C2.eps

D2.eps

E2.eps

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F2.eps

G2.eps

H2.eps

I2.eps

J2.eps

K2.eps

L2.eps

M2.eps

N2.eps

O2.eps

P2.eps

Mr. GREEN. What do I tell my constituents who will lose their jobs if, in fact, this bill passes?

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    Mr. MANSH. Our suggestion was other areas for FPI, not to take an unreasonable share of the market where they take——

    Mr. GREEN. This bill does not provide further opportunity. That is one of the problems with it. It does just the opposite. It ends the mandatory preference and then does not allow it to compete for other opportunities, new opportunities.

    Mr. MANSH. So my workforce should be sacrificed for another workforce? Is that what you are suggesting?

    Mr. GREEN. No, I am saying neither should be sacrificed, and I am saying that, obviously, the people I am referring to, the 30 businesses, would be sacrificed if this passes.

    Mr. MANSH. But I have already been sacrificed to a point, as have most of my competitors, and FPI continues to attack my market and grow unreasonably.

    Mr. GREEN. And we have had yourself and Mr. Ryan both talk about some of the problems with FPI. Surely that is an argument for reforming FPI itself and perhaps better enforcement of existing rules and regulations, which is what we heard from Mr. Ryan, and not what this bill proposes, which is a catastrophic, in some cases, termination of the program.

    Mr. MANSH. Are you asking my opinion?

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    Mr. GREEN. Yes.

    Mr. MANSH. I want it reformed to the point where we can continue to stay in business. I am not in a position to judge the merits or non-merits of the bill. That is up to you all here in Congress. I am trying to make my business survive and not continue to be a victim of FPI.

    Mr. GREEN. Mr. Ryan, you talked about the problems that FPI has had throughout the 1990's, which predates me by a fair bit, but your testimony seemed also to call more for better enforcement of existing rules and regulations than the dramatic change that this bill would make.

    Mr. RYAN. Actually, I do not agree with that. The people who are in your district are part of what is benefitting from the pass-through sales. For example, in fact, some of the furniture businesses in your district are benefitting from business that is taken from Mr. Conyers' State and from Mr. Coble's State. So there is a pitting of worker against worker here that I think is unfortunate.

    Mr. GREEN. I understand that, but again, your testimony talked about how there have been some unintended consequences to some of the amendments that Congress has passed in the past that perhaps have not been fully enforced. Surely, that should be the first step, is enforcing some of those rules and regulations and amendments properly.

    Mr. RYAN. The problem is, you cannot give discretion to this agency, given the track record that it has. I think that is the point that I was trying to drive home, is that they have been given broad discretion and, frankly, it has been thoroughly abused and we are sitting here today in 2001 and, frankly, they have not accepted responsibility for those things, and then they built their capacity on top of the illegal increase.

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    So, quite frankly, the mandatory source provision is the source of the distortion in this. Their quality and price and delivery schedules are never going to meet the kind of Federal customer needs until you wean them from that system.

    Fundamentally, there are two distortions in the system. One is mandatory source. The other one is Congress's intent that this program pay for itself. This program is not paying for itself, but it looks like it is paying for itself, and I think that that distortion leads FPI to want to be in profitable fields as opposed to break-even fields, and I think that that is creating a tremendous distortion.

    Mr. GREEN. So you think it is impossible to improve the system without ending the mandatory source?

    Mr. RYAN. I think, frankly, it is the cancer that is at the center of the problem. Can you do a dozen other things that would improve it? Absolutely, and there are a dozen other things that we could specifically point out to you. But quite frankly, this is an agency in the Department of Justice that violated the law. If it was EPA, they would not get away with it because the Department of Justice would call them on it.

    Mr. GREEN. I would very much appreciate if you could supply us with some of those changes——

    Mr. RYAN. I will, sir.

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    Mr. GREEN.—because I think the testimony about the problems with FPI is one that we are all sensitive to, and I think abuses should be curbed and I think that if things that this Congress has tried to put into place have not been enforced, they should be.

    But again, my view is that does not mean that we should, as a catastrophic move, terminate the program, given the compelling testimony we have had from Mr. Glover as to the benefits that it provides, and going even beyond that, the restitution for victims and so on and so forth. I think there are so many reasons why my predecessors have supported FPI and I would look for ways, working with you, to try to preserve the core mission of FPI and rein in some of the abuses that you have talked about.

    Thank you, Mr. Chairman.

    Mr. SMITH. Thank you, Mr. Green.

    The gentleman from Virginia, Mr. Scott, is recognized.

    Mr. SCOTT. Mr. Chairman, I have the same concerns that the gentleman from Wisconsin had, and in light of the time, I will defer to the Ranking Member of the Full Committee.

    Mr. CONYERS. Thank you, Mr. Chairman. I wanted to make sure I understood Chairman Smith's commitment to have a second hearing before markup. Is that going to happen?

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    Mr. SMITH. If that is a question, Mr. Conyers, I do not know that I said anything on the subject whatsoever, and in point of fact, the reason for this hearing today on the bill is to prevent having another hearing on the bill.

    Mr. SCOTT. On the issue.

    Mr. SMITH. On the issue.

    Mr. CONYERS. So we are going to go to markup without ever hearing from anybody in the Federal prison system about the whole issue that we are legislating on?

    Mr. SMITH. That might well occur, given the limit on the witnesses that we could have.

    Mr. CONYERS. Is there a limit on the hearings, too?

    Mr. SMITH. There is a practical limit on the hearings simply because we have so many hearings scheduled for the next several months. As you know, I think, Mr. Conyers, this is probably the most active Subcommittee of the full Judiciary Committee and we literally have something scheduled every week through July and I do not know whether we are going to have an opportunity to have another hearing on this subject or not. My goal is to try to cover all subjects with one hearing is we possibly can, particularly if there is going to be a subsequent markup of the bill.

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    Mr. CONYERS. Well, this is outrageous. You know, I was so happy to hear a person in business, Mr. Mansh, at least say something about the purpose of what this FPI is about. It is not about business, guys. It is about doing something for the exploding inmate populations in the Federal prison system. It is not about you.

    Now, this is a railroad. If we are never going to hear from the authorities but just from the representatives of the business community, I mean, what do we need to be here for? We can just go to markup. At least we have the corrections system people. They are talking about it from their own self-interest, but at least it contemplates improving why you send people to prison in the first place. This is not the Commerce Committee, it is the Judiciary Committee, and it is absolutely outrageous that we would be taking this issue and casting it in terms of who is going to win and who is going to lose and throwing the whole thing out, by the way, instead of trying to modify it.

    Mr. DELAHUNT. Would the gentleman yield?

    Mr. CONYERS. Of course.

    Mr. DELAHUNT. I just have a question, and I will direct it to you, Mr. Chairman. Were representatives of FPI invited to testify?

    Mr. SMITH. Not to my knowledge. To my——

    Mr. DELAHUNT. I yield back. [Laughter.]

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    Mr. CONYERS. I mean, here we have the whole issue of incarceration in America. We are building new prisons a mile a minute. We are subsidizing communities to build prisons. We have a terrible problem that the Judiciary Committee has jurisdiction over and we are casting this in terms of somebody is going to lose jobs. Well, I happen to come out of the labor movement and I want to defend every small businessman, entrepreneur, the labor union.

    But here, gentlemen and ladies, we have got a circumstance here, the only one of the things that is most successful, and to have a lawyer representing these people say, well, they have blown it time and time again. They are administratively unreliable, so let us ditch the program. I do not buy that. I cannot buy that.

    I am sorry, Mr. Chairman. This is a huge mistake that we are in the process of making and we are going to have to—if you are not going to have any hearings, I guess we will have to hold some ad hoc hearings or resort to whatever processes there are available, but this is a totally unfair circumstance that we find ourselves in.

    Now, if we are going to sit around and reasonably and intelligently discuss this issue, fine. But if we are going to come here where the deal is already set, then I understand what those of us who are thinking about what we do with these blokes that get out that cannot get jobs, that after they have paid their dues, they still are roaming the streets, and then within a few weeks, sometimes months, they are back in the slammer for the same reason they got there before. They did not have the training, the education, the skills to get work in this technological society that we find ourselves in.

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    Mr. SMITH. Thank you, Mr. Conyers. I might add that while we all do not get all the witnesses we want, nevertheless, this is a hearing that gives Members an opportunity to ask our witnesses questions and there are witnesses on both sides of the issue.

    The gentleman from Florida, Mr. Keller, is recognized for questions.

    Mr. KELLER. Thank you, Mr. Chairman. I am going to pass.

    Mr. SMITH. Okay. The gentleman from Massachusetts, Mr. Delahunt, is recognized for questions.

    Mr. DELAHUNT. I thought you were going to forget me for a minute, Mr. Chairman.

    I am new to this issue, so I do not have any preconceived notions. But I want to pick up on the theme, I think, that Mr. Conyers struck. Whatever the program is, our focus, our efforts, and our resources ought to be to attempt to lower the recidivism rate and to return the inmates back into the community with appropriate skills. I guess the question is, and I am just asking it rhetorically, I am not asking it to anyone here, are we doing that? Are we achieving that? What is the recidivism rate?

    I respect what you say, Mr. Glover, in terms of management of prisons. In my previous life, I was the prosecutor in the metropolitan Boston area and I had the responsibility of investigating and prosecuting crimes within the maximum security prison and several other prisons, so I am very familiar with that and I know those tools are necessary.

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    But I am sitting here and I am listening to Mr. Mansh and he is talking about apparel. I mean, I think the reality is that we can recognize that there has been a substantial decline in terms of the apparel industry and manufacturing in this country. You know, to have inmates learn skills that are not going to be suitable to them when they are released from prison, I do not know if that really makes a lot of sense.

    I think I am hearing you, Mr. Ryan, suggest that this is a Federal program that is being taken advantage of by entrepreneurs on the outside that see an opportunity in terms of developing a business using the so-called super-preference or preference by Prison Industries to create almost a sham. This pass-through is what you are really talking about.

    Again, I know there has been a lot of negotiations and discussions, but I have to concur with Mr. Conyers, Mr. Chairman. I really think we need to exercise oversight into the operation of FPI, without even reaching any decisions as to whether the legislation, which I have not looked at, which is being submitted here today, will deal with the issues, because I think it was Mr. Green that asked the question earlier. I mean, if they are not in compliance now, will the legislation make any difference? I am not sure. Mr. Ryan, maybe you want to respond.

    Mr. RYAN. I think, frankly, the legislation that has been proposed by Congressman Hoekstra and Congressman Frank, frankly, is the fundamental reform from which I think you should start your analysis. I think they have stepped up to the plate to provide a reasoned way to get a soft landing for FPI. They do not automatically end the preference. They phase it out.

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    Mr. DELAHUNT. Okay, and I will do that.

    Let me interrupt just because I am interested in what other tools are available. I am obviously familiar with various State systems. Is there a work release program in terms of the Federal correctional system, Mr. Glover?

    Mr. GLOVER. Congressman, there are a number of programs. We have education programs in the evenings where they go to school, inmates go to school. We do have some work release to VA centers, for instance, where they go and work around the VA center.

    Mr. DELAHUNT. I guess I am speaking to, in terms of work release programs, are there programs that exist within the Federal system that would allow inmates, under certain conditions, obviously, to be released to work in a private sector role where they could learn appropriate skills?

    Mr. GLOVER. I am certainly not qualified to answer for the director of the prison system.

    Mr. DELAHUNT. Mr. Mansh or Mr. Ryan, maybe you could respond.

    Mr. RYAN. Well, let me go to a fundamental issue. The claim is always made that this program reduces the recidivism rate.

    Mr. DELAHUNT. Right.

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    Mr. RYAN. That is akin to saying that the board scores of a suburban school that is well equipped is better than an inner city school where you do not give people the tools. They take the best inmates in the institution and put them in this program. Of course, it has a better recidivism rate.

    Mr. DELAHUNT. Fine. Let me ask you this. Have there been studies? Is there any empirical data to support the premise that even the good inmates—people are obviously shaking their heads in the back. I will accept that as an answer from the audience, because we are limited with time here.

    But I would think, Mr. Chairman, that we ought to be looking in terms of expanding and enhancing a work release program as opposed to—well, I yield back.

    Mr. SMITH. Thank you, Mr. Delahunt.

    The gentleman from Virginia, Mr. Scott, is recognized.

    Mr. SCOTT. Thank you, Mr. Chairman. I just wanted to make a couple of points and I will yield the balance of my time to the gentlelady from Texas.

    First, we have had allegations of mismanagement and violation of guidelines at FPI. It has been pointed out that FPI has not been here to be able to respond. I would ask unanimous consent that a letter from FPI to the Defense Logistics Agency in reference to the Mansh contract be entered into the record so at least the record will reflect some of their views.

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    Mr. SMITH. Without objection, so ordered.

    [The material referred to appears on page 4 of this hearing record.]

    Mr. SCOTT. They were, I think, available to testify had they been invited. Usually, the agency has an opportunity to testify and that opportunity was not afforded to FPI.

    Second, I think we all agree that the prison industry program is important and we have had very little focus on what the alternative is to mandatory source that will produce more jobs than they have got now. Because the prison population has gone up by about a third, we are going to need at least a third more jobs to have the same portion of prisoners occupied.

    And finally, Mr. Chairman, as an interest to society, the gentleman from Michigan, the Ranking Member, went to great lengths to say how this is good for prisoners. It is also good for society. The taxpayers do not have to pay the increased costs of recidivism and do not have to pay for the extra guards to guard people that are sitting around idle all day. You do not need as many guards when people are occupied. Furthermore, crime victims, those that have been victimized in the past, get significant restitution, and people who own businesses or belong to labor unions would like to have less crime. They are less likely to be a victim of crime if we have good prison industry programs.

    All the studies that I have seen have shown that the recidivism rate goes down, not just because of adverse selection, but in controlled studies, those that have good prison industry programs have a lower recidivism rate.

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    With that, Mr. Chairman, I would yield the balance of my time to the gentlelady from Texas.

    Mr. SMITH. The gentlewoman from Texas is recognized for 5 minutes, and unfortunately, we will need to adjourn after her questions.

    Ms. JACKSON LEE. Thank you very much, Mr. Chairman. We have had these hearings for a number of years, as I have been a Member of the Subcommittee on Crime. I do thank the Chairman and the Ranking Member for bringing it to us again. Let me also thank the witnesses, though I am somewhat confined and restrained by this limitation of witnesses in terms of numbers, which limits us from exploring the issues that I think were very pointedly mentioned by the Ranking Member of the Full Committee.

    Let me just acknowledge the fact that we are suffering in this country in particular with the movement that reached a pinnacle of building prisons and having prisoners, and I want to associate myself additionally with remarks of the Ranking Member of the Subcommittee that they are a value to the Federal Prison Industry concept, that it is important to determine the recidivism issue, and that there is some data that suggests that the training does, or the working does, in fact, help with recidivism.

    But I have a question as to the relevancy of the work, whether or not the work is geared more to building furniture or whether or not it is relevant to the idea of providing them for the workforce of the 21st century. I see, Mr. Ryan, you have put yourself in the mix. Maybe I should not ask you, but I am going to yield to you on that issue. Where are we in being relevant?

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    Might I say that—let me put another spin to it, an unfortunate spin, and that is that the predominance of individuals incarcerated at least in State jails, and it may likewise be in the Federal system, happen to be minorities, happen to be African Americans and, I think, Hispanics. There is an increasing number of women being incarcerated. And so this is at the center of various cultural groups. It is at the center of family groups. I am working now with a prison, I guess I would call it effort, or project, that tries to deal with the children of prisoners, which are noted to be part of the cycle, that if your family members, dads, moms, are incarcerated, you can almost put money on the fact that the child will be drastically impacted and may wind up in the system, as well.

    So I guess my question would be, are we even relevant of having these hearings under the context of where FPI is at this point and what do we need to do about that?

    Mr. RYAN. Congresswoman, I think you hit it right on the head, because we could not find amongst the furniture companies one former inmate employed who had learned their skills in Federal Prison Industries. In other words, the skills that are directly being built by ending idleness, which we support, are not translating into jobs.

    Now, of course, I would agree with Federal Prison Industries that they learn to go to work, they learn that they have got to be there, and those are important skills and I do not diminish them. But quite frankly, this is all about doing it on the cheap. It is all about making sure that the corporation makes a profit as opposed to does the training.

    And quite frankly, if we want people to be trained, we are going to have to pay the price. Right now, the people paying the price are the GED and veterans who are in the furniture industry or the apparel industry or the industries that have, frankly, been the traditional industries that suck it up and take the pain because of the way the policy is being implemented.

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    Ms. JACKSON LEE. As I said, I have been in these hearings, Mr. Ryan, for a number of years, and my inclinations in early years were to be sympathetic to these businesses that were utilizing these fine gentlemen and maybe ladies and that they were a part of the infrastructure of the community. When I say these businesses, I am talking about the products that were being produced and then being sold. And then, of course, listening to, of course, your position, which is with respect to those who cannot compete with this low cost.

    So now I think it is time to put in the mix the points that you all have been making, which is we are both possibly hurting small businesses, which I am particularly sensitive to, but as well, are we being relevant, and are we, if we did a study prospectively, would we find the recidivism numbers as good as we found them in years past when we studied them.

    So, Mr. Chairman, let me simply conclude by saying, I know others have had testimony, that I am not sure if we have got our hands around all of the issues of concern. I did come in on the Ranking Member's issues, and I am not sure if he wants to, if my time is still—I see it is a red light. I was going to yield to him. But in any event, I think that we have not answered all of our questions about this, and as we follow the legislative process through, I hope that we will find better solutions to the answer of incarcerated persons, recidivism, and having them come back into full responsibility into our society. I yield back.

    Mr. SMITH. Thank you, Ms. Jackson Lee.

    Let me explain for the benefit of the Members who were not here earlier that the reason we are going to need to adjourn is because there is a bill on the House floor that is a Judiciary Committee bill, and under the rules of our Committee, we need not to be in session while that bill is being considered, and I think it is imminent that the rule will be under debate on the House floor.

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    Before we adjourn, let me thank our witnesses again for their contributions and for giving us their insights on this particular issue. As you can see, we have a number of opinions that have been voiced by this Committee today and we will look forward to beginning the process to see if we cannot come up with a bill that addresses a lot of the concerns raised by many Members.

    Thank you all again for your expert testimony. It was much appreciated.

    At this time, I would like to insert into the record a number of statements that have been submitted for the record. We have received statements from John Palatiello of the Management Association for Private Photogrammetric Surveyors; the U.S. Chamber of Commerce; T. Howard Noel of the Council on Federal Procurement of Architectural and Engineering Services; the American Apparel and Footwear Association; Lawrence Skibbie of the National Defense Industrial Association; Gary Engebretson of the Contract Services Association of America; Bob DeGroft of the Independent Office Products and Furniture Dealers Association.

    [The prepared statement of Mr. Palatiello follows:]

PREPARED STATEMENT OF JOHN PALATIELLO OF THE MANAGEMENT ASSOCIATION FOR PRIVATE PHOTOGRAMMETRIC SURVEYORS

    Mr. Chairman, the Management Association for Private Photogrammetric Surveyors (MAPPS) is a national trade association of more than 160 private firms engaged in professional mapping and related technical services.

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MAPPS is deeply concerned that Federal and State prisons have discovered the exploding market for geographic data conversion services. Convict labor is encroaching into the data conversation market, displacing hard working, law-abiding, tax-paying citizens with criminals employed by a new form of government-sponsored, unfair, tax-exempt, below-market, non-profit competition. Based on the sanction of the Justice Department's ruling that the current Federal law prohibition on the interstate commerce of prison products does not apply to services, not only have State prisons engaged in such commercial transactions, but now FPI is coming after us as well. While FPI on one hand withdrew its proposed rule on commercial services, it issued a Commerce Business Daily notice that it is entering the commercial market for ''complete vectorization of maps and engineering drawings''. In layman's terms, that is a scanning and digitizing process to convert paper maps and engineering drawings into electronic or digital formats and computer aided design (CAD).

In that same CBD notice, FPI stated it is ''concentrating its efforts on performing commercial services work that is currently being performed outside the United States.'' FPI has erroneously come to the conclusion that mapping services fall within this category. While conversion work may be sent overseas on an isolated and incidental basis, it is the exception rather than the normal practice. In fact, I recently contacted several Federal agencies to determine the extent of Federal contracting activity in the services FPI claims is being done outside the U.S. I can document 40 firms under contract to 4 major Federal agencies (NIMA, USGS, Corps of Engineers and Fish and Wildlife Service) that have these services in their scope of work. A number of these agencies have conducted visits, tours and site inspections to verify that the services are being performed in the United States.

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    For a U.S. Government contractor to send work off-shore is a dangerous and illegal process. Federal mapping contracts are subject to the prevailing wage requirements of the Service Contract Act of 1965 (41 U.S.C. 351 et seq.). The only reason a firm would send work off-shore would be to take advantage of lower labor costs. If a firm were to send Federal contract work off-shore, take advantage of the lower labor costs, fail to pay the prevailing wage required by the contract, and pocket the difference, they would be in violation of Federal law.

    If FPI knows of this practice, they should be reporting these firms to the Department of Labor and the enforcement office of the Justice Department. If they are unaware of this practice occurring, then how can they claim the work is going off shore?

    We do not believe that FPI should be authorized to determine for itself whether a service is going off-shore. There is currently no requirement for a market study, no consultation with the private sector, no findings and determination procedure and no certification by the Labor Department or any other third party. As you may know, Mr. Chairman, there is a program in the Labor Department known as the Trade Readjustment Assistance (TRA) program. It provides benefits for workers who lose their jobs due to severe dislocation due to imports. Under that program, an application must be made by an individual, union, or company. A certification must be made by the Labor Department. FPI seeks no such determination by the Labor Department. FPI can issue a death sentence to small businesses and their employees in any service industry and FPI gets to be judge, jury and prosecutor. There is no due process. It is hard to believe such a process would be condoned the Committee on the Judiciary.

    Mr. Chairman, there are a number of reasons why mapping is an inappropriate area for prison industry participation in the first place.

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    The services UNICOR and the State prisons are providing, while technical in nature, support professional architect-engineer (A/E) services. In recognition of the importance of using the highest quality contractors to perform such services, Congress in 1972 enacted a qualifications based selection law (PL92-582) and later amended it to clarify that it applies to mapping services (40 U.S.C. 541 et. seq.) This law requires Federal agencies to award A/E contracts (including those for surveying or mapping services) to firms based on their ''demonstrated competence and qualification'' subject to negotiation of a fee ''fair and reasonable to the government'', rather than awarding such contracts to the lowest bidder. The vast majority of States have also adopted this process in their codes and it is recommended by the American Bar Association in its Model Procurement Code for State and Local Government.

    Public health, welfare and safety is dependent on the quality of work performed by professionals in the fields of architecture, engineering, surveying and mapping. To add to these highly technical and professional services drawings, maps and images processed by prison inmates is not only an affront to the professionals in this field, but questionable to the public interest.

    Just as a poorly designed dam can burst, subjecting the government to huge claims, so too can a poor map unleash a flood of problems, creating an impediment to the expeditious completion of a government project, causing substantial loss of time and money, and jeopardizing the public safety. Like a well made dam, a high quality map will stand the test of time and will ensure that the government can proceed with its design, construction or resource planning project based on complete and precise groundwork.

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    The National Council of Examiners for Engineers and Surveyors (NCEES) a national organization of the 50 States' licensing boards for these services recently amended its model law to include mapping within the profession of surveying, such to State licensing.

    My friends in the Federal agencies tell me prison industries is an unworkable alternative in mapping. This work requires constant interaction between the client and contractor. The inability of Federal agency officials to make frequent and timely visits to a prison industry to inspect work, consult with the contractor and resolve questions is a major barrier to economy and efficiency.

    It is also unwise to train convicted felons in imaging techniques and technologies. The potential for utilizing the prison-developed skills in counterfeiting operations upon release from incarceration is too tempting.

    In addition to the counterfeiting issue, I want to emphasize that inmates working prison industries in geographic information services often have access to homeowner data, property appraisal and tax assessment records and other information that most citizens would be horrified and outraged to know were in these convicts' hands.

    Recently, FPI was included as a subcontractor on contracts awarded by the National Imagery and Mapping Agency. This is part of a challenging and highly professional and technical program to provide mapping for a variety of military and intelligence applications that includes production of highly classified maps.

    Based on the sanction of the Justice Department's ruling that the current Federal law prohibition on the interstate commerce of prison products does not apply to services, State prisons are already engaged in such commercial transactions. In Oregon, firms have gone out of business and others have closed entire divisions, because the market for their services in the State has evaporated. Unigroup is the Oregon Department of Corrections' prison industry. It brags that its ''innovative CAD/CAM industry was conceived in early 1992 as a way to provide quality, inexpensive services to state and other governmental agencies. Private businesses are also welcome to use our services.'' Unigroup functions as a conversion house, converting hard copy documents to digital files. This organization not only does work for Oregon State agencies and Oregon counties, but for Federal agencies and private firms. In fact, we are told that through private firms, the Oregon prison industry mapping section has done work in New York and other States. The Oregon prison industry has become so pervasive that two MAPPS member firms have shut down their efforts to market these services to State and county government, as they are unable to compete with the below market prices and labor rates charged by the prisons. Unigroup has also crossed State lines to solicit work for private entities in other States. Their solicitation marketing letter was NOT sent to Oregon firms; we suspect that because the State prison industry did not want to let Oregon firms know how blatantly they were competing with the private sector.

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Another State prison program, the Prison Industries Enhancement (PIE) program, has entered the mapping field is in Florida. PRIDE Enterprises, the Florida prison industry, is engaged in a variety of digital geographic information services, including converting hard copy maps to electronic files; plotting maps at various scales; creating databases with information on homeowners, property appraisal and tax assessment; digitizing, and other CADD and GIS services. While PRIDE works as a subcontractor to private firms, their direct contracting authority is unfair competition and again, diverts work for tax-paying, law-abiding citizens.

It is our understanding the Attorney General of the State of Florida issued an opinion that the Federal prohibition on prison made goods does not apply to services. However, with specific regard to whether the activities of the Florida prison program fall within the jurisdiction of the Department of Business & Professional Regulation and its Board of Professional Surveyors & Mappers, no such ruling has been obtained. The Florida Board's regulations, pursuant to Florida Statutes, sec. 472.008 and 472.027, define ''surveying and mapping'' as ''a process of direct measurement and analysis specifically designed to document the existence, the identity, the location, and the dimension or size of natural or artificial features on land or the air, space or water for the purpose of producing accurate and reliable maps, suitable for visualization if needed, of such documentation.'' Moreover, Florida law requires individuals who qualify for a professional license to be ''of good moral character'', and states, ''good moral character means a personal history of honesty, fairness, and respect for the rights of others and for the laws of this state and nation.'' While the Florida law specifically excludes work as a ''digitizer, scriber'' as qualifying under the ''responsible charge'' requirements for prior experience in order to be licensed, the fact that these services are mentioned in the law and fall within the plain meaning of ''surveying and mapping'' makes prison activity in the area a dangerous and questionable proposition.

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    The Texas Department of Criminal Justice has established a map scanning and digitizing service at their Ferguson Unit in Midway, Texas. Authorized by the Prison Made Goods Act of 1963, the prison company has a slick brochure claiming that under their program ''Everybody Wins'' since inmates are trained in a skill that is marketable upon their release, use of the prison agency provides a ''quality product at a reduced price'', and a ''double savings'' for the taxpayer. This unit has taken work for the Texas Department of Transportation, Texas counties and other clients that would otherwise have gone to the private sector.

    When Federal government work goes to a prison rather than a profit-making, taxpaying company, the Federal and State government loses considerable corporate and individual tax revenues, and displaces law-abiding workers. When a Federal or State prison enters the commercial services market, this problem is compounded. How can the private sector expect to be competitive when faced with entities that pay not taxes, do not comply with the Fair Labor Standards Act, OSHA regulations, have subsidized overhead, and have preferential borrowing authority. In the commercial service market, how are prison industries going to deal with tort liability? Are they going to carry professional liability insurance? What recourse is there for substandard work or failure to perform?

    Mr. Chairman, we are not unmindful of the difficult challenge prison administrators face. It is unfortunate that in our society today, prison populations are increasing. It is obvious that something must be done to keep inmates occupied, to train and rehabilitate them, and to pay their debt to their victims and to society at large. However, in that process, another law should not be violated—the law of unintended consequences. We should not be creating another set of victims—those business owners and their employees and their families who are displaced because the work that would have kept them employed has gone to prison industries through grossly unfair competition.

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    We cannot tell you whether the impact prison industries has on the mapping profession is intended or not. We are not aware of a single impact study that UNICOR or its parent, the U.S. Department of Justice, has done on the entry of these entities into mapping. Just as a narrow legal opinion has been crafted that says prisons can engage in commercial services, a similar opinion has been rendered that says UNICOR does not have to measure the impact of their expansion in services, nor confer with affected professions, like they must do under the law with products.

    MAPPS strongly supports the Hoekstra-Frank-Maloney-Collins-Sensenbrenner reform bill. We urge prompt action on this overdue legislation early in this Congress.

    [The prepared statement of the U.S. Chamber of Commerce follows:]

PREPARED STATEMENT OF THE U.S. CHAMBER OF COMMERCE

    The U.S Chamber is the world's largest federation of business organizations, representing more than three million businesses and professional organizations of every size, sector and region of the country. The Chamber serves as the principal voice of the American business community. The Chamber respectfully submits these comments for the record of the House Judiciary Subcommittee on Crime Oversight Hearing on Federal Prison Industries (FPI).

    These comments are offered on behalf of the entire business community, but especially for the Chamber members involved in the government procurement process. These businesses, small and large, rely on an efficient, fair competitive process in providing the federal government with goods and services to maintain and grow their businesses.

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FPI REFORM

    In 1934, President Roosevelt established FPI as a government-owned corporation. FPI was given special ''mandatory source'' status in the government procurement process, forcing government agencies in need of a product to purchase that product from FPI. No consideration can be given to a private sector competitor unless that agency asks FPI for an exception from its own monopoly. FPI has unfettered discretion in making waiver decisions; FPI does not have to grant a waiver even if the agency demonstrates that a commercial product is of higher quality, can be obtained quicker and acquired at a substantially lower cost.

    It is ironic that there are laws prohibiting the U.S. from importing goods that are made by prisoners in other countries, yet we have laws that require our own federal government to buy goods and services from prisoners in this country. And we can all certainly recognize the changes that have occurred in our nation's economy since the Great Depression, further lending to the argument that the time for FPI reform has come, especially in light of FPI's current monopolistic activities.

    Each year, FPI expands to produce even more goods and services. In 1994, FPI was involved in only 85 markets with sales totaling $390 million. Today, FPI produces over 300 products and services, such as furniture, military clothes and gloves, shelving and shipping containers, signage, printing and a host of services, that in 2000 alone totaled nearly $600 million worth of sales to the federal government. Evidence concludes FPI will continue to exhibit expansionist behavior, by exploiting its mandatory source status and increasingly encroaching on private sector industries in order to be profitable enterprise.

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    Reform of FPI starts with the realization that FPI currently exceeds its statutory authority. They can set any price it wants within the range of market prices and have no incentive to charge the lowest price. FPI, rather than federal agencies, determines whether FPI's products and delivery schedule meets the agency's needs. FPI is limited to no more than a reasonable share of the government market, but in over 100 product categories, they have determined that 100% of the market is reasonable. By granting FPI a monopoly, issues of price, quality and efficiency fall by the wayside at the expense of U.S. taxpayers.

    FPI's mandatory source has obviously been a constant concern for industry. The Chamber has long-standing policy that the government should not perform the production of goods and services for itself or others if acceptable privately owned and operated services are or can be made available for such purposes. The private sector should be allowed to compete fairly with FPI for federal contracts—plain and simple—by eliminating the requirement that government agencies purchase products from FPI.

    While we are empathetic to FPI's goal to employ federal inmates to reduce recidivism by providing vocational and remedial opportunities while incarcerated, it should not be done at the expense of law-abiding, tax paying businesses. It is unfortunate that in today's society we are faced with an increasing inmate population. However, we believe that there are other substantial sources of work available to inmates that would not infringe upon the private sector's opportunities to compete for government contracts.

ADMINISTRATIVE EXPANSION

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    FPI's desire to expand into the commercial marketplace is an alarming development that is seen as a call to arms by industry. The Chamber for three reasons opposes FPI's move into the commercial marketplace. First, the decision by FPI's Board to expand into the commercial marketplace is in conflict to the clear language of FPI's enabling legislation and therefore arbitrary, capricious and beyond the discretion of the Board. Second, it is a reversal of more than sixty years of public policy. Finally the creation of a state run enterprise, competing with its own citizens, is a policy so at odds with the role of government in a free society, that it is a decision best left to Congress.

    Title 18 U.S.C. section 4122(a) specifically states:

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 the departments or agencies of the United States, but not for sale to the public in competition with private enterprise.

    This section, the very first provision in the statute governing the administration of FPI, spells out in clear, plain language that the markets for prison commodities is other prisons and federal agencies, but not for sale in the commercial marketplace. Since its inception in 1934, FPI has adhered to this statutory prohibition preventing it from entering commercial markets. They have exclusively, and with preferential status, sold their products to the federal government. In other words, for more than sixty years, FPI had interpreted their statute to mean what it says, ''but not for sale to the public in competition with the private sector.''

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    Now however, despite this seemingly clear prohibition on entering the commercial market found in the statute, recent evidence shows they have engaged in expansionist practices. Sixty years of public policy should not be overturned, especially without public debate. The United States should not be selling commercial services in competition with law abiding taxpaying businesses, using prison labor that is often paid less than a dollar an hour. FPI's expansion in the commercial market is a dramatic shift in policy, and in conflict with the clear language of 18 U.S. C. 4122(a).

LEGISLATIVE INITIATIVES

    The Chamber strongly supports the Hoekstra-Frank-Collins-Maloney Federal Prison Industries Competition in Contracting Act Coalition of 2001. This bipartisan legislation would impose overdue and much-needed restraints on the unfair competitive practices of FPI that inflict damage on law-abiding businesses and the workers they employ.

    The bill, supported by business and labor, would require FPI to compete for its contracts by eliminating its mandatory source status, while providing a five-year ''soft-landing'' to allow FPI time to adjust to competition. It would also protect taxpayer dollars and federal agency operating budgets by eliminating FPI's ability to overcharge for its products. Agency contract officers, not FPI, would determine if FPI's offered product best meets buying agencies' needs in terms of quality and time of delivery.

    The US Chamber of Commerce strongly supports this legislation because we believe that the private sector can better address the needs of federal agencies by providing higher quality goods, in a more timely fashion, and for a lower price. The time has come for Congress to address this much-needed reform to ensure fair competition for American businesses in the federal procurement process and to curb FPI's entry into the commercial marketplace.

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    Thank you for allowing the Chamber to submit this statement for the Subcommittee. Please feel free to contact the Chamber should you have any questions or require additional information.

    [The prepared statement of Mr. Noel follows:]

PREPARED STATEMENT OF T. HOWARD NOEL OF THE COUNCIL ON FEDERAL PROCUREMENT OF ARCHITECTURAL AND ENGINEERING SERVICES

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    [The prepared statement of the American Apparel and Footwear Association follows:]

PREPARED STATEMENT OF THE AMERICAN APPAREL AND FOOTWEAR ASSOCIATION

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    [The prepared statement of Mr. Skibbie follows:]

PREPARED STATEMENT OF LAWRENCE SKIBBIE OF THE NATIONAL DEFENSE INDUSTRIAL ASSOCIATION

    Mr. Chairman and distinguished Subcommittee members, I am Larry Skibbie, President of the National Defense Industrial Association (NDIA). On behalf of the National Defense Industrial Association's 24,000 members and nearly 900 corporate members, which employ the preponderance of the two million men and women in the defense industry, I would like to express our appreciation for affording us the opportunity to submit a statement for the House Judiciary Subcommittee on Crime's hearing on Federal Prison Industries. We are grateful for the efforts of the subcommittee to review the operations of the Federal Prison Industries (FPI).

    We are greatly concerned with FPI's current methods of operations as well as proposals to expand FPI's sale of goods and services into the commercial market place. This is not only an issue that affects industries such as furniture and apparel, but a significant number of companies as well that currently do business with the federal government and those in the commercial sector who produce goods that FPI currently manufactures for the federal government.

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    Insidious expansion and increase in market shares on FPI's part have impacted our nation's industrial base, which affects our military readiness and our ability to respond in a time of crisis. Many industries currently supplying the defense community have been negatively impacted by previous expansions of FPI. One glaring example is a NDIA small business member company forced out of business because of FPI's unchecked expansion into the missile container business. In a time of need, these are the same companies and manufacturers that must be called upon to increase production and meet wartime requirements. As FPI assumes an increasing share of many markets, America's defense industrial base continues to shrink, thus losing its ability to respond.

    The current business model FPI uses in determining its product catalog, the price to charge and the volume to produce is fatally flawed. These flaws result in unfair advantages for FPI and severely limit private industry's ability to compete in the federal market place. The methodology currently employed by FPI to make these decisions is outdated, imprecise and based on incorrect assumptions about markets and its competitors. Before addressing potential expansion into the commercial marketplace, reforms need to be implemented that will correct the potential of conflicts of interest within FPI's operations. Only after such reforms are initiated would private industry be on equal footing so that FPI and the commercial sector can fairly compete.

    Our strenuous opposition to FPI's current mode of operations stems from the fact that it operates under a business model that inflicts undue harm generally on law abiding tax payers and small to medium size businesses in particular. Expansion of FPI into the commercial marketplace, under current conditions, would only serve to exacerbate current problems apparent in FPI's daily operations. Furthermore, it would expose America's businesses, irrespective of industry, to unfair competition without affording them any recourse.

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    There are clear and well-defined problems with FPI that must be addressed to ensure a strong defense technology and industrial base as well as the continued existence of the Prison Industries. NDIA supports the principles with which FPI has been charged and recognizes its contributions to society. However, the current system's negative impacts greatly out weigh the benefits. For these reasons, NDIA has supported and will continue to support legislation that addresses the need for reform. We believe the Hoekstra-Frank-Collins-Maloney Federal Prison Industries Competition in Contracting Act is a viable and pragmatic first step in reforming an agency that has escaped real reform efforts for more than 60 years.

    As The Voice of the Industrial Base, NDIA seeks to promote solutions that will ensure the continued existence of an industrial base capable of meeting our national security requirements. To this end, we are willing to participate in any dialogue that would bring reform to the problems we have mentioned today.

    [The prepared statement of Mr. Engebretson follows:]

PREPARED STATEMENT OF GARY D. ENGEBRETSON OF THE CONTRACT SERVICES ASSOCIATION OF AMERICA

    Mr. Chairman, Members of the subcommittee. My name is Gary Engebretson and I am the President of the Contract Services Association of America. CSA is the nation's oldest and largest association of government service contractors. We represent more than 300 companies and tens of thousands of employees. Our members perform services of every conceivable type, from low tech to high tech, for virtually every agency of the Federal government and scores of state and local governments.

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    I applaud your interest in the divergent issues surrounding the Federal Prison Industries (FPI), also known as UNICOR, and its status as a mandatory source in the Federal procurement arena.

    We all know the history of FPI, which was created in 1934 to employ Federal prisoners to manufacture products exclusively for all Federal agencies. But as a mandatory source of supply, FPI has a virtual lock on the Federal market—even when price and quality comparisons demonstrate that the private sector is a better supplier. This ultimately translates into a loss of business for those companies that are traditional government suppliers.

    How does this mandatory source status work? Current law and regulation obligates a Federal agency to look first to FPI to fulfill its requirements for a product—and to negotiate a contract with FPI on a sole source basis. The final determination of the price to be paid for its products is left to FPI—not to the Federal manager. This is completely contrary to normal procurement practices where the private sector, when selling to the Federal government, is required by statute to sell at a fair and reasonable price established through a competitive bidding process. It is also contrary to the bi-partisan efforts of the last several years to encourage greater commercial practices in how the Federal government conducts its business. These reform initiatives (e.g., the 1994 Federal Acquisition Streamlining Act, the 1996 Clinger-Cohen Act and the FAR Part 15 rewrite) have led to more performance based contracting—a concept fully supported by the Administration.

    However, on FPI designated items, the Federal manager's hands are tied. In order to seek bids from the private sector, the agency must first obtain clearance or permission from FPI. A waiver does not need to be granted even when FPI's product is more expensive, would take longer to be delivered, and does not meet the agency's needs as effectively as a commercial item. To quote from the Federal Acquisition Regulations (FAR), ''purchases from other sources because of a lower price are not normally authorized and clearances will not be issued on this basis.'' (FAR 8.605(b) Clearances)

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    Of course, FPI claims it can provide products of equal or better quality than the private sector, make deliveries as promptly as the private sector, and sell some products at a lower price than the private sector thereby saving taxpayer dollars. But these statements are not true. If they were, then FPI would not need to have a ''super preference'' that allows them to force out the private sector and prevent companies from bidding on contracts.

    Contrary to FPI's assertions, GAO reported in April 1998 that the Federal Prison Industries cannot back-up its frequent claims about being a quality supplier to Federal agencies, furnishing products that meet their needs in terms of quality, price, and timeliness of delivery. Once FPI commandeers a product, it erodes, displaces, or eliminates private sector competition and opens the door for it to raise its future prices.

    FPI has an additional unfair advantage over the private sector. It need not comply with the laws and regulations imposed on the private sector such as those governing minimum wage rates, retirement and other fringe benefits, insurance costs, and compliance with OSHA requirements. And, according to the General Accounting Office, the cost of prison labor ranges from .25 cents to $1.23 per hour.

    So far, these comments have focused on FPI's mandatory source in the manufacturing arena. So why should the Contract Services Association of America and its members care about FPI's impact in the manufacturing world? We've entered the discussion—and have testified on numerous occasions—because FPI sees services as ripe for aggressive expansion. While the authorizing statute is silent with respect to services, FPI is already involved in numerous service-related activities including laundry services, distribution and mailing services, data services, and telephone support services.

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    This move appears to be solely based on a February 1998 legal memorandum issued by a special counsel in the Department of Justice's Criminal Division that held that the FPI is not expressly prohibited from entering the services arena. The FPI has since used this internal agency memo to open the door into the commercial services contracting arena, without any congressional ''blessing'' to do so. While I am not advocating this—because I do not believe the FPI should be allowed to enter the services marketplace at all—it would appear to me that congressional authorization must be given before the FPI could ever contemplate becoming a services provider.

    Furthermore, it is disturbing that currently, FPI does NOT have to pay any competitive wages to prisoners. As was noted earlier, this ensures they have an advantage over service companies that must comply with the Service Contract Act and other labor laws and regulations.

    Unfortunately, the approval process and the requirement for an adverse market impact study that affords some coverage for private sector manufacturers do not currently apply to services. While the mandatory source requirement does not strictly apply to services, FPI has implied that it is a ''preferential source'' for services and used this to enter into sole source contracts with Federal agencies for services.

    The FPI's expansion into services contracting is particularly critical as the Federal government progresses towards greater competitive sourcing of its commercial activities. CSA is concerned about previous statements made by FPI to become the ''first-stop'' for Federal agencies when they decide to contract out those commercial-activities currently being performed by Federal employees.

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    CSA has actively promoted greater outsourcing and privatization of non-inherently governmental functions. There is an ever-increasing appreciation of the many benefits offered by thoughtful and aggressive efforts to competitively outsource the Federal government's commercial activities to the private sector. For example, we actively supported the Federal Activities Inventory Reform (FAIR) Act which is aimed at increasing competitive sourcing of commercial activities currently being performed by Federal agencies, where doing so represents the best value to the taxpayer. But we did NOT work hard to get that measure enacted only to see these commercial activities now turned over—without competition—to the FPI.

    Part of the debate over outsourcing concerns providing fair and appropriate soft landing policies to those Federal employees who are impacted by an outsourcing decision by giving those Federal employees a right of first refusal for jobs for which they are qualified. Indeed, the percentage of Federal employees offered a position with a private sector firm taking over a commercial activity is high. But there would be no soft landing or right of first refusal for a Federal employee whose job would be going to FPI. For that matter, how does any employer (private or Federal) explain to his/her employees that FPI is taking over the manufacturing of a product or the provision of a service that the employees have been performing in order to give jobs to criminals? What will happen to the people who lost their jobs to prisoners?

    In closing, we recognize that any policy concerning FPI must balance two legitimate needs that are defined in the current law:

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1) The need to train prisoners for gainful employment so they may become productive members of society upon their release from prison; and

2) The need to minimize the effect of FPI's operations on the private sector and its employees.

    However, there has been numerous testimony detailing that these goals are not being met. That is why CSA and its members support a common-sense proposal that will soon be introduced by Representatives Hoekstra, Frank, Maloney, and Collins. This measure is modeled after the ''Federal Prison Industries Competition in Contracting Act'' (H.R. 2551), a bill which we supported in the last Congress. As introduced in the last Congress, H.R. 2551 would eliminate the mandatory source requirement for the FPI, forcing it to follow the same competitive procedures that are required of all Federal government contractors. It also explicitly prohibits the FPI from selling services in the commercial marketplace. Under the Hoekstra-Frank-Collins-Maloney bill, the FPI would be explicitly prohibited from offering products or services as a subcontractor to private sector firms. In addition, the bill calls for deductions to be made from wages earned by the prisoners to cover such purposes as payment of fines, restitution of victims, support for an inmate's family, and for a fund that will facilitate the inmate's assimilation into society.

    As the association that represents the broadest sector of service companies, CSA believes that both industry and the Government benefits from fair competition based on the price and quality of the product or service in question. We look forward to working with you toward that end.

    [The prepared statement of Mr. DeGroft follows:]

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PREPARED STATEMENT OF BOB DEGROFT OF THE INDEPENDENT OFFICE PRODUCTS AND FURNITURE DEALERS ASSOCIATION

    Mr. Chairman and Members of the Committee, on behalf of the Independent Office Products & Furniture Dealers Association, I submit the following testimony to you for inclusion in the record of this hearing today on Federal Prison Industries (FPI) and in support of the Hoekstra-Frank-Maloney-Collins legislation.

    My name is Bob DeGroft, Sr. and I am the owner of Source One Office Furnishings located in Albuquerque, New Mexico and current Chairman of the Independent Office Products & Furniture Dealers Association (IOPFDA). The IOPFDA is the trade association for independent dealers of office products and office furniture. The association is comprised of two membership divisions: NOPA, the National Office Products Alliance, representing office products dealers and their trading partners; and the OFDA, the Office Furniture Dealers Alliance, representing office furniture dealers and their trading partners. Formerly The Business Products Industry Association (BPIA), the Independent Office Products and Furniture Dealers Association is dedicated to serving independent dealers and working with their trading partners to develop programs and opportunities that help strengthen the dealer position in the marketplace.

    Source One Office Furnishings is a family-owned and operated company founded by my wife Karla and I in 1977. For years it was just Karla and I running the business. Although I am still very involved in the business, day-to-day operations have been turned over to my son Bob DeGroft, Jr. We are a small company by anyone's standards employing just seven employees and doing roughly a couple million dollars a year in business.

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    Source One does about 25 percent of its business with the government. And having to compete against FPI on the federal level is not easy. I am submitting this testimony today in hopes that you will hear the plea of the business and labor communities and change the way FPI currently operates. Later in my testimony you will hear real life stories from dealers who are impacted everyday by FPI's unfair competitive practices, but first I'd like to share with you the problems with FPI's current mission. In addition, I'd like to share with you my story and history with FPI and what we were able to do on the state level in New Mexico.

    As an independent dealer this hearing is important because it will shed light on the unfair monopolistic practices of Federal Prison Industries (FPI). As a small businessman I don't have a problem with open and fair competition, what I and other dealers around the country have a problem with, is the fact that FPI is not competing with anyone, but instead guaranteed by statute all the government business it wants. For instance, if a government agency needs to buy office furniture, it must first look to purchase these items through FPI, regardless of price, quality of product, or service. If FPI can provide it, the government must buy the product from them, even if the agency can get a better product for less money from a small business like mine. If this isn't hard enough to fathom, FPI has begun looking to broaden its interpretation of the current statute governing the way it operates in a way that would allow them to enter and sell their products in the commercial marketplace. If this were allowed to happen FPI would not only continue to have a monopoly over federal contracts, but would now be in a position to expand their scope and compete in the open market against honest hard-working small business owners like myself.

    I find it ironic that we have laws in this country that prohibit the United States from importing products that are made by prisoners in other countries, but here at home our own government is solely dependent on prison labor for its goods. I understand and sympathize with those who believe prisoners should learn skills and trades while incarcerated that they can then use outside prison walls to earn a living, but it should not come at the expense of honest hard-working small business men and women.

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    FPI was created in 1934 with the mission of providing inmates with real skills that they could use once released back into society. This is nice in principle, but in reality, FPI is not living up to its original mission. What you have today is a 1930's philosophy that doesn't fit today's FPI and its mission. If you look closely at FPI, its mission appears to be more about making a profit than it is inmate rehabilitation. A perfect example is in the area of office furniture. What you see is what I like to call ''drive by manufacturing''. Having inmates simply assembling furniture or in worse cases, just unloading fully assembled product from trucks and putting the FPI label on it is not teaching inmate's ''real'' skills they can expect to use to support themselves and their families once released back into their community. Help us get FPI back on track by supporting real reform in the form of legislation your colleagues Peter Hoekstra, Barney Frank, Carolyn Maloney, and Mac Collins are set to introduce later today.

    Reform is desperately needed to help level the playing field for small businesses, in particular small office products & furniture dealers like me, who are the hardest hit by the unfair and monopolistic advantage FPI has over us. The Federal Prison Industries Competition in Contracting Act of 2001 changes the way Federal Prison Industries (FPI) is able to operate and forces them to compete openly and fairly for contracts they are currently guaranteed by statute. The foundation this country was built on. As you may or may not be aware, this legislation received broad bi-partisan support in the 106th Congress (H.R. 2551). With support from Republicans, Democrats, business and labor, it is my hope that this legislation will be one of the first pieces the 107th Congress takes up this year. With your help and support small business can achieve a level playing field this year.

    This reform is necessary because the numbers and problems are staggering. During FY'99 FPI generated roughly $550 million in sales, of which, 40% or $220 million came at the expense of the office products & furniture industry. Should FPI branch out into the commercial market this move would be a blatant disregard for current law and would force many in the office products & furniture industry to close their doors permanently.

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    As the owner of a small furniture dealership in New Mexico, I can tell you that having to deal with FPI has not been easy and one that has come at a high price. Take my state of New Mexico for example. Ten years ago New Mexico had a law in place that gave state prisons in Los Lunas and Las Cruces mandatory source status for building office furniture and panel systems, without any possibility of appeal by the business community. The prisons had a major share of the city, county, state and educational institutions markets. With this law having serious impacts on my business and others in the community, four other New Mexico office furniture dealers and I banded together for the purpose of trying to change the way FPI operated in our state. Our goal was to get the state legislature to pass legislation that would ''level the playing field'' for businesses in New Mexico trying to compete with FPI by opening up the prison business to outside competition.

    After what seemed like an eternity, we prevailed and changed the system in New Mexico. Changing the system came at an expensive price for me. I was forced to spend $14,000 out of my pocket to save my business. A decision I am glad I made, but this is not an option available to every dealer out there. I was lucky. How many other owners in my position were not? I should not have had to spend this kind of money to compete for business with convicted felons for government business.

    Today I am happy to report; the New Mexico state prison industries program is still alive and well, employing over 400 New Mexico inmates in furniture, telemarketing, garment, dairy, and print shop industries.

    Our efforts being undertaken on the federal level are the same as they were in New Mexico. We are not looking to put FPI out of business. Frankly, that effort doesn't benefit anyone. We are simply looking for a level playing field like we were able to achieve in New Mexico. We believe the Hoekstra-Frank-Maloney-Collins bill is a step in that direction.

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    I can tell you all about the hardships FPI has presented our industry, but I thought it was more important if you heard real life stories from constituents in your districts whom have been directly affected by FPI in some way. The stories are real and the financial losses suffered should not be overlooked. This is lost revenue from small businesses in this country that follow the rules and therefore should not be penalized for doing so.

CONCLUSION:

    Mr. Chairman, members of the committee, I think you will see from reading over these stories that they are real and have a major impact on our industry. I hope you will seriously consider our pleas for help and support real FPI reform today. We cannot go another year playing with a set of rules that is clearly outdated and unfair.

    On behalf of the entire dealer community, and myself, I want to thank you for this opportunity today. I would be happy to answer any follow up questions should you or any members of the committee feel that is necessary.

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Mr. SMITH. We stand adjourned.

[Whereupon, at 10:10 a.m., the Subcommittee was adjourned.]

A P P E N D I X

Material Submitted for the Hearing Record

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

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    I would like to thank Chairman Smith and Ranking Member Scott for convening this critical hearing on ''Federal Prison Industries.'' Prison reform is an important matter that deserves serious review by this Subcommittee.

    Over 2 million offenders are incarcerated in the nation's prisons and jails. In June 1998, 592,462 offenders were held in local jails. Projections indicate that the inmate population will unfortunately continue to rise.

    The Bureau of Prisons of the U.S. Department of Justice administers the federal prison system. Clearly, the Bureau is expanding the capacity of the federal system in anticipating of accommodating an inmate population exceeding 178,000 by the year 2006. Clearly, the overcrowding of prisons is a serious matter.

    In 1934, Congress established Federal Prison Industries (FPI). FPI is a government corporation that employs offenders incarcerated in federal prisons. FPI provides job-training opportunities to federal inmates by producing goods and services for federal agencies. Currently, the state of Texas alone employs 7,700 inmates in prison industries. Nationally, 25% of those held in federal prisons are employed by FPI. Items produced by inmates include furniture, metal products, textile items, optical and plastic hardware, and electronic cable assemblies. Inmates are also able to use automated systems to prepare data and information aids.

    By statute, FPI products and services must be purchased by federal agencies (a requirement referred to as a ''mandatory source'' or ''sole source'') and not available for sale in interstate commerce or to non-federal entities. Federal agencies can obtain products from the private sector through a waiver issued by FPI if the corporation is unable to make the needed product or required service.

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    FPI is a self-supporting government operation. Revenue generated by the corporation is used to purchase equipment and raw materials, pay wages to inmates and staff, and expand facilities. Last year, FPI generated over $566 million in revenue, $418 million of which went to purchasing goods and services from the private sector, 74% of which went to small and minority owned businesses in local communities across this country.

    The Bureau of Prisons clearly appreciates the advantage the program can have on inmates and society at large. First, there is some security benefit to FPI system because inmates are productively occupied. Second, FPI programs are said to provide inmates with training and experience that develop job skills and a strong work ethic. This is certainly important.

    On the other hand, there are some groups that represent working Americans that suggest that job opportunities, particularly jobs needed by low-income families, are lost because FPI receives federal contracts. However, current law prohibits FPI from dominating the federal market, and there are currently congressional mandates placed on FPI to ''avoid capturing more than a reasonable share of the market'' among federal agencies, departments, and institutions for any specific product, determining the appropriate share of the federal market remains contentious. Nevertheless, we must endeavor to take into account the concerns by working Americans across the nation so that we can pass a bill that simultaneously protects jobs and keeps inmates productive.

    The bill before us today provides for a five-year phase-out of mandatory source preference by granting to FPI's Federal agency customer's authority to first solicit on a non-competitive basis. However, at the end of the phase-out period there is no existing substitute for the services and program. Looking to the states, there simply is not enough program participation to accommodate the 25% that is currently accommodated under FPI.

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Mr. Chairman, while there other initiatives which may accomplish the goal of eliminating the mandatory source preference more quickly, I believe we can work together to reach a compromise that is both timely and also enhances opportunities for U.S. workers. We may not all agree on the specific phase-in period but let us try to find a workable solution on this critical issue.

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