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# Legislative Bulletin...........................................September 13, 2006

> **Contents:**
>
> **H.R. 2965** --- Federal Prison Industries Competition in Contracting
> Act of 2006

H.R. 2965 --- Federal Prison Industries Competition in Contracting Act
of 2006 --- *as reported* (Hoekstra, R-MI)

**[Order of Business]{.underline}:** The bill is scheduled for
consideration on Wednesday, September 13, 2006, under a structured rule
([H.Res.
997](http://www.rules.house.gov/SpecialRules_details.aspx?NewsID=1798)),
making five amendments in order.

A similar bill, H.R. 1829, passed the House during the 108^th^ Congress
by a vote of [350-65](http://clerk.house.gov/evs/2003/roll612.xml) on
November 6, 2003. It was not acted upon in the Senate.

**[Summary]{.underline}:** H.R. 2965 would amend the federal criminal
code to modify provisions that authorize the Federal Prison Industries
(FPI) and how it operates. FPI is a wholly owned government corporation
that produces goods and services for the federal government (not the
private sector) with prison labor. According to CBO, under current law,
"most federal agencies are required to award purchase contracts to FPI
on a noncompetitive basis ***if FPI has products available to meet the
agencies' needs and the cost would not exceed current market prices***"
(*emphasis added*). The specific provisions of H.R. 1829 are as follows:

> **Government-wide Procurement Policy on FPI Purchases**

-   Establishes a government-wide procurement policy for purchases from
    FPI, which generally require the use of competitive procedures
    (defined in the bill and subject to certain exceptions);

-   Requires federal departments or agencies (hereafter 'agencies') to
    solicit an offer from FPI for any specific product or service needed
    (that's offered by FPI) if the purchase price is expected to be in
    excess of the micro-purchase threshold (currently \$2,500); in other
    words, federal agencies are free to purchase from the private sector
    for item costing up to \$2,500 without first having to solicit a bid
    from FPI;

-   Requires federal agencies to negotiate with FPI on a noncompetitive
    basis for a contract award if the Attorney General determines FPI
    cannot reasonably expect fair consideration to receive the contract
    award on a competitive basis and the contract award is necessary to
    maintain work opportunities at the correctional facility (given that
    other basic contracts requirements are met, and with certain
    exceptions);

-   Authorizes a contract award to be made to FPI using non-competitive
    procedures: 1) if a product or service is only available from FPI;
    and 2) if the contract is from the Federal Bureau of Prisons (the
    Bureau);

-   Requires each federal agency to report purchases from FPI to the
    Federal Procurement Data System;

> **Public Participation in Expanding FPI Products**

-   Authorizes FPI to offer a new specific product or service in
    response to a competitive solicitation by a federal agency, and the
    new product or service must be approved by the FPI board of
    directors prior to sale (and before another new product is offered);

-   Requires that an analysis be made of the probable impact of a
    proposed expansion of sales within the federal market by FPI on
    private sector firms and their non-inmate workers whenever FPI
    proposes to authorize the sale of a new specific product or service,
    or to expand production of a current product or service;

> **Transitional Mandatory Source Authority**

-   Requires federal agencies, when needing a product produced by FPI,
    to first solicit an offer from FPI and make purchases on a
    noncompetitive basis (given that certain criteria is met); requires
    that a contract award be made on a noncompetitive basis to FPI if
    certain basic conditions are met (related to product quality, price,
    and timeliness), with certain exceptions;

-   Prohibits the total dollar value of FPI sales to the government
    (under sole source contracting) in FY2007 through FY2011 from
    exceeding specified percentages of FPI sales for the base period:
    90% for FY07, 85% for FY08, 70% for FY09, 55% for FY10, and 40% for
    FY11); requires an annual study to determine the effects of these
    limitations; in other words, ***this provision would effectively
    phase out sole source contracting with federal agencies;***

-   Requires the Attorney General (AG) to determine annually the effect
    of the above percentage limitations (including whether they reduced
    inmate participation), and allows the ***AG to recommend additional
    authorizations of appropriations to provide additional alternative
    inmate rehabilitative opportunities*** and additional correctional
    staffing;

-   Amends the Federal Property and Administrative Services Act of 1949
    to require a federal agency: 1) to determine whether the FPI product
    is comparable to products available from the private sector (before
    purchasing a product listed in the latest edition of the FPI
    catalog); and 2) if the product is not comparable, to use
    competitive procedures or make an individual purchase under a
    multiple award;

> **FPI as Federal Subcontractor**

-   Authorizes FPI to act as a subcontractor to another federal
    contractor to products in the performance of a federal contract;
    this is subject to certain limitations, and specifically prohibits
    the products provided by FPI from being sold in the commercial
    market;

> **Inmate Wages**

-   Authorizes the FPI Board of Directors to determine hourly wage rates
    for FPI employees, and authorizes the Director of the Federal Bureau
    of Prisons to determine hourly wage rates for other workers within
    the various federal correctional facilities;

-   Requires a wage of at least \$2.50 per hour to be paid for an inmate
    whose term prison term is set to expire within two years, except the
    amount in excess of a normal wage must be held in trust and paid
    only upon the expiration of the prison term; in other words, the
    prisoner gets a lump-sum payment of the difference when he gets out
    of prison; (currently, FPI inmate wages range from .23 cents per
    hour to a maximum of \$1.15 per hour, based on proficiency,
    education, and various other factors);

-   Requires the FPI Board, by September 30, 2008, to ***increase the
    maximum wage rate for FPI workers to an amount equal to 50 percent
    of the federal minimum wage*** (currently \$5.15 per hour, though
    the House recently passed a \$2.10 increase, raising it to \$7.25
    per hour by 2009); ***requires by September 30, 2013, to increase
    the maximum wage rate to equal the federal minimum wage;***

-   Requires that wages earned by an inmate be paid in the name of the
    inmate, and deductions cannot be more than 80 percent of gross wages
    (and stipulates allowable deductions);

> **New Rehabilitation Programs Established**

-   ***Establishes two new programs within the Federal Bureau of
    Prisons***: 1) the Enhanced In-Prison Educational and Vocational
    Assessment and Training Program; and 2) the Cognitive Abilities
    Assessment Demonstration Program; authorizes \$75 million for each
    fiscal year after 2008 (to remain available until expended);

-   Mandates a staggered timeline for the above programs to be
    implemented: established in 25 percent of all prisons within 2 years
    of enactment; 50 percent within 4 years; 75 percent within 6 years,
    and 100 percent of all federal prisons must have the above mentioned
    programs established within 8 years of enactment;

-   Adds a new section to the U.S. Code regarding "additional inmate
    work opportunities though public service activities," allowing
    inmates with FPI work assignments to work for an eligible entity
    (further defined in the text) pursuant to an agreement between the
    entity and a newly created position of Inmate Work Training
    Administrator; creates new non-inmate employee worker protections in
    an effort to ensure the non-inmate worker's job will not be
    abolished due to the work being performed by the inmate;

-   Authorizes \$5 million for each of the fiscal years 2008 through
    2012 for paying wages of inmates (to carry out this program) and
    undertaking the maximum number of agreements with eligible entities;
    authorizes \$3 million in each of the three fiscal years after
    FY2007 for conducting the new Cognitive Abilities Assessment
    Demonstration Program;

-   Requires the Chief Operating Officer of FPI to develop proposals to
    have FPI donate products and services to eligible entities that
    provide goods or services to low-income individuals who would likely
    otherwise have difficulty purchasing those products or services;
    authorizes \$7 million for each of the fiscal years 2008 through
    2012 to carry out this provision;

-   Requires the Director of the Bureau to provide inmates opportunities
    to participate in programs and activities designed to help prepare
    such inmates to obtain employment upon release;

-   Restructures the FPI Board of Directors (to include the expansion of
    the board from six to eleven members, and addresses other issues
    related to terms, appointments, etc.); and

-   Requires the Comptroller General to undertake to have an independent
    study conducted on the effects of eliminating FPI's mandatory source
    authority. \[***emphasis added***\]

**[Additional Background]{.underline}:** Federal Prison Industries is a
government-owned corporation that employs inmates in federal
correctional facilities under the Department of Justice's (DOJ's)
Federal Bureau of Prisons (BOP). UNICOR is the trade name for FPI, and
was established in 1934 under an executive order issued by President
Franklin Roosevelt. By statute, UNICOR must be self-sustaining, and thus
does not receive funding through congressional appropriations.

According to CRS, under current law (18 U.S.C. 4121 et seq.) and
regulations (48 C.F.R.), federal agencies, with the exception of the DOD
and the CIA, must procure available products from FPI when available and
cost competitive, unless grated a waiver by FPI. For additional
information on FPI, please see [CRS Report
RL32380](http://www.congress.gov/erp/rl/pdf/RL32380.pdf).

The U.S has a prison population of approximately 2.1 million inmates,
each costing roughly \$30,000 to house every year (over \$40 billion
annually at the local, state, and federal level, according to CRS). CRS
states that of the eligible inmates held in federal prisons, 19,720 or
17 percent are employed by UNICOR.

**[Possible Conservative Concerns]{.underline}:** There has been ongoing
debate among legislators and others regarding whether the FPI program is
beneficial or detrimental to society.

Opponents of FPI contend that UNICOR unfairly competes with the private
sector and negatively impacts jobs and private businesses. Critics point
out that UNICOR has a competitive advantage in obtaining government
contracts (FPI cannot sell to the private sector) because: 1) sole
source contracting requires federal agencies to request bids and
purchase available products from FPI with few exceptions, 2) FPI labor
costs are artificially low since they have a workforce that earns no
more than \$1.25 per hour, therefore undercutting private sector
businesses who must pay prevailing wages to employees. It is further
argued that FPI has a substantial cost on society by taking jobs away
from law abiding citizens -- those that may be employed in similar
industries making goods that are currently produced by FPI inmates.

Supporters point out that FPI was created to serve as a means for
managing, training, and rehabilitating inmates in the federal prison
system through employment in one of FPI's eight industries. In fact, FPI
was created -- in part -- in response to decades of arguments by labor
unions against prison labor that they were taking away jobs from private
businesses and industries. President Roosevelt stated the purpose of
UNICOR was to consolidate all federal prison industry operations in
order to train inmates and "diversify the production of prison shops so
that no individual industry would be substantially affected." Further,
supporters point out that FPI products and services save the government
money in the vast majority of the cases, and waivers (allowing purchases
from the private sector instead of FPI) are granted in almost all cases
in which they are requested.

Proponents argue that it is significantly more costly, and dangerous
(potentially leading to disruptive behavior), to run a prison where
inmates are idle. Current law requires that all physically able inmates
(who are not a security risk) are required to work (though not all under
FPI). Thus, proponents argue, utilizing inmates as FPI employees: 1)
teaches them discipline and a skill that may be used upon release to
obtain gainful employment, 2) reduces recidivism relative to inmates not
employed by FPI, and 3) reduces violence and negative behavior by
keeping inmates busy. Also, current regulations require that at least 50
percent of inmate wages be used to pay victim restitution and
outstanding debts (for those inmates who have court ordered financial
obligations). Further, while the private market should be allowed to
compete unfettered, the government has a vested interest in keeping
these inmates occupied in a productive task. Reduces violence and
recidivism - ultimately saving taxpayers money and sparing society
untold misery.

Opponents counter that FPI does not reduce the cost to taxpayers of
housing inmates, and none of FPI's profits goes toward the actual cost
of incarcerating inmates (see Rep. Cuellar amendment summarized below).
CRS notes that revenue generated from FPI products and services sold are
used to pay staff and inmate salaries, buy raw materials, and reinvest
in and expand current facilities.

**Problematic Provisions in the Bill:** Aside from the general concerns
some have for and against FPI noted above, conservatives may have
serious concerns with several of the specific provisions of the bill,
notably:

-   Further restricts sole source contract awards using non-competitive
    procedures, potentially weakening FPI's ability to obtain federal
    agency contracts to sell products and services.

-   Sets caps on the total dollar value of FPI sales to the government
    using sole source contracting over the next five years, and lowers
    that cap each year; thus, this provision initiates phasing out sole
    source contracting to federal agencies, ***which will likely
    decrease inmate participation rates in FPI and potentially increase
    federal agency procurement costs.***

-   ***Dramatically increases inmate hourly wages***: requires a 55
    percent increase over current top wages by 2008, and a 78 percent
    increase over current top wages by 2013 (and could amount to a
    mandatory 100 percent increase over the lowest current hourly rate
    by 2013); many proponents of FPI would argue this significant labor
    cost increase will effectively kill the FPI program, or at the least
    substantially hamper its' ability to obtain federal agencies
    contracts to sell products and services. Also, as this labor
    increase would be reflected in the cost of good sold, this measure
    would increase government procurement costs when purchasing FPI
    products (which generally are lower than private sector prices and
    thus have saved the government money).

-   ***Creates several new programs, and authorizes in excess of \$400
    million over the next five years to implement them*** (in contrast,
    FPI receives no annual authorization or appropriations).

**[Amendments]{.underline}:** Below are the summaries of the five
amendments made in order under the rule. Summaries are based on RSC
staff's review of actual amendment text:

**1. Sensenbrenner (WI).** Updates 13 dates in various provisions within
the bill to reflect the passage of time since the bill's introduction
(and not modified in Committee consideration) and makes other clerical
revisions; adds a new section to the bill establishing a cost accounting
system (based on Rep. Issa amendment adopted during Committee
consideration.

**2. Scott, Robert (VA).** Allows the Attorney General to direct
agencies within the Department of Justice (DoJ) to award individual
contracts to FPI on a non-competitive basis; under current bill
language, a non-competitive contract may only be awarded to the Federal
Bureau of Prisons. In other words, this increases the flexibility of the
DoJ to obtain necessary products on a non-competitive basis from FPI.

**3. Lungren (R-CA) / Chabot (R-OH) / Scott, Robert (D-VA).** Postpones
the scheduled phase-out of mandatory source (sole source) for one year
if the percentage of inmates employed by FPI falls below 17 percent
(based on Comptroller General of an independent firm retained by the FPI
Board); requires the Attorney General to conduct a study to increase
inmate participation in the FPI program, if participation falls below 17
percent.

**4. Cuellar (D-TX).** Inserts a new section in the bill, which would
require inmates working for FPI to contribute a portion of their
earnings to their living expenses at the prison (the amount of which
would be at the discretion of the Director of the Bureau of Prisons).

**5. Scott, Robert (D-VA).** Allows FPI to continue providing to
private, for-profit businesses those services of the type and to the
extent it was performing prior to enactment of this Act. In other words,
this amendment would allow the level of service contracts now being
performed by FPI to continue at that level *without further expansion*.
The amendment's sponsor states that "there is no mandatory source
provision for service contracts, so they are already competitive... and
most of the contracts involved work that would otherwise have been done
offshore, so FPI's competition is foreign workers, not Americans."

**[Committee Action]{.underline}:** H.R. 2965 was introduced on June 17,
2005, and referred to the Committee on the Judiciary's Subcommittee on
Crime, Terrorism, and Homeland Security. Hearings were held, and the
bill was considered and marked-up by the full Committee on July 14,
2006, and reported (amended) to the House by voice vote the same day (H.
Rept.
[109-591](http://www.congress.gov/cgi-lis/cpquery/R?cp109:FLD010:@1(hr591):)).

**[Administration Position]{.underline}:** No Statement of
Administration Position (SAP) was available at press time (and no SAP
was available for the similar bill that passed the House in the 108^th^
Congress).

**[Cost to Taxpayers]{.underline}:** CBO estimates (assuming
appropriation of the necessary amounts) that "**implementing H.R. 2965
would cost \$445 million over the 2007-2011 period**. Federal agencies
might be able to purchase some goods and services less expensively
because of the added contracting flexibility the bill would provide, but
CBO has no basis for estimating such savings. The bill would have no
significant effect on net direct spending by FPI."

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}:** Yes. The bill creates several new programs
and expands regulations governing FPI.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}:** Yes. According to CBO, H.R.
2965 contains an intergovernmental mandate as defined in the Unfunded
Mandates Reform Act (UMRA), but the cost to state, local, and tribal
governments for complying with this mandate would be insignificant and
well below the threshold established in the act (\$64 million in 2006,
adjusted for inflation).

**[Constitutional Authority]{.underline}:** The Judiciary Committee, in
House Report
[109-591](http://www.congress.gov/cgi-lis/cpquery/R?cp109:FLD010:@1(hr591):),
cites constitutional authority in Article I, Section 8, Clause 18 of the
U.S. Constitution (power of Congress to make all laws *necessary* and
*proper)*, but failed to cite a foregoing power to which this clause
refers. House Rule XIII, Section 3(d)(1), requires that all committee
reports contain "a statement citing the *specific* powers granted to
Congress in the Constitution to enact the law proposed by the bill or
joint resolution." *\[emphasis added\]*

**[RSC Staff Contact]{.underline}:** Derek V. Baker;
[derek.baker@mail.house.gov](mailto:Derek.baker@mail.house.gov);
202-226-8585