U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

76–147 2001

HEARING ON FEDERAL PRISON INDUSTRIES: IMPACT ON SMALL BUSINESS IN FEDERAL PROCUREMENT

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JUNE 6, 2001

Serial No. 107–11

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVE CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MICHAEL PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

W. TODD AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELA ́ ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 6, 2001 ................................................................................. 1

WITNESSES

Hoekstra, Hon. Pete, Member, U.S. House of Representatives ........................... 4

Maloney, Hon. Carolyn, Member, U.S. House of Representatives, 14th district,

New York .............................................................................................................. 6

Aragon, Mr. Joseph, Chairman, Federal Prison Industries ................................. 14

Gentile, Ms. Bobbi President, Q–Mark, Dayton, OH ............................................ 17

DeGroft, Mr. Robert, President, Source One Office Furnishings, Albuquerque,

NM ......................................................................................................................... 19

Green, Ms. Kass, President, Pacific Meridian Resources, Emoryville, CA ......... 21

Votteler, Mr. Carl, President, Chapter 144, Federal Managers Association ...... 26

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 54

Vela ́zquez, Hon. Nydia ..................................................................................... 59

LoBiondo, Hon. Frank ...................................................................................... 61

Prepared statements:

Hoekstra, Pete .................................................................................................. 63

Maloney, Carolyn .............................................................................................. 69

Aragon, Joseph ................................................................................................. 71

Gentile, Bobbi ................................................................................................... 77

DeGroft, Robert ................................................................................................. 82

Green, Kass ....................................................................................................... 98

Votteler, Carl .................................................................................................... 106

Additional Information:

Statement of Lawrence Skibbie, President, National Defense Industrial

Association ..................................................................................................... 112

Statement of the Small Business Legislative Council ................................... 116

Additional material submitted by NDIA ........................................................ 118

Mr. Aragon’s responses to post hearing questions ......................................... 154

(1)

HEARING ON FEDERAL PRISON INDUSTRIES:

IMPACT ON SMALL BUSINESS IN FEDERAL

PROCUREMENT

WEDNESDAY, JUNE 6, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 10:05 a.m. in room

2360, Rayburn House Office Building, Hon. Donald Manzullo

(chairman of the Committee) presiding.

Chairman MANZULLO. The Committee will come to order. If the

panel will have a seat?

Who has my book? Is this the one I brought? Okay. Thank you.

Today the Committee will be examining the role of Federal Prison Industries and its role in government procurement and the effect it has on small businesses and the provisions of H.R. 1577, the

Federal Prison Industries Competition and Contracting Act.

At the outset, let me say this. I believe prisoners need training

and education and real life skills. I believe in the goal of prison

work and Federal Prison Industries. The goal—I think it is important that prisoners are not idle and that they contribute in some

way to restitution for their victims.

However, I believe that these goals cannot overshadow the increasing impact that Federal Prison Industries has on private sector businesses, particularly small businesses seeking to sell to the

federal government.

For example, in the congressional district I am proud to represent, there is a blind and drapery manufacturer, John Miceli, Sr.,

of Marengo, Illinois. He would have been here today, but a recent

heart attack prevented his testifying. If he were here, he would tell

us that he was completely shut out of federal contracting for draperies and has been for several years. This is because Federal Prison

Industries has seized all opportunities in that field. He does not

even get to bid.

The same thing occurs to other small businesses in various industries all across the country. There are laws that prohibit the importation of goods produced by prison labor into this country, yet

U.S. companies face competition from home grown prison labor at

slave labor wages. That competition continues to grow.

How are people who are law abiding, pay the taxes and follow

the increasingly ridiculous regulations supposed to compete against

the government subsidized, tax exempt, regulation exempt behemoth that continues to grow and grow and grow?

2

Worst of all, FPI meets in secret. No FPI industry board meeting

is open to the public. They can come and testify if they submit

their testimony two weeks in advance, but when the decisions are

made the doors are closed. How can this be an arm of the government?

FPI is constantly seeking to expand into new products and now

plans to move into the service sector of federal procurement, all the

while combating changes to the many advantages that they enjoy—

direct borrowing from the Treasury, low cost labor, subsidies from

the Bureau of Prisons and preferential treatment in federal contracting.

Our first panel will be Representative Peter Hoekstra, the author

of H.R. 1577, a legislative proposal to reduce some of these competitive advantages and allow businesses to compete with Federal

Prison Industries. He will be joined by Congresswoman Carolyn

Maloney of New York.

On our second panel, we will hear firsthand about the competitive disadvantages facing small business from three small business

people. We will also hear from Mr. Joseph Aragon, the chairman

of the Board of Federal Prison Industries. I want to thank him for

coming because I believe we need to have all sides fully explored.

Finally, we will hear from Mr. Carl Votteler from the Federal Managers Association, an organization which represents federal procurement officials and civil servants.

I am going to yield to Mrs. Velazquez, our Ranking Minority

Member, and then I have one Member that wants to give a very

brief statement in lieu of being able to stay here and question the

witnesses. Mrs. Vela ́zquez has a similar request.

Mrs. Vela ́zquez?

[Chairman Manzullo’s statement may be found in appendix.]

Mrs. VELA ́ ZQUEZ. Good morning, and thank you, Mr. Chairman.

One of the most important roles this Committee plays is to serve

as a watchdog for the interests of small businesses. Too often, even

though small businesses remain the driving force in the economy,

they must do so on a less than level playing field. In our work, we

see a whole host of examples where small businesses are forced to

compete without many of the advantages enjoyed by their competitors.

Time and time again, whether it is health care, pension or worker training, we have one set of rules for small business and one set

of rules for corporate America. This Committee has well documented the unfair treatment that small businesses have received

in the federal marketplace through such practices as contract bundling where we have seen opportunity after opportunity stalling

from small businesses all in the name of streamlining government.

Unfortunately, we all know the real story, which is the fact that

due to these practices, small businesses are being streamlined right

out of business without a single penny of taxpayers’ money saved.

Today, we look at another form of unfair competition for small

businesses, that coming from the Federal Prison Industries. The

idea behind FPI is to use work as a means of rehabilitation and

to teach inmates a skill which can be used to put them back on the

right track. Every Member of this Committee supports this.

3

If it was only that simple. Unfortunately, somewhere along the

way this honorable goal has gone awry. This laudable goal of giving

individuals a means for a second chance has turned into an industry whose sole focus is not rehabilitation, but turning a profit.

In just five years, the number of industries FPI has dealt with

has nearly doubled, making them the fortieth largest federal contractor, just ahead of Motorola. This level of involvement might be

justified, but when you realize that while FPI has become a mega

contractor and it benefits only 17 percent of the federal prison population, clearly something is wrong.

FPI has expanded their system through the use of preferential

contracting treatment, exemption from such labor laws as OSHA

and minimum wage standards to an unendless line of credit from

the federal government. FPI has used this benefit to expand its

market share. When you look at how the playing field has become

so skewed in favor of FPI, it is little wonder any small business can

compete.

Compounding these advantages is that FPI are not even held to

basic standards of product quality or requirements to meet deadlines. If any one of the small businesses testifying today ran their

business the way FPI does, they would quickly find themselves out

of business. This is especially a concern because many of the problems that come from FPI are used by the troops in our military and

agencies like FAA that ensure safe transportation.

These are areas that cannot be taken lightly. We have an obligation to ensure that the public is safeguarded. Today the Committee

will examine just how to put the brakes on the runaway train that

is Federal Prison Industries. One thing is clear. The FPI system is

robbing small businesses of opportunities with little or no benefits

to this nation’s inmates, and that must change.

Thank you, Mr. Chairman.

[Mrs. Vela ́zquez’s statement may be found in appendix.]

Chairman MANZULLO. Thank you.

I am going to recognize Mr. LoBiondo, who has to go to the Floor

and manage a bill, and then after him Mr. Udall. They both have

to leave. Then we will get on with the questioning.

Mr. LoBiondo?

Mr. LOBIONDO. Thank you, Mr. Chairman, for the courtesy extended. Many of my comments, and I will shorten them up in the

interest of time, follow yours and Ms. Vela ́zquez’s.

Last October I testified before the House Education and Workforce Committee, Subcommittee on Oversight Investigation, regarding Federal Prison Industries’ proposed expansion into the military

apparel market. At that hearing, Mr. Hoekstra had given me the

courtesy of allowing one of my constituents, Mr. Donald DeRossi of

Donald DeRossi & Son in Vineland, to testify about the difficulties

with business experience that this would create.

In essence, what we are hearing this morning is that Federal

Prison Industries would allow convicted felons to take jobs from

Main Street, America. Basically what we are talking about here

are hardworking men and women who would be thrown out of

work almost immediately because the word that they use, compete,

is used very loosely. They really do not have to compete because

they are a mandatory source.

4

I strongly support the introduction of this legislation, support

Mr. Hoekstra in his work on this legislation, and ask us all to take

a very close look at this on this Committee and in this Congress.

Do we want convicted felons making military uniforms for our

men and women in armed services? Do we want convicted felons

to be taking jobs from Main Street America? How are we going to

go back home and explain that to hardworking men and women

who have jobs that have good benefits that we are just going to by

the stroke of a pen with this situation allow that to happen?

I echo the Chairman’s statements about wanting to make sure

that we have activities for prisoners that allow our corrections officers to remain safe, but this is good legislation that Mr. Hoekstra

has introduced. It is common sense legislation that I think we need

to all support, so thank you very much, Mr. Chairman.

Chairman MANZULLO. Thank you.

Mr. Udall.

Mr. UDALL. Thank you, Mr. Chairman, for the courtesy and

Ranking Member Vela ́zquez. Unfortunately, I am trying to juggle

a couple of things today, and I am going to be over on the Resources Committee to hear Secretary Norton testify.

I just wanted to take this time to welcome all the witnesses who

are here with us today. Mr. Robert DeGroft, from my home state

of New Mexico, is here. Mr. DeGroft is a small business—— Chairman MANZULLO. Why do you not have Mr. DeGroft stand

up so we can recognize him?

Mr. UDALL. He is right here.

Chairman MANZULLO. Thank you.

Mr. UDALL. He is a small business operator in Albuquerque, New

Mexico. I am glad he is with us to share his views as they pertain

to today’s hearing.

Mr. Chairman, I would just ask that my full statement be placed

in the record, and I hope that I might be able to make it back to

hear some of the panels.

Thank you very much.

Chairman MANZULLO. All statements will be placed in the record

of all Members of Congress and all witnesses.

Welcome, Congressman Hoekstra, and welcome, Congresswoman

Maloney. Which of you wants to go first? Who has the worst schedule? Whoever wants to go first, just start.

Mr. HOEKSTRA. All right.

Ms. MALONEY. I will respect the Majority.

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

Mr. HOEKSTRA. Thank you, Mr. Chairman and Ms. Vela ́zquez.

I will just take one exception with Ms. Vela ́zquez’s opening statement. I think many small businesses in America would love to conduct their business exactly the way that Federal Prison Industries

does, which means they could go to their captive customers and

mandate the product that they will buy, the price that they will

pay and when they will receive the product. Other than that, I

think your characterization of Federal Prison Industries is very accurate.

5

I want to thank this Committee for scheduling this hearing. Over

the last number of years, we have tried to carry this ball somewhat

in the Education and Workforce Committee, but as this business

definitely impacts small business, this is the appropriate venue to

have this dialogue, this debate and this discussion as to exactly

what is happening with Federal Prison Industries and how it is impacting what many of you have described and passionately believe

the engine of growth in America, which is small businesses. I think

in a disproportionate way, the impact of Federal Prison Industries

has been felt by our small businesses, the entrepreneurs that make

this such a special place.

The hearings that we have held through the 1990s have demonstrated that what is going on with Federal Prison Industries has

only gotten worse. FPI has expanded its traditional product and

service lines to its captive federal agency ‘‘customers’’. By 1999, FPI

had annual sales of $566 million. It is now the thirty-sixth largest

government contractor. It employed almost 21,000 inmate workers

at a centrally managed chain of 100 factories across the country.

This is a formidable competitor.

Beginning in 1998, FPI began a statutorily what we believe unauthorized expansion into the commercial market for services. This

expansion was based on a very flimsy legal opinion.

As you will hear from one of today’s witnesses, businesses of all

sizes continue to be denied the opportunity to even bid on government contracts funded with their own taxpayer dollars. Law abiding workers continue to lose job opportunities or their very jobs.

Federal managers must obtain FPI’s permission before they can

make purchases that will get them the best value for the taxpayer

dollars entrusted to their care.

Even federal inmates would have a better chance to make a successful return to society if they had more access to modern handson vocational training linked to needed remedial education. We

share the Chairman’s goal of making sure that prisoners work, but,

most importantly, that they receive the skills that will enable them

to make the transition back into private life when they leave prison.

The bill that we have introduced, the Federal Prison Industries

Competition in Contracting Act of 2001, has probably been one of

the more rewarding opportunities that I have had to work on in my

time in Congress not because of the progress that we have made,

but because of the relationships that we have built and the coalitions that we have put together to work on this issue.

Representative Maloney has been with us from the beginning.

Mac Collins is another lead co-sponsor, but on the Democratic side

the person that has been the lead co-sponsor has been Representative Frank from Massachusetts, so we have a good cross section of

the Congress, a bipartisan consensus that change needs to take

place.

Also with outside groups we have been able to bring the Chamber of Commerce, the AFL–CIO, the Teamsters, you know, various

business groups and labor organizations together. We have the

Federal Government Managers Association, who is supporting

what we are taking a look at doing.

6

We have, I think, put together a good coalition that has obviously

looked at this issue from a number of different vantage points and

said this bill represents a fair return to competitiveness, to protecting the interests of American taxpayers, American workers and

American businesses.

You know, Mr. Chairman, you mentioned in your opening statement some of the comments or the practices of the Federal Prison

Industries, the board that provides oversight. I am glad that they

are testifying today because I think that you have a number of

good questions that need to be asked and need to be fully explained.

The expansion into services, into the commercial market. Where

does that authority come from? An explanation as to why the decisions that they make that have such an impact on American workers and American businesses; why those decision are made in secret? Why the door is not opened up on this process and why in

many cases with the Federal Prison Industries Board with their

mandate being to protect the interest of taxpayers, of workers and

American businesses, why so often the decisions appear to become

a captive of Federal Prison Industries with their main goal and interest being to protect the interest of Federal Prison Industries

rather than the interest of American workers. How has that change

come about?

You know, you have pointed out also a number of other advantages and benefits that Federal Prison Industries has versus the

private sector. I would like to submit my entire statement for the

record and will stay to answer any questions or comments that you

may have.

Again, thank you very much for leading this oversight effort

through this Committee, and we look forward to working with you

and the other Members of your Committee.

[Representative Hoekstra’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

Congresswoman Maloney?

STATEMENT OF THE HONORABLE CAROLYN MALONEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW

YORK

Ms. MALONEY. Thank you very much, Mr. Chairman. I am particularly proud to be here with Ranking Member Vela ́zquez and

Sue Kelly from the great State of New York, and I thank all of you

for being here today and for having this oversight hearing.

I would request that my entire testimony be placed in the record.

I know you are anxious to hear the people testifying. As my colleague mentioned, we have broad bipartisan support from Members

in Congress and also business, labor and really all factions of our

society.

I feel very passionately about this bill. I believe that it is important, and I congratulate Congressman Hoekstra for his leadership.

I would like to publicly thank him for his efforts to help me in New

York to save jobs that we would have lost to the galloping prison

industry that is going forward in many cases claiming jobs and not

even following their own procedures of hearings and openness.

7

I went to my office one day. I think all of you as Members of

Congress can identify with this. I was greeted by roughly 50 people

who worked in Glamour Glove factory and their owner, Mr.

LaBovier. They announced that they were making gloves for many

places, but one of their biggest clients was the U.S. Government.

They were making the military gloves, the dress gloves, the gloves

that our officers and combat personnel wear when they defend this

country.

They woke up one day and found out that they had lost their entire government order and that they would then be going bankrupt

because this was a very important part of their business.

This is an example where the FPI did not follow their own rules.

They were supposed to have a hearing. They were supposed to notify. With Congressman Hoekstra, we appealed to FPI. We went

through several years, through letters, meetings, et cetera, and we

reversed that decision.

It is hard enough for American workers to compete with foreign

competition, but to have prisoners who have basically guaranteed

work against your job where you are paying taxes and you are law

abiding is absolutely dead wrong. I can tell you that in this particular case and in every case in short the FPI, the Federal Prison

Industries, has a corner on the federal market.

Under the FPI authorizing statute, all federal agencies are required to purchase products from the FPI if FPI believes its products meet the agencies’ needs and if its prices do not exceed the

highest price offered to the government.

This preferential status is expanded further by the provisions of

the government wide Federal Acquisition Regulation which designated FPI’s status as, ‘‘mandatory source of supply’’ by requiring

an agency contracting officer to obtain FPI’s clearance before purchasing any product on FPI’s list of approved products from a commercial source.

Now, we have two areas that we need to look at. I know that we

all are concerned about saving revenues, saving taxpayers dollars,

and also protecting American jobs, but under the FPI procedures

now you are not getting the best price for the product because the

American worker is not allowed to even compete if that product is

on FPI’s list. They can then just contract with the Federal Bureau

of Prisons.

Now, I totally support rehabilitative work, and I totally support

supporting our convicts and getting them education and training

them for jobs, but not at the expense where they are basically subsidized and they have a lock on the door to keep American workers

from competing with them.

What is very good about the bill that the congressman has put

forward, and I am proud to be original co-sponsor and to have

worked with him on this for roughly now five years, or is it getting

to be six? In any event, we have worked on this steadily every single year, and the American worker is not allowed to compete.

Under our bill, the American worker would be able to compete

for the business, and government would hire the person who gives

the best price. That saves the government’s money, and it also allows the hardworking citizens to keep their jobs and not have them

taken away by convicted felons.

8

I feel that this is an extremely important bill, and I support it

completely. I look forward to hearing the testimony of the various

businesses that are coming forward today and workers who are

coming forward today, and I hope that it will be considered in a

positive way by the Committee.

[Representative Maloney’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much. I have no questions

of both of you.

I would request that the Members here on the panel if possible

limit the amount of time that they would take in questioning our

two Members so that we can get on to the second panel because

many of them have traveled a great distance.

Mrs. Vela ́zquez, you had a question?

Mrs. VELA ́ ZQUEZ. Yes. I have two questions. First and foremost,

I want to congratulate both of you for the work on this issue and

being persistent regarding this issue.

Congressman, I have two questions regarding your legislation. I

see there are two items that were not included in your legislation.

I did not see any specific requirement that FPI be held responsible

for workplace safety issues like OSHA requirements that every

other U.S. business is subject to. Have you considered adding workplace safety requirements such as OSHA oversight?

Mr. HOEKSTRA. No, but we will take it under advisement, and we

will consider it.

Mrs. VELA ́ ZQUEZ. Okay.

Mr. HOEKSTRA. That is a very good suggestion. Thank you.

Mrs. VELA ́ ZQUEZ. Great. Thank you.

Additionally, I understand that FPI can borrow expansion funds

from the U.S. Treasury at reduced rates. This is not fair to U.S.

businesses. Why not require in your legislation FPI to only access

capital at similar rates to small businesses?

Mr. HOEKSTRA. I think that is another good suggestion. We are

glad we are here today. We are looking at ways to improve the legislation. Obviously we have not thought of everything as we have

gone through this process. Actually, I did not even know about that

until last night when I think maybe somebody from your staff or

whatever had notified us that there was an interest on that.

My understanding is yes, that they do get loans from the Treasury at very favorable rates and then on occasion actually go back

and invest those dollars at a higher rate, which again that is another thing that some of our small businesses would like to have

what FPI does.

A very good suggestion. We will take a look at both of those

issues.

Mrs. VELA ́ ZQUEZ. Great. I look forward to working with you——

Mr. HOEKSTRA. Yes.

Mrs. VELA ́ ZQUEZ [continuing]. On those issues.

Mr. HOEKSTRA. Great. Thank you.

Mrs. VELA ́ ZQUEZ. Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you.

Mr. Toomey?

Mr. TOOMEY. Thank you, Mr. Chairman.

I also would like to commend you for your work on this. You

know, I was, frankly, shocked when constituents of mine first exVerDate 11-MAY-2000 14:59 Dec 26, 2001 Jkt 076147 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A147A.XXX pfrm11 PsN: A147A
9

plained to me the nature of this problem and the fact that we have

a system in which small businesses and law abiding workers are

systematically denied jobs and business by a government monopoly,

essentially, that is employing convicted criminals. It is really

shocking I think to most people’s sensibility.

I want to congratulate you for developing this bill. I am happy

to be a co-sponsor of the bill. A couple of questions. I want to make

sure I understand some features here.

What I understand is that your bill would allow the FPI to compete for business. What it takes away is the mandate that would

force government agencies to purchase their products. Is that correct?

Mr. HOEKSTRA. That is right. I mean, there is a possibility that

we could come back or someone would come back in three or five

years after this goes into effect and says hey, FPI is still taking

jobs.

What the business community has really in a compromise mode

said is we are willing to compete. Just give us the opportunity to

compete. There is nothing more frustrating to see this business,

you know, like the glove business go to Federal Prison Industries

without even providing this company with the opportunity to bid.

Mr. TOOMEY. You know, I am glad you mentioned the glove business because in my district the textile and garment industry has

been terribly hurt with terrible job loses that have come from a variety of factors. It seems to me kind of outrageous that we would

impose further job losses from the government’s own doing.

Are you concerned that this is really just a modest step and, in

fact, that prison industries would still have tremendous competitive

advantages in their cost structure, for instance, that we need to go

back to look at subsequently?

Mr. HOEKSTRA. I think this is an initial step. You know, once we

open it up it will change the nature of how FPI competes in the

markets that it goes into, I believe, when you eliminate the mandatory sourcing.

I think, you know, what we can actually see them going into is

a whole different set of businesses, which I think would be recommended. Remember how they get their business today. They do

not do it on quality or competitiveness. They just go in and say we

would like to do this. By the way, you have to buy from us.

We would have to see how Federal Prison Industries would respond, but, you know, we never get anything right the first time,

and I would guess that this would require constant oversight for

both reasons.

We want to see what it does to small business, but we also want

to see the impact on the inmates to make sure that they are still

getting or that they would have the opportunity to get the training

and the skill necessary to make the successful transition when they

leave prison.

Ms. MALONEY. I appreciate Mr. Toomey’s statements, and I support your statements. We have had this bill around for a long time,

and it is a modest bill. I agree with you. We should have gone farther but we have not passed it yet.

What we are saying is we do not want companies like Glamour

Glove to have to close down because FPI decides without notice

10

they are going to take their business away from them. As the

owner and the workers said to me, give us an opportunity to compete. We can beat the prison workers—we are sure of it—if you

would just give us an opportunity to compete.

Until we got involved, they were not even giving them a chance

to compete. They were just taking the business away and giving it

to FPI without even allowing them to say I can do it better and

I can do it faster and I can do it at a better cost to the government.

Mr. TOOMEY. Well, I think the—I will wrap up, Mr. Chairman.

Chairman MANZULLO. Yes. Let me cut you off there. I really

want to move on.

Mr. TOOMEY. I will yield the balance of my time.

Chairman MANZULLO. Mr. Davis, you had a question?

Mr. DAVIS. Yes, I did, Mr. Chairman, if I could. I have a statement that I will submit for the record.

I certainly want to commend both the witnesses in terms of their

work on the issue. However, I must confess that the questions and

comments that I have been hearing have caused some serious concerns in my mind in terms of whether or not we are just talking

about making sure that there is an opportunity for businesses to

compete. I hear people talking about a comparison between law

abiding citizens having a chance to work, as opposed to these convicts. That alarms me.

I mean, when I think of the number of people who are incarcerated in this country and the poor job of rehabilitation that we are

doing and the fact that they come out of the penitentiary and jail

each and every week in worse shape when they were when they

went in wrecking havoc back on the communities where they come.

I think that we have to seriously be about the business of making sure that people who are incarcerated not only have an opportunity to work, but to learn skills, to learn work ethics, to be

trained, that they have all of the assessments that are needed so

that when they come out they are not in worse shape than they

were when they went in because if they are they are going right

back in, and we are going to be using the taxpayers’ money to take

care of them.

I also want to know what is going to happen as the trend is developing where there are many people who believe that individuals

who are incarcerated should be paying for their stay. I think there

are people now, a school of thought, suggesting that people who are

incarcerated should be paying for their keep. If they do not have

an opportunity to work, then how do they pay for their keep?

I am a strong defender of small businesses and small business

development, but I have a great deal of concern about our prison

system and what we are doing and whether or not we just want

to correct this so that there is competitiveness or are we concerned

that these inmates are working and other people are not?

I mean, I hope that is not the case, and I am not suggesting that

that is the intent of the sponsor, but I must confess that some of

the comments that I am hearing as we discuss the issue seem to

be suggesting that.

Mr. HOEKSTRA. Just to comment, I mean, we are also through

this bill taking a look at other opportunities where prisoners could

work and where they could make the successful transition.

11

We have talked about, and it is not part of the bill, but it is

something that we are considering as we are working with the Judiciary Committee, who has the jurisdiction over a lot of these

other issues. We are taking a look at perhaps allowing and facilitating work with the prisoners with not-for-profit organizations,

things like Habitat for Humanity and those types of things. We

would work with the business community and organized labor.

Working on those kinds of projects actually might give the prisoners some of the training that would enable them to go into the

construction trade after they leave prison. We are very aware of

that issue.

As the Chairman indicated in his opening remarks, we are concerned about providing the vocational training and the essential

skills necessary for when they leave prison.

Ms. MALONEY. I want to congratulate Mr. Davis for the points

that he brought up that are very important. I totally, completely

support rehabilitation, work opportunities and supporting and educating our clientele, our citizens that are in prison.

But, Danny, if you could have seen the faces of the 50 people who

came to my office and were basically told that they did not have

a job by the federal government because they took the contract

away, and when I looked in the faces of those people—many of

them were in their forties, their fifties, their late thirties. I could

just see that they would never get another job. The jobs are not

there. The jobs in their industry are not there. It is the last glove

factory in New York. The jobs were not there for those people.

We are hearing two things. You know, some people say we

should be more supportive to prisoners, and I am supportive to

prisoners, but not to the extent that government allows them to

take away a job and does not even allow the American workers to

compete for it. That is wrong, too; especially some of these jobs

where the people are older. They cannot learn a new skill. The jobs

are not there. I remember just looking at their faces.

Actually, I compliment my colleague. He came to New York and

toured the factory. I would say that most of those people, if they

lost their job, would not find another one.

Mr. DAVIS. And I would agree with you because I want to go

ahead and let the Chairman move ahead, but when I see the helplessness, the hopelessness, the numbers of families who are impacted because they have relatives who have come out of the penitentiaries who can do nothing but live off them, who do not have

a job, cannot work, it is a big debate. I think we are going to be

debating it a great deal.

I certainly do not want to, Mr. Chairman, delay your movement

on to other witnesses. I think it is a real issue, and I think it is

one that is going to require tremendous analysis and debate as we

move to the point of making some decisions.

Again, I commend you and thank you both for your work on the

issue and the legislation.

Chairman MANZULLO. Thank you.

Mrs. Kelly?

Mrs. KELLY. Thank you, Mr. Chairman.

Danny, I, too, have some concern. I represent a great many state

prisons, as well as a federal prison, and I have been through those

12

facilities. There are a couple of underlying currents I hear here,

and I understand what you are talking about, but I also know that

perhaps you may, as I, be concerned about prison guards.

I am concerned that if the prisoners have nothing to do but body

build—we have reduced the number of prison guards because we

have reduced the amount of monies going into the prisons. The

guards’ lives are at stake at times. It is important that we acknowledge that.

I am pleased to see the new provisions in this bill where you say

that you have enhanced the deductions from the wages of inmates

of FPI to pay for the restitution to their crime victims—I think that

is really good—and to support the inmates’ family and to help accumulate that gate fund that they need in order to get back into the

community. I think that is a very good thing. I am glad to see it

is here in the bill.

My only question about the bill at this point, and I stand very

strongly in favor of making the FPI live up to the same mandates

that everyone in small business has to do. I do not have a problem

with that. I only am sorry that we can only reach the federal prison

system and not the state prison system because all prison systems

need to be affected here.

When you say here that what this bill would do is eliminate

FPI’s ability to overcharge by specifying that FPI’s price not exceed

a fair market price, which is perfectly logical, as determined by the

agency contracting officer, then you say generally through competition. When would there be exceptions? I cannot imagine that there

would ever be an exception to competition in this kind of a situation.

What are you thinking about in terms of acceptance, if any?

Mr. MONTALTO. I am Bill Montalto, special counsel to Mr. Hoekstra, and have some experience in government procurement.

There are in current law seven statutory exceptions to competition, so it is possible that FPI could be a producer of an item that

they are the only source at this time of the government in which

case you cannot have competition because it is not possible.

I was just trying to key this statutory change into the 1984 Competition in Contracting Act. That is I think——

Mrs. KELLY. Thank you very much. That very succinctly answers

my question.

Thank you very much. I want to thank both of you for appearing

here today. This is a very important issue for our small businesses.

Chairman MANZULLO. Thank you, Mrs. Kelly.

Mrs. Tubbs?

Mrs. TUBBS JONES. Thank you. I came in late on the testimony.

Unfortunately, today or tomorrow is my page’s last day, and I

wanted to do a one minute on the Floor to salute him.

I did come in hearing some of the same commentary that my colleague—Mr. Chairman, thank you very much; I apologize; and

Ranking Member—was making with regard to inmates. Both of you

know that I am a former Judge, as well as a former prosecutor, district attorney from Cuyahoga County, and I say this with a lot of

heartfelt feeling about the issue to suggest to you that if in fact we

are going to move some of the work from FPI to some of the small

13

businesses perhaps then we might include in a requirement that

they employ ex-offenders.

We have a ton of ex-offenders out here who need jobs, who need

to be paid. If they are not going to be able to get the work in prison, perhaps we could put a stipulation on the end that they would

be encouraged to do that.

I know that might be kind of forward thinking and far thinking,

but there are people who are out of jail who have paid their time

and who have done their dividend, and they need to have employment. Why not let them do some of the work that they have already been trained to do in a penitentiary somewhere?

I would secondly encourage my colleagues that even though people may be ex-offenders or convicts that they are still human

beings in our society and all are due the same respect as other

members of our society.

I am for small business. I spoke with the small business organization this morning at 8:00 at their breakfast, and I think as we

do things to make changes to supporting small business we need

to keep in mind that in addition to small business there are other

people out there, and there has to be a balancing. Let us put FPI

in check, but let us not do it to the detriment of those who are supported by it as well.

Thank you very much, Mr. Chairman, and I congratulate both of

you on the work that you are doing. If I can be of assistance, please

do not hesitate to let me know.

Mr. HOEKSTRA. Just a quick comment to that. I think we are

very concerned about the integrity of the prisoners. I mean, one of

the folks that we have brought into this has been Chuck Colson in

Prison Fellowship to make sure that the things that we will do will

enhance the dignity of the people in the prisons and the process

that they go through rather than reduce the dignity.

Mrs. TUBBS JONES. Thank you.

Chairman MANZULLO. I appreciate it very much. You know, I

was telling Mrs. Vela ́zquez with regard to her suggestion to make

prisons subject to OSHA that you might have the first time in history where Republicans would be in favor of the expansion of

OSHA. [Laughter.]

You know, in a sense what she says makes sense because if the

purpose of OSHA is for workplace safety, then prisoners should be

treated as anybody else and have the opportunity to work in a safe

place. The theory is there; one of the other things that I would suggest is perhaps treating goods that come from FPI the same as we

do with the general system of preferences, GSP, which we do for

imports. Those are special laws that allow imports from third world

nations, and we have special laws that say that they really cannot

compete in private sectors, et cetera.

You know, maybe by making your bill more complicated—I am

serious—it can gain more foothold in more Committees.

We really want to take this opportunity to thank both of you for

coming here. We appreciate your wisdom and your insight and the

tremendous amount of work that you have been doing. Obviously

we believe that you are headed in the right direction. Thank you

for coming.

Mr. HOEKSTRA. Good. Thank you.

14

Mrs. MALONEY. Thank you.

[Panel excused.]

Chairman MANZULLO. If the panel will come up, we can continue

our hearing.

[Pause.]

Chairman MANZULLO. Glad to have you here. The lights up here,

when it is on green that is go. Do not push it yet. When it is yellow, that means you have one minute to go. It is usually a five

minute clock.

First of all, thank you for coming today. If I mispronounce your

name, please do not hesitate to correct it.

Our first witness will be Mr. Joseph is it Aragon?

Mr. ARAGON. Aragon, Mr. Chairman. Aragon.

Chairman MANZULLO. Aragon. Okay. First I thought it was an

Italian name like mine with a vowel missing like Mr. Pascrell. I

tease him all the time on it.

I appreciate your coming here, and we look forward to your testimony. Thank you very much.

STATEMENT OF JOSEPH ARAGON, CHAIRMAN, FEDERAL PRISON INDUSTRIES, ACCOMPANIED BY STEVE SCHWALB, CHIEF

OPERATING OFFICER

Mr. ARAGON. Thank you, Mr. Chairman. As a fellow restaurateur, Mr. Chairman, my roots, I guess Italians and Hispanics,

we share a lot of commonalities.

I am a small businessman. I believe I have a lot of commonalities

with the people in this room. Mr. Chairman, Ms. Vela ́zquez and

other Members of the Committee, I appreciate the opportunity to

appear before you today to discuss Federal Prison Industries, which

I will refer to in my testimony as FPI, and its relationship with

small businesses.

I might also mention, Mr. Chairman, that I have been honored

to be selected as the Small Businessman of the Year for Colorado

for 1996 and have long—thank you, Mr. Davis. And have long been

appreciative of the support this Committee has for small businesses.

It is widely accepted that small businesses are the most prolific

producers of jobs in America. As a member of the Small Business

Administration’s National Advisory Committee, I recognize how

critical small businesses are to the economic vitality of our country.

While that position is similar to my FPI role in that it is non-paid

public service, I continue to work in those capacities so that I may

carefully monitor the state of small businesses in this country.

The hearing today is entitled Federal Prison Industries: The

Need for Reform. Let me state at the outset that the FPI board has

endorsed for many years reforming the 67-year-old statute under

which FPI operates. The question before us is not whether we

should reform it, but how we should reform it. With the presumption in favor of change, I would like to provide certain facts and

address several premises which need to be taken into consideration

as public policy choices are made.

It is well established that FPI is an effective means of teaching

inmates valuable job training and work skills, thereby directly impacting their ability to successfully reintegrate into society folVerDate 11-MAY-2000 14:59 Dec 26, 2001 Jkt 076147 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 E:\HR\OC\A147A.XXX pfrm11 PsN: A147A
15

lowing release from prison. Inmates who work in FPI are less likely to return to criminal activity.

Additionally, FPI provides work assignments for substantial

numbers of inmates in medium and higher security prisons who

would be prone to engage in illegal and violent activities if not productively occupied. FPI is wholly financially self-sufficient, thereby

substantially lowering the cost to the taxpayer of a safely managed

federal prison.

According to the Bureau of Prisons, by 2006 the federal inmate

population will likely reach as high as 200,000 inmates. The Bureau of Prisons has 29 new prisons under development to keep pace

with this growth. I might point out, Mr. Chairman, that not 20

years ago those 29 federal prisons that are under development represented the total amount of federal prisons that were in operation.

Now we have 100 more.

All of these new prisons will house medium and high security inmates, which are the most difficult inmates to safely manage and

are those who most need to positively change their lives by acquiring strong work habits and job skills.

We also know that over 95 percent of all federal inmates will return to our communities upon completion of their sentences. Professional, rigorous research has demonstrated that inmates who

participated in vocational training and FPI work are 24 percent

less likely to recidivate and are 14 percent more likely to be employed even as long as 12 years after release. This research has

also confirmed that inmates from racial and ethnic minority

groups, which are the fastest rising subgroups in prisons, as well

as those who benefit more from Federal Prison Industries, and the

research has demonstrated that many times.

With the growth trend in the federal inmate population and the

future activation of so many new prisons, it is clear that if the Bureau of Prisons is going to continue to operate safe and secure federal prisons and reduce recidivism, the number of inmate jobs provided by FPI will need to grow correspondingly.

This needed growth has drawn increased attention to the program, not all of it positive. Several industry trade associations and

organized labor unions have expressed their strong reservations

about FPI because of the presumed negative impact on their constituencies. The board disagrees with this characterization of FPI’s

impact and strongly opposes the abolishment of FPI’s mandatory

source status without providing some sort of alternative such as

providing FPI with the authority to offer its products to the commercial market.

The alternative would allow FPI to generate the business necessary to occupy its inmate workforce. FPI would also need ample

time to transition to new alternatives, and the board of directors

has discussed various alternative legislative proposals that would

provide FPI with markets in which to sell their goods that could

replace existing sales to the federal government pursuant to the

current mandatory source.

However, the board is convinced that the best means of creating

a legislative proposal that would be beneficial to all is through an

open dialogue involving all parties to the controversy, which the

FPI board has consistently endorsed.

16

The FPI board members bring a broad array of perspectives to

bear on the manner in which FPI operates. As I mentioned earlier,

the small, service oriented business I founded in 1984 actually performs some work for the government which FPI also provides.

While my company could conceivably perform that work, our employees also recognize and support the need for FPI’s role in public

service.

Our vice-chair, Mr. Arthur White, is also an original founder of

his firm and has been personally involved in the establishment of

several national organizations which focus on literacy and work

skills such as Jobs for the Future and Reading is Fundamental.

Susan Loewenberg is the producing director of the Los Angeles

Theater Works and has been involved for years in education and

training programs for juveniles and adults. Mr. Richard Womack

represents organized labor on our board and has been particularly

instrumental in reviewing inmate job proposals with an eye towards protecting workers.

Our newest member, Deidre Lee, directs the procurement program for FPI’s largest customer, the Department of Defense. Her

extensive federal procurement experience has been invaluable in

FPI’s continuing efforts to expand its business partnerships with

the small business community.

There are numerous examples of FPI’s support for and avoidance

of harm to small businesses. Our procurement program regularly

meets or exceeds goals for purchases from small and minority

owned businesses or women owned businesses. For six years in a

row, FPI has been recognized by the Department of Justice for our

support of these businesses. Last year, 63 percent of all of our purchases, nearly $260 million, were awarded to small firms.

Our statute requires that whenever we are considering—— Chairman MANZULLO. Time is running. If you could sum up, sir?

Mr. ARAGON. Yes. I am on my last statement, Mr. Chairman.

Our statute requires that whenever we are considering a new

product or the expanded production of an existing product, we prepare a detailed written analysis of the probable impact on the private sector. We carefully consider those people who consult with us,

including the Small Business Administration, and we do everything

in our power to make decisions and avoid impacting negatively

small businesses.

In summary, it is our goal that inmate employment be viewed as

a legitimate means of fostering positive economic development and

supporting private sector job growth. This is possible if the parties

not view their interests as mutually exclusive and conflicting. FPI

must be just as committed as the private sector to economic growth

and is also committed to protecting companies and their workers.

Mr. Chairman, that concludes my remarks. I would be happy to

answer any questions you or other Members may have.

[Mr. Aragon’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you very much.

Our next witness is Bobbie is that Gentile?

Ms. GENTILE. Yes.

Chairman MANZULLO. Okay. I have to struggle with these names

here.

Ms. GENTILE. Very good.

17

Chairman MANZULLO. She is with Q–Mark, Inc.

I will take this a little bit out of order here, but I understand

you have been trying to get one of those impact statements available?

Ms. GENTILE. Yes, sir, we have.

Chairman MANZULLO. Have you been denied that?

Ms. GENTILE. Yes. We have never received one.

Chairman MANZULLO. Mr. Aragon, would you be willing to furnish this Committee with copies of the impact statements that you

put out in the last couple of years?

Mr. ARAGON. Absolutely, Mr. Chairman.

Chairman MANZULLO. When can you have those here by?

Mr. ARAGON. Probably within an hour after this meeting is held.

All of our impact studies are published in the Commerce Business

Daily.

We conduct impact studies, Mr. Chairman, on all products we

consider expanding in or adding to our process, but we produce—— Chairman MANZULLO. Do you have an impact statement as to

each contract that you enter into?

Mr. ARAGON. We have an impact statement—I cannot say that

that is accurate, Mr. Chairman.

Chairman MANZULLO. Which one have you been seeking, Mrs.

Gentile?

Ms. GENTILE. I have been seeking the impact study on the connector specification, MIL–C–5015.

Mr. ARAGON. I am not familiar, Mr. Chairman, with that specific

case, but I certainly will look into it.

Chairman MANZULLO. Whom have you asked?

Ms. GENTILE. I have asked Tony Griffin, who is the Associate Director of small and disadvantaged business, at Defense Supply

Center-Columbus. He is also the FPI liaison at Defense Supply

Center-Columbus.

Chairman MANZULLO. I would suggest to anybody here at the

table or anybody in this room if you are requesting documents from

FPI and you cannot get them to contact our Committee.

Mrs. Gentile.

STATEMENT OF BOBBIE GENTILE, PRESIDENT, Q–MARK; ROBERT DeGROFT, PRESIDENT, SOURCE ONE OFFICE FURNISHINGS

Ms. GENTILE. Thank you. Good morning, Mr. Chairman and

Members of the Committee.

Chairman MANZULLO. Could you put the mike a little bit closer

to you? Thank you.

Ms. GENTILE. Good morning, Mr. Chairman and Members of the

Committee. Thank you for holding this hearing and allowing me to

testify on Federal Prison Industries.

My name is Bobbie Gentile, the owner of Q–Mark, Inc., a small,

woman-owned business in Dayton, Ohio. I am a member of the National Federation of Independent Business and the president of the

National Association of Manufacturers and Representatives.

In 1990, I made a decision to pursue one of my goals and opened

Q–Mark. Q–Mark is a manufacturers’ representative firm. Presently we have five employees, three of whom are the sole providers

18

in their household. Q–Mark represents 15 manufacturing firms. Of

these 15 firms, 12 are small business, and four of the small business are electronic connector manufacturers.

I am here today because my small business and the small businesses I represent cannot compete against FPI’s unfair monopoly

over federal contracts. FPI continues to penetrate the electronic

connector market, enjoying mandatory source status. This means

that the federal government agencies must purchase these products

from FPI.

Many small businesses are not permitted to compete fairly in the

government marketplace, even if they can produce lower pricing,

on-time delivery and better quality. FPI must issue a waiver in

order to have our quotes even considered. Keep in mind that the

items are used in critical applications for the defense of our country, which includes anything that flies, floats, rolls or shoots.

I represent J–Tech, Inc., a small business connector manufacturer in Tustin, California. J–Tech was founded in 1987. The initial

product in which they invested was the same product that FPI is

now restricting. The time, effort and money that it took J–Tech to

become a military qualified manufacturer was a huge investment

for a new small business.

In order to maintain their qualification, costly tests must be completed on a yearly basis. It is estimated that in the last 12 years,

J–Tech has spent over $5 million on the qualification of MIL–C–

5015. The series of parts that FPI is now supplying is the lifeblood

of J–Tech and Q–Mark. The loss of this revenue would cause us

both to rethink our employment and our growth strategy.

Last April, FPI became a value added distributor on a large portion of this specification, meaning that all they added to the product was the assembly of the connectors. FPI teamed with

Amphenol/Bendix, one of the largest electronic manufacturers in

the world. I think it is important that you know that not one small

business I represent was solicited by FPI, even though they are

military qualified sources and have been supplying these same

parts to the federal government for years. Once the partnership

was complete, FPI declared their right to the mandatory set-aside.

Based on the volume of business my company and the companies

I represent stood to lose to FPI, I requested a copy of the impact

study performed by FPI, which was never received. By law, this

study must show that the federal monopoly would not adversely affect small business. Had FPI conducted a proper study, they would

have found that out of the five manufacturers, three were small

business that would be devastated by the loss of this business.

Regarding the impact studies, FPI performs the impact studies

and reviews the impact studies without any review by an impartial

source. Is it not like the fox watching the henhouse? Who is protecting industry from FPI?

Last week, I was advised by Defense Supply Center-Columbus

that they are in the process of reviewing for an award to FPI 235

part numbers under the exact connector specification of which I

just spoke. The estimated value of this five year order is $1 million

per year for a total value of $5 million. This five year order would

cover FPI should Representative Hoekstra’s bill, H.R. 1577, pass.

19

To make this situation even worse, I was told that the military

specification had between 2,000 and 3,000 parts listed, and this

was just the first order. The situation with FPI is becoming worse

as time progresses. FPI has the right to demand that the government set aside any connector series FPI chooses. They now successfully dominate the circular connector market.

I have brought with me today examples of quotes that I sent to

the government. In all cases, my price was lower than the price offered by FPI. FPI received the award. Once again, the government

had no option but to award to them. I find that their pricing is an

example of price gouging when their labor rates are so low.

In conclusion, I would like to thank you again for inviting me to

testify and urge you to support Representative Hoekstra’s bill, H.R.

1577, that will help end unfair competition, as well as the unfair

hold that FPI has on federal government procurement.

Thank you, Mr. Chairman.

[Ms. Gentile’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

Our next guest is Bob DeGroft, Sr., owner of Source One Office

Furnishings, and also chairman of the Independent Office Products

and Furniture Dealers Association. Welcome.

STATEMENT OF ROBERT DeGROFT, OWNER, SOURCE ONE

OFFICE FURNISHINGS

Mr. DEGROFT. Thank you. You said it better than I did.

Chairman MANZULLO. I said it slowly.

Mr. DEGROFT. Mr. Chairman and Members of the Committee, I

appreciate the opportunity to testify before your Committee today

to address the issue of Federal Prison Industries reform and in

support of H.R. 1577, the Federal Prison Industries Competition in

Contracting Act.

My name is Bob DeGroft, Sr., and I am the owner of Source One

Office Furnishings located in Albuquerque, New Mexico, and I

serve as chairman of the Independent Office Products and Furniture Dealers Association. The IOPFDA is the trade association

for independent dealers of office products and office furniture.

My company, Source One Office Furnishings, is a family owned

and operated company founded by my wife, Karla, and I in 1977.

We are a small company by anyone’s standards, employing just

seven employees. I am here today in hopes that you will hear the

plea of business and labor communities and change the system

under which FPI currently operates on the federal level.

As a small businessman, I do not have a problem with open and

fair competition. What I have a problem with is the fact that FPI

is not competing with anyone, but instead is 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 is not hard enough to fathom, FPI has begun looking to

broaden its interpretation of the current statute governing the way

20

it operates in a way that will allow them to enter and sell their

products in the commercial marketplace. If this is allowed to continue, FPI will not only continue to have a monopoly over federal

contracts, but would now be in a position to expand their scope and

compete unfairly in the open market against honest, hardworking

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 in

many cases is solely dependent on prison labor for its goods.

I agree with those who believe prisoners should learn skills and

trades while incarcerated that they can use outside prison walls to

earn a living. However, it should not come at the expense of hardworking small businessmen and women, and skills learned while in

prison should apply to the new economy.

Let us focus on the real problem, the educational, vocational and

every day living experiences inmates lack that we take for granted.

If FPI is serious about helping inmates, let us focus less on jobs

that will not be around when they get out and more on real life

skills that will help inmates in real life situations.

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 that

mission. What you have today is a 1930s philosophy that does not

fit today’s FPI and its mission.

If you look closely at FPI, its mission appears to be more about

expanding FPI and turning a profit than it is in 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, even worse case, just unloading

fully assembled products from trucks and putting FPI labels on it

is not teaching inmates real skills that they can expect to use and

support themselves and their families once released back into the

community.

Reform is desperately needed to help level the playing field for

small business, in particular small office products and furniture

dealers like myself, who are the hardest hit by the unfair and monopolistic advantage FPI has over us. The Federal Prison Industries Competition in Contracting Act changes the way FPI is able

to operate and forces them to compete openly and fairly for contracts they are currently guaranteed by statute.

As you may or may not be aware, this legislation received broad

bipartisan support in the 106th Congress. With support from Republicans, Democrats, business and labor, it is my hope that this

piece of legislation is one Congress passes this year. With your help

and support, small business can achieve a level playing field.

This reform is necessary because the numbers and problems are

staggering. During fiscal year 1999, FPI generated roughly $550

million in sales, of which 40 percent came at the expense of the office products and furniture industry. Should FPI branch out into

the commercial market, this move would be a blatant disregard for

current law and could force some of the office products industry

people to close their doors.

21

As the owner of a small furniture dealership in New Mexico, I

can tell you that having to deal with prison industries 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.

With this law having serious impacts on my business and others

in the community, three other New Mexico office furniture dealers

and I banded together for the purpose of trying to change the way

New Mexico Corrections operates. Our goal was to get the state

legislature to level the playing field for businesses in New Mexico

trying to compete with New Mexico Corrections by opening up the

prison business to outside competition.

After what seemed like an eternity, we prevailed and changed

the system. Changing the system cost me and my colleagues

$14,000 out of our own pockets. It was a decision I had to make,

and I was glad I made it, but I was lucky that I could afford to

do that. How many others in my position were not? I do not know.

Today I am happy to report that the New Mexico state prison industries program is alive and well, employing over 400 New Mexico

inmates in furniture, telemarketing, garment, dairy and print shop

industries.

Mr. Chairman, for time purposes I have touched on the state program in New Mexico, and I hope that during the question phase

of today’s hearing we can get into greater detail of how this was

accomplished in New Mexico.

In closing, my written testimony submitted today is filled with

real life stories from dealers all across the country that have been

impacted by FPI’s practices. I hope each of you will take a moment

to read each of them because they touch on the every day real

problems we encounter with the way FPI is currently able to operate.

Mr. Chairman and Members of the Committee, thank you for allowing me the opportunity to testify here today. I hope you will

take a hard look at FPI’s practices and pass reform in the form of

H.R. 1577 this year.

I would be happy to answer any questions.

[Mr. DeGroft’s statement may be found in appendix.]

Chairman MANZULLO. Thank you, Mr. DeGroft. I appreciate it.

Our next witness is Kass Green of Pacific Meridian Resources.

She is with the Management Association for Private Photogrammetric Surveyors.

Ms. GREEN. It took me two years to get that, so that was pretty

good.

Chairman MANZULLO. Welcome. If you could watch the green

light, we would appreciate it. We expect a series of votes, and I

want to make sure that all of your testimony gets in before that.

Ms. GREEN. Certainly. Certainly.

STATEMENT OF KASS GREEN, PACIFIC MERIDIAN RESOURCES

Ms. GREEN. Mr. Chairman, Members of the Committee, MAPPS

is a national trade association of more than 160 private firms doing

professional mapping and related geographic information services.

We are pleased to have this opportunity to testify this morning.

22

We hear a lot of talk about that the government should be run

more like a business. However, Mr. Chairman, Federal Prison Industries has taken that idea too far. MAPPS is deeply concerned

that federal and state prisons have discovered the market for geographic data conversion services and is using convict labor to encroach into our business and displace hardworking, law abiding,

taxpaying citizens with criminals employed by a new form of government sponsored, unfair, tax exempt, below market, non-profit

competition. It is a systematic and predatory strategy to take market share from the private sector.

Specifically, FPI has developed the capability to provide mapping

services. FPI has created a loophole for itself in the law. It has determined administratively that the requirement to consult with an

affected industry prior to introducing a new product or embarking

upon the expansion does not apply to services. I want to emphasize

that. They have determined that it does not apply to services.

Thus, FPI was judge, jury and prosecutor when it came to deciding

to compete with private firms for mapping services.

FPI must understand that entering the mapping field adversely

affects small businesses. Numerous studies, including those by the

Office of Management and Budget, recognize that the federal government is in competition with the private sector in mapping, and

Congress has repeatedly targeted mapping activities in federal

agencies for increased contracting out.

While FPI is not a mandatory source in services as it is in the

product area, it does enjoy the status of preferential source. Services must be purchased by federal agencies from FPI without going

through competitive procurement procedures, seriously impairing

the ability of private firms, particularly small businesses, to compete.

Recently, FPI announced proposed regulations providing a huge

expansion of activities without any legislative authority from Congress. Specifically, FPI proposed to provide services such as mapping services described above not just to other government agencies, but to the private commercial market as well.

The Justice Department has astonishingly ruled that a current

provision in law which prohibits the interstate commerce of prison

made products does not apply to services. While FPI withdrew its

regulations, it is still proceeding with offering services in the commercial market.

FPI has actually hired private consultants to enable FPI to compete in our market, yet they have never conducted an analysis that

the impact of their entry into our market would have on the private sector. FPI is now productive in this area, providing mapping

data conversion, data entry, optical scanning and digitizing services

for a variety of federal agencies. This is clearly an inappropriate

area for prison industry activity.

In recognition of the importance of using the highest quality contractors to perform mapping services, Congress in 1972 enacted a

qualifications based selection law. This law required federal agencies to award mapping contracts to firms based on their demonstrated competence and qualification rather than awarding such

contracts to the lowest bidder.

23

Public health, welfare and safety is dependent on the quality of

work performed by professionals in the fields of architecture, engineering and surveying. To add to these highly technical and professional services images and maps processed by prison inmates is not

only an affront to the professionals in this field, but questionable

to the public interest.

Permitting prisons access to data that becomes important to national security is unwise. We question the wisdom of giving prisoners access to important information about the precise location of

underground utilities, water, electrical and fiber optic lines, as well

as pipelines.

It is questionable from a civil liberties and personal privacy

standpoint to provide prisoners access to homeowner data, property

appraisal and tax assessment records and other information. Most

citizens would be horrified and outraged to know that such data is

in the hands of inmates.

Finally, and most alarming, we are at a loss as to why prison industries are training inmates in scanning, imaging and digitizing

skills that with little embellishment and imagination can be used

for counterfeiting.

FPI claims it is concentrating its efforts on performing commercial services that are currently being performed outside the United

States, being performed offshore. We would like to state that this

is simply untrue.

As mentioned earlier——

Chairman MANZULLO. How are you doing on time, Mrs. Green?

Ms. GREEN. Excuse me?

Chairman MANZULLO. Your red light just went on there.

Ms. GREEN. Yes, I know.

Chairman MANZULLO. Are you going to sum up?

Ms. GREEN. That is why I was skipping ahead to some pages.

Chairman MANZULLO. Please.

Ms. GREEN. I am almost done right now.

Chairman MANZULLO. Thank you.

Ms. GREEN. 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.

In summary, I want to hold up the services from Unicor Services.

It is a summary. Frankly, it is their marketing document for

Unicor Services. In the back of this is a map that they have produced of an area of San Francisco. My home office is in the San

Francisco Bay area, and what I would like to know is what do I

tell my law abiding employees who I only have about three months

of work left for right now? What do I tell them when they find out

that they are losing work to federal industries rather than me

being able to get contract work for them?

It is incredible reading this document and this marketing material that just blatantly competes with small businesses.

[Ms. Green’s statement may be found in appendix.]

24

Chairman MANZULLO. I want to stop you right there and ask a

question. I know this is very unusual.

Mr. Aragon, was there an impact study made on her industry before FPI went into that?

Mr. ARAGON. Mr. Chairman, I am unaware of the specifics in this

particular case.

Chairman MANZULLO. You were not with FPI at the time? Is that

so?

Mr. ARAGON. No, sir. I have been on the board for six or seven

years, Mr. Chairman.

Chairman MANZULLO. You are not aware of the study going into

a brand new area?

Mr. ARAGON. The board of FPI, Mr. Chairman, tasks our staff to

look at all areas where we can possibly have business opportunities

that do not hurt small business, but I would have to know the specifics of that particular case.

Chairman MANZULLO. Well, she just said it. My question is were

you aware of this document that she just showed to the congressional Committee?

Mr. ARAGON. The staff of FPI, Mr. Chairman—— Chairman MANZULLO. I do not care about the staff. As a board

member, were you aware of this?

Mr. ARAGON. Of this particular study?

Chairman MANZULLO. That is correct.

Mr. ARAGON. I answered your question, Mr. Chairman.

Chairman MANZULLO. The answer is no?

Mr. ARAGON. No. The answer is I would have to familiarize myself with the specifics on that.

Chairman MANZULLO. How many are on the board?

Mr. ARAGON. There are five members of the board, Mr. Chairman.

Chairman MANZULLO. Mrs. Green, when was this document

issued?

Ms. GREEN. This was over 1998.

Chairman MANZULLO. And you were a member of the board at

the time?

Mr. ARAGON. Yes, I was, Mr. Chairman.

Chairman MANZULLO. Are these studies given to the board by

the staff to review and look at?

Mr. ARAGON. Yes, they are.

Chairman MANZULLO. And how many of these studies would be

done each year? Do you have any idea?

Mr. ARAGON. Impact studies for new businesses and expansions?

Oh, I would say 20 or so.

Chairman MANZULLO. Okay. All right.

Ms. GREEN. Mr. Chairman, I would like to emphasize that FPI

has not done an impact study. This is their marketing material.

Chairman MANZULLO. Okay. My question is has FPI done an impact study on her industry? You do not do them on service expansions?

Mr. ARAGON. Well, we do not have mandatory source in the services, Mr. Chairman.

Chairman MANZULLO. So when you told us that before you go

into an area, before you compete with the private sector, that you

25

do an impact study that that impact study you do for services? Is

that correct?

Mr. ARAGON. Mr. Chairman, we are not a mandatory source in

the services area. The only—— Chairman MANZULLO. Can you give me a yes or no on that? Either you are mandated by law to do it or you are not. I am trying

to get to the bottom of this.

The answer is no, you are not mandated by law to do that?

Mr. ARAGON. To do an impact study on services?

Chairman MANZULLO. Right.

Mr. ARAGON. No, because that is not a mandatory source in the

services area.

Chairman MANZULLO. Therefore, your statement that you are

concerned about the impact on the private sector is meaningless

when you do not have to do an impact study to go into new areas?

Mr. ARAGON. That is inaccurate, Mr. Chairman.

Chairman MANZULLO. Well, how would you know if you do not

have to do an impact study?

Mr. ARAGON. The only work we do in the services sector, Mr.

Chairman, is work that is brought to us by the customer because

they request us to—— Chairman MANZULLO. I understand that they want a cheaper

price. What I am trying to get at is the fact here, and, Mr. Votteler,

just bear with me; is the fact that you testified that you had to do

an impact statement as to each area that you go into, and I am

not sure if you said just manufactured product or services, although now we are at the point in the age of technology where perhaps furnishing data is more manufactured materials than services.

We are in a situation right here before everybody, before the reporter, before Members of Congress, where now we have somebody

telling us that this document was put out, that FPI went into a

brand new area. There was no impact study made. Is that correct?

Mr. ARAGON. Mr. Chairman, that is not accurate as I understand

it. I would need to know the specifics in that case, but I can tell

you——

Chairman MANZULLO. Do you know if there was an impact study

made in this area? If you do not know, I can understand that. I

will not be hard on you.

Mr. ARAGON. Well, no, Mr. Chairman. I think if the testifier

would offer more information about the circumstance.

Are you saying, ma’am, that FPI actually has work now in that

area? I know we do not——

Ms. GREEN. Absolutely. Yes. Yes. Yes. Yes.

Chairman MANZULLO. Is there anybody here from FPI that can

answer my question with you, Mr. Aragon?

Mr. ARAGON. Certainly there is. The chief operating officer of FPI

is here, Mr. Chairman.

Chairman MANZULLO. Why do you not have him sit next to you

at the table? That way he can help you in some of these questions.

Let me get on to Mr. Votteler, and then he can assist you because there are technical questions that if you need help with I

would like to have your person there with you.

Mr. ARAGON. Thank you.

26

Chairman MANZULLO. You bet.

Mr. Votteler?

STATEMENT OF CARL C. VOTTELER, PRESIDENT, FEDERAL

MANAGERS ASSOCIATION

Mr. VOTTELER. Chairman Manzullo, Ranking Member Velazquez

and Members of the Committee, my name is Carl C. Votteler, and

I am president of Chapter 144 of the Federal Managers Association.

On behalf of the 200,000 executives, managers and supervisors

in the federal government whose interests are represented by FMA,

I would like to thank you for inviting us to present our views before the Committee on Small Business regarding the requirement

for federal agencies to purchase certain products from the Federal

Prison Industries, FPI.

I work for the Public Buildings Service, General Services Administration. I am a buildings management specialist in our Washington headquarters. I have worked as a manager for GSA for the

past 28 years. The views expressed in my testimony are my own

in my capacity as a member of FMA and not intended to represent

the official views of GSA.

Mr. Chairman, the main message that FMA wants to convey to

you and Members of the Committee today is that federal managers

and supervisors and the civil servants we lead try extremely hard

to be good stewards of the tax dollars and entrusted to us. We dedicate ourselves daily to delivering to the American people the most

value for their hard earned dollars. Routinely, we are called upon

to do it better, faster and cheaper. Doing more with less is the

norm, not the exception.

In our view, the FPI mandatory source requirement ties the

hands of federal managers when it comes to making smart purchasing decisions. While combating inmate idleness and providing

20 percent of the inmate work opportunities for federal prisoners

are important public policy objectives, the cost of the FPI program

should not be transferable to the tight budgets of other agencies

with their own missions in service to the American people from national defense to providing other agencies the workspace, products,

services, technology and policy they need to accomplish their mission. That is why FMA supports passage of H.R. 1577, which would

eliminate this mandatory source requirement burdening federal

agencies.

You have heard about waivers of FPI grants permitting federal

agency managers to make purchases from the private sector. I

would ask you to consider some fundamental questions about the

waiver process and how it works. To begin, why should federal

managers be required to seek FPI’s permission before being able to

spend the money of American taxpayers in the best possible manner?

Under the waiver process, FPI, rather than the buying agency,

determines whether FPI’s offered product, delivery schedule and

reasonableness of FPI’s offered price meet the needs of the agency.

A 1998 GAO study of 20 FPI products found that FPI generally did

not offer federal agencies the lowest prices for products that they

had purchased. Therefore, if it were not for FPI’s mandatory source

27

status customer agencies might have decided to purchase comparable products at less cost. This assessment is consistent with

the anecdotal experiences of our members.

FMA members are also concerned that it frequently takes longer

to receive products from FPI than from other commercial vendors.

Another GAO report regarding the timeliness of FPI deliveries

showed similar results. In more than 50 percent of the cases reviewed, the actual delivery date was later than the buying agency

had originally requested. Again, this is congruent with the experiences of our members.

Small business in the private sector, on the other hand, strives

to keep costs low, quality good and delivery services efficient. Otherwise they would find themselves out of business. Consumers benefit from their efforts. These benefits do not exist when a business

holds its customers hostage as is the case with FPI and federal

agencies.

As a taxpayer first and civil servant second, FMA members want

to see their tax dollars used in the most productive manner possible. A couple of important factors contribute to our current

heightened concern about making the best use of scarce agency resources: agency downsizing and public/private competition for federal functions.

In closing, Mr. Chairman, federal managers and supervisors are

currently receiving two conflicting messages from Washington, D.C.

On the one hand, we are being asked to do more with less. From

Congress, we frequently hear about the bureaucracy and how they

should act more like the private sector. In contrast, the law requires us to purchase over half a billion dollars worth of supplies

from a non-competitive source that frequently overcharges more

than commercial vendors.

The lament from managers and supervisors in the field is that

this Catch–22 is all too typical of the way the federal government

operates. Congress and the White House want us to compete with

the private sector, but they will not permit us to act like the private sector when it comes to purchasing supplies.

FMA appreciates the efforts made by Congressman Hoekstra and

the more than 70 current co-sponsors of H.R. 1577 to help us be

better stewards of the taxpayers’ hard earned dollars by untying

our hands when it comes to making smart purchasing decisions.

We urge Congress to pass this legislation to eliminate the FPI

mandatory source requirement.

Thank you again for inviting FMA to present our views, and we

look forward to working with you on this important issue.

This concludes my prepared remarks. I would be happy to answer any questions anyone may have.

[Mr. Votteler’s statement may be found in appendix.]

Chairman MANZULLO. I appreciate your testimony very much.

Mr. Aragon, your counsel is? What is your name again? Could

you please state your name for the record, please?

Mr. SCHWALB. Mr. Chairman, my name is Steve Schwalb. I am

the——

Chairman MANZULLO. Do you want to spell the last name for the

record?

28

Mr. SCHWALB. S-C-H-W-A-L-B. I am the chief operating officer of

Federal Prison Industries.

Chairman MANZULLO. Okay. Thank you.

I want to follow up and first of all thank all of you for your testimony. I want to follow up on this issue of the impact statements.

I am reading out of the Code of Federal Regulations, subpart 8.6,

Acquisition from Federal Prison Industries, Inc., where it says in

paragraph (c), ‘‘FPI diversifies its supplies and services to prevent

private industry from experiencing unfair competition from prison

workshop or activities.’’ Now, I am reading that. As I read this, this indicates to me that

there has to be some type of an impact study done before you go

into a new area of supply or services. Mr. Aragon or Mr. Schwalb?

Mr. SCHWALB. Mr. Chairman, what Mr. Aragon’s testimony is referring to is the FPI statute, which is related to this—— Chairman MANZULLO. Okay.

Mr. SCHWALB [continuing]. Regulation that you just read. The

statute requires that whenever the corporation is going to propose

an expansion in products, because that is where the mandatory

source supplies and that is where the statute is written to cover

a mandatory expansion, that they have the hearings and the impact studies that the Chairman referred to.

Chairman MANZULLO. So that is only on products?

Mr. SCHWALB. It only applies to products. In services we do not

do that impact study per se, but we have meetings with the board

four times a year and advise them of the additional business plans.

To address the specific question of the mapping services, the majority of our work there is done really as a subcontractor. There are

private companies in the business who have the technology, and

they need the labor to do the scanning or the data work. We partner with them, and they usually make the presentation to the federal customer for the proposal.

Chairman MANZULLO. So the subcontractor then would be at a

competitive advantage over Mrs. Green and members of her association. Would you agree with that?

Mr. SCHWALB. It depends on the individual job, Mr. Chairman,

but our approach in services, as our marketing document indicates,

is to market the opportunity for any company that wants to utilize

our inmate labor as a part of a proposal to be able to do that.

Chairman MANZULLO. But I think we agree at this point there

has been no competitive impact study done on mapping services before FPI went into this industry?

Mr. SCHWALB. Not as referred to in the statute under products.

That is true. Yes.

Chairman MANZULLO. All right. Mr. Aragon was in the private

sector himself. I mean, prisons could go into the restaurant business. They could open up—I am serious. They might have mashed

potatoes and roast beef all the time, but there is nothing to stop

them from opening up on the outside of the prison and saying on

Sunday afternoon we are going to have fried chicken, a complete

meal for $2, as opposed to somebody else.

Is there not some type of a moral responsibility here to make

sure that you are not impacting or hurting somebody else before

you go into a new service area?

29

Mr. ARAGON. Mr. Chairman, absolutely there is a responsibility

to look at how whatever work we do affects small businesses.

Perhaps to clarify, I am not a former businessman. I am a businessman, a small businessman, and my board activity is as the

other non-paid board members who have real world jobs as they

say, so I appreciate your letting Mr. Schwalb be here for technical

questions, but I can certainly respond to questions about the

board’s responsibilities and how we make our decisions.

The service work that we look for, Mr. Chairman, and I should

not even say look for. The service work that we provide is typically

brought to us by customers who would like us to work.

Chairman MANZULLO. Yes, but what does that mean? They want

a cheaper price?

Mr. ARAGON. Sometimes it means, Mr. Chairman, that they want

a better job done by our inmates than they get from the private

sector.

Chairman MANZULLO. I mean, when you say people come to you

for services, I mean, how does that make it any different? I mean,

are they saying the services they are now getting are not competent?

Mr. ARAGON. Mr. Chairman, an example would be on military

bases where the customer, the Air Force, and we have prisons on

military bases, prison camps as they are referred to.

The customer, the Air Force, comes to Prison Industries and says

will you do the laundry for the base for us, thereby saving the federal government tremendous amounts of money for work that they

would have to contract out for and may not even be able to provide.

Chairman MANZULLO. Do you know what has happened in my

district? The VA hospital has gone to the commercial laundry business, and they are knocking out a business employing 100 people,

most of whom are minorities.

I mean, the impact of this is just not in this room here, but it

is an attitude that an arm of the government could be in direct

competition with people in the private sector, and yet nobody seems

to be concerned about it.

I mean, would you agree that it would be best if you had to do

an impact statement for the privates before you go into services?

Mr. ARAGON. Mr. Chairman, one of the proposals that we have

as the board is that we be allowed to have authority to operate in

that sector so that we would——

Chairman MANZULLO. That is all we need. I mean, it is a nongovernment sector. To offer services into the non-government sector.

Mr. ARAGON. The commercial market, Mr. Chairman, is not—the

only work we do in the commercial market is brought to us by

agencies, as I said.

Typically we partner with small businesses as in the case of this

data mapping. We are a partner with them. We provide labor. It

is not a competitive advantage to the companies that we work with

because every company has the opportunity to utilize our labor

source in similar kinds of circumstances.

Chairman MANZULLO. Mrs. Green, did you have a rejoinder to

that?

30

Ms. GREEN. I would like to point out that most of the time when

it is offered or when it is offered it is at a much lower cost, dollar

cost, from the Federal Prison Industries than the private sector or

certainly small businesses could offer because of the differential.

All we are asking for is the ability to fairly compete.

Chairman MANZULLO. What I am concerned about is the fact

that at present FPI has no obligation to do a competitive impact

study on products that it sells to the government. I am sorry. On

services that it sells to the government. That is correct?

Mr. ARAGON. That is correct, Mr. Chairman.

Chairman MANZULLO. Now you want to go out into the commercial area to sell to non-government purchasers. Is that correct?

Mr. ARAGON. What we want to do, Mr. Chairman, is to find a

way to avoid impacting small businesses or minority owned businesses as much as possible.

Chairman MANZULLO. Wait a second. You are doing that now,

and now you want to expand your market.

Mr. ARAGON. No. No.

Chairman MANZULLO. Am I missing something here?

Mr. ARAGON. Mr. Chairman, what we want to do is the reason

we would like to have authority for commercial services or services

in the commercial market is so that we can lessen the kind of pressure on Federal Prison Industries to sell to the federal government.

Chairman MANZULLO. That does not make sense. You are already expanding your sales within the federal government, and

now you are saying to lessen the expansion in the federal government you want to go into the commercial market.

Mr. ARAGON. No. It makes perfect sense, Mr. Chairman, actually,

because the issue is the impact. As inmates continue to go to prison, and there are 200,000 inmates in prison, it is our statutory responsibility to create jobs for them.

Our limit is the federal government, the federal marketplace,

and so what the board is trying to do is to keep away from these

kinds of circumstances where small businesses or other businesses

are impacted by opening up our ability to create jobs.

One of those proposals is work that has gone offshore that has

been offshore for a long time. Those jobs are never going to be provided by American citizens. One of our offers or one of our requests

as a board is to say bring back the work that has gone offshore and

let us do that.

Chairman MANZULLO. What would be an example of that?

Mr. ARAGON. Much of the textile business, Mr. Chairman. I have

heard testimony about the textiles here and in the past, and the

fact of the matter with the textile arena is so much of that work

has gone offshore it will never come back.

What we have said is let us provide some of the textile work that

will not ever be performed here, and that will help support the remaining textile businesses in business now.

Chairman MANZULLO. I have to move on. You are doing that

with gloves now.

Mrs. Vela ́zquez?

Mrs. VELA ́ ZQUEZ. Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you.

31

Mrs. VELA ́ ZQUEZ. Mr. Aragon, the Committee received your testimony this morning. Were you aware of that; that you sent your testimony to us this morning?

Mr. ARAGON. No, I was not aware of that, Ms. Velazquez. I know

that it was sitting at various agencies who have to approve testimony.

Mrs. VELA ́ ZQUEZ. But you were supposed to send it to us two

days ago. How do you think we could prepare for this hearing if

we only have one hour to read your testimony?

Mr. VOTTELER. Ms. Vela ́zquez, on behalf of the chairman I apologize for that. He is located in Denver. We had his statement prepared. We approved it, and he is a government employee as an appointee of the board.

Mrs. VELA ́ ZQUEZ. I thought that there was a top secret that you

were dealing with in your testimony.

Mr. VOTTELER. I wish it was that exciting.

Mrs. VELA ́ ZQUEZ. Okay.

Mr. VOTTELER. It is a matter of just getting clearance from everybody in the Administration for his statement. It did not occur

until 11:00 last night. I am sorry.

Mrs. VELA ́ ZQUEZ. For the next hearing, because there will be

other hearings on this topic, please make sure that like every other

witness that his testimony gets here two days in advance.

Mr. VOTTELER. We are as disappointed as you are.

Mrs. VELA ́ ZQUEZ. Thank you.

Mr. ARAGON, how many contracts was FPI awarded in fiscal year

2000?

Mr. ARAGON. I have no idea. I do not know that information, Ms.

Velazquez.

Mrs. VELA ́ ZQUEZ. Sir, you come here today, and you know the

scope of this hearing. You are not prepared to answer those questions?

Mr. ARAGON. Ms. Vela ́zquez, any $550 million business that sells chairs for $112, for example, I can tell you that nobody would be

able to sit here and tell you how many of those purchase orders are

processed or contracts were allowed. I think it is a perfectly correct

answer.

Mrs. VELA ́ ZQUEZ. Well, I hope that you, and I request, Mr. Chairman, that he submit to us in a written answer the number of contracts that were awarded by FPI in fiscal year 2000.

Chairman MANZULLO. What we will do is we will give Members

of this Committee ten days within which to submit questions to

both of our counsel, and then we can send one letter on a joint letterhead and request whatever we want on it.

Ms. Vela ́zquez, we have a vote. What do you suggest now?

Should we go vote and then come back?

Mrs. VELA ́ ZQUEZ. That we go vote and come back.

Chairman MANZULLO. And come right back?

Mrs. VELA ́ ZQUEZ. Yes.

[Pause.]

Chairman MANZULLO. What we are going to do is we are going

to break for votes now because I do not want to interrupt her train

of thought and keep her questions into one solid block and not split

it up. We are going to vote and then come back.

32

[Recess.]

Chairman MANZULLO. We are going to reconvene the meeting.

The votes are over. If the witnesses would have a seat along with

Mr. Schwalb? Two of you can share a mike there.

Mrs. Vela ́zquez, I called a break back then because I did not

want to have to much of a break in your questions.

Mrs. VELA ́ ZQUEZ. Yes.

Chairman MANZULLO. Please.

Mrs. VELA ́ ZQUEZ. Mr. Aragon, as I said before, I want you to submit to us the number of federal contracts that were awarded in fiscal year 2000, and I also want to know how many inmates worked

on each contract on the average.

Mr. ARAGON. Yes, Congresswoman. I have some preliminary information to share if I could give that to you on the number of contracts.

Mrs. VELA ́ ZQUEZ. Yes?

Mr. ARAGON. Just in a big picture kind of scenario, FPI received

somewhere between 78,000 and 82,000 orders during last fiscal

year, the full fiscal year. Approximately a third of those are large,

multi-year contracts, and the rest are purchases using government

credit cards and those sorts of things. We will provide the additional information.

Mrs. VELA ́ ZQUEZ. How many inmates?

Mr. ARAGON. Yes.

Mrs. VELA ́ ZQUEZ. Okay.

Mr. ARAGON. We employ approximately 22,000 inmates.

Mrs. VELA ́ ZQUEZ. Twenty-one thousand, six hundred and eighteight?

Mr. ARAGON. Yes, ma’am.

Mrs. VELA ́ ZQUEZ. Yes. Of the 126,000 individuals currently incarcerated. I want you to tell me, Mr. Aragon, if one inmate works on

five separate contracts is that work counted five times or one time?

Mr. ARAGON. One time. The worker is—that is the population,

Congresswoman, so regardless of how many contracts they work on

it is the same inmate working on all those contracts.

Mrs. VELA ́ ZQUEZ. Can you tell me what is the FPI definition for

the term prison mate?

Mr. ARAGON. Yes. I can paraphrase, I believe. I cannot tell you

the exact definition, but we typically want to do as much work as

possible in the prison with our inmates. We are very different from

the private sector inasmuch as we want to be labor intensive. We

do not care what we are doing, but the more inmates we can——

Mrs. VELA ́ ZQUEZ. Okay.

Mr. ARAGON [continuing]. Have working the better, but——

Mrs. VELA ́ ZQUEZ. Okay. Let me ask you another question related

to the same question. Is there any requirement in the definition of

prison mate that FPI use a certain percentage of incarcerated individuals in the manufacture of an item?

Mr. ARAGON. No, there is no written policy to that effect.

Mrs. VELA ́ ZQUEZ. So there is no requirement?

Mr. ARAGON. Well, we again try and use as much inmate labor

as possible. Different products we manufacture have a different

amount of labor, inmate labor involved.

33

Mrs. VELA ́ ZQUEZ. Can you help me understand then what was

the statutory mandate of the FPI corporation when it was created?

It was created to help rehabilitate inmates through training and

work placement——

Mr. ARAGON. Yes.

Mrs. VELA ́ ZQUEZ [continuing]. And then yet when we go to the

definition of prison mate there is no requirement that inmates are

used in the manufacture of an item.

Mr. ARAGON. Not that I know of that it is there, but we want

to use as many inmates as possible in manufacturing our goods at

all times.

Mrs. VELA ́ ZQUEZ. So let me ask you another question. The statutory mandate for the FPI is that this corporation helps rehabilitate

through training and work placement or work the inmate population, and yet we found that only 17,000 out of the entire population is employed by FPI.

Mr. ARAGON. Well, 22,000 are employed by FPI.

Mrs. VELA ́ ZQUEZ. Okay. Okay.

Mr. ARAGON. There are many inmates that are ineligible for FPI

jobs. At minimum security camps we do not have industries or all

the metropolitan detention centers like the one in your district,

Congresswoman, because of the nature of that facility with people

in and out all the time. All of those inmates are not eligible for FPI

jobs because it is not practical.

Mrs. VELA ́ ZQUEZ. Can you tell me what type of action plan do

you have so that you provide more training to more than just

22,000?

Mr. ARAGON. Well, that is a tough question. We again would

want to make as many jobs as possible and provide that training.

On a practical matter, though, that is the concern that we are

speaking of about here.

We also want to have the least impact as possible on the private

sector, so the number of jobs for inmates that we have is the number of inmates in the institutions who are available for our work,

and we employ as many of those as possible. We could employ more

inmates in industries, but we do not just to try and minimize our

impact to the outside community.

Mrs. VELA ́ ZQUEZ. But yet your margin of profit is increasing

every day and every year.

Mr. ARAGON. I would not say that is accurate, Congresswoman.

Mrs. VELA ́ ZQUEZ. No?

Mr. ARAGON. No.

Mrs. VELA ́ ZQUEZ. You told me that you were awarded 78,000 to

82,000 orders.

Mr. ARAGON. We received orders——

Mrs. VELA ́ ZQUEZ. Federal contracts.

Mr. ARAGON. Yes.

Mrs. VELA ́ ZQUEZ. And yet only 21,000 inmates were employed.

That works out to less than one inmate per contract. Can you

please explain that math?

Mr. ARAGON. Well, the vast majority of those orders, the 78,000

to 82,000, are orders that are less than $25,000 made on a government purchase order contract. What do you call it? Credit card.

34

That may be just one chair or one specific item, so the factory

where we make chairs may process in a given month several hundred orders for individual chairs, but they are made by the same

inmates who would work on one as another. They just manufacture

chairs at that particular prison.

Mrs. VELA ́ ZQUEZ. Mr. DeGroft, do you have any documentation

as to how many inmates are employed by FPI on office furniture

contracts that are awarded to them?

Mr. DEGROFT. I do not have any information about that. We do

not get any information.

Mrs. VELA ́ ZQUEZ. Mr. Aragon, can you provide that information

to you?

Mr. ARAGON. The number of inmates that are employed with office furniture?

Mrs. VELA ́ ZQUEZ. Employed with office furniture contracts.

Mr. ARAGON. Well, it represents approximately 40 percent of our

business.

Steve, do you have the exact number?

Mr. SCHWALB. I do not have the number. I could get it for you,

though.

Mr. DEGROFT. Congresswoman, if I am right, 44 percent of the

total business that you do is in office furniture, but in terms of how

many people that involved doing it, never asked.

Mrs. VELA ́ ZQUEZ. Never?

Mr. ARAGON. I would imagine that it follows roughly the number

of sales, Congresswoman, but we will get you the exact number.

Mrs. VELA ́ ZQUEZ. Thank you.

Ms. Gentile?

Ms. GENTILE. Yes?

Mrs. VELA ́ ZQUEZ. In some cases your prices have been nearly half

of what FPI’s prices have been, and yet you have no real recourse

to challenge FPI’s expansion into connectors. A lawsuit would obviously be drawn out and cost prohibitive.

How many of your suppliers would be affected by the Defense

Supply Center in Columbus contracting for connectors in FPI?

Ms. GENTILE. Of my personal suppliers there would be four. In

the National Association of Manufacturers and Representatives we

have probably I would say 30 percent of them in contracts, and

they represent massive amounts of companies.

This would impact not just our companies, but where you have

manufacturers, you have representatives, you have distributors,

and you have brokers that all bid to the federal government on

these connectors.

Mrs. VELA ́ ZQUEZ. Mr. Aragon, regarding this specific contract

how many or what is the percentage of that contract that is going

to be performed by inmates?

Mr. ARAGON. On this specific contract you are speaking of, Congresswoman?

Mrs. VELA ́ ZQUEZ. Yes.

Mr. ARAGON. I do not know. I do not know the details.

Mrs. VELA ́ ZQUEZ. Can I get a commitment from you that 100 percent of the work that will be performed will be performed by inmates?

35

Mr. ARAGON. It would be my commitment to do that with all

products if at all possible, Congresswoman, yes.

Mrs. VELA ́ ZQUEZ. And then you are going to supply to us what

is the percentage of each of the contracts that have been awarded

to you what is the percentage of inmates that have been participating in performing the job of each one of them?

Mr. ARAGON. Each one of these particular products?

Mrs. VELA ́ ZQUEZ. Of all the contracts. Federal contract.

Mr. ARAGON. Yes. We will get you—— Mrs. VELA ́ ZQUEZ. I just want to see what type of programmatic

plan do you have in place in order to help inmates rehabilitate

themselves through training and work.

I want to see that you are serious when you tell us that yes, you

deserve all the benefits that businesses are not getting because you

are performing a social mission as an institution, and the only way

to do that is by seeing how many or what percentage in each contract, what percentage of that work is being performed by inmates.

Mr. ARAGON. We will give you whatever information we can,

Congresswoman. I will say that as it relates to the preference, the

mandatory source that Unicor has, Mr. Montalco, Congressman

Hoekstra’s counsel, I appreciated him pointing out that we are only

one of seven preferences. There is a preference for blind and disabled people. There is a preference for minorities, small business,

small business owners under the 8(a) program.

We are one of seven areas where Congress has seen fit to say

there needs to be sort of a different playing field to address the social needs of these constituencies.

Mrs. VELA ́ ZQUEZ. Mr. Aragon, I understand that FPI does a lot

of work with Kroeger International. Would you briefly explain that

relationship?

Mr. ARAGON. It is actually Creager, and that relationship is a

similar relationship that we have with other businesses and small

businesses, and that is that we provide some stage of the manufacturing process labor where, for example, with that particular

company——

Mrs. VELA ́ ZQUEZ. Okay. Can you answer to me is Creager a small

business company?

Mr. ARAGON. No, it is not.

Mrs. VELA ́ ZQUEZ. No?

Mr. ARAGON. As far as I know.

Mrs. VELA ́ ZQUEZ. Can you tell me how much of the office furniture currently made by FPI comes fully assembled from Creager

or any other manufacturer FPI uses?

Mr. ARAGON. Very little comes fully manufactured. As I started

to say earlier, Congresswoman, what our job is is somewhere in the

manufacturing process we may get for a desk, for example——

Mrs. VELA ́ ZQUEZ. What is very little?

Mr. ARAGON. Less than one percent a year.

Mrs. VELA ́ ZQUEZ. And on that type of contract, what are inmates

actually doing?

Mr. ARAGON. Well, again let us take a desk, for example. Our inmates may fit in the process at any stage.

For example, we may get fully—for a desk we may get drawers

manufactured by a company, a small business company or some

36

other company, and what we do is take various components, the

nuts and bolts that we buy from another business, et cetera, and

our inmates would do the final assembly and then do the quality

control, the finishing and painting, et cetera.

Mrs. VELA ́ ZQUEZ. Do you know how many inmates once they are

released go to work for Creager?

Mr. ARAGON. We cannot say specifically with that company, but

I can tell you that we do employ inmates in the businesses where

they work in Unicor when they are released to the community.

Mrs. VELA ́ ZQUEZ. Give me the data. How many of the inmates?

Mr. ARAGON. Well, the problem with that, Congresswoman, is

this. We would love to be able to provide you data, but once an inmate leaves one of our prisons——

Mrs. VELA ́ ZQUEZ. You do not have any more responsibility with

him?

Mr. ARAGON. No. They do not want to have anything else to do

with us.

Mrs. VELA ́ ZQUEZ. I know, but let me ask you. Let me ask you.

I am not trying to be funny here because this is serious business.

Mr. ARAGON. No.

Mrs. VELA ́ ZQUEZ. Let me ask you this. How could you measure

success if you do not know how many of the inmates once they are

released get a full-time job?

Mr. ARAGON. Because we can measure it. We have measured it

empirically, as I have testified to earlier, with studies. Additionally,

most of the information we have——

Mrs. VELA ́ ZQUEZ. Do you know what? I understand why inmates

would not want to have any relationship with you any more once

they are released.

Mr. ARAGON. Any prison, Congresswoman.

Mrs. VELA ́ ZQUEZ. Right. Sure.

Mr. ARAGON. Any prison. I apologize. I did not mean to be humorous.

We would love that information to be able to demonstrate how

effective our training is, but when an inmate leaves they want to

close that chapter in their life, plus we cannot mandate them providing us information because there are privacy laws, and 95 percent of the inmates in prison, regardless of where it is at, go back

into the community. We want them to have good jobs and be able

to resume a normal life.

Mrs. VELA ́ ZQUEZ. So there is no way for you to gather that information?

Mr. ARAGON. We have——

Mrs. VELA ́ ZQUEZ. What about if you work with the parole officers?

Mr. ARAGON. Well, the Congress did away with parole many

years ago, Congresswoman. There is no parole in the federal system.

Mrs. VELA ́ ZQUEZ. There is no parole?

Mr. ARAGON. There is no parole.

Mrs. VELA ́ ZQUEZ. I am finished with my questions.

Chairman MANZULLO. Mr. Issa?

Mr. ISSA. Thank you, Mr. Chairman.

37

Mr. Aragon, Mr. Schwalb, relax. I am not going to be your friend.

I am not going to be kind to you, but you might at least appreciate

that I have sat in your chair. I was on the prison industry board

in California. None of these arguments are new.

I would like to maybe use this opportunity to point out the flaws

that exist in a system that you have inherited as chairman. By the

way, were you appointed to this?

Mr. ARAGON. Yes, I was, Congressman.

Mr. ISSA. Is it a Presidential appointment?

Mr. ARAGON. Yes, it is, sir.

Mr. ISSA. I would write a letter. I did one to Pete Wilson saying

thanks, buddy.

Mr. ARAGON. Thank you, sir.

Mr. ISSA. He still thinks he is a friend after he appointed me to

that.

Let me just give you a hypothetical. We will assume for a moment that the slightly smaller program that California operates,

actually by magnitude a little less than half the size, but still a

substantial program, has some similarities.

Let us see. You get a mixed message, if I understand correctly.

You are supposed to supply a lot of jobs, but you are also supposed

to not lose money providing them. You are supposed to do training,

but, in fact, training funds are minimal, and training costs you.

You tend to use lifers because they are a reliable workforce, but,

of course, lifers never leave so the training, per se, is wasted on

them.

You are expected to make a high quality product, but, at the

same time, you have this high turnover. You have no significant

control over rotations on inmates, at which are the will of the system based on a lot of needs. You cannot control lock down.

Have I hit some of the high points of what you deal with every

day?

Mr. ARAGON. Keep going, sir. You are doing just great.

Mr. ISSA. So wanting to be your friend, I also have to be your

Dutch uncle here today.

You come before a Committee that is upset because you are taking jobs from private America. You have a reputation for making

less than the best quality, but do not feel bad. Every prison industry suffers from the reality that being competitive with a workforce

that is constantly turning over can be very difficult.

Is it not time that your organization, in light of this kind of continued oversight and some of the things you’ve heard today, come

before the Congress with a significant change in how we do business in prison industries, a single mission to rehabilitate prisoners,

and it will be a hypothetical, and you tell me if you agree.

Should you not really take your character prisoner only three or

four years before release so that in fact taking a prisoner with ten

years left on his sentence is irrelevant because if it only takes a

year to train him then you want to catch him with the minimum

time so you can have the maximum number of people trained.

Would that not be a change that you would like to have?

Mr. ARAGON. That would certainly be something that we would

want to pursue. Yes, sir.

38

Mr. ISSA. Right. Mr. Schwalb, would that not cost you a lot of

money because you now would be doing a training program, and

you would not be able to be as competitive?

Mr. SCHWALB. Sir, you are correct that the shorter term an inmate you take obviously the higher turnover, so it does enhance

the training program, but it is a disruptive manufacturing strategy.

I agree with that.

Mr. ISSA. But your goal, as I understand it, is to supply a trained

workforce to the private sector, one that has skills and a work

ethic. Is that correct?

Mr. ARAGON. That is absolutely correct.

Mr. ISSA. And so if your mission is the same as California’s, it

is confused because you are using a lot of lifers, and you are getting people for as long as you can keep them, as stable as you can

keep them, because you also have this pressure to turn out this

$500 million and not lose money doing it. Is that roughly correct?

Mr. ARAGON. That is, Congressman.

Mr. ISSA. If you leave with nothing else here today and if my colleagues leave with nothing else, you have a proactive responsibility. Whether or not your preferential position remains or is

taken away, you need to come to us and say we are training

20,000. We should be training 80,000. We are training people and

keeping them for long periods of time. We should not be.

We have very few joint ventures, and those joint ventures are

sometimes very opportunistic. You need to say you need to have a

joint venture that includes government incentives and credits so

that they are not opportunistic and do offer jobs in the aftermarket.

I think the Chairman, Mrs. Vela ́zquez, and others are telling you

your program is in serious trouble and you are trying to defend a

program that has a bad reputation.

In your follow up, I would strongly suggest that you give this

Committee whatever you have or can generate in the way of the

reforms that would justify the Congress—not just this Committee,

but the entire Congress—in having faith in the job that I do not

think you now have tasked before you as your prime task for which

if you experience the same thing as a volunteer board man and

small businessman that I experienced, you wish that was your only

job; to get people with a work ethic who have a will to go into private sector.

If you are given that and the funding to do it, because obviously

you are not going to be profitable doing that, these folks here who

are so mad might in fact be more supportive, especially if you had

a positive joint venture program as part of it.

I know I did not ask you a lot of questions, but hopefully we are

pointing out a direction that you can follow up in writing for this

group and after hopefully educating the entire Congress.

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you.

Mrs. Napolitano?

Mrs. NAPOLITANO. Thank you, Mr. Chairman. I was not able to

sit here through all, so forgive me if I am repetitive in some of the

questions.

I have three concerned areas. One, of course, is the waiver because that was discussed, but I did not catch all of it. I will get

39

into that. The second one, of course, is the education and training,

which has just been covered; not totally, though. The third one is

your advertisements.

I will start off with waiver issues. Who oversees the waivers that

are given?

Mr. ARAGON. There is a person on staff with Federal Prison Industries who is our ombudsman who has program responsibility for

the waiver process. Of course, the board listens. That person makes

a presentation at every single board meeting that we have. It is

one of the few officials that talks to us about waivers.

Mrs. NAPOLITANO. How many waivers would you say that the

board listens to at any one given time?

Mr. ARAGON. We get a complete report on waivers in process

being worked at every board meeting. Waivers is a very important

area to us. I can tell you that 90 percent of the waivers that are

requested are approved, given to those folks, and then in the electrical connectors specifically because I look at that at the break,

Congresswoman, we have in my memory and in Mr. Schwalb’s as

well—I have seven years; he has much longer. We have never denied a waiver in the electrical connector area.

If a contracting officer wants to buy a product from this company

and it is something that we make and we would have mandatory

source, if they were to ask us for a waiver they would be given a

waiver for that to be able to buy from that company.

Am I correct, Steve, that we have never—— Mrs. NAPOLITANO. So in other words, the board does oversee the

ombudsman, the waiver, the individual who handles them?

Mr. ARAGON. Yes, ma’am.

Mrs. NAPOLITANO. Is all the FPI contract work done in the prisons?

Mr. ARAGON. I am not certain I understand. All the factories are

in prisons. The work on various components of products may be

done outside with one of our partners, and then we would fit in

someplace in the manufacturing process.

Mrs. NAPOLITANO. So some of them may come to you already premade or—— Mr. ARAGON. Partially.

Mrs. NAPOLITANO [continuing]. Partially assembled?

Mr. ARAGON. Yes. We may get items, Congresswoman, from a

dozen different suppliers, small businesses, et cetera, just as any

other company would do if they are manufacturing a desk. We

would get all those pieces and then basically put it together and

finish it and then ship it.

Mrs. NAPOLITANO. In the waiver process, and my mind is racing

because as you are answering I am thinking. Is there any small

business input into the process of the waivers so that you have

some checks and balances?

Mr. ARAGON. Small business input in——

Mrs. NAPOLITANO. In the ones that were participants in some of

the areas. Not necessarily the ones that are doing contracting with

you, but in order to be able to see if it is fair that these waivers

are appropriate or not?

Mr. ARAGON. We consider each of the waivers on a stand alone

individual basis. While I cannot tell you with direct knowledge that

40

small business status is one of the checkmarks for somebody that

we can consult, I can tell you that the board has given very clear

direction to the person who oversees the labor program—— Mrs. NAPOLITANO. Do you have any kind of report that indicates

that to the board?

Mr. ARAGON. The number of small businesses that are affected?

That we have consulted with small business? I am not certain I understand your question, Congresswoman.

Mrs. NAPOLITANO. I am trying to figure out if these waivers have

any kind of checks and balances so that small business, and you

all know that most federal agencies have to meet a certain cap. In

other words, they are a percentage of meebe-weebe-deebies. Am I

correct?

Mr. ARAGON. You are correct.

Mrs. NAPOLITANO. Some of this is not happening supposedly, and

I am just wondering how you can help make sure and ensure, if

you will, that some of these areas are being looked at and not ignored.

Mr. ARAGON. I can tell you that the board is very vigorous in

paying attention to that.

Mrs. NAPOLITANO. Is there something in writing that tells what

their achievements have been so that we can understand that they

have at least attempted to do that?

Mr. ARAGON. As it relates to the waivers, I can—— Mrs. NAPOLITANO. As it relates to not only the waivers, but any

of the business that the board does approve.

Mr. ARAGON. I can tell you that I received some contract information for fiscal year 2000, the last complete fiscal year, that of

the 1,818 procurement actions over $25,000 that we had, 1,068 of

those purchases were with small businesses and minority owned

businesses.

Yes, we very carefully track that information, but I can give you

further details, Congresswoman.

Mrs. NAPOLITANO. I would prefer, Mr. Manzullo, Mr. Chair, if

some of that information were given to the rest of the Members of

this Committee so that we can all be aware that they are in effect

complying.

Chairman MANZULLO. If you would yield? If you could get us the

exact questions—— Mrs. NAPOLITANO. I will.

Chairman MANZULLO [continuing]. That you want answered,

then we will put those into one big letter and send it out.

Mrs. NAPOLITANO. Okay. The other one is, and I will go into the

advertisement. My understanding is I really do not know how

much money Unicor spends on advertisement and marketing in

say, for instance, last year.

Mr. ARAGON. I would like to get that technical answer from Mr.

Schwalb if I could.

Mr. SCHWALB. I would have to hazard a guess, and I would prefer to give you an exact answer in writing. I do not know.

Mrs. NAPOLITANO. Okay. I would like to see that and make sure

that we all have that. I will include that in one of my questions.

Chairman MANZULLO. If you would yield?

Mrs. NAPOLITANO. Certainly.

41

Chairman MANZULLO. You know, one of the reasons that we

asked FPI here is to have some balance and get some answers, but,

you know, the CEO of any company has at least a percentage estimate as to what they are spending on advertising. You have no

idea?

Mr. SCHWALB. If you want a wild guess or a ball park idea, I

would be happy to provide that. My estimate—— Chairman MANZULLO. It is Ms. Napolitano’s question. It is just

that we are at the point now where everything that we need we

have to send in a letter.

It is your question. I would—— Mrs. NAPOLITANO. No. Go ahead. You are doing fine.

Chairman MANZULLO. Please.

Mr. SCHWALB. It depends on how broadly we are going to define

the term. I would prefer to define it as broadly as possible to be

as responsive—— Chairman MANZULLO. Sure.

Mr. SCHWALB [continuing]. To your question. That includes our

staff, for instance, who go out and interact with customers and do

sales work. It would include contracts we have with companies that

do representation and sales and installation for us. It would include marketing brochures, website maintenance. I mean, there is

quite a category if you define it as marketing very broadly.

Chairman MANZULLO. Sure.

Mr. SCHWALB. All together, I am going to estimate that that number is probably $25 million or $30 million a year.

Chairman MANZULLO. Okay.

Mrs. NAPOLITANO. Great. You kind of alluded to some of the marketing materials you utilize. Do any of these consist of items given

to federal employees, such as notepads and pens and the like?

Mr. ARAGON. Yes. That is correct. We print calendars, notepads

that we distribute to employees.

Mrs. NAPOLITANO. Then that kind of begs the next question of

why does Unicor spend taxpayer dollars advertising when it is a

mandatory source? I mean, it is a monopoly, a source the federal

agencies are required by law to use. It seems like it is just an incredible taxpayer waste.

Mr. ARAGON. Well, from our perspective our advertising, our

marketing, is simply a method to educate our customers about

what products we have and—— Mrs. NAPOLITANO. But they have no choice. You are the only

game in town.

Mr. ARAGON. Actually, Congresswoman, there are choices. As I

said, we granted over 90 percent generally in a broad manner of

waiver requests that were given to us. One of the——

Mrs. NAPOLITANO. Would you tell me how this would educate

somebody about what you do, this notepad?

Mr. ARAGON. Actually, what we do in a circumstance like that is

again creating jobs to not impact the private sector. We need pads

to write and figure, you know, as any business does. If we print

them ourselves, then it is not a product that we are going to have

to, you know, procure from the outside. We are saving money.

Mrs. NAPOLITANO. I just feel that this is not really what our taxpayers’ dollars should be going to to provide somebody else with

42

the name of U.S. Department of Justice Unicor and a calendar

when like we use one plain piece of paper if this is what we need

to advertise on.

Mr. ARAGON. Congresswoman, actually what we are doing is we

are saving taxpayer dollars by printing those ourselves. You know,

frankly, the way I see it is that if we have a calendar on the piece

of paper that we are writing on we do not need to print the calendar as well.

Mrs. NAPOLITANO. But that is a waste of space, sir. Every day

the use of this is totally a waste of space. I will be submitting questions on that area.

Now, the next topic would be, of course, one of my favorites, education and training. You answered some of the questions that Mr.

Issa had left in regard to what you are or are not doing.

I have long been a proponent that somehow when we incarcerate

we are being punitive. We are not being restorative. Although I

agree there should be maybe some funding from Education or

Labor or other agencies to be able to promote the education of the

incarcerated since most of them do not have a high school diploma

at best is that we, and I agree with the joint venture idea that we

need to begin to be a little more proactive in ensuring that some

of the folks that we turn lose have at least the ability to go out and

seek a job if not from Unicor, from other agencies that they may

be able to be successful in doing so.

Now, I am not sure whether anybody has looked at it, whether

your board has considered it, whether there has been any dialogue,

but it is very seriously an idea that I think we need to begin to

look at is making sure that while these people are incarcerated

they are a captive audience that we need to make sure that somehow we get education to them available to them and even maybe

mandating so that these folks, when they leave, are able to sustain

their families and themselves.

Now, would you answer?

Mr. ARAGON. Yes, Congresswoman. Actually, I appreciate you

saying that because that is where Unicor really believes that we do

probably the most public good in everything, all the work we do,

is that typically inmates who come in the federal system have very,

very low educational skills, so Unicor, as the most preferred job in

the institution, we require inmates to get a GED or GED equivalent before we even will hire them.

There is a huge motivation for an inmate to at least get to that

educational level to even be eligible for a Unicor job. That is something that the board has been very focused on doing.

As Congressman Issa was speaking of before he left, one of the

other important pieces of what Unicor does is the long-term inmates that, yes, we do employ in our factories, inmates who come

to our institutions typically do not have work skills. They do not

know how to get up in the morning and go to work and perform

a good, honest day’s work.

If they do not get up and come to work or they get in trouble in

the institution, they lose their Unicor job, so there is a huge incentive for the inmate to continue their education.

Mrs. NAPOLITANO. I am glad to hear that. I am very happy to

hear that, but that does not really answer my question of how

43

many people you are working with to be sure that you are allowing

them or helping them get the GED and even beyond that because

we should not stop there.

Mr. ARAGON. No. Unicor—in fact, the nature of the organization

is Mr. Schwalb is not only the chief operating officer for Unicor, but

he is also the person with program responsibility in the federal

prison system over education and training because we believe there

is a very close correlation between training opportunities and education.

Mr. Schwalb, can you—— Mrs. NAPOLITANO. As you go through that, you also made reference that Unicor does employ some of the people leaving prison,

but you do not have any kind of hands-on of how many you employ

or where they are coming from. That kind of leaves it quite open.

Do you provide those employees any other assistance for education?

Mr. ARAGON. Actually, perhaps I mis-spoke earlier to the Congresswoman’s question. We do not employ inmates once they leave.

What that discussion involved was that our inmates are employed when they leave federal prison with people who are manufacturers of the same product they do internally. Once an inmate

is released, we do not track them to know.

Mrs. NAPOLITANO. Can you give us some figures of what businesses employ them or names of the businesses?

Mr. ARAGON. Absolutely. I can tell you that I am one of them.

I have employed Unicor people in my business who are federal inmates who were released.

Mrs. VELA ́ ZQUEZ. Would the gentlelady yield?

Mrs. NAPOLITANO. I would yield.

Mrs. VELA ́ ZQUEZ. You said that in terms of work ethics. I want

to know what type of incentive would you provide for this inmate

to get up and go to work?

Mr. ARAGON. What do we provide?

Mrs. VELA ́ ZQUEZ. At Unicor, yes.

Mr. ARAGON. Well, the incentive is that if they do not get up and

come to work at Unicor, they lose their Unicor job. That means

that——

Mrs. VELA ́ ZQUEZ. How much do you pay? What is the average

wage?

Mr. ARAGON. Well, the average wage goes from—I do not know

what the average wage is, but it goes from 25 cents an hour to

$1.18 an hour.

Mrs. VELA ́ ZQUEZ. That is a great incentive.

Mr. ARAGON. Congresswoman, they send much of that money

that the inmates earn. Half of that money goes to victim restitution, which is a huge contribution to society. The rest of that money

they use. They send home to their families, you know, families who

are now without a father or a mother, so it is a substantial amount

of money.

Mrs. VELA ́ ZQUEZ. Yes, sure. It is a lot of money that the victims

are getting from those inmates.

Mr. ARAGON. How much is it, Mr. Schwalb?

Mr. SCHWALB. Last year it was about $2.5 million for the victims.

Chairman MANZULLO. Is there any withholding done?

44

Mr. ARAGON. No, there is not.

Chairman MANZULLO. Nothing? I guess why have social security

if you are a lifer. You know, that really would not make sense.

Well, you could have children.

Mr. ARAGON. Ninety-five percent of inmates who are in institutions return to the community at some point, Mr. Congressman, so,

you know, the term lifer. Yes, we have a lot of people doing a lot

of time, but that is the point about Unicor is that ultimately a lot

of those people come back into the community.

Chairman MANZULLO. The goal then is to have people who

worked in a certain area at Unicor once they leave prison go out

and perhaps become employed or set up a business whose skills

were learned in prison. Is that correct?

Mr. ARAGON. That is correct. And work habits and those sorts of

things.

Chairman MANZULLO. Now, my understanding, and you can correct me if I am wrong, is that several small businesses were started by ex inmates in the process of furniture installation, office furniture, or they worked for small businesses that did installation.

Mr. ARAGON. I would say that is accurate. Earlier Congressman

Hoekstra referred to the person, Chuck Colson, who was one of our

inmates, who founded Federal Prison Industries.

By the way, they do not support H.R. 1577 because they believe

it will be detrimental to helping ex offenders in society.

Chairman MANZULLO. Well, the prison guards do. If this is your

goal to have people who do that same type of work, learn that type

of work in prison, get on the outside and then set up their own

businesses or go to work for people that do that same type of work,

then why did FPI bundle all of your installation work and give one

prime contract to GMG? You put a lot of ex prisoners whose skills

had been learned in prison out of work.

Mr. ARAGON. I would disagree with the latter part of your statement. I would not say that we put ex inmates out of work. I would

actually—— Chairman MANZULLO. That will be the next hearing because the

next hearing will be on contract bundling. You will be there, and

right next to you will be a prisoner who learned a skill in prison.

Then he got out, and because of contract bundling with FPI the job

that he learned in prison during which time he displaced people

like these, once he.

Why not, Mr. Aragon?

Mr. ARAGON. There certainly is a way for dealers to interact. We

have dealers interact with us all the time, Mr. Chairman.

Chairman MANZULLO. Do you answer their letters?

Mr. ARAGON. Oh, absolutely. Absolutely.

Chairman MANZULLO. Mr. DeGroft?

Mr. DEGROFT. The way we work with our customers when we

talk about these waiver forms and so forth, we are——

Chairman MANZULLO. Could you explain what that waiver form

is? Who is waiving what?

Mr. DEGROFT. We are put in a position, if I can tell you a little

bit of the whole story——

Chairman MANZULLO. Go ahead. Explain that.

Mr. DEGROFT. We are put in a position where——

45

Chairman MANZULLO. Mr. Votteler, if you want to jump into this

because you talked about the waivers also.

Mr. DEGROFT. As a salesperson, a customer comes to us and asks

for information. A federal customer comes to us and wants us to

do something. We are put in a position of having to explain our

competition to our customer.

Mr. Customer, do you know that you probably cannot buy anything from me? When it comes time to place a purchase order,

sooner or later these guys, Unicor, are going to step in and take

the order.

Then the customer comes back. In this case, let us say it is the

Air Force because that is who we work with in New Mexico a lot.

The customer comes back and says do not sweat it. We can handle

that. We want to buy your merchandise. We can get the waiver.

We go through all the selling process of design specification, pricing, and so do probably two or three other people in our town do

the same thing. That then gets submitted, and somewhere along

the line the customer, our customer, the federal agency that is buying, has to submit a waiver form to this group.

Chairman MANZULLO. To FPI?

Mr. DEGROFT. Yes.

Chairman MANZULLO. And FPI has to sign off—— Mr. DEGROFT. On the waiver form—— Chairman MANZULLO [continuing]. To allow the federal government to buy from you?

Mr. DEGROFT. Right. On the waiver form it says—— Chairman MANZULLO. So they control the whole flow of sales?

Mr. DEGROFT. On the waiver form it says price, availability, suitability of product or delivery are not good excuses for asking for a

waiver.

Mr. ARAGON. Mr. Chairman, we approved $450 million in waivers last year, 90 percent of the requests. As I—— Mr. DEGROFT. It must have been somewhere else.

Chairman MANZULLO. That is 90 percent of your business was

waivers.

Mr. ARAGON. I am sorry?

Chairman MANZULLO. I have it here.

Mr. ARAGON. No. $450 million of business we could have had, but

we waived because the customer, the Air Force or whoever it happened to be, requested it.

As I said earlier, in the area of the electronic connectors we have

never denied a waiver. If the customer says we want to buy from

this company, we have never denied that opportunity.

Chairman MANZULLO. Ms. Gentile or whoever, go ahead.

Ms. GENTILE. Yes.

Mr. DEGROFT. If you will let me finish?

Chairman MANZULLO. I am sorry.

Mr. DEGROFT. When that waiver is sent in, it is sent in by the

buying agency, the request for a waiver. It sometimes comes back

very quickly. Sometimes it comes back in a month, you know, but

we are out of that loop.

As the dealer, they are not asking us any questions about our

stuff, and so it will come back either refused or in the case of the

Air Force, the last one, I was refused on.

46

Chairman MANZULLO. Then who signs the waiver, FPI?

Mr. DEGROFT. No. The waiver is either approved or denied by

FPI.

Chairman MANZULLO. By FPI.

Mr. DEGROFT. Solely by FPI.

Chairman MANZULLO. Is there any review of that process?

Mr. ARAGON. Yes, there is, Mr. Chairman. The waivers initially

go to product managers in that particular field, so it is the furniture people. If it is a furniture issue, it goes to the manager of

that particular area.

Chairman MANZULLO. This is an internal review?

Mr. ARAGON. Then if that person does not waive it, and, as I say,

90 percent of the time we waive the right for them, the government, to buy from anybody, but then if in fact we deny the waiver

for whatever reason then it goes to our ombudsman, who is a person with ultimate responsibility for making the decision on whether the appeal is supported or denied.

Mrs. VELA ́ ZQUEZ. Mr. Chairman, who appoints the ombudsman?

Mr. ARAGON. It is appointed by the chief executive officer, so it

is a staff member. It is not——

Mrs. VELA ́ ZQUEZ. It is one of you guys?

Mr. ARAGON. Congresswoman, I had not finished the last response.

Then if in fact that person denies the waiver again, the customer

has the opportunity to go to the next level, which is outside our

agency. It is something that this board, under my direction, created, and that is a review panel of three experts in the business

of government contracting, somebody from GSA, somebody from

Department of Defense and somebody from Justice Department.

Those are independent people who——

Chairman MANZULLO. But they are all government employees.

Mr. ARAGON. Well, sir, government employees in this organization do a tremendous job. They are very professional.

Chairman MANZULLO. I am not saying that.

Mr. ARAGON. Those people, though, review that waiver process

independent of our control, and they have the final authority. Of

the three times—well, I do not want to give you——

Chairman MANZULLO. Is the SBA represented?

Mr. ARAGON. The SBA is not on that committee.

Chairman MANZULLO. Well, they should be.

Mrs. VELA ́ ZQUEZ. The Small Business Administration is not?

Mr. ARAGON. Well, we certainly can entertain that, Congressman.

Chairman MANZULLO. Mr. DeGroft?

Mr. DEGROFT. I just have to respond to that. I do not know

where the 90 percent of the waivers that are granted are granted

because they are not granted in New Mexico.

Chairman MANZULLO. What has been your experience?

Mr. DEGROFT. Well, when I——

Chairman MANZULLO. Give us a real life experience.

Mr. DEGROFT. A real life experience is——

Chairman MANZULLO. A real life contract that you had and you

lost.

47

Mr. DEGROFT [continuing]. With the Air Force a $20,000 quote

for computer furniture for Kirtland Air Force Base comes back, and

I get three chairs. The rest of it is taken by Prison Industries.

Now, on paper this sounds wonderful that there is this appeal

process and everything, but the customer is cowed by the

process—— Chairman MANZULLO. How long do they wait?

Mr. DEGROFT [continuing]. Once he finds out that there is this

waiver process. You know, these customers are not buying furniture a year from now. They are probably buying furniture they

need next month.

All of a sudden all this process starts going, you know, of you

have to do this and you have to do that and you have to see the

ombudsman and all that stuff. They do not love me. I mean, they

are not my brother that is doing this, so they just cave in.

Chairman MANZULLO. Ms. Gentile, you wanted to interject something?

Ms. GENTILE. Yes. I would like to challenge the waiver process. If you take the 235 part numbers that are going to equal $5 million

over a five year period, we have never been solicited on the contract because they have a price list from Federal Prison Industries.

I would like to have my company have the opportunity to quote

those and then have a waiver granted by FPI on 235 parts that are

directly going to impact three small businesses that are listed on

a QPL that only has five.

Federal Prison Industries teamed with a large business manufacturer. I have several examples right here on that exact thing. Two

hundred and thirty five pieces. I bid $11. Federal Prison Industries

bid $19. Federal Prison Industries was awarded that product. Did

you waive that product? I have been told by DLA that for every

case they have to have a waiver.

Chairman MANZULLO. Well, DLA is their friend after you see

what happened with that last mess that we had with this four and

a half hour hearing. I think somebody retired as a result of that

hearing. Two people retired in fact.

Do you know what happened as a result of that last hearing we

had with the berets?

Ms. GENTILE. Yes.

Chairman MANZULLO. Do you know that foreign procurement of clothing has come to an end? That is 23 percent of $40 billion. That

is not bad for a day’s work, is it Mrs. Velazquez?

Mrs. VELA ́ ZQUEZ. Yes.

Chairman MANZULLO. You were never solicited for orders on

that?

Ms. GENTILE. Mr. Chairman, on this it is a mandatory set aside

for Federal Prison Industries. These 235 parts—we have never

been solicited in a bundle of the 235 parts.

Chairman MANZULLO. That would be Congress’ fault because of

the set aside, and they are using that to fulfill their statutory——

Ms. GENTILE. Absolutely, but that will definitely displace us.

Chairman MANZULLO. Okay. We cannot blame that one on Mr.

Aragon. He is getting enough grief.

Mr. ARAGON. Congressman?

Chairman MANZULLO. Yes, please?

48

Mr. ARAGON. With what I just heard with that price example,

had a waiver request been processed that is a valid reason for

granting a waiver. I can tell you also—— Chairman MANZULLO. Because FPI would be higher?

Mr. ARAGON. There is a variety of considerations, but also I

heard earlier in the testimony about how burdensome the waiver

process is. Four days. Four days the customer has their response

yes or no on an average with a waiver request. It is very important

that we process them immediately so that we are not leaving people waiting.

Mrs. VELA ́ ZQUEZ. Mr. Aragon, you mentioned before that 90 percent of the waivers had been granted.

Mr. ARAGON. Requests requested are granted.

Mrs. VELA ́ ZQUEZ. Of that, how many waivers were granted in the

furniture industry?

Mr. ARAGON. I could not tell you that statistic off the top of my

head, but I can certainly get it for you. I will also say that it probably tracked the amount of business that we do in that area. It is

about 40 percent of our business. We get a lot of waiver requests

in the furniture area.

The way it typically happens, Congresswoman, and some of the

gamesmanship that occurs in this process is the customer, as was

testified to earlier, the customer, the Air Force, says I want to buy

these chairs. The dealer, the person who wants to sell the chairs,

will say okay. You have to ask for this kind of chair because if it

is that kind of chair Unicor gets it. We have to figure out how we

can specify a chair that Unicor does not carry so they can get

around the ordering process.

Then that generates typically a waiver request. They say we will

send in a waiver request. Even then, even under those circumstances, 90 percent, $450 million in business last year, we

waived. Never have we not issued a waiver on electrical connectors.

I suspect these parts that were just testified to, they could have

sold those parts if the process had been followed.

Mrs. VELA ́ ZQUEZ. Mr. Votteler, how does 90 percent sound to

you?

Mr. VOTTELER. I do not know. It sounds a little high to me. I was

not aware of the three person panel that the decision on the waivers could be taken to if the ombudsman—basically FMA’s position

has been that the ombudsman thing did not work because the ombudsman is an employee and a senior person with FPI, so they are

not very likely—— Mrs. VELA ́ ZQUEZ. Mr. Aragon, would you please——

Mr. VOTTELER [continuing]. To be unbiased, but my own personal

experience has been that there are a lot of waivers processed and

granted, but it is also a time consuming process, and why would

we have to go through the waiver process.

Managers do not like having to add in time and then not knowing. Basically it is unilateral, at least it has been in the past. What

I am hearing is it is no longer that way.

Chairman MANZULLO. Could you yield?

Mrs. VELA ́ ZQUEZ. Sure.

Chairman MANZULLO. My understanding is the Air Force wants

to buy this office furniture. The people that have the first shot at

49

furnishing it are FPI, and then FPI has to sign off on it. Okay. Is

there a set aside? You have a preference, not a set aside. Is that

correct?

Mr. ARAGON. That is correct, Congressman.

Chairman MANZULLO. So it is a mandatory preference regardless.

Mr. ARAGON. Yes, and the contracting officer for the Air Force

should not be speaking to those folks if we manufacture the product. They should be saying okay, Unicor, I have this order. This is

what it is. We would say okay within four days, you know, get it

someplace else.

Chairman MANZULLO. So you control the gate on all the sales?

On all federal sales, you are the gatekeeper?

Mr. ARAGON. No. No, that is not accurate, Congressman. Not on

all federal sales. For sales in areas where Unicor has mandatory

source, the preference, and products that we manufacture.

Chairman MANZULLO. What would those areas be, Mr. Aragon?

Mr. ARAGON. Well, the products we manufacture.

Chairman MANZULLO. Whatever you manufacture, a federal

agency must buy that from you unless you waive and tell them to

go somewhere else?

Mr. ARAGON. Unless we tell them they can, yes. In fact, one of

the things that Unicor does as a public service and one of the reasons we are so valuable to many of our federal customers is that

there are a lot of products like products that a manufacturer on the

private sector does not manufacture like battle helmets. You know,

they cannot keep a business operating to manufacture helmets for

the Army and sell them, you know, and have a viable, ongoing

business.

We maintain capacity at Unicor so when the Army needs helmets

we make helmets. We have that capacity in numerous products.

Mrs. VELA ́ ZQUEZ. This is my time so, Mr. Aragon, let us talk

about the products that you manufacture, but also other small

businesses manufacture as well.

Mr. Votteler, what has been your experience? Have you had any

direct experiences with lesser quality products coming from and

provided by FPI?

Mr. VOTTELER. My own personal experience is the one product in

the past, and they are no longer in the business of making shoes,

but it was footwear. We used to be required to purchase safety

shoes from Federal Prison Industries.

Employees would continuously complain of the feet and have foot

problems as a result and eventually—they are no longer made. As

far as I know, I do not think FPI is in the footwear business. That

has been some time ago.

There have been complaints. The main complaint was in delivery

time, I guess, from managers that have talked with me on getting

delivery.

Mrs. VELA ́ ZQUEZ. Mr. DeGroft, will you please tell us more about

what happened in New Mexico? What was the situation like before

the law was changed, and how do things work now since the law

has changed?

Mr. DEGROFT. Well, about ten to 12 years ago the New Mexico

state legislature passed a law requiring that all state, city, county,

schools and universities in New Mexico must buy from New Mexico

50

Corrections. You may or may not be aware that many states have

their own programs such as modeled after an FPI type standard.

For us, the dealers in New Mexico, this was an instantaneous

stop to a tremendous amount of business. Myself and three other

dealers hired a lobbyist—we spent $14,000 of our own money to do

this—and went up to the legislature to try to get a change.

The biggest thing that we tried to do is we removed the mandatory status on the bill and said that they may buy prison industry

furniture or prison industry product if they chose to. They may, but

they do not have to.

The secondary item was that we wanted to have whatever they

made at least 50 percent really manufactured by inmate labor.

When we talk about manufacturing, I think we have a little problem here with the definition of what is manufacturing. Bolting an

ergonomic chair together that comes out of the box in three pieces

is not manufacturing. That is what they do. That is what New

Mexico was doing as well in some categories of products. We said

we cannot have you just be assemblers.

So we did that, and then the third part was it is funny how this

whole thing is tracking because New Mexico Prison Industries

began getting space at the state fair to show their products, and

then they leased space in downtown Albuquerque beginning to

open a retail operation to sell furniture. That is when we were able

to get it stopped.

Now, we had all of the same arguments there that we do here

about what are we going to do about prisoners? Everybody is going

to go broke, and there is not going to be anything for the prisoners

to do.

I am very happy to report there are 400 inmates right now working in New Mexico making furniture and other types of products.

We get along extremely well. We do not necessarily run into each

other very much at all. The system works.

They have had to, by virtue of being forced to, be a free enterprise agent, they are being forced to make better products and respond more timely to their customers and so forth. It has been a

very workable situation.

Mrs. VELA ́ ZQUEZ. Mr. Aragon, does Unicor manufacture or assemble?

Mr. ARAGON. We are manufacturers, and some of the work we do

is assembling, much as the work done by Americans across the

country.

Mrs. VELA ́ ZQUEZ. Tell me how much is manufacturing, and how

much is assembling?

Mr. ARAGON. As I said earlier——

Mrs. VELA ́ ZQUEZ. You do not know?

Mr. ARAGON. As I said earlier, less than one percent of the products we made last year you could characterize as pass through kind

of work.

In those cases, typically in those very rare cases where that occurs it is because we are trying to provide a service to a customer.

The agency wants a product. We do not happen to have the capacity to get that product, but they need it immediately. They utilize

our source to get it, and they are getting it from people who manuVerDate 11-MAY-2000 14:59 Dec 26, 2001 Jkt 076147 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 E:\HR\OC\A147A.XXX pfrm11 PsN: A147A
51

facture it who are small businesses and women owned businesses,

et cetera.

Mrs. VELA ́ ZQUEZ. Mr. Chairman, I have a problem here, and that

is that he could come before us and tell us about one percent and

a 90 percent waiver and so on. You know, how can we have a vehicle in place where—— Chairman MANZULLO. To find out?

Mrs. VELA ́ ZQUEZ. Yes.

Chairman MANZULLO. We could take his deposition under oath.

Mrs. VELA ́ ZQUEZ. Mr. Votteler and Mr. DeGroft and Ms. Gentile,

do you agree that it is just one percent based on your own experience?

Mr. ARAGON. Do you know what they are speaking of? One percent of products that we do not manufacture the product in prison,

the assembled product. That is the one percent.

Mr. DEGROFT. Of the $550 million worth of product, one percent

is not manufactured by you?

Chairman MANZULLO. Do you mean it is pass through or drive

by manufacturing? Is that what you are saying?

Mr. ARAGON. That is the question that was on the table earlier

where the one percent came in in the furniture area. Yes, sir.

Chairman MANZULLO. How do you define manufacturing versus

assembling?

Mr. ARAGON. Well—— Chairman MANZULLO. I mean, when it comes to a chair, you got

three chairs?

Mr. DEGROFT. Three chairs out of a $20,000 quotation.

Chairman MANZULLO. All right. FPI got the rest?

Mr. DEGROFT. They got the rest.

Chairman MANZULLO. How do you manufacture an office chair?

What do you do?

Mr. ARAGON. Well, I can tell you because the board goes to factories. Every other board meeting we are physically in the factories

watching them. A chair—— Chairman MANZULLO. At the prison?

Mr. ARAGON. At the prison. Absolutely.

Chairman MANZULLO. Okay.

Mr. ARAGON. We manufacture a chair just as I guess everybody

else manufactures it.

Chairman MANZULLO. Do you stamp the metal?

Mr. ARAGON. We stamp the metal. We do the molds. We cut the

material. We manufacture a chair exactly the same way as another

chair manufacturer except we use a lot more inmates doing it.

Chairman MANZULLO. Do you import any raw materials?

Mr. ARAGON. I do not believe we do.

Mr. SCHWALB. Mr. Chairman, the only example I am aware of is

a postal bag we make for the post office, which has a specification

that is only provided from India. It is a raw material. That is the

only one I can think of off the top of my head. Typically we are—— Chairman MANZULLO. What about steel? Where are your sources

of steel? Do you use American steel or imported steel?

Mr. SCHWALB. We use American.

Chairman MANZULLO. Is that part of the FPI mandate that you

use American products in it?

52

Mr. SCHWALB. We are a federal agency in that respect. We follow

the same procurement guidance as any other agency would.

Chairman MANZULLO. I understand. I have no further questions.

Do you have questions?

Mrs. VELAZQUEZ. Thank you.

I just want for the record to reflect that the other witnesses do

not agree with the one percent that was stated before by Mr. Aragon, and I guess we need to reconcile this type of information.

Let me just say to the small business people that are here I

know that you are frustrated with this hearing today, but I just

want for you to keep hope alive. I promise you that we are going

to be dealing with this issue.

We all are aware that small businesses are hit by the federal

government when it comes to federal contracting opportunities.

They do not achieve the goal, the statutory goals. We are going to

be dealing with contract bundling. We are going to be holding hearings on contract bundling. Not only are you affecting and impacting

small businesses by going into areas and expanding those areas

that affect small business people in our country, but also you are

into the practice of contract bundling.

The problem that we have with you is that apparently there is

not oversight, you know. You have a panel review, a review process

to either accept or deny a waiver, but you are policing yourselves.

You have your own people telling you yes, you should do this. What

do you think they are going to do? They are going to go with you.

They are not going to go with a small business.

Mr. Chairman, we have to work together in drafting legislation

that will bring some fairness and equity into this whole dynamic

of the FPI and small businesses in our nation.

Thank you.

Chairman MANZULLO. I appreciate those statements.

Let me thank the witnesses, those of you who came a great distance.

Mr. Aragon, I want to thank you for your candor. You have been

put in a tough position, and you have told us what you know. What

you do not know you told us you did not know, and I appreciate

the fact that you have been totally up front with this Committee.

Any lack of information that you have is a matter of the institution with which you work and not a matter of lack of credibility or

sincerity on your part. I want to thank you——

Mr. ARAGON. Thank you, Mr. Chairman.

Chairman MANZULLO [continuing]. For standing up very well

under a lot of excitement.

We are very zealous when it comes to representing small businesses. We are both products of small businesses. That is where

our hearts are. We deal with a tremendous number of small businesses around the country that have been hit very, very hard, and

if there is any way that we offended you by our zeal to do our job,

I would ask your forgiveness for that right now.

I also want to take you up on your offer to be able to have a

transparent relationship, to sit down in areas of concern. One of

the things that I would encourage the members of the panel and

any people here in this room is I think it is a shame that you

53

would have to go through Freedom of Information requests to get

information from a government agency.

We have I think six lawyers on staff on our Small Business Committee. We also have the Office of Advocacy within the Small Business Administration. It was that Office of Advocacy acting on behalf of Mrs. Vela ́zquez and me that stopped the Air Force from ordering 104,000 baseball hats from a Chinese firm. That is when the

Air Force decided to get together with the Government Printing Office to do their procurement. Evidently the Air Force thought that

hats were printed and not manufactured.

We have an in-house law firm with the SBA. We would be willing to work with you on that. I do not want to see any witnesses

coming in here again and having to testify that they had to use

Freedom of Information. If you cannot get the information that you

want, you come to us. We will get it from Prison Industries. If it

is not forthcoming, I have no hesitancy to issue a subpoena.

Again, we want to thank you for coming. I appreciate it very

much.

This Committee is adjourned.

[Whereupon, at 1:25 p.m. the Committee was adjourned.]

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196