United States General Accounting Office

GAO Report to Congressional Requesters

March 1998 FEDERAL PRISON

INDUSTRIES

Limited Data Available

on Customer

Satisfaction

GAO/GGD-98-50

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-278287 

March 16, 1998

The Honorable Peter Hoekstra

The Honorable Mac Collins

The Honorable Roscoe G. Bartlett

The Honorable Nathan Deal

House of Representatives

This report responds to your July 8, 1997, request for information on

whether Federal Prison Industries (FPI) collects and maintains data that

would enable it to make reliable, generalizable statements about the

satisfaction of its federal agency customers with respect to the quality,

cost, and timely delivery of FPI’s products. Specifically, you wanted us to

determine (1) if FPI has data, either from its management information

systems or other sources, to support overall conclusions about how

federal customers who buy and use its products and services view their

timeliness, price, and quality; and (2) whether agencies that are among the

largest buyers of FPI products and services monitor FPI’s performance the

same way they do commercial vendors in terms of timeliness, price, and

quality. Federal agencies are generally required to buy FPI products, but

not services, because under 18 U.S.C. 4124 FPI is a mandatory source

supplier.

You requested this review to determine if FPI had data to support

statements made by its senior management officials at congressional

hearings and elsewhere regarding federal agency customers’ high level of

satisfaction with FPI’s products and performance, given that some private

sector and federal government personnel made sharply contrary

statements. You also wanted to determine whether FPI’s statutory status as

a mandatory supplier to the government caused federal agencies to

develop and use past performance information about FPI differently from

how the agencies used information about private sector government

contractors.

To meet these objectives, we interviewed FPI officials and gathered

information on their customer satisfaction efforts at FPI in Washington,

D.C. We also met with officials at FPI’s Customer Service Center in

Lexington, KY and the Office of Federal Procurement Policy (OFPP); and

spoke with officials at five of FPI’s major customer agencies—the Defense

Logistics Agency (DLA); the General Services Administration’s (GSA)

Federal Supply Service (FSS) in Arlington, VA, and Fort Worth, TX; the

Department of the Army’s Office of the Assistant Secretary of the Army for

Research, Development, and Acquisition in Falls Church, VA; the Social

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Security Administration (SSA) in Baltimore, MD; and the United States

Postal Service (the Postal Service) in Washington, D.C. In addition, we

reviewed key laws and regulations, such as the Federal Acquisition

Regulation (FAR) pertaining to procurement from commercial vendors and

FPI, especially in relation to vendor performance. We also reviewed

selected literature on customer satisfaction and compiled information on

selected private and public sector organizations’ efforts to gather and use

customer satisfaction information. We did not assess FPI’s overall efforts to

promote customer satisfaction, such as resolving complaints; nor did we

assess customer agencies’ efforts to award and administer vendors’

contracts.

We did our work between July 1997 and January 1998 in accordance with

generally accepted government auditing standards. Appendix I provides a

detailed discussion of our objectives, scope, and methodology. We

requested comments on a draft of this report from the Director, Bureau of

Prisons (BOP). These comments are discussed near the end of this letter

and are reprinted in appendix II. We also held exit conferences with

program officials of the other federal agencies to verify applicable data

and facts presented in the report.

Results in Brief FPI has been the subject of substantial debate over the years, much of

which has centered on the timeliness, price, and quality of its products.

Missing from this debate have been convincing data that show whether

federal customers who buy and use FPI products and services are satisfied

with FPI’s performance. Although FPI says that it is committed to delivering

total customer satisfaction, it lacks sufficient data that would allow it to

make overall conclusions about whether federal customers are satisfied.

FPI has a variety of management information systems that, among other

things, allow it to track customer orders and react to complaints.

However, FPI does not have a systematic or structured process for

collecting and analyzing customer satisfaction data so that conclusions

can be drawn about customer satisfaction. FPI’s efforts to gauge customer

satisfaction have been limited to relying on narrowly scoped customer

surveys as well as other efforts, such as customer advisory group sessions

and trade shows held once or twice a year to obtain, among other things,

feedback from customers. Our work showed that although these efforts

may provide FPI with some insights about a particular problem, data are

not systematically compiled and used to improve performance and are

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insufficient for supporting overall conclusions about whether federal

customers are satisfied.

Without convincing data on customer satisfaction, FPI (1) remains

vulnerable to assertions by its critics that federal customers are

dissatisfied and, in turn, should no longer be required to buy FPI products;

and (2) may miss opportunities to improve its operations by having better

data on how federal customers view its performance in the areas of

timeliness, price, and quality. Furthermore, FPI’s lack of a systematic

approach for collecting these data appears inconsistent with

contemporary management principles used by both public and private

sector organizations. These principles focus on reaching out to customers

to improve performance, accountability, and results, as well as using

customer satisfaction as a measure of organizational performance. Some

organizations, such as the Postal Service, systematically collect customer

satisfaction data to measure and improve performance.

Regarding agencies’ efforts to monitor FPI performance, major customer

agencies that we contacted—DLA, FSS, Army, SSA, and the Postal

Service—said that they consider price when awarding contracts and

monitor factors like quality and timeliness while administering contracts

for all vendors, including FPI. As part of this process, the agencies said they

also scored or rated the overall performance of many of their commercial

vendors while administering contracts. In addition, DLA, FSS, and the Postal

Service also developed performance ratings of FPI. According to agency

procurement officials, regardless of the type of vendor, contracting

officers have discretion when considering timeliness, price, or quality

while awarding or administering a contract.

It should be recognized, however, that the contracting officer’s leverage in

resolving procurement problems is different for FPI from the leverage the

contracting officer has for private sector vendors since the rules that

typically govern contracts with private sector vendors do not apply to FPI.

In this regard, on September 13, 1993, the Acting Attorney General issued a

legal opinion that held that FPI, as a seller of goods to the federal

government, is not covered by the FAR and must be treated under its

authorizing legislation and FAR Subpart 8.6. When agencies do develop

varying types of information on current and past performance of vendors,

including FPI, there are major distinctions in how agencies can use this

information. For example, in the case of a commercial vendor, all five

agencies can use current performance information to terminate a contract

for deficient performance and can use past performance information as a

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factor to consider in the award of contracts. In the case of FPI, with the

exception of the Postal Service, agencies cannot use current performance

information to cancel or terminate a contract with FPI unless agencies

request cancellation or termination provisions during the negotiation

process and FPI agrees to include them in the contract. According to FPI,

agencies can, however, use current performance information to seek other

remedies against FPI, such as fulfillment of lifetime warranties or damages

for late delivery. We did not determine the extent to which agencies seek,

or FPI agrees to authorize, these remedies; nor did we compare or evaluate

the use of remedies by contracting officers in connection with contracts

with FPI or commercial vendors.

Furthermore, agencies cannot use past performance information to deny

awarding a contract to FPI because, under the law, FPI is a mandatory

source of supply. However, at FPI’s discretion, agencies can use it to

negotiate with FPI on factors such as product quality or delivery time

frames, or to seek a waiver from FPI so that they can buy from a

commercial vendor that can better meet their quality or delivery

requirements. Under 18 U.S.C. 4124 (b) disputes regarding “price, quality,

character, or suitability” of products furnished by FPI are subject to

resolution by a high-level arbitration board made up of the Attorney

General, the Administrator of the General Services, and the President, or

their representatives. The Postal Service, which is exempted from most

federal laws dealing with public or federal contracts, is not required to buy

FPI products and can treat FPI like a commercial vendor.

Background FPI is a wholly owned government corporation managed by the

Department of Justice’s (DOJ) Bureau of Prisons (BOP). FPI was created by

Congress in 1934 and serves as a means for managing, training, and

rehabilitating inmates. Under the trade name UNICOR, FPI markets about 150

types of products and services to federal agencies. Products include

furniture, textiles, and electronic components. Services include data entry,

engine repair, and furniture refinishing. In fiscal years 1995 and 1996, FPI

had net sales of about $459 million and $496 million, respectively, in

products and services. In addition to buying products directly from FPI,

agencies buy FPI products from central supply agencies like FSS or, in the

case of the military, from DLA. FSS and DLA stock some FPI products for sale

to customers; FPI delivers other products directly to customers when

orders are placed with FSS or DLA. According to FPI officials, agencies

generally deal directly with FPI when procuring services.

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The FAR generally governs all acquisitions by executive agencies and

codifies policies and procedures for the federal acquisition system.1

 This

system is designed to satisfy the customer in terms of timeliness, price,

and quality by (1) maximizing the use of commercial products and

services, (2) using contractors who have a track record of successful past

performance or who demonstrate a current superior ability to perform,

and (3) promoting competition. The federal acquisition system is also

designed to minimize administrative operating costs; conduct business

with integrity, fairness, and openness; and fulfill public policy objectives.

As the primary document for the federal acquisition system, the FAR sets

forth the basic policies and procedures for making acquisition decisions

and administering contracts. For example, Part 9 of the FAR outlines

procedures for determining a prospective contractor’s ability to

responsibly provide products and services that meet specifications in a

timely fashion. Part 15 deals with contracting by negotiation, including

solicitation, source selection, and price negotiations with prospective

contractors; and, among other things, it outlines evaluation factors that

should be used during the selection process. In addition, Part 42 outlines

policies and procedures for administering contracts. More specifically,

Subpart 42.15 (1) establishes agency responsibilities for collecting and

maintaining contractor performance data and (2) states that past

performance information regarding a contractor’s actions under

previously awarded contracts is relevant for future source selection

purposes.

To attain certain public policy objectives, there are exceptions to the full

and open competition requirement of the federal acquisition system. One

of these exceptions is FAR Subpart 8.6 pertaining to acquisitions from FPI.

2

FAR Subpart 8.6 implements the law setting forth FPI’s status as a

mandatory supplier, which means that federal agencies are generally

required to purchase FPI products if they meet the buying agency’s

requirements and the prices charged do not exceed current market prices.3

If FPI cannot meet the buying agencies’ requirements, the FAR allows

1

The federal acquisition system consists of the FAR and agency acquisition regulations that implement

or supplement the FAR.

2

Other laws provide exceptions to the full and open competition requirements under the Competition

in Contracting Act (41 U.S.C. 253), which is implemented by the federal acquisition system. For

example, the Javits-Wagner-O’Day Act (41 U.S.C. 46-48(c)) provides an exception for acquisitions from

qualified nonprofit agencies employing the blind or severely disabled. These nonprofit agencies are

also a mandatory source of supply. In addition, Section 8(a) of the Small Business Act (15 U.S.C.

637) provides an exception for acquisitions through SBA with small disadvantaged business concerns.

3

See 18 U.S.C. 4124.

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agencies to seek a waiver from FPI.

4 FPI’s mandatory source status for

products does not apply to the services that it offers to its federal

customers.

Continuing Debate Over

Customer Satisfaction With

FPI Products

Over the years, supporters and critics of FPI have debated FPI’s mandatory

source status and whether FPI provides quality goods, at a reasonable

price, and on a timely basis. Both sides recognize that FPI has a social

objective to manage, train, and rehabilitate inmates through work

programs. However, some critics continue to question, among other

things, whether the products and services associated with FPI’s work

programs satisfy federal customers in terms of timeliness, price, and

quality and whether FPI’s mandatory source status results in unfair

competition with the private sector.

In the early 1990s, the Senate and House Committees on Small Business

held hearings on the effect of FPI on small business during which FPI,

non-FPI vendors, and Members of Congress debated FPI’s mandatory source

status and the impact of FPI on various markets. One of the issues that

arose during this debate centered on the timeliness, price, and quality of

FPI’s products and services. In particular, many of the non-FPI vendors and

some Members questioned whether federal customers as well as the

agencies they worked for, in general, were satisfied with the timeliness,

price, and quality of FPI products and services. More recently the Vice

President’s September 1993 National Performance Review (NPR) report

recommended, among other things, the elimination of FPI’s mandatory

source status in the face of agencies’ concerns about FPI product price and

timeliness problems. NPR stated that:

“The Federal Prison Industries’ (FPI) mandatory source allows FPI to counter the dangerous

effects of inmate idleness and to prepare prisoners for reintegration into society especially

considering the rapid growth of the Federal prison inmate population. However, Federal

agency dissatisfaction with the quality of FPI’s services requires significant and immediate

improvements in product delivery, and ultimately FPI should have to compete more like a

private supplier.”5

4

Because FPI is a mandatory source provider for items it produces, FPI’s customers are required to

obtain FPI’s written authorization for clearance prior to placing an order for a similar item through

outside sources. Federal agency customers can request a waiver by mail, electronically, or by

facsimile. The waiver request asks the customer to justify that the FPI product does not meet the basic

needs of the agency. Each request is evaluated on a case-by-case basis by FPI sales consultants, but

systems furniture waivers are handled by FPI’s systems project group. Waivers that are denied can be

appealed to the FPI ombudsman in Washington, D.C.

5

Reinventing Support Services, Accompanying Report of the National Performance Review, Office of

the Vice President, September 1993.

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NPR went on to say that: “Agencies have indicated that promised delivery

timeframes from FPI are already too long and generally unreliable.

Agencies also confirm that other sources can provide equal or better

products for less cost.”6

 To date, NPR’s recommendation related to FPI’s

mandatory source status has not been implemented. The Justice

Department favors maintaining FPI’s mandatory source status.

In June 1997, Government Executive published an article that, among

other things, discussed the questions raised by some agency and military

officials about the timeliness, price, and quality of FPI products.7

 In one

instance, the article cited a statement to the House Committee on National

Security from a Navy Master Chief Petty Officer who stated that FPI’s

“product is inferior, costs more and takes longer to procure. UNICOR has, in

my opinion, exploited their special status instead of making changes

which would make them more efficient.” In the same article, the Deputy

Commander of DLA’s Defense Personnel and Support Center, who wrote a

letter of complaint about FPI to a Congressman in May 1996, was cited as

saying that FPI’s prices were higher than commercial companies’ prices by

an average of 13 percent and “there is no practicable way to terminate a

contract or recoup monies that would normally be owed by a commercial

firm.”

FPI and its proponents have acknowledged that there may have been

problems with some FPI products in the past but claim it has made efforts

to improve its products and delivery performance. In discussing FPI

improvements, the Government Executive article cited the Deputy

Commander of the Army’s Family Support Center as stating that FPI is “as

reliable as any other vendor, and their prices are comparable or cheaper.”

Likewise, with regard to changes in the quality and timeliness of FPI

products, the article quoted a Navy contracting officer as stating that the

change “has been something akin to the transformation of the ugly

duckling into the beautiful swan.”

For its part, FPI maintains a folder of letters from contracting officials in

military and civilian agencies that commend FPI and describe their

experiences in dealing with it. FPI officials also provided copies of letters

from FPI customers to NPR that cited FPI for its improved service and

willingness to work with agency officials in delivering products and

services. For example, in a letter to the Senior Policy Advisor to the

President, the Commander of the Air Force’s 30th Contracting Squadron

6

Ibid.

7

Jeff Erlich, “Competing With Convicts,” Government Executive, June 1997.

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wrote: “In recent years, I have seen what I would term ’tremendous

efficiency improvements’ in the areas of delivery and customer service.”

Likewise, an Army contracting officer from the Aviation and Troop

Command said that:

“In my opinion, UNICOR has become more business oriented within the last couple of

years. Products have been modernized to compete with the open market. Delivery has

improved tremendously, to include a discount if the date is slipped. Services and the ease

of doing business with UNICOR . . . has far exceeded our expectations.”

In another letter, the Acquisition Chief of the Department of Veterans

Affairs’ Medical Center in Dallas wrote that FPI had taken actions to

improve things like responsiveness and customer service and many, but

not all, issues had been resolved. For example, the VA official stated that

delivery performance had been a problem, but FPI had taken steps to

improve its timeliness. In addition, he wrote that prices of some items,

such as furniture, had become competitive, but some items, such as

sheets, were still “overpriced.” In terms of quality, the VA official said that

“UNICOR chairs used to routinely break soon after they were put into

service [and] case goods such as desks routinely had Formica peeling off

the edges” and added that FPI “now makes a very durable chair line and

case goods that still look good even after many years of service.” The same

official praised FPI’s increasing emphasis on customer service and said that

“To truly finish the ‘remake’ of UNICOR that has begun . . . UNICOR should

become nonmandatory.” The official added that such a step would force

FPI to become competitive in all areas, not just in some areas.

According to FPI, it has implemented several initiatives to improve

customer responsiveness. For instance, during fiscal year 1996, FPI’s

annual report stated that FPI had initiated a lifetime guarantee on products

and services, opened a web site to advertise its products, and begun

accepting orders via the Internet. The annual report also stated that,

among other things, FPI reduced its average processing time on waiver

requests to less than 4 days, incorporated liquidated damages clauses into

contracts, and initiated automatic discounts for late delivery. FPI’s annual

report did not discuss, nor did we assess, the implementation or

effectiveness of these stated initiatives.

FPI Lacks Systematic

Data on Customer

Satisfaction

FPI states that it is committed to delivering total customer satisfaction and

has been satisfying federal customers since 1934. However, it lacks

sufficient data to support any overall conclusions about whether federal

customers who buy and use its products and services are satisfied with

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their timeliness, price, and quality. FPI’s management systems are not

designed to systematically collect and analyze federal customers’ views

about its products and services. Further, its efforts to gauge customer

satisfaction have been limited and do not allow for measurement of, or

overall conclusions about, customers’ views on its products and services.

Over the last several years, public and private organizations have

recognized the merits of systematically obtaining and using customer

satisfaction data to improve performance and adopting customer

satisfaction as a performance measure. In the absence of such data and a

related performance measure, FPI is unable to demonstrate with any

degree of certainty the level of customer satisfaction it delivers.

Furthermore, it (1) remains vulnerable to assertions by its critics that

federal customers are dissatisfied and, in turn, should no longer be

required to buy FPI products; and (2) possibly misses opportunities to

improve its operations by having better data on how federal customers

view its performance.

FPI Data Systems Not

Designed to Track

Customer Satisfaction

FPI has a variety of management information systems that, among other

things, allow it to track customer orders and react to complaints.

However, these systems are not designed to systematically obtain

feedback on timeliness, price, and quality from federal customers. FPI’s

Manager of Information Systems told us that FPI does not have a

management information system that tracks customer satisfaction.

According to this official, FPI’s complaint system comes the closest to

measuring customer satisfaction. This system records and tracks

individual complaints from customers for problems such as missing or

loose parts, quality defects, or missed delivery dates.

In addition to the complaints system, we noted that FPI has a system that is

used to record and track agency requests for waivers or clearances. As

mentioned earlier, the FAR requires that a federal agency obtain a waiver

from FPI before the agency can buy similar items from sources in the

commercial market. FPI has established the procedures for requesting

waivers, and cognizant FPI personnel initially consider the waiver request.

If the waiver request is denied, the agency’s next recourse is an appeal to

the FPI ombudsman. According to FPI, its waiver system, which we did not

assess, records various data, including the name of the requester; the date

of the request; a description of the item(s); the quantity, unit, and total

price of the item(s); whether the waiver was granted or denied; and

whether or not that decision was appealed. The database also categorizes

reasons customers’ waiver requests were granted—such as FPI being

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unable to meet the price range, deliver within required time frames, or

meet technical specifications or requirements; or denied—such as prices

are consistent with those of similar products offered through alternative

procurement sources, FPI offers comparable items that will meet required

specifications, or not enough information has been provided.

It is important to note that although the complaint and waiver data touch

on issues related to timeliness, price, and quality, using complaint and

waiver data as measures of customer satisfaction has major limitations.

First, FPI would have to know whether its federal customers are fully

aware of the complaint and waiver processes. Second, FPI’s federal

customers would need to use them in a reasonably uniform manner. That

is, FPI would have to be sure that federal customers who are dissatisfied

actually follow through by registering a complaint. In this regard, it has

been generally recognized in the business community that dissatisfied

customers often do not file complaints. Further, FPI would need to be sure

that contracting officers always seek a waiver when they believe FPI

cannot meet their price or delivery time frames—we are not aware of any

evidence that would suggest whether they do or do not. Finally, the

complaint and waiver processes are not designed to allow federal

customers to provide FPI with constructive feedback—information that it

could use to make improvements and help support conclusions about

federal customers’ satisfaction.

Although FPI’s systems are not designed to systematically obtain feedback

from federal customers, early in our work it appeared to us that data from

FPI’s customer order entry database (COED) could possibly be used as a

vehicle for obtaining federal customers’ views. The COED system, housed at

FPI’s Customer Service Center in Lexington, KY, is used to track agency

orders and to provide customers with information on the status of their

orders. We explored the possibility of conducting a generalizable survey of

FPI customers using data from COED. However, we discovered that the COED

data in its current form were insufficient for this purpose and that we

would have to identify customers for a survey on a case-by-case basis

using hard copy orders from the agencies. Even after examining some of

the hard copy orders, we often could not definitively determine the names

and addresses of individuals in federal agencies associated with the

orders, such as the procurement officers who signed them. In addition,

data on end users, or individuals knowledgeable of end users’ satisfaction

with the products—potential respondents for the quality dimension of a

survey—were generally not available in COED or identified in the product

orders.

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FPI officials acknowledged that information in COED in its current form is

not sufficient to use to identify federal customers who are the buyers and

users of its products and services. They said that identifying and

maintaining data on the end users of products would be difficult for any

organization selling to the government. Also, they said that end users

typically do not deal directly with FPI or other suppliers; others in the

procurement process often purchase and provide end users with the

products they use. Accordingly, FPI believes that identifying end users

would require cooperation from customer agencies, who would have to

devote time and resources to such an effort and may view it as overly

burdensome. Nonetheless, the Office of Federal Procurement Policy

(OFPP) has started to encourage agency contracting officers and program

officials to measure end user customer satisfaction when considering the

performance of their vendors. Furthermore, the FAR recognizes the

benefits of obtaining end user input on the performance of vendors in

providing products and services. Thus, regardless of the difficulty of

measuring the views of end users, there is growing recognition of the

importance of obtaining customer feedback as part of good business

practices.

During our review, we noted that FPI compiles various data from the

customer order entry system, as well as other systems, to monitor and

improve performance. FPI tracks operational information by product line

on such factors as sales and earnings, inventories, inmate staffing,

complaints, and order delinquencies for all of its production facilities or

factories. According to FPI, it uses these indicators to routinely evaluate its

performance on a real-time, week-to-week, year-to-year, and

factory-by-factory basis. However, none of these indicators provide

conclusive insights into customer satisfaction. Given the limitations

associated with using complaints as a measure of customer satisfaction

and the fact that FPI’s data systems are not designed to track customers’

views, FPI is not in as good a position to monitor customer satisfaction as it

is with other important indicators, such as sales.

FPI’s Efforts to Collect

Customer Satisfaction

Information Have Been

Limited

Over the years, FPI has relied on a variety of initiatives—at both the

headquarters and factory levels—to obtain limited feedback from federal

customers in general about its products and services. These initiatives

have involved meeting with top officials from FPI’s major customer

agencies, conducting limited surveys of federal customers, and discussing

problems with representatives of federal agencies at trade shows and

advisory group sessions. These efforts have given FPI some insights into

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how these federal customers may view a specific product or operational

process. However, the results have been too limited to reliably support

broad generalizations regarding whether federal customers who buy and

use FPI products and services are satisfied overall with FPI’s performance.

FPI officials acknowledged that their efforts to date have not yielded this

type of information and that such information would give them valuable

insights and help them improve their performance.

FPI officials told us that FPI has conducted some limited customer

satisfaction surveys and has other efforts planned or under way to obtain

information on customer satisfaction. FPI provided us with the results from

four surveys of selected customers that resulted from a 1996 customer

satisfaction survey plan it had developed. These four surveys obtained

customer views on FPI’s product catalog, the 800-number service used to

facilitate customer orders, trade shows, and the Allenwood line of FPI

furniture. Only the furniture survey, however, directly addressed issues

related to the timeliness and quality of products produced by FPI, and this

survey was limited in that it focused on selected furniture from one factory

sold over a 4-month period. In addition, for the furniture survey FPI

received only 42 responses out of 400 surveys that it sent—a response rate

far too low to support any conclusions. FPI officials said that at the time of

our review, they could not find documentation on any other survey efforts.

Furthermore, they told us that the individual responsible for developing

the 1996 survey plan and its accompanying survey efforts had since

retired.

FPI also has organized a customer advisory group (CAG) and a design

advisory council (DAC), which are made up of representatives from

selected customer agencies and were formed so that FPI could get

feedback from agencies about its products, services, and overall

operations. The CAG is typically made up of contracting officers or other

personnel from military and civilian agencies who have some direct

involvement in procuring products or services from FPI. According to FPI

officials, the group members, who serve at the invitation of FPI, are to

solicit input on problems with FPI from other personnel in their agencies to

develop a broad understanding of the problems experienced agencywide.

FPI brings as many members as possible together once or twice a year,

depending on the availability of funds, to discuss problems, suggest

solutions, and review what FPI has done to resolve past problems. The DAC,

made up of federal designers who configure and furnish agencies’

workspace, meets periodically and works with FPI to ensure that its

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products meet their needs and are compatible with commercially available

products that are being used.

According to FPI’s Director of Sales, Marketing, and Customer Service,

individual prison factories have undertaken some efforts to assess

customer satisfaction, but such efforts are not monitored by headquarters

staff. At our request, he queried 54 locations with 88 factories that had

customers in other federal agencies. Of the 54 locations, 33 responded that

they make some effort to contact the customer and discuss customer

satisfaction. The most common effort, which 25 factories reported doing,

was unstructured telephone calls to some customers to either follow up on

a complaint or generally inquire into customer satisfaction. Eight locations

said they use customer satisfaction surveys or guarantee forms with space

to address customer satisfaction that they send to some or all of their

customers. For example, the furniture factory in the Tallahassee Federal

Correctional Institution had a customer satisfaction rating line on some of

its guarantee forms. Based on the size of the order, a number of these are

included in the orders, and the customer is asked to fax or mail the rating

back to the factory. According to the factory staff, the responses have

generally been positive; but response rates have been low, and steps are

being taken to improve them.

Despite these efforts, the Director of Sales, Marketing, and Customer

Satisfaction told us that none of the efforts reported by any of the prisons

yielded generalizable results. That is, they did not use valid sampling

techniques and did not garner meaningful response rates. Likewise, he

said that the results of these efforts are not systematically compiled and

cannot be used to make any overall conclusions concerning customer

satisfaction with any product or factory, or about FPI in general. He further

told us that he is not satisfied with FPI’s progress in developing a more

systematic approach to collecting customer satisfaction data. He

attributed this delay to an FPI reorganization and the turnover among

individuals responsible for developing improved approaches for collecting

and analyzing customer satisfaction data. He said that FPI recognizes the

importance of developing customer satisfaction data and is becoming

more active in this area. For example, he said that a full-time staff member

is now assigned to developing questionnaires in house and working with

him to develop an overall strategy to measure customer satisfaction. He

envisions hiring a private sector consultant to assist in FPI’s development

of an overall strategy for systematically obtaining customers’ views.

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In addition, another unit within FPI, the Planning, Research, and Activation

Branch, is working with DOD to develop a detailed survey instrument to

begin to compile some customer satisfaction data at the Department of

Defense (DOD). Under the National Defense Authorization Act for Fiscal

Year 1998, FPI and DOD are mandated to conduct a joint study of

procurement procedures, regulations, and statutes that govern

transactions between DOD and FPI. As part of this study, FPI and DOD have

developed a draft survey instrument that would ask DOD customers to

respond to questions about the procurement process, including their

rating of products like electronics, office furniture, and signs, on a scale of

1 (unsatisfactory) to 5 (exceptional) with regard to price, quality, delivery,

and service. Among other things, the survey would also ask respondents to

rate FPI as a supplier, provide information on their experiences requesting

and securing waivers, and provide feedback on whether respondents

would use FPI if it were not a mandatory source. According to an FPI

industrial specialist with the Planning, Research, and Activation Branch,

current plans are to hire a private company to administer the survey

telephonically to FPI’s DOD customers who purchased FPI products valued

at $10,000 or more over the last 3 years. The same official was not sure if

the survey would obtain the views of end users. She said that FPI has plans

to have the survey completed by the end of February so the results can be

incorporated into the joint FPI/DOD report to Congress, which is due in

May 1998.

Importance of Customer

Satisfaction Data Reflected

in Contemporary Thinking

on Organizational

Excellence

FPI’s lack of sufficient information about customer satisfaction appears

inconsistent with contemporary thinking on the importance of collecting

and using such information to improve performance. Proponents of

collecting and using customer satisfaction data have emphasized the need

to measure performance by systematically collecting customer satisfaction

data and to identify and address real and perceived organizational and

performance problems. Criteria for awards in organizational excellence,

such as the Malcolm Baldrige National Quality Award and the President’s

Quality Award, stress the importance of obtaining customers’ views.

Recent initiatives such as NPR and the Government Performance and

Results Act of 1993 (known as GPRA or the Results Act) have focused on

performance measurement. In particular, NPR has stressed the importance

of promoting customer satisfaction in government and accountability to

customers through feedback systems and performance measurement.

Contemporary management experts have stressed the importance of

improving the quality of products and services, listening to the needs of

Page 14 GAO/GGD-98-50 FPI Customer Satisfaction
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customers, and meeting those needs. These factors, according to experts,

are essential for success in both the private and public sectors. For

example, W. Edwards Deming stressed that the quality of goods and

services should aim to meet the needs of the customer, and customer

needs and wishes have to be understood.8

 Tom Peters has advocated that

one of the five essentials of organizational performance is an obsession

with responsiveness to customers.9

 David Osborne and Ted Gaebler have

stated that there is no reason public organizations cannot get close to their

customers and listen to their needs just as private organizations do.10

Osborne and Gaebler have likewise stated that customer-driven

organizations are more accountable to their customers because they

solicit and respond to feedback on customer needs.

Criteria published for measuring organizational excellence in both the

private and public sectors include collecting customer satisfaction

information and using results to improve performance. For example, for

the private sector’s Malcolm Baldrige National Quality Award and the

executive branch’s President’s Quality Award, organizations are expected

to (1) follow up with their customers regarding recent purchases of

products and services to gauge satisfaction and resolve problems; and

(2) include measures of customer satisfaction with their financial and

other measures to improve operational results.11

It is important to note that these and other criteria do not call for a

“cookbook” approach to collecting customer satisfaction data. Although

the criteria mention a variety of approaches, such as surveys, focus

groups, and interviews, they generally advocate leaving the specific choice

of approaches or combination of approaches up to each organization. This

flexibility recognizes that organizations of different types or sizes or

organizations, such as FPI, that market an array of different products and

services may use various approaches or a combination of approaches for

different customers. Regardless of the choice of methods selected,

however, the criteria do call for a convincing and systematic way to

measure and report on customer satisfaction.

8

W. Edwards Deming, Out of the Crisis (Cambridge, MA; Massachusetts Institute of Technology,

Center for Advanced Engineering Study, 1986), pp. 5 and 175.

9

Tom Peters, Thriving on Chaos (New York: Harper and Row Publishers, Inc., 1987), p. 45.

10David Osborne and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit Is

Transforming the Public Sector (Reading, MA: Addison-Wesley Publishing Company, 1992), pp.

169-170.

11See, for example, Malcolm Baldrige National Quality Award: 1997 Criteria for Performance

Excellence; and 1998 Application and Information: The President’s Quality Award Program.

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In recent years, the federal government has placed increased emphasis on

customer service and has begun an initiative to become more businesslike

by using performance information to measure results. The September 1993

NPR report stressed, among other things, the need for the federal

government to emphasize customer satisfaction. Shortly thereafter, the

President signed Executive Order 12862, which established and

implemented customer service standards to guide the operations of the

executive branch. The order called for executive departments and

agencies that provide significant services to the public to take a number of

actions. These actions include identifying and surveying customers,

posting service standards and measuring results against them, and

benchmarking customer service performance against the best in the

business.

Although the order is directed toward agencies that serve the public, FPI’s

Chief Operating Officer told us that FPI has made a voluntary commitment

to be in full compliance with the executive order. In response to the order,

FPI developed a special report for the NPR Customer Service Team that

acknowledged the importance of satisfied customers to UNICOR and also

recognized the importance of customer surveys. The paper stated that

within the competitive environment in which FPI operates, “it is critical,

more than ever before, that UNICOR understand and ‘know’ its customers.”

The paper critiqued FPI’s past efforts in using surveys and pointed out

some potential design and response problems with those surveys. It also

discussed FPI’s strategy for responding to the Executive Order, which

included expanding customer contact sessions as well as conducting more

and broader written and telephone surveys. FPI’s paper also defined its

direct customer base—federal contracting officers, procurement

personnel, and all federal employees who are end users of FPI products

and services—and indicated that telephone-based surveys should consider

measuring end users’ satisfaction with FPI products. In addition, in

October 1995, NPR published FPI’s customer service standards that, among

other things, committed FPI to surveying its customers annually.12

According to FPI’s Director of Sales, Marketing, and Customer Service and

the Executive Assistant to the Chief Operating Officer, this commitment

waned due to a reorganization, resource shortages, and other operational

priorities. However, as discussed earlier, the Director of Sales, Marketing,

and Customer Service said that FPI has recently taken steps to renew its

commitment, including assigning a full time staff member to develop

questionnaires and work on customer satisfaction issues. In fact, NPR’s

12Putting Customers First ’95: Standards for Serving the American People, National Performance

Review, October 1995.

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1997 report on customer service standards restates FPI’s commitment to

doing customer satisfaction surveys.13

The Results Act requires agencies to set goals, measure performance, and

report on the degree to which their goals are met. As a starting point, the

act requires agencies to develop multiyear strategic plans, the first of

which were to be submitted to Congress by September 30, 1997, that

include the agency’s mission statement, general goals and objectives, and

the strategies the agencies plan to use to achieve these goals and

objectives. Although the Results Act does not require FPI to have its own

strategic plan, the DOJ plan does have goals and objectives that relate to

FPI. For example, under the Detention and Incarceration section of the

Justice plan, one goal relates to the overall mission of BOP and includes a

broad reference to FPI’s principal function—“Provide productive work,

education, medical, and other programs to meet inmate needs and

facilitate their successful reintegration into society, consistent with

community expectations and standards.” In the Management section of the

DOJ plan, another goal pertains to DOJ operations in general but seems

especially pertinent to FPI and its operations—that is, the goal to “Meet or

exceed the expectations of our customers.” Thus, if satisfying customers

were to be one of FPI’s major goals, it seems that FPI would want reliable

customer satisfaction data so that it could determine the extent to which it

was meeting its goal.

Some Public and Private

Organizations Obtain

Customer Satisfaction Data

During our review, we found several examples of public and private

organizations that have developed approaches to actively obtain and use

customer satisfaction data. The U.S. Army Communications-Electronics

Command’s Logistics and Readiness Center (CECOM LRC) received the

President’s Quality Improvement Prototype Award for developing an

approach for, among other things, systematically determining and

measuring customer satisfaction.14 The Postal Service systematically uses

customer satisfaction data to develop internal and external measures of its

performance; identify problem areas; and identify corrective actions,

where necessary. Likewise, two GSA components, the Public Buildings

Service (PBS) and the Office of Property Disposal, have begun to use

13Putting Customers First ’97: Standards for Serving the American People, National Performance

Review, Oct. 1997.

14The Quality Improvement Prototype Award is given annually as part of the President’s Quality Award

Program. The award is given to federal organizations that have achieved high standards of customer

service and quality. The process governing the award is comparable to the Malcolm Baldrige National

Quality Award for private sector companies and consists of application review and site visits to

finalists’ organizations to validate the application review.

Page 17 GAO/GGD-98-50 FPI Customer Satisfaction
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customer surveys to monitor and improve their performance. In addition,

according to officials at two trade associations that have members who

sell products similar to FPI’s, the National Electrical Manufacturers

Association (NEMA) and the Business and Institutional Furniture

Manufacturers Association (BIFMA), some of their progressive members

regularly track customer satisfaction.

Our review of a series of case studies developed for the President’s Quality

Award Program showed that CECOM LRC, for example, has used surveys,

performance data, and other information to develop a customer

satisfaction index to measure and improve its performance. According to

one of the case studies, CECOM LRC supplies the Army with communications

and electronics systems as well as logistics support, engineering, and

inventory management. It has, as one of its six strategic goals, a goal to

continually demonstrate a commitment to internal and external

customers, which include end users such as soldiers as well as project

managers, depots, and foreign governments. In 1993, CECOM LRC realized

that it needed to develop a more systematic approach to measuring

customer satisfaction. Until that time, each of its eight directorates

administered its own external survey to measure customer satisfaction,

but feedback was not consolidated to gauge how well the organization was

satisfying customers.

CECOM LRC concluded that surveys alone were not sufficient to accurately

measure satisfaction and decided on an approach that aggregated various

sources of information. It benchmarked with IBM and Texas Instruments

to examine how large private sector organizations measured customer

satisfaction. In 1994, it created the Customer Satisfaction Index, a

composite measurement system based on information from mail and

telephone surveys; performance statistics, including measures and trends

of formal complaints; comparison data, including comparisons with

similar providers; and internal perspectives that used workforce

self-assessment surveys.

Similarly, in November 1992 and December 1995, we reported on Postal

Service efforts to measure customer satisfaction.15 Among other things, we

reported that Postal Service officials recognize that the Service must do a

better job of increasing customer satisfaction by improving service

performance and pointed out that the Service increasingly was focusing on

customer needs, expectations, and perceptions. We also discussed the

15U.S. Postal Service: Tracking Customer Satisfaction in a Competitive Environment (GAO/GGD-93-4,

Nov. 12, 1992); and U.S. Postal Service: New Focus on Improving Service and Customer Satisfaction

(GAO/GGD-96-30, Dec. 20, 1995).

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Postal Service’s efforts to collect customer satisfaction data on, for

example, timeliness of delivery; whether its services were a good value for

the price; the helpfulness and courtesy of Postal personnel; and its

complaint handling. Furthermore, we discussed how the Postal Service

systematically uses these data to develop internal and external measures

of its performance; identify problem areas; and identify corrective actions,

where necessary. In addition, the Postal Service Strategic Plan, which was

submitted to Congress in September 1997 as required by the Results Act,

discusses how the Postal Service uses customer satisfaction as one of its

key performance measures.

GSA also has taken some steps to measure customer satisfaction among

some of its components. For example, according to GSA’s 1998 budget

justifications, GSA’s PBS uses a survey developed by the Gallup Organization

to evaluate customer service performance against industry standards and

to guide PBS in making enhancements to its real property management

function. The survey measures the satisfaction of building occupants with

the way GSA cleans, protects, repairs, heats, and manages buildings. PBS

uses the results to measure its performance and has a long-term goal of

achieving a satisfaction rating of 85 percent, which according to PBS is

consistent with the private sector standard. PBS reported that preliminary

survey results in 1996 showed that it had achieved its interim customer

satisfaction rating goal for very large buildings. GSA’s Office of Property

Disposal also uses a private survey firm to measure customer satisfaction

with its programs and services. According to GSA’s 1998 budget

justifications, this office is focused on providing better quality service with

a goal of 95 percent customer satisfaction. According to the responses

received by the survey firm, customer satisfaction improved from

78 percent in fiscal year 1995 to 92 percent in fiscal year 1996.

In addition, our discussions with officials representing two trade

associations—NEMA and BIFMA—that have members that sell products

similar to FPI indicated that some of their more progressive members

regularly track customer satisfaction. The BIFMA official told us that some

companies contract with firms that provide customer satisfaction

measurement services. The same official referred us to Kennedy Research,

which is part of a worldwide business research firm, Wirthlin Worldwide,

that provides opinion research services for both public and private clients.

The president of Kennedy Research said that his firm uses customized

data collection methods and analytical techniques to survey a client’s

current and past customers, with the focus on developing

recommendations that can lead to improved customer satisfaction.

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Agencies Develop

Performance

Information on All

Vendors but Apply It

Differently to FPI

Major customer agencies—DLA, FSS, Army, SSA, and the Postal

Service—consider price when awarding contracts and monitor factors like

quality and timeliness while administering contracts for all vendors,

including FPI. As part of the process of developing performance

information, all five agencies also scored or rated the overall performance

of many of their commercial vendors while administering contracts. In

addition, the two major supply agencies—FSS and DLA—and the Postal

Service said that they developed performance ratings of FPI. According to

agency procurement officials, regardless of the type of vendor, contracting

officers have discretion when considering timeliness, price, and quality

while awarding or administering contracts.

It should be recognized, however, that the contracting officer’s leverage in

resolving procurement problems is different for FPI from the leverage the

contracting officer has for private sector vendors since the rules that

typically govern contracts with commercial vendors do not apply to FPI. In

this regard, on September 13, 1993, the Acting Attorney General issued a

legal opinion which held that FPI, as a seller of goods to the federal

government, is not covered by the FAR, and must be treated under its

authorizing legislation and FAR Subpart 8.6. When agencies do develop

varying types of information on current and past performance of vendors,

including FPI, there are major distinctions in how agencies can use this

information. For example, in the case of a commercial vendor, all five

agencies can use current performance information to terminate a contract

for deficient performance and can use past performance information as a

factor to consider in the award of contracts. In the case of FPI, with the

exception of the Postal Service, agencies cannot use current performance

information to cancel or terminate a contract with FPI unless agencies

request cancellation or termination provisions during the negotiation

process and FPI agrees to include them in the contract.16 According to FPI,

agencies can, however, use current performance information to seek other

remedies against FPI, such as fulfillment of lifetime warranties or damages

for late delivery. We did not determine the extent to which agencies seek,

or FPI agrees to authorize, these remedies; nor did we compare or evaluate

the use of remedies by contracting officers in connection with contracts

with FPI or commercial vendors.

16According to FPI officials, there are no aggregate data to show how often FPI allows agencies to

include these provisions in the contracts. However, they did say that its contracts for electronics and

textiles typically include a provision to terminate contracts for default. Because data were not readily

available, we did not verify the extent to which cancellation or termination provisions were included in

contracts associated with the numerous products that FPI sells to government agencies.

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Furthermore, agencies cannot use past performance information to deny

awarding a contract to FPI because, under the law, FPI is a mandatory

source of supply for products. However, at FPI’s discretion, they can use it

to negotiate with FPI on factors such as product quality or delivery time

frames, or to seek a waiver from FPI so that they can buy from a

commercial vendor that can better meet their quality or delivery

requirements. Under 18 U.S.C. 4124 (b) disputes regarding “price, quality,

character, or suitability” of products furnished by FPI are subject to

resolution by a high-level arbitration board made up of the Attorney

General, the Administrator of the General Services, and the President, or

their representatives. The Postal Service, which is exempt from most

federal laws dealing with public or federal contracts, is not required to buy

FPI products and can treat FPI like a commercial vendor.17

Pre-Award Process Officials at DLA, FSS, Army, and SSA said that before awarding a contract,

they do many of the same things when considering acquisitions from both

commercial vendors and FPI. Generally, in considering price, agency

contracting officials are to examine the prices offered by a prospective

vendor and take steps, such as a price evaluation if, in their judgment, they

believe the offerer’s price does not represent a good value for the

government. With commercial vendors, a price that is found to be high can

be used as a factor in eliminating a prospective vendor from the selection

process. However, because of FPI’s mandatory source status, they told us

that the contracting officer is limited to using the results of his or her

assessment of price to attempt to negotiate the price with FPI or justify a

waiver request. FPI is required by statute to price its products at not to

exceed current market price.18 According to FPI, the method for

determining current market price varies by product and the price can be

negotiated by FPI and the customer. If the agency is not satisfied with the

price and the cognizant FPI personnel deny the waiver request, the

contracting officer can appeal the decision to the FPI ombudsman. We did

not determine how often prices were negotiated or waivers approved by

cognizant FPI personnel or the FPI ombudsman.

17Services provided by FPI are not afforded the same mandatory source status as products provided by

FPI. Officials we spoke with at agencies other than the Postal Service did not, at the time of our

review, have direct knowledge of service contracts with FPI because these contracts tend to be small

and are handled by local procurement offices. Postal Service officials said they treat FPI service and

product contracts alike because neither is mandatory for the Postal Service. During fiscal years 1995

and 1996, contracts for services constituted about 5 percent of FPI’s annual sales.

18In 11 Comp. Gen. 75 (1931) GAO quoted a February 1931 decision by the BOP Board of

Arbitration—Prison Industries which stated that FPI did not have to set its price at the lowest bid price

to comply with the current market price requirement.

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In addition, for commercial vendors, agency officials said that contracting

officers are to make a determination of “responsibility” in accordance with

FAR Part 9; that is, they assess whether the vendor has such resources as

the facilities and personnel needed to carry out the terms of the contract.

If the vendor had a previous contract with the agency, they are required to

examine the vendor’s past performance record. However, in the case of

FPI, agency officials told us that contracting officials cannot disqualify FPI

from being eligible for a contract award based on “responsibility” because,

again, FPI is a mandatory-source supplier. Nonetheless, they said that in

contracting with FPI, agency contracting officials may consider their

experiences on previous FPI contracts and may attempt to negotiate

contract terms designed to avoid previous difficulties. They also may rely

on these experiences to develop request for waivers from FPI.

According to officials at the Postal Service, they do many of the same

things their non-Postal counterparts do to consider things like price and

vendor responsibility during the pre-award process. However, because the

Postal Reorganization Act of 1970 exempts the Postal Service from most

federal laws dealing with federal or public contracts, FPI is not a

mandatory source for the Postal Service.19 As with other agencies, before

awarding a contract, Postal procurement officials told us that they have

discretionary authority to check that the price is fair and reasonable and

examine whether vendors are capable of performing under the contract.

However, unlike their counterparts, they do not have to purchase products

from FPI. Instead, Postal Service officials can procure the product from

another vendor.

Contract Administration Once a contract is awarded, contracting officers are to take steps to

administer contracts, including those with FPI, in accordance with their

responsibilities under the FAR. The officials we spoke with at DLA, FSS, SSA,

and Army told us that contracting officers have discretion over the depth

of monitoring activities they do and the data they collect. However, their

efforts are to include an assessment of the extent to which the vendors

meet the terms and specifications of the contract and may involve specific

steps to ensure a vendor’s products meet the quality standards specified in

19Under the U.S. Postal Service Purchasing Manual, contracting officers can consider purchasing from

FPI when the quality, delivery terms, and prices offered are competitive with those offered in the

commercial marketplace. Thus, according to Postal Service officials, the Postal Service can acquire

supplies from FPI by either (1) following the formal competitive procurement procedures, which

typically includes soliciting proposals that the Postal Service evaluates before awarding the contract to

the supplier providing the best overall value; or (2) negotiating a noncompetitive contract directly with

FPI on a sole source basis if market research or other means show price and delivery terms are

reasonable compared with those available within the commercial marketplace.

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the contract. In doing so, contracting officials monitor issues related to

overall performance, such as timeliness of delivery and quality issues

arising out of user complaints. DLA and FSS officials, for example, told us

that contracting officers track and document issues related to timeliness,

product quality, and complaints from product users. SSA and Army officials

said that contracting officers look at some of the same things and, like DLA

and FSS, tend to work with vendors to resolve problems. According to

officials we spoke with, it is important to recognize that monitoring of

things like product quality is quite often done on an exception basis—that

is, contracting officers deal with problems as they arise, such as when a

complaint is levied by an end user.

As with their counterparts in other agencies, Postal Service officials also

said that they take steps to monitor contracts from the perspective of

contract terms and assurance that the vendor can meet its quality

standards. They added that contracting officers, who likewise have

discretionary authority over the depth of their oversight responsibilities,

examine things like customer complaints about quality and try to work

with vendors to resolve them. In addition, they told us that contracting

officers routinely monitor timeliness as one of the elements of compliance

with the contract. Like their non-Postal counterparts, Postal Service

officials said that contracting officers attempt to work with vendors to

resolve problems if and when they arise.

Contractor Performance

Ratings

As part of routine contract administration, DLA, FSS, SSA, and Army also

have processes for rating the overall performance of many of their

commercial vendors in accordance with the FAR. In addition, officials at

the major supply agencies, DLA and FSS, also said that they routinely

evaluate and rate FPI’s performance as part of their general business

practices. SSA and Army officials told us that they do not routinely do so

for FPI, because the FAR exempts FPI from the requirement that customer

agencies develop performance evaluations.20 According to officials at the

Postal Service, the Service, which is not covered by the FAR, evaluates and

rates the performance of certain vendors, including FPI, that are selected

by contracting officers based on factors like the dollar magnitude of the

contract or the product being critical to achieving the agency’s mission.

According to these officials, the Postal Service evaluation includes a

variety of factors, such as fabrication and assembly, workmanship, and

20FAR Part 42.1502(b) states that agencies shall not evaluate performance for contracts awarded under

Subparts 8.6 and 8.7. FAR Subpart 8.7 governs acquisitions from nonprofit agencies employing people

who are blind or severely disabled, which are mandatory source suppliers. The issue of rating FPI

performance is addressed later in the report.

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timeliness, that are based on agreements between the Postal Service and

the vendor and prescribed in the contract. With regard to the ratings, the

same officials told us that FPI’s performance, like that of its other vendors,

has been generally acceptable.

As mentioned earlier, Subpart 42.15 of the FAR requires that agencies do

performance evaluations to document a contractor’s actions for

consideration of future contracts.21 According to the FAR, these

evaluations—required for each contract in excess of $1 million beginning

July 1, 1995, and $100,000 after January 1, 1998—are to be done at the time

the work under the contract is completed and are to be prepared on an

interim basis for contracts exceeding 1 year. The FAR also stipulates that

agencies shall not prepare evaluations of contractors under Subpart

8.6—the provision pertaining to FPI.

For example, as of December 1997, SSA officials told us that SSA requires

that project officers and technical representatives involved in contract

administration prepare a monthly evaluation of commercial vendor

contracts valued in excess of $500,000 (below the 1995 threshold of

$1 million) but not of contracts with FPI. These officials then are to send

the evaluations to the responsible contracting officers, who compile them

and prepare a separate evaluation report at the end of the contract. In

doing their monthly evaluations, agency officials are to use a scale of 0

(unsatisfactory) to 4 (excellent) to measure a contractor’s performance in

six dimensions—quality of product or service, cost control, timeliness of

performance, business relations, end user customer satisfaction, and

other. SSA officials told us that SSA does not do these evaluations for FPI

products, because it is not required to do so under the FAR.

Even though the FAR states that agencies shall not prepare evaluations

regarding FPI performance, officials at the two major supply agencies

included in our review told us that they do the evaluations for all vendors,

including FPI, as part of their normal business processes. For instance, DLA

officials told us that they use DLA’s Automated Best Value Model (ABVM) to

collect past performance data on all of its contracts, including those with

FPI, regardless of size and translate the data into a numeric score ranging

from a low of 0 to a perfect score of 100. The scores, which are calculated

monthly, represent a combination of quality and delivery scores. The

quality score reflects validated product and packaging problems caused by

21The Federal Acquisition Streamlining Act (FASA) of 1994, Public Law 103-355, amended the Office of

Federal Procurement Policy Act at 41 U.S.C. 405 note and acknowledged that it is both appropriate and

relevant for the government to consider a contractor’s past performance in evaluating whether the

contractor should receive future work.

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the contractor and negative lab tests during the rating period. The delivery

score reflects shipments that are not shipped and/or received in their

entirety by the contract delivery date. DLA then updates the score every

month and makes it available to vendors so that they can gauge their

performance and challenge scores when they disagree. The scores are also

available to contracting officers so that they can consider them in

conjunction with outputs from other DLA contract monitoring systems

when making decisions about future source selections. Because of the

disparate nature of these various systems, data were not readily available

for developing an aggregate analysis of FPI’s performance over any

particular period in time. In other words, at DLA, FPI performance

successes and problems would have to be analyzed on a

product-by-product and factory-by-factory basis using the various systems

available.

At FSS, contracting officials told us that they prepare a supplier rating

report for all of FSS’ contracts, including those with FPI, using seven

dimensions—contracts terminated, orders terminated, deliveries on-time

per the “original” due dates, quality cure letters issued, justified quality

complaints, quality deficiency notices issued, and rejections. Performance

in each category is scored on a scale of outstanding, satisfactory, or poor.

Every 6 months, FSS generates a supplier rating report, sometimes called a

contractor report card, which enables FSS and the vendor to open a

dialogue about performance issues. At the conclusion of the contract, FSS

issues a final report rating the contractor’s performance along with a letter

that tells the contractor that its past performance will be considered when

GSA makes future awards.

FSS officials told us that they also use the supplier report card to prepare

FSS’s contractor alert list (CAL), which identifies contractors that fail to

meet some portion of their contract terms and are considered to be a

higher risk to the government as future contractors. Thus, if a vendor,

including FPI, scores a poor in any one of the seven report card categories,

the vendor and its contract are placed on the CAL and they remain on it for

a designated period, depending on the problem documented. For example,

a poor timeliness rating would cause a vendor and its contract to show up

on the CAL until the timeliness problem was corrected, whereas a quality

deficiency problem may cause a vendor and its contract to remain on the

CAL for the duration of the contract. Upon reviewing examples of the CAL,

we noted that both commercial vendors and FPI contracts were on the CAL

for a variety of reasons, including quality and timeliness problems. FSS

officials told us that as of August 1997, 17 of FPI’s 60 contracts with GSA

Page 25 GAO/GGD-98-50 FPI Customer Satisfaction
B-278287 

were on the CAL because of timeliness problems; and 1 of FPI’s 60 contracts

was on the CAL because of a product quality problem. FPI’s remaining 42

contracts were not on the CAL.

It is important to note that as in the pre-award process, FSS, DLA, SSA, and

Army can use the information they collect via a report card or any other

means to communicate about performance issues with vendors, including

FPI. However, the agencies can terminate a contract with a commercial

vendor, but they cannot cancel or terminate a contract with FPI unless FPI

had agreed to include provisions in the contract that allow the agency to

either cancel the contract or terminate it for default. Nonetheless, FSS, DLA,

SSA, and Army can use the information they collect on any particular FPI

acquisition to initiate waiver requests, so that if the waiver is approved, the

balance of an agencies’ requirements can be filled by a vendor other than

FPI. Likewise, in terms of new acquisitions from commercial vendors, these

agencies can use performance information as a basis for making

acquisition decisions and considering the award of a contract. With FPI,

however, FSS, DLA, SSA, and Army cannot use the information to make a

decision about buying FPI products, but they can use it to alert FPI to past

problems, negotiate with FPI about ways to prevent future problems, or to

apply for waivers so they can buy from another source. The Postal Service,

on the other hand, can treat FPI like any other vendor, because FPI is not a

mandatory source for the Postal Service.

There is some question about whether agencies subject to the FAR are

prohibited from evaluating FPI’s performance. As mentioned earlier, Part

42 of the FAR states that agencies “shall not” evaluate the performance of

contracts awarded under Subpart 8.6, the provision pertaining to FPI.

According to OFPP’s Deputy Associate Administrator for Procurement

Innovation, this provision was added to the FAR because FPI is considered

to be a social program and has mandatory source status; and, regardless,

agencies still have to purchase FPI products. It was designed to reduce the

burden on agencies by not requiring them to develop performance data on

FPI. However, he said the provision was never intended to preclude

agencies from doing performance evaluations of FPI contracts as part of

their efforts to maintain good business practice. As we pointed out, some

agencies do it as part of their normal business practices, and others do not

because they are not required to. The Deputy Associate Administrator

added that OFPP is recommending a change to the FAR that would make it

clear that agencies are not precluded from doing performance evaluations

on mandatory source suppliers like FPI, especially since OFPP promotes

vendor performance evaluations as good business practice.

Page 26 GAO/GGD-98-50 FPI Customer Satisfaction
B-278287 

According to OFPP guidelines on performance evaluations, as of

August 1995, there were at least 12 past performance information systems

in use by various organizations throughout the government.22 Although

OFPP sanctioned these systems as long as they met the requirements of the

FAR, it is encouraging the voluntary development of a uniform

governmentwide format for recording contractor performance information

that source selection officials can use. In doing so, OFPP has suggested the

development of an interagency Contractor Performance Report, which,

among other things, would contain six areas in which to rate a contractor’s

performance—quality, timeliness, cost control, business relations,

customer satisfaction, and key personnel. According to OFPP, some of the

elements, like timeliness, are important because they directly reflect

compliance with contract terms. Others, however, like customer

satisfaction, are equally important because, according to OFPP’s guidelines,

satisfying the customer is the most important goal in the private sector and

should be in the government sector. With regard to the customer

satisfaction element, OFPP goes on to suggest that agencies look at the

satisfaction of the end users and that the best way to do so is through

customer satisfaction surveys. If agencies collect this information, it may

provide FPI with additional customer satisfaction data that could

supplement any efforts it decides to take to develop systematic data and

performance measures.

Conclusions The debate over FPI’s mandatory source status and the timeliness, price,

and quality of its products and services is likely to continue partly because

FPI lacks sufficient data on how federal customers view FPI’s products and

services. FPI’s current management information systems are not designed

to systematically collect federal customers’ views, and FPI’s current efforts

to obtain customers’ feedback are limited and cannot be used to support

general conclusions about customer satisfaction. Without this information,

FPI is not well positioned to demonstrate whether it is achieving total

customer satisfaction as it says it is striving to do or to use customer

satisfaction as a key performance measure. Furthermore, the lack of a

systematic approach for collecting and analyzing these data is inconsistent

with recent public and private sector initiatives to use customer

satisfaction data to measure performance and address real and perceived

performance problems.

22Past Performance Information, Office of Federal Procurement Policy, OFPP Policy Letter 92-5,

August 2, 1995.

Page 27 GAO/GGD-98-50 FPI Customer Satisfaction
B-278287 

Although FPI has recognized the importance and benefits of obtaining and

using more data on customer satisfaction and made a commitment in

October 1995 to doing so, it has not followed through on this commitment,

citing personnel turnover, resource constraints, and the need for customer

cooperation. We recognize that it may be challenging and resource

intensive for FPI to develop better data and related measures for customer

satisfaction and that FPI will need the cooperation of its customers.

However, we believe it will be more challenging for FPI to continue to

operate in today’s customer-oriented environment and in the face of

strong opposition to its mandatory-source status without the benefit and

use of such information, both to improve performance and to measure its

performance in meeting customer satisfaction goals.

FPI is a governmental organization that operates in a businesslike fashion

in that it manufactures and sells products to customers. Thus, it seems

reasonable that FPI would have guidelines and principles used by other

public and private sector organizations such as those calling for systematic

assessment of customer satisfaction, and then using that information to

measure and improve performance. Several other organizations we

identified in both the private and public sectors have found various

approaches to systematically collect and use such information, either

independently or with the help of others, such as contractors. We found no

reason why FPI could not also search for cost-effective ways to assess

customer satisfaction. In considering these approaches, FPI will need to

determine what approach or combination of approaches will produce the

best results at the lowest possible cost and least possible burden on its

customers.

Recommendation to

the Director, Bureau

of Prisons

In order to institutionalize within FPI an assessment of overall customer

satisfaction and the use of this assessment to measure and improve

performance, we recommend that the Director, Bureau of Prisons, direct

FPI’s Chief Operating Officer to (1) examine available approaches to collect

and use customer satisfaction data to determine the most cost-effective

approaches for FPI; (2) develop a plan for collecting customer satisfaction

data that would allow for supportable conclusions about federal

customers’ views on timeliness, price, and quality; (3) develop a timetable

for implementing the plan; and (4) set performance goals for the levels of

customer satisfaction that FPI wants to attain and measure results against

these goals.

Page 28 GAO/GGD-98-50 FPI Customer Satisfaction
B-278287 

Agency Comments In written comments dated February 10, 1998, BOP generally agreed with

the thrust of the draft report and said that it intends to implement our

recommendation. BOP also made additional comments on some of the

issues addressed in the report. First, BOP acknowledged that the draft

identified many of the initiatives FPI has taken to demonstrate its

commitment to customer satisfaction and listed some other initiatives that

it has taken over the last few years. Furthermore, BOP recognized that FPI

does not have a systematic approach for measuring customer satisfaction

and how its customers responded to these initiatives. Second, BOP

highlighted some of the problems FPI may encounter in collecting data

because of the nature of the federal procurement process and said that

some highly respected private sector vendors do virtually no federal

customer satisfaction data collection. But, in agreeing with our

recommendations, BOP stated that there is a benefit to collecting customer

satisfaction data. Third, BOP stressed the importance of agency evaluations

in providing feedback on FPI’s performance and said FPI would advise its

customers of FPI’s desire to be evaluated so that it can get such feedback

and of its willingness to include termination clauses in FPI’s contracts.

Finally, BOP said FPI’s actions to improve customer satisfaction have been

aimed at eliminating negative perceptions about purchasing from FPI as a

mandatory source and stated that FPI is striving to be viewed as a

“preferred” source. BOP added that in its view, FPI’s most vocal opponents

are not customers but private industry representatives who maintain that

FPI, as a mandatory source supplier, has an adverse effect on them.

Furthermore, BOP stated its belief that regardless of FPI’s customer

satisfaction rating, opponents will continue to argue against FPI’s status as

a mandatory source supplier. (See app. II for the full text of BOP’s written

comments.)

We also obtained oral technical comments from FPI’s Chief Operating

Officer and his staff and from program officials in the agencies included in

our review on various portions of a draft of this report. These technical

comments have been incorporated in the final report as appropriate.

As agreed with your office, unless you publicly announce the contents of

this report earlier, we will not distribute it until 30 days from its date.

Then, we will send copies of this report to the Attorney General, Director

of BOP, Chief Operating Officer of FPI, Director of the Office of

Management and Budget, Administrator of OFPP, and the heads of the

Page 29 GAO/GGD-98-50 FPI Customer Satisfaction
B-278287 

customer agencies we contacted. We will also make copies available to

interested congressional committees and others on request.

Major contributors to this report are listed in appendix III. If you have any

questions, please contact me on (202) 512-8387.

Bernard L. Ungar

Director, Government Business

 Operations Issues

Page 30 GAO/GGD-98-50 FPI Customer Satisfaction
Page 31 GAO/GGD-98-50 FPI Customer Satisfaction
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

34

Appendix II 

Comments From the

Bureau of Prisons

37

Appendix III 

Major Contributors to

This Report

41

Page 32 GAO/GGD-98-50 FPI Customer Satisfaction
Contents

Abbreviations

ABVM Automated Best Value Model

BIFMA Business and Institutional Furniture Manufacturers

Association

BOP Bureau of Prisons

CAG customer advisory group

CAL contractor alert list

CECOM LRC U.S. Army Communications-Electronics Command’s

Logistics and Readiness Center

COED Customer Order Entry Database

DAC design advisory council

DLA Defense Logistics Agency

DOD Department of Defense

DOJ Department of Justice

FAR Federal Acquisition Regulation

FASA Federal Acquisition Streamlining Act

FPI Federal Prison Industries

FSS Federal Supply Service

GPRA Government Performance and Results Act

GSA General Services Administration

HHS Department of Health and Human Services

NEMA National Electrical Manufacturers Association

NIH National Institutes of Health

NPR National Performance Review

OFPP Office of Federal Procurement Policy

PBS Public Buildings Service

SSA Social Security Administration

VA Department of Veterans Affairs

Page 33 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix I 

Objectives, Scope, and Methodology

Our objectives were to determine (1) if Federal Prison Industries (FPI) has

data, either from its management information systems or other sources, to

support overall conclusions about how federal customers who buy and

use its products and services view their timeliness, price, and quality; and

(2) whether agencies who are among the largest buyers of FPI products and

services monitor FPI’s performance the same way they do commercial

vendors in terms of timeliness, price, and quality. In doing our work, we

interviewed FPI officials and gathered information on their customer

satisfaction efforts at FPI in Washington, D.C. We also met with officials at

FPI’s Customer Service Center in Lexington, KY; the Office of Federal

Procurement Policy (OFPP); and spoke with officials at five major customer

agencies—the Defense Logistics Agency (DLA); the General Services

Administration’s (GSA) Federal Supply Service (FSS) in Arlington, VA, and

Fort Worth, TX; the Department of the Army’s Office of the Assistant

Secretary of the Army for Research, Development, and Acquisition in Falls

Church, VA; the Social Security Administration (SSA) in Baltimore, MD; and

the United States Postal Service (Postal Service) in Washington, D.C.

We also did limited work at the Department of Health and Human Services

(HHS) in Washington, D.C.; the Department of Defense’s (DOD) Office of the

Secretary of Defense at the Pentagon; and the National Institutes of Health

(NIH) in Bethesda, MD; and we spoke with officials from various trade

associations and one company that does customer satisfaction analysis.

We attended an FPI customer advisory group meeting in Orlando, FL. We

did not assess FPI’s overall efforts to promote customer satisfaction, such

as resolving complaints or granting waivers, nor did we assess customer

agencies’ efforts to award and administer vendors’ contracts. We also did

not assess agencies’ efforts to monitor small purchases from FPI, such as

credit card purchases.

To meet the first objective, we interviewed FPI officials at FPI headquarters

in Washington, D.C., to discuss their efforts to collect and analyze

customer satisfaction data and whether existing management systems

were used to gauge customer satisfaction. We then obtained and analyzed

various FPI documents that discussed FPI efforts in the area of customer

satisfaction and examined surveys and the results of surveys that were

available from officials at FPI headquarters. We also worked with

headquarters officials to collect and analyze information about what

individual prisons do to monitor customer satisfaction.

In addition, we reviewed key laws and regulations pertaining to FPI. We

also reviewed Executive Order 12862—Setting Customer Service

Page 34 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix I 

Objectives, Scope, and Methodology

Standards; related NPR reports; media publications about FPI in particular

and customer satisfaction in general; case studies documenting the

experience of award recipients under the President’s Quality Award

Program and the criteria for the President’s Quality Award and the

Malcolm Baldrige National Quality Award; and GAO reports dealing with

customer satisfaction and agency performance measurement, including

reports on the implementation of the Government Performance and

Results Act of 1993. Early in our review, we also explored the possibility of

using data from FPI’s customer order entry database (COED), which is

housed in Lexington, KY, to conduct our own customer satisfaction

survey. However, as discussed in the report, we were unable to use COED

data, because, among other things, it did not identify end users. We also

spoke with representatives of two trade associations about their members’

efforts to monitor customer satisfaction and with a representative of a

company that does customer satisfaction analysis for private and public

organizations. Finally, we did a literature search of publications pertaining

to customer satisfaction and public and private organizations’ efforts to

collect customer satisfaction information and use it to measure and

improve performance.

To meet the second objective, we reviewed key laws and regulations, such

as the Federal Acquisition Regulation (FAR), pertaining to procurement

from commercial vendors and FPI, especially in relation to vendor

performance. Using FPI sales reports, we initially selected four of FPI’s

major customer agencies—DOD, GSA, HHS, and the Postal Service—to

examine their approach for monitoring the performance of commercial

vendors and FPI. We selected these agencies because they had the largest

volume of FPI sales during fiscal years 1995 and 1996. We did not select the

Bureau of Prisons (BOP), another major purchaser of FPI products, because

of BOP’s relationship with FPI. Because of staffing constraints and time

limitations, we further refined our selections at DOD, the largest of FPI’s

customers, to include only DLA and Army, which, according to FPI sales

records, were the DOD agencies with the largest volume of sales during

fiscal year 1996. At GSA, the second largest FPI customer in terms of sales

volume during fiscal year 1996, we focused primarily on FSS, which,

according to FPI, constituted more than three-fourths of FPI’s sales to GSA.

In addition, at HHS, our discussions with procurement officials indicated

that the volume of FPI sales to HHS was relatively small, contrary to FPI

sales figures for both fiscal years. Subsequently, we contacted the Manager

of FPI’s Planning, Research and Activation Branch, who told us that HHS

sales figures still included SSA, which became a separate agency in 1995.

Page 35 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix I 

Objectives, Scope, and Methodology

He added that the vast majority of HHS sales listed in FPI’s sales report for

both fiscal years were actually attributable to SSA and that FPI plans to

change the sales report in the future to reflect the change in SSA’s

relationship to HHS. As a result of our conversations, we selected SSA as

one of the agencies for our examination. We also met with an official of

OFPP in Washington, D.C., to discuss OFPP guidelines and initiatives

pertaining to evaluating contractor performance.

To determine how the five selected agencies monitor the performance of

commercial vendors and FPI, we spoke with responsible officials in each of

the agencies to discuss their overall efforts to evaluate the performance of

commercial vendors and FPI as part of the procurement process and in

administering contracts. Our discussions focused on the processes and

procedures these agencies used to evaluate the performance of

commercial vendors and FPI. We also focused on the similarities and

differences in how commercial vendors and FPI are treated in terms of

performance evaluation, including remedies for nonperformance of

contract terms. We also obtained and analyzed agency documents that

described their processes and procedures for vendor performance

evaluations. Although we obtained examples of their evaluations, we did

not (1) comprehensively evaluate their efforts or determine whether they

complied with applicable laws and regulations or (2) do an independent

assessment of whether customer agencies were satisfied with FPI and its

products and services. For purposes of this report, we used the term

contract to include agency agreements with FPI.

We did our work between July 1997 and January 1998 in accordance with

generally accepted government auditing standards. We received written

comments on a draft of this report from BOP, which we have included in

appendix II. BOP’s comments are summarized and discussed on page 29.

FPI’s Chief Operating Officer and his staff also provided several oral

technical comments on various portions of a draft of this report. We also

held exit conferences with program officials of the other federal agencies

to verify selected data and facts presented in the report.

Page 36 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix II 

Comments From the Bureau of Prisons

Page 37 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix II 

Comments From the Bureau of Prisons

Page 38 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix II 

Comments From the Bureau of Prisons

Page 39 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix II 

Comments From the Bureau of Prisons

Page 40 GAO/GGD-98-50 FPI Customer Satisfaction
Appendix III 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Gerald Stankosky, Assistant Director

John F. Mortin, Assistant Director

William J. Dowdal, Senior Evaluator

David E. Sausville, Senior Evaluator

Martin de Alteriis, Senior Social Science Analyst

Hazel Bailey, Evaluator (Communications Analyst)

Office of General

Counsel, Washington,

D.C.

Alan Belkin, Assistant General Counsel

Susan Michal-Smith, Senior Attorney

Dallas Field Office Robert T. Griffis, Senior Evaluator

Patricia Sari-Spear, Senior Evaluator

(240265) Page 41 GAO/GGD-98-50 FPI Customer Satisfaction
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