Government News:

Prison Industries Sending Mixed Signals

ederal Prison Industries (FPI) officials are sending mixed signals to business and Congress on how they see the organization working with the private sector in the future, with two recent developments offering a distinctly "good news-bad news" message for companies selling to the Federal government.

Rattled by relentless private sector resistance to further expansion of Federal Prison Industries (FPI) manufacturing of finished products, and intrigued by the potentially more lucrative market for component parts and services, FPI recently proposed an end to its hold on mandatory sourcing of finished products in order to compete in a larger market.

The announcement, made by Steven Schwalb, FPI chief operating officer, comes in anticipation that new Federal legislation will be drafted that could bring some fundamental changes to how institutions of the Federal government compete in the open market. Rep. Bill McCollum (Rep-Fl) has been spearheading the drive for reform and requested FPI to draft legislative recommendations for its future.

Schwalb indicated his only responsibility is to keep prisoners busy and stated his belief that new inmate jobs would be more plentiful in the services/component area. This change of direction, if adopted, could set a legislative precedent for other mandatory source competitors, such as National Industries for the Blind and Severely Handicapped, as well as State institutional manufacturing of office products.

FPI announced that the switch from mandatory sourcing to non-mandatory status would likely be phased in over a period of years. It is anticipated that the exact number of years will be a hotly debated and contested issue once legislation is drafted and hearings begin.

According to several sources, the phase-in period, while perhaps too long for some, would carry several advantages. The first one cited by industry was the "cap" FPI intends to place on current production at the very moment the proposal is adopted by Congress. That, say industry sources, amounts to a major change and would provide substantial relief for both the short term and long term.

If the new FPI proposal continues to draw a positive response from private industry, the next step is likely to be formation of a working group of concerned organizations to focus on the issue. Their goal: to develop a unified package to present to Congress in the current session.

But while Schwalb's announcement was drawing a generally positive response from observers in the private sector, a new rule proposal from FPI was sending a totally different message. The proposed rule, if implemented, would substantially expand operations and remove a portion of the oversight that currently governs the manner in which FPI operates.

Published in the January 7 Federal Register, the rule would essentially require that all government contractors check with FPI before beginning work on a government project. If FPI made a component of that project, the contractor would be required to use FPI regardless of whether there were established commercial supply channels, whether delivery dates could be ensured, or even whether the components provided matched with the rest of the project.

In addition, the proposed rule seeks to give FPI authority to exert its preference over loosely defined "ancillary" items. The language of the rule gives FPI the sole authority to determine whether an item is ancillary to a main order. If it is deemed so, customers would be required to purchase the ancillary item from FPI. This provision would substantially increase FPI's reach and take business away from private sector companies.

In addition, the proposed rule seeks to place more emphasis on the needs of convicted felons and the Bureau of Prisons and pay less heed to the impact of FPI's operations on the private sector.

Several portions of the rule loosen current regulations which require that substantial weight be given to private sector impact before FPI is allowed to make a new product or significantly expand.

Other sections give FPI more leeway to expand without seeking public comment or approval from their Board of Directors and would allow FPI to consolidate product classification codes so that it could essentially hide the impact of future expansions on businesses, especially small companies.

The new proposal will doubtless draw a sharp response from private sector companies it would impact. The larger question, however, is what these two most recent public pronouncements by FPI mean. Could it be that Federal Prison Industries has developed multiple personalities?