```

[Senate Hearing 106-528]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-528
 
     BUREAU OF PRISONS OVERSIGHT: THE IMPORTANCE OF FEDERAL PRISON 
                               INDUSTRIES

=======================================================================

                                HEARING

                               before the

               SUBCOMMITTEE ON CRIMINAL JUSTICE OVERSIGHT

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

   THE BUREAU OF PRISONS OVERSIGHT OF THE ROLE AND IMPORTANCE OF THE 
                       FEDERAL PRISON INDUSTRIES

                               __________

                              MAY 24, 1999

                               __________

                          Serial No. J-106-28

                               __________

         Printed for the use of the Committee on the Judiciary

                      U.S. GOVERNMENT PRINTING OFFICE
                             WASHINGTON : 2000
65-147 cc

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire

             Manus Cooney, Chief Counsel and Staff Director

                 Bruce A. Cohen, Minority Chief Counsel

                                 ______

               Subcommittee on Criminal Justice Oversight

                STROM THURMOND, South Carolina, Chairman

MIKE DeWINE, Ohio                    CHARLES E. SCHUMER, New York
JOHN ASHCROFT, Missouri              JOSEPH R. BIDEN, Jr., Delaware
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               PATRICK J. LEAHY, Vermont

                     Garry Malphrus, Chief Counsel

                    Glen Shor, Legislative Assistant

                                  (ii)

                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Thurmond, Hon. Strom, U.S. Senator from the State of South 
  Carolina.......................................................     1
DeWine, Hon. Mike, U.S. Senator from the State of Ohio...........     5

                    CHRONOLOGICAL LIST OF WITNESSES

Panel consisting of Kathleen Hawk Sawyer, Director, Federal 
  Bureau of Prisons, and Chief Executive Officer, Federal Prison 
  Industries, Washington, DC; Joseph M. Aragon, chairman, board 
  of directors, Federal Prison Industries, Washington, DC; and 
  Philip W. Glover, president, council of prison locals, American 
  Federation of Government Employees, Johnstown, PA..............     7
Panel consisting of David R. Oliver, Principal Deputy Under 
  Secretary of Defense for Acquisition and Technology, Department 
  of Defense, Washington, DC; Ann F. Hoffman, legislative 
  director, Union of Needletraders, industrial and textile 
  employees, Washington, DC; and Steve Schwalb, Assistant 
  Director, Federal Bureau of Prisons, and Chief Operating 
  Officer, Federal Prison Industries, Washington, DC.............    23

                ALPHABETICAL LIST AND MATERIAL SUBMITTED

Aragon, Joseph M.:
    Testimony....................................................    12
    Prepared statement...........................................    13
Glover, Philip: Testimony........................................    15
Hoffman, Ann F.:
    Testimony....................................................    25
    Prepared statement...........................................    27
Oliver, David R.:
    Testimony....................................................    23
    Prepared statement...........................................    23
Sawyer, Kathleen Hawk:
    Testimony....................................................     7
    Prepared statement...........................................     9
Schwalb, Steve:
    Testimony....................................................    30
    Prepared statement...........................................    32
Thurmond, Hon. Strom:
    Charts:
        FPI contracts awarded to private sector, fiscal year 1998     3
        Growth in inmate population, Federal Bureau of Prisons 
          facilities.............................................     4
    Prepared statement of Andrew S. Linder, president and owner 
      of Power Connector, representing the Correctional Vendors 
      Association................................................    21

                                APPENDIX
                         Questions and Answers

Responses to questions of Senator Thurmond from:
    Kathleen Hawk Sawyer.........................................    39
    Joseph Aragon................................................    40
    David R. Oliver..............................................    41
    Ann Hoffman..................................................    42
    Steve Schwalb................................................    43

                 Additional Submissions for the Record

Prepared statement of Administration Policy......................    46
Chart of the Industrial Programs Locations, Inmate Employment, 
  and Net Sales as of September 1998.............................    49
Prepared statement of American Apparel Manufacturers Association.    50
Letter from Senators Phil Gramm, Orrin Hatch, and Strom Thurmond 
  to the U.S. Senate, dated May 21, 1999.........................    52

     BUREAU OF PRISONS OVERSIGHT: THE IMPORTANCE OF FEDERAL PRISON 
                               INDUSTRIES

                              ----------                              

                          MONDAY, MAY 24, 1999

                               U.S. Senate,
        Subcommittee on Criminal Justice Oversight,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 3:12 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Strom 
Thurmond (chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. STROM THURMOND, A U.S. SENATOR FROM 
                  THE STATE OF SOUTH CAROLINA

    Senator Thurmond. The subcommittee will come to order.
    I am pleased to hold this oversight hearing today regarding 
Federal Prison Industries, the most important inmate program of 
the Federal Bureau of Prisons. Created during the Great 
Depression, FPI is a program for managing, training, and 
rehabilitating inmates in Federal prisons.
    The Bureau of Prisons plays a key role in America's fight 
against crime. To protect our citizens, America is placing more 
and more dangerous and violent criminals in prison. The number 
of inmates in Federal prisons has more than doubled in the past 
decade, and we can expect that trend to continue.
    One of the main reasons crime rates in America are going 
down is because the number of criminals we are putting behind 
bars is increasing. The Bureau of Prisons has an extremely 
important and complex task in housing and, to the extent 
possible, rehabilitating these inmates. FPI is critical to this 
task.
    Prisoners must work. Idleness and boredom in prison leads 
to mischief and violence. FPI keeps inmates productively 
occupied, which helps maintain prison safety and security.
    Moreover, prisoners who work in FPI develop job skills and 
learn a work ethic. As a result, they adjust better in prison 
and are better prepared to become productive members of society 
when they leave.
    FPI is a self-sufficient government corporation. It would 
be extremely expensive to create programs that would provide 
similar benefits to inmates and similar security to prison 
facilities.
    I am very concerned about current efforts to change the 
mandatory source preference that FPI receives from Federal 
agencies. FPI may only sell products to the Federal Government, 
and further restricting FPI's limited market could endanger the 
program.
    The Department of Defense represents almost 60 percent of 
FPI sales. If changes are made regarding procurement for 
Federal agencies, such as Defense, then we should consider 
providing Prison Industries other opportunities to sell its 
products, such as allowing it to sell in the commercial market 
products that are currently imported from foreign countries and 
made with foreign labor.
    The Department of Defense and Bureau of Prisons have just 
completed a joint study that we ordered in a defense 
authorization bill 2 years ago, and I am pleased that we will 
hear about the findings of this study today.
    Prison Industries does not have an advantage over the 
private sector. Although inmates make less money than civilian 
workers, FPI must deal with many hidden costs and constraints 
that do not apply to the private sector. For example, working 
inmates must be closely supervised, adding to labor costs, and 
extensive time-consuming security procedures must be followed.
    While the private sector often specializes in certain 
products, FPI by law must diversify its product lines to lessen 
its impact on any one industry. Also, the private sector tries 
to keep labor costs low, while FPI keeps its factories as 
labor-intensive as possible. Moreover, inmate workers generally 
have little education and training and often have never held a 
steady job.
    Many private businesses depend on the program, providing 
FPI raw materials and component parts. Contracts for such 
purchases are awarded in nearly every State, and over half go 
to small businesses.
    Moreover, FPI helps victims of crime recover the money they 
are due. The program requires that 50 percent of all inmate 
wages be used to pay for victim restitution, fines, child 
support, or other court-ordered payments. Last year, FPI 
collected nearly $2 million for this purpose.
    FPI is a correctional program that is essential to the safe 
and efficient operation of our increasingly overcrowded Federal 
prisons. While we are putting more and more criminals in 
prison, we must maintain the program that keeps them occupied 
and working.
    While Prison Industries is essential, it is partly a 
business, and it should operate as efficiently and effectively 
as possible within the constraints imposed on it. Federal 
agencies should be provided products that are of at least the 
same quality and price as the private sector, and they should 
receive them in a timely manner. Previous studies from GAO and 
other sources have raised questions regarding customer service. 
For example, the joint study with DOD found that timely 
delivery remains a significant concern of Defense customers. 
FPI must work tirelessly to address these issues.
    I wish to thank the witnesses for appearing today, and I 
look forward to discussing the importance of Federal Prison 
Industries.
    I wish to place in the record a listing of the total amount 
of FPI contracts awarded by States to private sector companies 
in 1998, and a chart showing the growth in inmate population. I 
ask unanimous consent that that be done.
    [The listing and chart follow:]

    [GRAPHIC] [TIFF OMITTED] T5147.001
    
    [GRAPHIC] [TIFF OMITTED] T5147.002
    
    Senator Thurmond. Also I would like to put in the record 
the prepared statement of Senator DeWine.
    [The prepared statement of Senator DeWine follows:]

        Prepared Statement of Hon. Mike DeWine, a U.S. Senator 
                         From the State of Ohio

    First, let me thank our chairman, Senator Thurmond, for holding a 
hearing to review the Federal Prison Industries program and the federal 
``mandatory source preference'' rule. In light of recently introduced 
legislation designed to eliminate the Department of Defense's mandatory 
source preference for FPI products, this issue has taken on new 
immediacy. Today, the FPI provides numerous goods and services under 
the trade name UNICOR to a variety of federal departments and agencies, 
primarily the Department of Defense. In fact, federal mandatory 
preferences for UNICOR products assist the FPI to remain entirely self-
supporting. In turn, FPI continues to strive towards the achievement of 
two important goals--safer prisons and safer communities--goals which I 
strongly support. FPI also continues to try and improve upon its 
services and relationships with customers, while finding new ways to 
wean itself from a reliance upon mandatory source preferences, which 
some in the private sector have criticized. I appreciate the 
willingness of all today's witnesses to come and explain their 
positions regarding FPI to the Subcommittee.
    Since the program's creation by Congress in 1934, FPI has sought to 
make prisons more manageable institutions, and as a result safer places 
for those who live and work in them. Idleness in prisons can lead to 
misconduct. By occupying as many prisoners as possible in labor 
intensive work activities, inmates have less opportunity to cause 
disturbances, and management of correctional institutions should be 
easier for staff. Work not only keeps inmates out of trouble; it can 
also be an effective incentive to induce good behavior. Since good time 
credit and parole opportunities have been reduced or eliminated in our 
federal prisons, work programs remain as one of the best proven methods 
of eliciting good behavior from inmates. Today, we will hear powerful 
testimony from our corrections officials supporting FPI's value as a 
prison safety and management tool.
    Perhaps more importantly, work activities can teach inmates skills 
and values that may allow them to reenter our communities as 
productive, law abiding citizens. In fact, two recent studies indicate 
that recidivism rates drop significantly among populations of former 
inmates who have participated in prison work programs. The Bureau of 
Prisons just completed a twelve year study of FPI which indicates that 
inmates who participated in FPI were 24 percent more likely to find 
work after release and, consequently, less likely to commit another 
criminal act. Another study done by the California Board of Corrections 
makes similar findings. I am encouraged by such findings, as I am 
personally committed to finding ways in which the federal government 
can reduce our Nation's unacceptably high crime rate.
    FPI is not a business--it is a correctional program. Rather than 
seeking standard business efficiencies, increasing productivity and 
cutting costs to generate higher profit margins, FPI employs as many 
inmates as possible in inefficient, labor-intensive work. However, by 
law, the FPI must also function as a self sustaining program and 
produce quality products that are cost competitive with similar private 
sector products. Accordingly, the mandatory federal source referencing 
rule was crafted to assist FPI overcome these various constraints and 
secure a stable customer base for its products. The mandatory source 
preference rule reduces the added expense of advertising goods and 
services, and soliciting private sector partners that FPI would 
otherwise incur. In practice, the mandatory rule seems to be quite 
workable. FPI's federal government customers give the program high 
marks. The DoD has just conducted a study of the mandatory source rule 
and its procurement of FPI goods. The Department found that FPI rated 
average to excellent in every category from quality to price of their 
products. DoD and FPI are also currently exploring ways to improve 
their procurement relationship to ensure that the source preference 
rule remains mutually beneficial to both parties.
    Recently, some in the private sector have expressed concern about 
the potential negative impact of the mandatory preference rule and FPI 
on their efforts to secure contracts with the Federal government. I am 
impressed, however, with the FPI's efforts to reduce any adverse impact 
on private sector business. First, the FPI, by law, must diversify its 
goods and services in order to minimize the level of competition with 
any one industry or type of business. Indeed, FPI provides a range of 
goods and services to the Federal government from office equipment to 
electronics. Further, FPI must avoid capturing more than a reasonable 
share of the market among federal departments. I believe some of our 
witnesses today will testify to the fact that FPI goods and services 
currently account for less than 1 percent of federal government 
purchases. Additionally, FPI maintains an Industry Involvement 
Guidelines Process which allows interested industry officials to 
comment on any proposed new line of FPI goods or services. And, 
finally, FPI has adopted a long range strategy to direct more of their 
efforts toward non-mandatory source preference work, such as providing 
services, which do not fall under the mandatory source rule, or 
subcontracting with other companies that already have government 
contracts.
    Other voices in the private sector have been raised in strong 
support of FPI and the mandatory source preference rule. Many small 
companies have secured government work, by teaming up with FPI, that 
may otherwise not have had the resources to compete for these highly 
sought-after contracts. In fact, today, we will hear from one small 
businessman who credits FPI with enabling his business to begin and 
grow through a partnership with the program on a DoD electronics 
contract. FPI also aides business by purchasing raw materials and 
services. In fact, for every dollar in FPI sales, it is estimated that 
76 cents goes directly back to private sector companies. FPI accounted 
for $419 million in private sector business last year. Sixty two 
percent of these purchases were from small and/or minority owned or 
disadvantaged businesses.
    The Federal Prisons Industries program continues to aim for the 
goals articulated by Congress over sixty years ago. On balance, the 
program seems to be meeting these twin goals of making our prisons and 
communities safer. Moreover, the program continues to seek new ways to 
maximize its utility as a correctional tool, while limiting any 
negative impact on private business. I support the aims of this long-
standing program. I know today's discussion will be thoughtful and 
productive, and I look forward to hearing our witnesses' testimony. 
Thank you again, Mr. Chairman.

    Senator Thurmond. We have just received a statement of 
administration policy on the defense authorization bill. It 
states that the administration opposes section 806 in the bill 
which would essentially eliminate the FPI mandatory sourcing 
with the Defense Department. I wish to read this statement into 
the record.

          The administration opposes section 806 which would 
        essentially eliminate the Federal Prison Industries' 
        mandatory sourcing with the Defense Department. Such 
        action could harm the FPI program, which is fundamental 
        to the security of Federal prisons. In principle, the 
        administration believes that the Government should 
        support competition for the provision of goods and 
        services to Federal agencies. However, to ensure that 
        Federal inmates are employed in sufficient numbers, the 
        current mandatory sourcing requirement should not be 
        altered until an alternative program is designed and 
        put in place. Finally, this provision would only 
        address mandatory sourcing for the Defense Department 
        without regard to the rest of the Federal Government.

    I will now introduce the first panel today. Our first 
witness is Dr. Kathleen Hawk Sawyer. Dr. Sawyer, I am glad to 
see you again.
    Ms. Sawyer. Good to see you, Senator.
    Senator Thurmond. I have had the pleasure of working with 
you in the past, and you are a very efficient, able, and fine 
lady.
    Ms. Sawyer. Thank you, sir.
    Senator Thurmond. She is the Director of the Justice 
Department's Federal Bureau of Prisons with 23 years of 
management and training experience in the Bureau of Prisons. 
She doesn't look that old.
    Ms. Sawyer. Thank you, Mr. Chairman.
    Senator Thurmond. She currently oversees the operation of 
94 Federal institutions. She holds a bachelor's degree from 
Wheeling Jesuit College in West Virginia and both an M.A. and a 
Doctor of Education degree from West Virginia University.
    Our second witness is Phil Glover, president of the Council 
of Prison Locals, American Federation of Government Employees, 
and senior officer at the Federal correctional institution in 
Loretto, PA. Mr. Glover worked as a line staff correctional 
officer with the Bureau of Federal Prisons from 1990 to 1997.
    Our third witness is Joseph Aragon, chairman of the board 
of the Federal Prison Industries. He is president and chief 
executive officer of ProServe Corporation, an award-winning 
food service management company. Mr. Aragon, a graduate of 
Florida State University, worked for the Bureau of Prisons for 
4 years.
    We will start with Director Sawyer and go down the line. 
Thank you all for being here today.

  PANEL CONSISTING OF KATHLEEN HAWK SAWYER, DIRECTOR, FEDERAL 
BUREAU OF PRISONS, AND CHIEF EXECUTIVE OFFICER, FEDERAL PRISON 
 INDUSTRIES, WASHINGTON, DC; JOSEPH M. ARAGON, CHAIRMAN, BOARD 
 OF DIRECTORS, FEDERAL PRISON INDUSTRIES, WASHINGTON, DC; AND 
PHILIP W. GLOVER, PRESIDENT, COUNCIL OF PRISON LOCALS, AMERICAN 
       FEDERATION OF GOVERNMENT EMPLOYEES, JOHNSTOWN, PA

               STATEMENT OF KATHLEEN HAWK SAWYER

    Ms. Sawyer. Thank you, Mr. Chairman. Good afternoon, and I 
appreciate the opportunity to appear before you today to 
discuss the Federal Prison Industries Program.
    The debate about the role of FPI has certainly increased in 
intensity over the past several years. The debate involved many 
complex issues and involves parties with conflicting views. FPI 
cannot address this important public policy on its own but 
needs the input of all affected parties.
    The Federal Bureau of Prisons believes, as you stated, Mr. 
Chairman, that it has the obligation to provide realistic and 
productive work opportunities for inmates in our custody. We 
hope that the private sector business and labor communities 
will work with us in crafting a mutually acceptable solution. 
We hope we can establish a collective commitment from FPI, 
elected officials, business, and labor to craft a reasonable 
and viable solution. The task may not be easy, but we believe 
that consensus can be achieved if the goal at the outset is a 
win/win solution, and the administration is actively reviewing 
options to reach such a solution.
    FPI has been and continues to be the Bureau of Prisons' 
most important, efficient, and cost-effective correctional 
management program to teach inmates marketable work skills, to 
relieve inmate idleness, and contribute to the orderly 
operation of our prisons.
    A comprehensive study conducted over a 12-year span by the 
Bureau of Prisons demonstrates that FPI is an important 
rehabilitation tool which provides inmates an opportunity to 
develop work ethics and work skills that can be used upon 
release from prison. Comparing inmates with similar 
characteristics, the study found that FPI training programs 
contribute substantially to lower recidivism rates and 
increased job success for inmates after release. In fact, 
inmates employed by FPI were found to be 24 percent more likely 
to become employed upon release and remain crime-free for as 
many as 12 years.
    The FPI program also contributes significantly to the 
safety and security of the Bureau's correctional institutions. 
FPI helps keep inmates productively occupied and reduces inmate 
idleness and the violence associated with that idleness. It is 
important to the security of our prisons, our staff, our 
inmates, and the communities in which they are located.
    FPI's role as a correctional program has grown more 
important in the face of a dramatically rising inmate 
population. Overcrowding in prisons is a continuing problem, 
and the Bureau relies heavily on its correctional programs as 
management tools to combat the dangers caused by inmate 
idleness. With the abolition of parole and the reduction of 
good time credit, FPI is one of the few incentives left to 
encourage positive inmate behavior. Inmates are required to 
maintain clear conduct and participate in educational programs 
in order to work in FPI.
    FPI also reduces the costs of incarceration by being self-
sustaining and providing an important inmate program at no cost 
to the taxpayer. As you indicated, Mr. Chairman, in your 
comments, our inmates are required to contribute 50 percent of 
their earnings toward victim restitution, child support, and 
fines, and we collected nearly $2 million in 1998 from UNICOR 
inmates to satisfy those obligations.
    As I have testified in the past, I strongly believe that 
FPI is the most successful prison industries model in America. 
The evidence confirms that no other prison industries program 
has done more comprehensive research to demonstrate the post-
release recidivism benefits of inmate employment. No other 
program has so greatly diversified its production so as to 
minimize impact on any particular industry, and it has been 
continuously self-sustaining for over 60 years.
    The elevated level of controversy about FPI is a relatively 
recent development in its 64-year history. The intensity of 
debate directly correlates with FPI's increased output of goods 
and services which, in turn, has been driven by the bipartisan 
Federal criminal justice policy for the past two decades, of 
putting more people in prison for longer periods of time. There 
is a clear and direct relationship, fully acknowledged by 
former and the current administration and Congress, between the 
number of Federal inmates and the number of FPI jobs needed.
    The future challenge in this regard is daunting. The Bureau 
of Prisons inmate population increased more in fiscal year 1998 
than in any previous year, by more than 10,000 inmates. Current 
forecasts for fiscal year 2006 project over 177,000 inmates in 
our custody, a possible increase of almost 50,000 inmates in 
just 7 years. The vast majority of these will be housed in 
Bureau of Prisons institutions. We have provided as an 
attachment a chart which illustrates the dramatic increase in 
inmate population. As the Bureau's population grows, the need 
for expansion of Federal Prison Industries grows 
commensurately.
    In conclusion, FPI is committed to the goal of providing 
self-sustaining work programs for an inmate population, but we 
need assistance in coming up with a mutually agreeable 
solution.
    That concludes my comments, Mr. Chairman, and I am very 
willing to answer any questions you or other subcommittee 
members may have.
    [The prepared statement of Ms. Sawyer follows:]

               Prepared Statement of Kathleen Hawk Sawyer

    Mr. Chairman and Members of the Subcommittee, I appreciate the 
opportunity to appear before you today to discuss the Federal Prison 
Industries, Inc. (commonly referred to as FPI or UNICOR, its trade 
name) program.
    The debate about the role of FPI has increased in intensity over 
the past several years. There are numerous reasons for this, some of 
which I will discuss later on. The debate involves complex issues and 
involves parties with conflicting views. FPI cannot address this 
important public policy on its own but needs the input of all affected 
parties.
    The Federal Bureau of Prisons (BOP) believes it has an obligation 
to provide realistic and productive work opportunities for its inmates. 
We hope we can establish a collective commitment from FPI, elected 
officials, business and labor to craft a reasonable, viable solution. 
The task may not be easy, but we believe that consensus can be achieved 
if the goal at the outset is a ``win-win'' solution, and the 
Administration is actively reviewing options to reach such a solution.
                            the fpi program
    FPI has been and continues to be the BOP's most important, 
efficient, and cost effective correctional management program to teach 
inmates marketable work skills, relieve inmate idleness, and contribute 
to the orderly operation of federal prisons. FPI's statute carefully 
balances key, and sometimes competing, public policy interests such as 
the impact of prisoner production on the private sector, the need to 
generate sufficient sales to employ and provide skills training to as 
many inmates as practicable, and the expectation that the program be 
self-sustaining. To maintain an appropriate balance between these 
interests and to ensure that the FPI program is administered fairly and 
effectively, the statute also provides for a Presidentially-appointed 
Board of Directors to govern the affairs of the corporation.
    A comprehensive review of FPI's statute strongly conveys that FPI 
is first and foremost a correctional program, whose principal purpose 
is to provide meaningful job skills training for inmates. A 
comprehensive study conducted over a 12-year span by the BOP, entitled 
the Post Release Employment Project (PREP), demonstrates that FPI is an 
important rehabilitation tool which provides inmates an opportunity to 
develop work ethics and skills that can be used upon release from 
prison. Comparing inmates with similar characteristics, the study found 
that FPI training programs contribute substantially to lower recidivism 
and increased job-related success for inmates after their release. 
Inmates employed by FPI were found to be 24 percent more likely, upon 
release, to become employed and remain crime-free for as long as 12 
years after release.
    The FPI program also contributes significantly to the safety and 
security of the BOP's correctional facilities. FPI helps keep inmates 
productively occupied and reduces in-mate idleness and the violence 
associated with it. It is essential to the security of the Federal 
Prison System, its staff, inmates, and the communities in which they 
are located.
    FPI's role as a correctional program has grown more important, 
particularly in the face of a dramatically rising inmate population. 
Overcrowding in the nation's prisons is a continuing problem, and the 
BOP relies heavily on its correctional programs as management tools to 
combat the dangers caused by inmate idleness. With the abolishment of 
parole and the reduction of good time credit, FPI is one of the few 
incentives left to encourage positive inmate behavior. Further, inmates 
are required to maintain clear conduct and participate in educational 
programming in order to maintain employment in FPI.
    FPI also reduces the costs of incarceration by being self-
sustaining, providing an important inmate program at no cost to the 
taxpayers. An additional direct benefit to the taxpayer, is the 
requirement that inmates employed by FPI contribute 50 percent of their 
earnings toward victim restitution, child support, and fines. In fiscal 
year 1998, nearly $2 million was collected from UNICOR inmates toward 
these obligations.
    As I have testified in the past, I strongly believe that FPI is the 
most successful prison industries model in American history. 
Specifically, the evidence confirms that no other prison industries 
program: (1) employs a greater percentage of the inmate population; (2) 
has done more comprehensive research to demonstrate the post-release 
recidivism benefits of inmate employment in industries; (3) has so 
greatly diversified its production so as to minimize impact on any 
particular industry; (4) has been continuously self-sustaining for over 
60 years; (5) creates as many jobs in the private sector, especially 
among small and disadvantaged businesses, with its procurements; and, 
very importantly, (6) is as integrated into the management of the 
correctional agency and the individual prisons.
                     the source of the controversy
    The elevated level of controversy about FPI is a relatively recent 
development in its 64-year history. The intensity of debate directly 
correlates with FPI's increased output of goods and services which, in 
turn, has been driven by the bi-partisan federal criminal justice 
policy for the past two decades, of putting more people in prison for 
longer periods of time. There is, however, a clear and direct 
relationship, fully acknowledged by former and the current 
Administration and Congress, between the number of federal inmates and 
the number of FPI inmate jobs needed.
    The future challenge in this regard is daunting. The BOP inmate 
population increased more in fiscal year 1998 (over 10,000) than in any 
previous year. Current forecasts for fiscal year 2006 project over 
177,000 inmates in BOP custody, a possible increase of approximately 
50,000 inmates in just 7 years, the vast majority of which will be 
housed in BOP facilities. This continued population increase is due 
primarily to increased sentences, increased convictions for drug and 
immigration offenses, and the absorption of the District of Columbia 
prison population. See Attachment A. As BOP's population grows, the 
need for expansion of FPI grows commensurately.
    In conclusion, FPI is committed to the goal of providing self-
sustaining work programs for an inmate population which continues to 
grow unabated. However, this challenge cannot be achieved by FPI alone. 
As greater numbers of convictions occur, it is essential that there 
also be commensurate support for realistic alternatives to create 
additional inmate jobs.
    Again, Mr. Chairman, I appreciate this opportunity to provide our 
views concerning the BOP's most important correctional program. This 
concludes my remarks. I would be happy to answer any questions you or 
other members of the Subcommittee may have.

[GRAPHIC] [TIFF OMITTED] T5147.003

    Senator Thurmond. Mr. Aragon.

                 STATEMENT OF JOSEPH M. ARAGON

    Mr. Aragon. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear before you today to speak about Federal 
Prison Industries, FPI.
    I come here as a private citizen with no vested interest in 
FPI except for that which has been bestowed upon me by the 
President of the United States. I currently serve as Chairman 
of FPI's Board of Directors, a board that I was appointed to by 
the President almost 5 years ago.
    By way of introduction, let me first provide you with a 
brief overview of the board of directors and those who serve at 
the will of the President.
    The presidentially appointed board members are selected to 
govern FPI's operations and advance its mission by establishing 
general policies and long-range corporate plans. Commissioned 
to serve without compensation, the board uses its diverse 
background experience in business, government, and industry to 
achieve FPI's statutory mandates. This responsibility evolves 
from FPI's unique mission to: operate in a self-supporting 
manner without appropriated funds from Congress; create 
constructive activities for Federal inmates to relieve stress 
and idleness; and to instill work ethics and job skills in 
inmates to reduce the rate of recidivism.
    The board itself is comprised of six members representing 
industry, labor, agriculture, retailers, and consumers, the 
Secretary of Defense, and the Attorney General.
    The board consists of a wide variety of accomplished 
individuals. Together, we are responsible for administering all 
aspects of FPI's operations, key aspects of which are: 
Approving FPI's financial operating plans, developing strategic 
plans, approving the establishment and activation of new 
factories, approving major capital expenditures, and approving 
FPI proposals to produce a new product or expand its market 
share of an existing product.
    The majority of FPI's board members, however, are employed 
in the private sector and are keenly aware of the challenges 
that those in the private sector, and small business owners, in 
particular, face.
    Mr. Chairman, I am a small business owner and have operated 
my business for 15 years. Some of the work that we do is 
currently performed by UNICOR operations in various facilities. 
However, I believe the program's overriding interest in 
employing inmates supersedes that lack of market share that I 
could possibly go after.
    The challenge to the board is to be responsive to the 
concerns and interests of a vast segment of private sector 
groups ranging from professional trade organizations, business 
corporations, and various manufacturers to organized labor 
groups, public officials, and individual private citizens, 
while guiding FPI on a course that will ensure its self-
sufficiency in the future.
    Perhaps the most visible way in which the board fulfills 
its responsibility is through the guidelines process. When FPI 
proposes to produce a new product or significantly expand 
production of an existing product, it must first conduct a 
market impact study. This study must identify and consider: The 
number of vendors currently meeting the requirements of the 
Federal Government; the proportion of the Federal market for 
the product currently served by small business and small 
disadvantaged businesses or businesses operating in labor-
surplus areas. We also consider the size of the Federal and 
non-Federal markets for the product, the projected growth in 
the Federal Government's demand for the products, the projected 
ability of the Federal market to sustain both FPI and private 
vendors, and the trends of the commercial market for a 
comparable product.
    FPI must then announce in the Commerce Business Daily its 
proposal and invite comments from private industry and 
organized labor. FPI must also directly notify those trade 
associations affected and allow them to provide comments. The 
board of directors has provided copies of the market impact 
study, the comments received, and FPI's recommendations. The 
board also holds hearings at which the public can come and 
provide testimony. At the conclusion of the above process, the 
board renders its decision, which is also published in the 
Commerce Business Daily.
    As a member of the board, I can state that we take our 
position and our representative status very seriously when 
making these decisions. By Federal statute, we are called upon, 
on the one hand, to provide employment for the greatest number 
of inmates who are eligible to work but, on the other hand, to 
represent a segment of society that often has competing 
interests. This task is compounded by the continued spiraling 
growth of the Federal inmate population, as noted by Director 
Hawk Sawyer in her testimony.
    We are constantly struggling with the challenge of 
balancing the needs of FPI while minimizing the impact on the 
private sector. When there has been persuasive information that 
FPI might have an adverse impact on a particular industry, 
especially one dominated by small business, the board has 
restricted and even precluded FPI's presence in that industry.
    Mr. Chairman, if there is one thing I know all the board 
members would agree on, it is the fact that there are no easy 
answers or magical solutions. The current process, I believe, 
provides for wide-ranging input and representation, compels 
full consideration of all the relevant issues, and allows 
public policy to be implemented in the fairest and most 
responsible manner. If we are going to change things, the 
changes must be measured, balanced, and mutually beneficial. 
There is no black or white nor right or wrong. Responsible 
public policy must take into account all of the legitimate 
interests involved.
    Mr. Chairman, this concludes my remarks. I would be pleased 
to answer any questions you or other members of the 
subcommittee might have.
    Thank you.
    [The prepared statement of Mr. Aragon follows:]

                 Prepared Statement of Joseph M. Aragon

    Mr. Chairman and members of the subcommittee, I appreciate the 
opportunity to appear before you today to speak about Federal prison 
Industries (FPI).
    I come here as a private citizen with no vested interest in FPI 
except for that which has been bestowed upon me by the President of the 
United States. I currently serve as Chairman of FPI's Board of 
Directors, a Board that I was appointed to by the President almost five 
years ago.
    By way of introduction, let me first provide you with a brief 
overview of the Board of Directors and those who serve at the will of 
the President.
                             board overview
    The Presidentially-appointed Board members are selected to govern 
FPI's operations and advance its mission by establishing general 
policies and long range corporate plans. Commissioned to serve without 
compensation, the Board uses its diverse background experience in 
business, government, and industry to achieve FPI's statutory mandates. 
This responsibility evolves from FPI's unique mission to : (a) operate 
in a self-supporting manner without appropriated funds from Congress, 
(b) create constructive activities for Federal inmates to relieve 
stress and idleness, and (c) instill work ethics and job skills in 
inmates to reduce the rate of recidivism.
    The Board itself is comprised of six members representing industry, 
labor, agriculture, retailers and consumers, the Secretary of Defense 
and the Attorney General. They are as follows:

  1. Susan Loewenberg represents industry. Ms. Loewenberg has worked in 
    the communications industry since 1974 and is currently Producing 
    Director of L.A. Theatre Works;

  2. Richard Womack represents labor. Mr. Womack has served as Director 
    of the Office of Civil Rights for the AFL-CIO since 1986;

  3. Todd Weiler represents the Secretary of Defense. Mr. Weiler is 
    Deputy Assistant Secretary of the Army for Reserve Affairs, 
    Mobilization, Readiness and Training (RAMRT);

  4. Stephen Colgate represents the Attorney General. Mr. Colgate is 
    Assistant Attorney General for Administration;

  5. Arthur White represents Agriculture. Mr. White is Vice Chairman of 
    Yankelovich Partners, Inc., where he has directed more than 200 
    research and consulting assignments for corporations, government 
    agencies, industry associations, media and non-profit 
    organizations, and universities;

  6. I, myself, represent retailers and consumers. I founded and 
    continue to serve as President and CEO of ProServe Corporation, a 
    food service management company.

    As you can see from the list of representatives, the Board consists 
of a wide variety of accomplished individuals. Together we are 
responsible for administering all aspects of FPI's operations, key 
aspects of which are: approving FPI's financial operating plans, 
developing strategic plans, approving the establishment and activation 
of new factories, approving major capital expenditures, and approving 
FPI proposals to produce a new product or expand its market share of an 
existing product.
    The majority of FPI's Board members, however, are employed in 
private sector positions and are keenly aware of the challenges that 
those in the private sector, and small business owners, in particular, 
face.
    Consequently, the challenge to the Board is to be responsive to the 
concerns and interests of a vast segment of private sector groups 
ranging from professional trade associations, business corporations, 
and various manufacturers to organized labor groups, public officials, 
and individual private citizens, while guiding FPI on a course that 
will ensure its self-sufficiency in the future.
                           guidelines process
    Perhaps the most visible way in which the Board fulfills its 
responsibility is through the Guidelines Process. When FPI proposes to 
produce a new product or significantly expand production of an existing 
product, it must first conduct a market impact study. This study must 
identify and consider: the number of vendors currently meeting the 
requirements of the Federal Government; the proportion of the Federal 
market for the product currently served by small business; small 
disadvantaged business; or business operating in labor surplus areas; 
the size of the Federal and non-Federal markets for the product; the 
projected growth in the Federal Government demand for the product; the 
projected ability of the Federal market to sustain both FPI and private 
vendors; and the trends of the commercial market for a comparable 
product. FPI must then announce in the Commerce Business Daily its 
proposal and invite comments from private industry and organized labor. 
FPI must also directly notify those trade associations affected and 
allow them to provide comments. The Board of Directors is provided 
copies of the market impact study, the comments received, and FPI's 
recommendations. The Board also holds hearings at which the public can 
come and provide testimony. At the conclusion of the above process, the 
Board renders its decision, which is also published in the Commerce 
Business Daily.
                     challenges faced by the board
    As a member of the Board, I can state that we take our position and 
our representative status very seriously when making decisions. By 
Federal statute, we are called upon, on the one hand, to provide 
employment for the greatest number of inmates who are eligible to work 
and, on the other hand, to represent a segment of society that often 
has competing interests. This task is compounded by the continued 
spiraling growth of the Federal inmate population, noted by Director 
Hawk Sawyer in her testimony.
    We are constantly struggling with the challenge of balancing the 
needs of FPI while minimizing the impact on the private sector. When 
there has been persuasive information that FPI might have an adverse 
impact on a particular industry, especially one dominated by small 
businesses, the Board has restricted and even precluded FPI's presence 
in that industry. For example, of the 28 separate proposals submitted 
by FPI since the inception of the Guidelines process, the Board has 
approved only eight without change. The rest were reduced, modified, 
denied or later determined to be infeasible. The Board has invited 
private industry and labor to bring to their attention any situation 
wherein the impact of one of their decisions authorizing FPI's 
production has been more significant than originally anticipated. To 
date, no replies have been received.
    As Chairman of the Board of Directors, I can say that, when 
rendering decisions, our goal is to diversify FPI's product line so 
that no single industry is forced to bear an undue burden and to reduce 
to a minimum competition with private industry or free labor; that is 
what is required of us under Federal law.
    Mr. Chairman, if there is one thing I know all the Board members 
would agree on is the fact that there are no easy answers or magical 
solutions. The current process, I believe, provides for wide-ranging 
input and representation, compels full consideration of all the 
relevant issues and allows public policy to be implemented in the 
fairest and most responsible manner. If we are going to change things, 
the changes must be measured, balanced, and mutually beneficial. There 
is no black and white, no right or wrong. Responsible public policy 
must take into account all of the legitimate interests involved.
    Mr. Chairman, this concludes my remarks. I would be pleased to 
answer any questions you or other members of the subcommittee might 
have.

    Senator Thurmond. Thank you.
    Mr. Glover.

                   STATEMENT OF PHILIP GLOVER

    Mr. Glover. Mr. Chairman, I am the elected representative 
of the 24,000 bargaining unit employees working in the Federal 
Bureau of Prisons. I would like to thank the committee for 
allowing me to appear before you today and express the views of 
the line staff in the Bureau of Prisons.
    Our organization, the Council of Prison Locals, American 
Federation of Government Employees, believes it is imperative 
for the safety of employees, the public, and inmates that we 
provide a strong prison work program. That is what Federal 
Prison Industries represents to employees working in the field.
    In this debate, I am in the unenviable position of being a 
strong advocate for labor, yet representing those of us working 
in the prison system to keep staff safe. We must keep this 
program intact until we decide as a Nation how to maintain an 
increasing inmate population.
    This is more than simply a cost issue or production issue 
to us. It is first and foremost a health and safety issue. When 
inmates have a productive, fully satisfying day at work, they 
are less likely to pose a threat to the men and women working 
inside the fences and walls of correctional facilities.
    We cannot afford to simply warehouse inmates. Until a 
comprehensive, well-thought-out approach is decided upon, with 
all interested parties in concurrence, we oppose elimination or 
erosion of mandatory source. It is a dangerous proposition to 
accept changes in at this time.
    I have heard complaints that FPI should compete for 
contracts based on price, product, and quality. As a 
representative of line employees, it is not our concern what 
products or work the inmates are involved in, but there must be 
work. As a correctional officer who has worked in the field for 
nearly 10 years, let me explain something about competition in 
prisons. Imagine having employees who have little or no 
discipline, generally lack formal education, are difficult to 
control, and whose values are often the opposite of yours and 
mine. This essentially is an inmate worker. Although FPI and 
BOP do a good job in getting these people to work, think of 
competing with this workforce.
    Additionally, think of coming to work on any given morning 
and having a factory unable to produce products because of 
adverse weather such as fog, because two inmate groups were in 
a fight the night before, or the factory had to be searched for 
contraband. Could you compete?
    I have worked with inmates who are employed in FPI 
custodial, general maintenance, and food preparation jobs. The 
FPI inmates and those on the waiting list for FPI are generally 
more manageable and concerned about their own behavior. Inmates 
stand to earn the most money in FPI as opposed to other prison 
jobs. This money enables them to meet some of their personal 
financial responsibilities like fines, restitution, and child 
support. They seem to interact with staff better than other 
inmates. They take directions at work in a more positive way as 
well.
    Now, how does this relate to the issue before us? The 
inmate population is expanding. We must keep the inmate 
population occupied in at least a satisfactory manner. It has 
been suggested that inmates be kept in perpetual vocational/
technical training modes. This is worthwhile. But are you going 
to strain someone for 40 years? It has also been suggested that 
inmates build something, take it apart, and build it again over 
and over. How long does anyone expect a large inmate population 
to continue doing this? How long would it take for them to get 
frustrated, upset, and refuse to work and take it out on the 
employees? I don't think very long. This makes it unsafe for 
staff, the community, and other inmates.
    Currently, mandatory source is the way we keep 20 to 25 
percent of the inmate population productive and occupied. No 
one advocating its elimination has given any productive ideas 
on its replacement, just remove it and compete. In the next 
several years, we will increase the country's Federal inmate 
population. If a solution is to be found, it can't be during a 
debate on an unrelated piece of legislation. It must be a 
comprehensive public policy debate by the appropriate committee 
with all viewpoints heard.
    This concludes my statement. I will be happy to answer any 
and all questions.
    Senator Thurmond. Thank you.
    Director Sawyer--or Dr. Sawyer, which do you----
    Ms. Sawyer. Either is fine, sir.
    Senator Thurmond. Please explain why Prison Industries is 
the most important program you have for keeping inmates 
occupied and teaching them skills they can use when they are 
released.
    Ms. Sawyer. I think there are several parts or reasons why 
it is so important to us, and I think the first one really 
addresses our responsibility to society, and that is the 
evidence that was demonstrated through the PREP study, which 
showed that inmates who have been through Prison Industries, 
worked Prison Industries, learned work skills and the work 
ethic, have a 24 percent less likelihood of recidivating and a 
greater likelihood of being gainfully employed upon release. 
Our responsibility is not just to house inmates in our 
institutions, but to prepare them to do better and to remain 
crime-free when released.
    Any economist that has looked at this issue will say very 
strongly that being able to reduce recidivism for inmates for 
one year has a profound economic benefit to the community. If 
we can show a 24 percent reduction over a 12-year span, it has 
tremendous benefit to the community.
    In addition to the community's benefit, it is also our 
program that keeps inmates constructively occupied. It occupies 
their minds, their hands, their time in very constructive 
modes. As Mr. Glover indicated in his comments, the rate of 
misconduct among inmates in Prison Industries is far less than 
among the general population. It has a profound impact upon 
keeping the peace, keeping it calm in the institution. They 
don't become aggressors toward each other, and they don't 
become aggressors toward staff. It is a very valuable program.
    Senator Thurmond. Thank you.
    Director Sawyer, your study that you conducted with the 
Department of Defense made various recommendations to improve 
efficiency and reduce costs between the two agencies. Does 
Prison Industries intend to implement these recommendations?
    Ms. Sawyer. We certainly do, Mr. Chairman. We worked hand 
in hand in concern with the Department of Defense in crafting 
the study and the recommendations, and we are very committed to 
each of the--I guess three primary recommendations that have to 
do with piloting a waiver on mandatory source because the 
belief is from both sides that that needs to be tested before 
it actually becomes policy or becomes a statutory change, and 
also it looks at clarifying the waiver process to make sure it 
is much better understood from the procurement standpoint among 
Department of Defense staff, and looking more closely at our 
deliveries.
    The vast majority of our deliveries that were looked at in 
the DOD study were on time. The vast majority is not good 
enough. We need to get 100 percent of our deliveries on time, 
and we vow to work closely with DOD to improve that and to 
report to them on our success.
    Senator Thurmond. Director Sawyer, if the Congress carved 
out large exemptions from the mandatory source requirement for 
the Defense Department, such as those proposed in section 806 
of the defense authorization bill, what impact could this have 
on Prison Industries?
    Ms. Sawyer. We believe it would have a very serious impact, 
Mr. Chairman, because 60 percent of our orders come from DOD. 
And although the amendment simply references those orders under 
$2,500, roughly three-quarters of all of our orders from the 
Department of Defense are for orders under $2,500. So you have 
immediately affected approximately three-quarters of our orders 
from DOD, which would have a significant impact upon those 
numbers of inmates who are involved in those operations. So we 
believe the carving that has been done in that amendment could 
have a very negative impact upon our sales, our orders, and our 
inmate population employment.
    Senator Thurmond. Mr. Aragon and Mr. Glover, do you agree 
with Director Sawyer? Please explain.
    Mr. Aragon. If I may, Mr. Chairman, I absolutely do agree 
with the Director of the Bureau. As you mentioned in the brief 
information about myself, I was an employee at a Federal 
correctional--at several Federal correctional institutions some 
years ago and knew firsthand that Federal Prison Industries was 
just a critical, essential element to the orderly running of 
our institutions.
    In one of my positions with the Federal Prison System, I 
was director of training for food service, and in that role it 
was my responsibility to go into many, many other institutions 
at the State level and correctional facilities in counties, et 
cetera. And the lack of Federal Prison Industries and viable 
work opportunities for inmates really did have a demonstrable 
effect on managing the population, on keeping the institution 
safe, and as the Director testified, in the effect it has on 
recidivism and keeping these inmates from continuing the cycle.
    Senator Thurmond. Mr. Glover, do you agree with Director 
Sawyer?
    Mr. Glover. Yes, I do, Mr. Chairman. Working inside the 
prison as a line staff member, Federal Prison Industries 
inmates are less likely to be confrontive with staff. They 
listen to you a lot better. They don't want problems because 
they want to keep their FPI job. There are waiting lists in 
place. Those inmates don't cause problems because they want to 
work in FPI. It is a better opportunity for them, and it keeps 
them occupied 8 hours a day. When they come back to a housing 
unit, they are tired. They don't want to--they don't cause 
problems. They just want to come back and do their time. And 
that is what we want as the line staff in the Federal Bureau of 
Prisons.
    Senator Thurmond. Director Sawyer, I am pleased that at 
least half the wages of inmates in FPI must be applied to any 
fines, restitution, or other court orders. Of course, many 
inmates are paid for working in areas of the prison other than 
FPI. Should all inmates who owe fines and restitution have to 
put aside at least half of their income just as FPI 
participants do?
    Ms. Sawyer. Every inmate within our prison system, Mr. 
Chairman, who have any monies at all, either sent it from home 
or that they earn in the prison, are required to pay toward any 
outstanding fines, victim restitution, child support, or 
whatever it might be.
    We know exactly how much the inmates are going to make in 
Prison Industries because those salaries are set very firmly. 
So we put a required 50 percent obligation on any inmate 
working in Prison Industries.
    For all the other inmates, the amount of money they have 
varies, and so we negotiate--the unit team that works with each 
inmate negotiates a fair amount, an appropriate amount, a 
realistic amount that we can expect them to contribute monthly 
toward any outstanding debts they receive.
    The Bureau of Prisons last year in total collected about $5 
million toward all of these different indebtedness on the part 
of inmates. Our inmate financial responsibility program 
collected about $5 million; $1.8 million of that was from 
Prison Industries staff. The remaining $3.2 million was from 
non-Prison Industries employees. So we collect, we believe, an 
appropriate amount from every inmate who owes anything to 
society while they are in prison. It is not all necessarily a 
required 50 percent. Some is greater, some is lesser.
    Senator Thurmond. Mr. Aragon, given that FPI can only 
produce products for Federal agencies, it has a very limited 
market. Should the Congress consider permitting FPI to sell in 
the commercial market products that are currently imported from 
foreign countries?
    Mr. Aragon. Yes, Mr. Chairman. The board has formally taken 
the position that because of the continued conflicts that we 
have in creating new jobs because our marketplace, the Federal 
Government, continues to constrict and we continue to have a 
requirement for more inmate positions, we believe that by 
repatriating work that has long since moved offshore, that 
would be a constructive way to create new jobs and sell 
products in the American marketplace and keep the dollars here 
in this country, and by doing so, we will assist the economy to 
continue to be strong, and we hopefully will have those jobs 
back in the States and perhaps sometime private industry may 
want to work in that arena again. And if so, we would be 
certainly happy as a board to find a mutually acceptable 
position in terms of the production that we manufacture.
    Senator Thurmond. Mr. Aragon, as you know, the more Prison 
Industries focuses on services, the less impact it has on 
products such as furniture and clothing. What efforts are being 
made to focus more on services, both to the Federal Government 
and to the private sector?
    Mr. Aragon. In this area, also, Mr. Chairman, the Federal 
Prison Industries Board has taken the position that it would be 
a very important complement to our ability to employ our rising 
number of inmates if we had service work in our approved list 
of work that we can do. Services is an arena that we have 
worked in in Federal Prison Industries because various agencies 
have brought that to us or we have had it historically. 
However, mandatory source does not apply to services.
    If we were able to more viably market our services and get 
more service work, it would take the pressure off the 
manufacturing work that we do in, again, the arenas that are 
continually constricting availability of market share and the 
need for our jobs.
    Senator Thurmond. Mr. Glover, how is a typical inmate who 
is employed in Prison Industries different from other Federal 
inmates?
    Mr. Glover. Mr. Chairman, again, the inmates that work in 
FPI don't want problems inside the prison. They go to work in 
the mornings. They don't fight with other inmates. This is in a 
general sense. They work with staff better. They don't want to 
end up with incident reports because that would eliminate them 
from being able to work in an FPI position. And so they are 
just a better-behaved type of inmate while they are working FPI 
and while they are on the waiting list waiting for a job in 
FPI, which benefits the staff greatly by making it easier to 
control a large inmate population.
    Senator Thurmond. Mr. Glover, are the criminals being 
sentenced to Federal prison today younger and more violent than 
they were in the past? And if so, does this make programs like 
Prison Industries more important?
    Mr. Glover. Yes, Mr. Chairman, they are much more 
aggressive, younger inmates. For example, when I started at FCI 
Loretto, our average inmate population was around 35 years old. 
I think it is 28 years old now, somewhere in there. It is a 
completely different atmosphere inside the prison as it was 
then. And that is just in a span of 7 to 10 years. So, yes, the 
inmate population is changing, and they are more aggressive. 
And a program such as FPI helps us manage those inmates in an 
appropriate way.
    Senator Thurmond. Director Sawyer, please explain how 
Prison Industries helps reduce the possibility that inmates 
will return to a life of crime based on the results of the PREP 
study?
    Ms. Sawyer. Well, the PREP study indicated that any of the 
inmates working in Prison Industries not only behave better in 
the institution and have less misconduct, as was indicated, but 
also have a far greater success rate in terms of staying free 
on the street, not getting back in crime again, and in being 
gainfully employed.
    The study went on for a 12-year period. We actually tracked 
inmates for 12 years, and these weren't just a specially 
selected group of inmates. We matched every inmate that went 
through Prison Industries with like inmates with similar 
backgrounds, similar work histories, similar offenses and 
characteristics, to ensure that we weren't simply creaming off 
the good inmates and sending them to Prison Industries.
    What we found was that there was clearly an impact of 
Prison Industries, and it indicated that they had a 24 percent 
less likelihood after 12 years to be crime-free on the streets, 
to be gainfully employed, and actually the wages they were 
actually making were higher than any other inmates who were 
released without being in Prison Industries who also remained 
on the street. So there is a significant positive benefit to 
the inmate, to the society, and to the economy by these 
individuals staying on the street, being productive for a long 
period of time.
    Senator Thurmond. Director Sawyer, as you know, the number 
of inmates that you must manage has more than doubled in the 
last 10 years and continues to rise sharply. Even without 
statutory changes that could harm the mandatory source 
requirement, are you concerned about being able to keep the 
growing inmate population occupied?
    Ms. Sawyer. We are very concerned, Mr. Chairman, about 
keeping the growing population occupied, and that is why we 
believe that it is going to take more than simply the Bureau of 
Prisons and Prison Industries to address this concern. It is a 
public policy issue. It is an issue that has been created by 
trying to respond to crime in an aggressive way in this 
country. But it means that we have a lot more inmates coming 
our way who will stay for a long period of time.
    The elimination of mandatory source in this era of our 
existence is very threatening if there are not other viable 
alternatives, viable authorities given to the Bureau of Prisons 
to be able to maintain similar levels of employment of inmates 
during our significant growth period here and our significantly 
high populations. And, also, we need to ensure that if any 
viable alternatives are identified, we need sufficient time to 
implement any of those alternatives because there may be a 
grand idea, but if it is implemented too quickly and we are not 
able to bring up the work levels for the inmate population, we 
could be sitting on institutions with minimal inmate employment 
which would be very volatile situations because we need to have 
a significant number of the inmates employed.
    Senator Thurmond. I wish to thank all members of this first 
panel. I appreciate your presence and appreciate your fine 
testimony that you have given.
    Now we will go to the second panel. On the second panel, 
our first witness is David Oliver, Principal Deputy Under 
Secretary of Defense for Acquisition and Technology. He holds a 
bachelor's degree from the U.S. Naval Academy and an M.A. from 
American University. While in the Navy, Mr. Oliver commanded 
two submarine groups and served as chief of staff to the 7th 
Fleet.
    Our second witness is Ann Hoffman, legislative director for 
the Union of Needletrades, Industrial and Textile Employees. 
Ms. Hoffman has been both associate general counsel and a 
lobbyist for the International Ladies Garment Workers Union. 
She has also served as counsel to the Communication Workers of 
America.
    Our third witness is Steve Schwalb, Assistant Director of 
the Bureau of Prisons, and Chief Operating Officer of Federal 
Prison Industries. In this position, he is responsible for 
managing a self-sufficient Government corporation which $600 
million in annual sales, 1,800 staff, and 19,000 inmate 
workers. Mr. Schwalb is a graduate of the University of 
Washington.
    We also intended to have Andrew Linder, president of Power 
Connector, representing the Correctional Vendors Association. 
Unfortunately, he could not be with us because of 
transportation problems. However, I will place his statement in 
the record.
    [The prepared statement of Mr. Linder follows:]

                 Prepared Statement of Andrew S. Linder

    Mr. Chairman and Members of the Subcommittee: I am Andy Linder, 
President and Owner of Power Connector, a small electronics business 
based on Long Island, NY employing 65 people. My company commenced 
business on April 1, 1987 and has since concentrated its manufacturing 
efforts primarily in the areas of electronic connectors and cable 
hardware for the U.S. military. We supply these component parts 
primarily to the Department of Defense, Federal Prison Industries (FPI) 
and to our nation's primary defense contractors.
    I am here today to relay my FPI story as a private sector, small 
business owner and one which I believe many small businesses and other 
members of the Correctional Vendors Association from around the country 
could tell. It is a story that surprises many people involved in the 
FPI debate as many do not realize the extent to which private sector 
vendors are involved with FPI. But for the sake of a fair debate 
regarding FPI's impact on private sector vendors, one needs to examine 
how companies like mine who currently have contracts with FPI, who have 
capitalized their businesses and hired employees based on FPI 
contracts, could be impacted by changes to FPI. For example, in fiscal 
year 1998 I was just one of some 15,000 private industry vendors 
nationwide who were registered with FPI. Together we conducted $419 
million in business with FPI and had thousands of employees and 
families dependent on these same sales. That means that for every 
dollar in FPI sales, some $.76 cents went directly back to private 
sector companies like mine from FPI purchases of our raw materials and 
services.
    On a personal level, I can tell you without equivocation that my 
company, Power Connector, would not be in business today without FPI's 
efforts and mission to seek out small operations like mine with whom to 
do business. I have personally witnessed the dedication of FPI's staff 
and the commitment of resources to use the talent and skills of small 
business in order to fulfill FPI contracts. FPI has achieved this by 
breaking down their finished products into component parts and allowing 
small companies like mine the opportunity to bid, resulting in 
opportunities that we otherwise would not have had. I believe I can 
best tell you the importance and value that FPI's subcontracting 
endeavor has had on my business and me by telling you about my 
business.
    I was introduced to FPI through my work with a former employer who 
had several contracts with FPI. I became very familiar with various 
elements of the electronic connectors and cable hardware industry 
through my work there. Unfortunately, that business like many others, 
did not survive.
    At that time, the U.S. Army's CECOM Division in Fort Monmouth, NJ 
was seeking alternative suppliers to fulfill a contract for upgrading 
their SINCGARS Program--the single channel ground to air radio system. 
The Army had become frustrated by a large prime defense contractor that 
had a monopoly on the supply of cable and components necessary for the 
SINCGARS upgrade program and they turned to FPI seeking to develop 
other sources for these labor intensive, high priced cables and 
connectors.
    FPI recognized the opportunity to reach out to small businesses 
like myself. They broke down the contracts that they received from the 
U.S. Army into component parts and requested small businesses, 
including mine, to participate and bid on prototypes. They did this by 
partnering with small businesses and providing the capital through 
competitive bids for the costly testing and assembly, which allowed 
them to participate.
    By assuming the financial burden for the testing of prototypes, FPI 
eliminated the major financial barrier, which precluded most small 
companies like mine from competing for these contracts, which were 
normally, reserved for larger companies who had the necessary capital 
and human resources. Mine was a startup company, struggling to make 
payroll and it was only through sharing expenses and subcontracts that 
my company became successful.
    As a result of FPI's efforts to work with the small business 
community our products were approved. FPI provided the intensive labor 
required, we provided the component parts. Bidding on these contracts 
was required and I am proud to say my company won the bids for the 
component parts enabling FPI to provide them to the Department of 
Defense at \1/3\ of the price they had originally paid, thereby saving 
taxpayers millions of dollars over the last nine years.
    My point in relaying my story today is to make clear that a startup 
business like mine could not have done this on its own.
    FPI was interested in our ability to meet their requirements, not 
our size or numbers. If we could meet the military standards and 
perform, being a small, startup business was not a liability. It was 
FPI's mission to afford fledgling companies like my own with this rare 
opportunity to partner and it allowed us to gain contracts for which we 
would otherwise not have been able to compete. Without FPI, these 
contracts would have gone to and been absorbed by larger companies, at 
higher prices. I am certain that the active involvement of FPI as a 
significant source to the Army ensured small business growth and 
opportunity that otherwise would not have materialized.
    In my first few years of business, 100 percent of my employees and 
my entire revenue was attributable to FPI business. My company's 
survival was firmly rooted in its relationship with FPI.
    Today, 17 out of my 65 employees or 25 percent of my labor force 
are directly attributable to FPI business. This is a result of FPI's 
efforts to reach out to small businesses like mine. I now have over 40 
employees dedicated to fulfilling contracts with other U.S. government 
agencies and military defense contractors obtained on my own. I can 
honestly say that 100 percent of our capability to bid for and supply 
this other work has come from our ability to establish a credible 
performance track record as a result of FPI's business. By giving us 
the opportunity to prove ourselves, when most agencies or defense 
contractors would not look twice at a start up company, FPI gave us 
that fighting chance to demonstrate our competitive spirit. In addition 
to our own success, the amount of subcontracts and work we have 
outsourced over the past nine years, to over 40 other small businesses 
has generated the hiring of almost 120 full time employees.
    I believe this is also a good opportunity to report that FPI has 
implemented some very significant programs. There is a vigorous quality 
control program and quality assurance program for both vendors and FPI. 
FPI has implemented a thorough and aggressive campaign to encourage 
timely vendor delivery. FPI has in place a rapid response and 
accelerated procurement and delivery system in times of acute need such 
as in Desert Storm and perhaps for the current conflict in the Balkans. 
The FPI multi-institution network also provides for redundant 
production assembly lines to assure consistent availability.
    Mr. Chairman and Members of the Subcommittee, I respectfully 
request very careful consideration of any attempts to curtail or 
diminish FPI. FPI is a proven correctional tool for managing our 
federal prisons and protecting both inmates and Bureau of Prison 
employees. It is also a lifeline for many small businesses like my own. 
I urge you to carefully weigh all sides of any debate that suggests 
curtailment of FPI's ability to provide the important safeguards to our 
prison system and to do business as usual with small companies like 
mine.
    Thank you for your time and consideration.

    Senator Thurmond. We will now first hear from David Oliver.

  PANEL CONSISTING OF DAVID R. OLIVER, PRINCIPAL DEPUTY UNDER 
SECRETARY OF DEFENSE FOR ACQUISITION AND TECHNOLOGY, DEPARTMENT 
    OF DEFENSE, WASHINGTON, DC; ANN F. HOFFMAN, LEGISLATIVE 
    DIRECTOR, UNION OF NEEDLETRADES, INDUSTRIAL AND TEXTILE 
    EMPLOYEES, WASHINGTON, DC; AND STEVE SCHWALB, ASSISTANT 
   DIRECTOR, FEDERAL BUREAU OF PRISONS, AND CHIEF OPERATING 
       OFFICER, FEDERAL PRISON INDUSTRIES, WASHINGTON, DC

                  STATEMENT OF DAVID R. OLIVER

    Mr. Oliver. Mr. Chairman, I have submitted my statement for 
the record. We participated in this study----
    Senator Thurmond. All of your entire statements will go in 
the record. Just take about 5 minutes and summarize.
    Mr. Oliver. Yes, sir. Essentially, the statement is for the 
record, and it says that we participated in this study. We were 
anxious to talk to our people and get their opinions. 
Essentially, we found the quality of the products to be good. 
We found that there were some problems with timeliness and 
service. And we talked to the FPI, and we have initiated or are 
going to initiate some pilot programs, including which is we 
put on FPI on our electronic mall web on the Internet, which we 
have already done, so that all of our people can get to that 
access. But, also, we are very interested in eight pilot 
programs by which we get waiver authority so that for buys up 
to $2,500, the same amount that we use for our credit cards to 
do micro purchases, that we can agree that we will exempt these 
things from the mandatory sourcing policy.
    I will be happy to answer any questions later, sir.
    [The prepared statement of Mr. Oliver follows:]

                 Prepared Statement of David R. Oliver

    Good afternoon, Mr. Chairman, and Members of the Subcommittee. I 
want to thank you for this opportunity to share with you some aspects 
of the relationship between the Federal Prison Industries and the 
Department of Defense. The Department has worked closely with the 
Federal Prison Industries (FPI) for almost seventy years and has 
procured many mandatory items from them in times of war, cold war, and 
peace. Generally, we have been in agreement on most procurement 
matters.
    In accordance with section 855 of The National Defense 
Authorization Act for fiscal year 1998, P.L. 105-85, the Department of 
Defense and the Federal Prison Industries reviewed the procurement 
procedures, regulations, and statutes that govern procurement 
transactions between DOD and FPI, and provided recommendations to 
improve the process. Before I discuss the specifics of these 
recommendations, I need to make some general observations.
    DoD supports FPI's mission as a Federal correctional program to 
employ and train inmates through its purchase of FPI products and 
services produced in various Federal correctional facilities. FPI, in 
its role as a preferred source of supply, offers DoD a number of 
advantages in procurement (e.g., inter-government transfer of funds, 
inter-agency agreements). FPI is a mandatory source of supply for 
products listed on the FPI Schedule of Products; however, the defense 
department is permitted to request a waiver to purchase from sources 
other than FPI whenever FPI cannot meet our needs. FPI sales to DoD 
represent about 60 percent of FPI's total sales to Federal government 
agencies.
    A comprehensive survey was conducted for this joint study and 
provided a representative sample of DoD customers, based on dollar 
amount purchased, experience using FPI, branch of military service, and 
product purchased. As expected 76 percent of the total respondents 
indicated the primary product purchased in the last 12 months was 
office furniture, of which nearly 40 percent were for purchases under 
$25,000. In response to questions regarding the quality of specific 
products purchased in the last 12 months, FPI was generally rated good. 
On the whole, respondents seem to be least satisfied with delivery and 
ambivalent on price. This was especially true for furniture products 
(office case goods, systems, and dorm and quarters furniture), where 
over 40 percent rated FPI as fair or poor in delivery.
    FPI was rated highest as an overall supplier in the area of 
quality, where 42 percent of respondents rated FPI as excellent and 39 
percent rated FPI as average. Of the 64 percent of total respondents 
who had purchased products similar to those provided by FPI in the past 
12 months, nearly three-fourths of them rated FPI the same in 
comparison to outside sources in quality, while a majority rated FPI 
about the same on efficiency (56 percent), and best value (52 percent). 
When making a comparison on timeliness, 33 percent rated FPI the same 
and 59 percent rated FPI worse than outside sources.
    Open-ended comments and suggestions supported these findings as 
well, indicating that timeliness in delivery is the principal concern 
among FPI's DoD customers. Pricing concerns were also raised, although 
to a much lesser extent. Improving communications and customer service 
were recommended by over 10 percent of the total respondents. Some 
respondents (6 percent of the 617 total respondents) also expressed a 
concern with mandatory source.
    From the survey results, DoD and FPI developed a set of three 
recommendations and three administrative actions. DoD and FPI believe 
that implementing the recommendations will improve the efficiency and 
reduce the cost of procurement transactions between the two agencies. 
Implementation of the administrative actions should facilitate and 
enhance the working relationship between the two agencies.
    In brief, DoD and FPI propose the following recommendations:

  (1) Raising the Threshold for Waiver Exceptions. FPI will work with 
    the appropriate procurement officials to raise the exception to 
    waiver threshold from $25 to $250 for DoD purchases, or grant DoD 
    an administrative waiver for orders totaling $250 or less that 
    require delivery within 10 days. This recommendation should 
    increase the flexibility of DoD in its small purchasing, while 
    continuing to allow FPI to accomplish its mission of employing the 
    greatest number of inmates as possible;

  (2) Expedited Waiver Process for Orders $2,500 or Less. FPI will 
    expedite the waiver process for all orders $2,500 and less. This 
    recommendation should address the concerns of those customers for 
    whom the time involved in waiting for a waiver response is 
    problematic, particularly on small dollar value orders; and

  (3) Limited Pilot: Exception to FPI Clearance Procedures. DoD and FPI 
    will enter into a pilot program at eight DoD locations which will 
    provide that orders for listed items totaling no more than $2,500 
    that require delivery within 10 days, will be administratively 
    waived by FPI, in accordance with specific conditions described in 
    the recommendation. This recommendation will allow more flexibility 
    for DoD in purchasing, will examine the extent to which waiving all 
    items under $2,500 would affect FPI programs, and will correspond 
    with FPI's goal of offering enhanced services to its customers.

    DoD and FPI further propose the following administrative actions be 
taken:

  (1) Timely Delivery of FPI Products. FPI should continue to evaluate 
    and monitor delivery performance and develop data to objectively 
    measure timeliness. The survey results clearly indicated that DoD 
    customers are concerned about the timely delivery of FPI products;

  (2) Doing Business with FPI. FPI will develop a guide which will 
    demonstrate clearly and concisely how to efficiently conduct 
    business with FPI. The efficiency of the entire ordering process 
    could be increased if the procedures, points of contact, and areas 
    of responsibility are explained in an orderly and user-friendly 
    manner; and

  (3) Full Use of Electronic Purchasing and Web Links. All DoD 
    locations with web sites should consider adding a link to the 
    UNICOR web site on their procurement pages. Having this link allows 
    DoD customers to take full advantage of all FPI has to offer, to 
    research FPI product choices, to compare prices, and to order on-
    line.
    As stated earlier, implementation of these recommendations and 
administrative actions should improve the efficiency and reduce the 
cost of procurement transactions between the two agencies. In addition, 
the pilot program would provide us with the opportunity to obtain data 
that would detail the impact of raising the waiver threshold to $2,500 
prior to any full-scale implementation.
    Mr. Chairman, thank you for this opportunity to share with you our 
observations and study results. I stand ready to answer any questions 
that you and the members may have.

    Senator Thurmond. Thank you.
    Ms. Hoffman.

                  STATEMENT OF ANN F. HOFFMAN

    Ms. Hoffman. Thank you, Mr. Chairman. Thanks for the 
opportunity to present the views of UNITE, the Union of 
Needletrades, Industrial and Textile Employees, the largest 
union of garment and textile workers in North America.
    Our 250,000 members and the companies for whom they work, 
most of which are small businesses, have been among the prime 
victims, if I may use that word, of the practices of Federal 
Prison Industries.
    UNITE shares the view of the AFL-CIO and its other 
affiliates that training opportunities should be provided for 
prisoners, to help in their rehabilitation and to prepare them 
for work life after prison. Prisoners should never be used, 
however, in competition with nonprison labor or to replace 
workers who are not in prison. Unfortunately, that is becoming 
more and more the norm.
    Crime is a serious national problem. It imposes real costs 
on society. Prison Industries represent one element of that 
cost--one method used to control the rapidly expanding prison 
population.
    Most social costs, including the direct costs of 
incarceration, are spread relatively evenly throughout the 
population through taxation and then appropriation of funds.
    Federal Prison Industries is funded in a very different 
way. It generates income by selling products and uses the funds 
it generates to finance its activities. It receives no 
appropriated funds.
    We agreed with you, Mr. Chairman, that funding Federal 
Prison Industries in any other way would be extremely 
expensive, but we think that is an important fact, that the way 
Prison Industries is funded suggests to the public and to 
Congress that incarcerating increasing numbers of people costs 
less than it actually does. The cost of FPI is thus levied not 
against general revenues, but against those industries in which 
FPI chooses to become involved.
    Unfortunately for UNITE members and our employers, FPI has 
frequently chosen to be involved in the manufacture of apparel 
and textile products. These industries and their workers have 
thus borne a grossly disproportionate share of the cost of 
employing prisoners.
    FPI dominates the Federal Government apparel market. In its 
report to Congress for fiscal year 1998, FPI showed apparel 
sales of $134 million, about 25 percent of their total net 
sales. Thirty percent of the inmates employed by FPI were 
engaged in the production of apparel and textiles. FPI is now 
the single largest supplier of apparel to the Department of 
Defense.
    Not only are Federal Prison Industries competing with free 
labor, their impact is most often borne by the most vulnerable 
workers in this country. Industries that are most suitable to 
prison-based factories tend to be lower-skilled, low-wage, not 
highly capitalized and labor-intensive. These are, for the most 
part, the same industries which have faced the greatest 
competition from offshore production.
    As you well know, Mr. Chairman, the apparel and textile 
industries have lost an incredible number of jobs over the last 
decades. Between December 1994 and January 1999, the U.S. 
apparel industry lost 249,000 jobs and the textile industry 
104,000 jobs, for a total loss of 353,000 jobs. FPI is thus 
competing against a workforce that has already been battered by 
import-related job losses. FPI is also competing in the vastly 
decreased apparel and textile work that remains in the United 
States, in particular work for the Department of Defense.
    As you know, consideration is being given to encourage 
manufacture of products that would otherwise be produced 
offshore. This is not likely to help.
    First, as you well know, Mr. Chairman, in the apparel 
industry in particular, it is virtually impossible to determine 
whether a particular item would be produced by foreign labor if 
it were not prisonmade. There is not a fixed level of domestic 
production of any particular product. A company may be 
producing in this country one year, offshore the next, and back 
here the next, or may produce a product offshore and here at 
the same time. Doing that in the apparel industry would result 
in a great deal of manipulation of the definition of the item.
    It is significant that in determining whether FPI is 
operating within its statutory limits the judge, the jury, and 
the court of appeals is the Board of Directors of FPI. UNITE 
has had direct experience with FPI's manipulation of its 
procedures just 2 years ago in a case involving the production 
of gloves for the military. That case is detailed in my 
testimony. The most salient facts to me are that the board 
initially considered the entire market for gloves in the United 
States as the market, although the commercial market is almost 
entirely manufactured offshore. When pressed, because the 
industry came up with contrary information, they used a year as 
their baseline that was already increased because of the Gulf 
War.
    We think a more appropriate solution for the problem of 
employing more prisoners is to increase vocational training. If 
somebody is not coming out for 40 years, a job is no more 
important to antirecidivism than vocational training. If they 
are coming out more rapidly, vocational training is every bit 
as valuable as job training particularly in an industry in 
which there are very few job opportunities.
    The goal of Congress and the administration should be to 
increase investment in education, afterschool programs, school 
counselors, social services, and job training so that we can 
lower our extraordinary rate of incarceration and the resulting 
need for prison work programs.
    Thank you.
    [The prepared statement of Ms. Hoffman follows:]

                  Prepared Statement of Ann F. Hoffman

    Mr. Chairman, Senator Schumer, Members of the Subcommittee, thank 
you for the opportunity to present the views of UNITE, the Union of 
Needletrades, Industrial and Textile Employees, as you look at the 
operations of the Bureau of Prisons and particularly Federal Prison 
Industries.
    UNITE is the largest union of garment and textile workers in North 
America. Our 250,000 members and the companies for whom they work have 
been among the prime ``victims,'' if I may use that word, of the 
practices of Federal Prison Industries. We welcome the Subcommittee's 
interest in the issue and hope you can work with us and other unions 
and employers adversely affected by FPI's actions to bring about 
constructive change.
    UNITE shares the view of the AFL-CIO and its other affiliates that 
training opportunities should be provided for prisoners, to help in 
their rehabilitation and to prepare them for work life after prison. 
Prisoners should never be used, however, in competition with non-prison 
labor or to replace workers who are not in prison. Unfortunately, 
prison labor is increasingly being used, by both the states and the 
federal government, to perform work in both the public and private 
sectors ordinarily done by workers who are not incarcerated. This is 
unacceptable.
        the cost of fpi is unfairly borne by certain industries
    Crime is a serious national problem. It imposes real costs on 
society. Prison industries represent one element of that cost--one 
method used, to control the rapidly expanding prison population.
    Most social costs, including the direct costs of incarceration, are 
spread relatively evenly throughout the population. Our representatives 
in Congress and in the states decide what taxes should be levied and 
what programs should exist, and they distribute revenues among all the 
programs they choose to fund.
    Federal Prison Industries is funded in a very different way. FPI is 
``self sustaining.'' It generates income by selling products and uses 
the funds it generates to finance its activities. 18 U.S.C. Sec. 4126. 
It receives no appropriated funds. This has the effect of masking the 
cost of Federal Prison Industries, suggesting to the public and to 
Congress that incarcerating increasing numbers of people costs less 
than it actually does. The cost of FPI is thus levied not against 
general revenues, but against those industries in which FPI chooses to 
be involved.
    Unfortunately for UNITE members and their employers, FPI has 
frequently chosen to be involved in the manufacture of apparel and 
textile products. The apparel and textile industries and the workers in 
those industries have thus borne a grossly disproportionate share of 
the cost of employing prisoners.
    FPI dominates the federal government apparel market. In its report 
to Congress for Fiscal Year 1998, FPI showed apparel sales of $134 
million, about 25 percent of their total net sales of $534.3 million 
dollars. Thirty percent of the inmates employed by FPI, more than 6,000 
people, were engaged in production of apparel and textiles. FPI is now 
the single largest supplier of apparel to the Department of Defense.
    This concentration violates the statute governing Federal Prison 
Industries. The law requires FPI to

          diversify * * * and so operate the prison shops that no 
        single private industry shall be forced to bear an undue burden 
        of competition from the products of the prison workshops, and 
        to reduce to a minimum competition with private industry or 
        free labor.

18 U.S.C. Sec. 4122 (b)(1) (emphasis added).

    Not only are Federal Prison Industries competing with free labor, 
their impact is most often being borne by the most vulnerable workers 
in this country. By statute, FPI is mandated to

          concentrate on * * * those products which permit employment 
        of the greatest number of those inmates who are eligible to 
        work as is reasonably possible.

18 U.S.C. Sec. 4122 (b)(2). Industries that are most suitable to 
prison-based factories tend to be lower-skilled, low-wage, not highly 
capitalized and labor intensive. These are, for the most part, the same 
industries which have faced the greatest competition from offshore 
production.

    The apparel and textile industries have been particularly hard hit 
by import penetration. According to a February, 1999 report of the 
Bureau of Labor Statistics, between December of 1994 and January of 
1999, the U.S. apparel industry lost 249,000 jobs and the textile 
industry 104,000 jobs, for a total job loss of 353,000. FPI is thus 
competing against a workforce that has already been battered by import-
related job losses. FPI is also competing with the decreased amount of 
apparel and textile work that remains in the U.S., in particular work 
for the Department of Defense.
    The degree of job loss in apparel and textiles causes FPI to 
violate its operating statute in another respect. FPI is mandated to 
provide employment that will give inmates ``a maximum opportunity to 
acquire a knowledge and skill in trades and occupations which will 
provide them with a means of earning a livelihood upon release.'' 18 
U.S.C. Sec. 4123. Prisoners trained to manufacture clothing, for 
example, will find themselves upon release competing for work with 
hundreds of thousands of unemployed garment workers who lost their jobs 
as a result of imports.
    Consideration is being given by the leadership of Federal Prison 
Industries to encourage manufacture of products that would otherwise be 
produced offshore. This is not likely to bring FPI into compliance with 
its Congressional mandates.
    First, in the apparel industry in particular, it is virtually 
impossible to determine whether a particular item would be produced by 
foreign labor if it were not prison-made. There is not a fixed level of 
domestic production of any particular product in this country. A 
company can manufacture products for the U.S. market either in this 
country or elsewhere. A company may produce a product in this country 
one year and elsewhere in the next year, or may manufacture the same 
product both here and abroad at the same time. Identifying an apparel 
product as one which would otherwise be made by a ``non-domestic'' 
contractor would be a sham, totally subject to manipulation.
    Furthermore, having prisoners produce products that would otherwise 
be made offshore guarantees the absence of related post-incarceration 
employment. By definition, production of the products in question will 
not exist in the United States. By implication, jobs in that industry 
will not exist.
    Finally, if an item that would otherwise be made offshore can be 
made competitively in the United States, the first opportunity to make 
that product should go to free labor, rather than to prisoners.
          fpi's record on following its own rules is not good
    Federal Prison Industries gives lip service to fulfilling its legal 
obligation to minimize its harmful impact on industries and workers. 
Its performance gives the lie to its pronouncements. Reviewing annual 
reports of FPI, or the catalog and web site of UNICOR (the trade name 
adopted by FPI) or the testimony of FPI officials, it is clear that FPI 
views its highest priority as employing more and more prisoners. All of 
its other statutory goals take a back seat.
    FPI is able to accomplish this goal because of two peculiar 
elements of its structure. First, federal agencies are required to buy 
from FPI virtually any product FPI chooses to supply, even if the 
agency could purchase a better and cheaper product from a private 
sector provider and obtain more timely delivery. This is FPI's 
jealously guarded ``mandatory source'' privilege.
    Second, in determining whether FPI is operating within its 
statutory limits, the judge, the jury and the court of appeals is the 
Board of Directors of FPI. It is the Board that determines whether FPI 
is ``capturing more than a reasonable share of the market * * * for any 
specific product.'' It is the Board that determines whether FPI may 
``produce a new product or significantly expand the production of an 
existing product.'' And in determining whether these actions are 
appropriate, it is FPI itself that provides the definitions and market 
study upon which the Board must rely. Nothing in the statute 
establishes the independence of the Board, and practice makes it clear 
that the Board is the creature of the FPI administration, rather than 
its master.
    Not surprisingly, FPI designs the market study to support its 
desired result. FPI may define the product it wishes to produce as 
``gloves'' or ``leather gloves'' or ``dress military gloves'' or even 
$50,000 worth of gloves.'' The definition determines the size of the 
market. FPI may choose to include commercial products in its market 
basket, even if the product under consideration is used only by the 
military. By virtue of this type of manipulation, FPI has been 
authorized to supply 100 percent of the needs of the Department of 
Defense for certain products, notwithstanding its restriction to a 
``reasonable share'' of the market.
    UNITE had direct experience with FPI's manipulation of its 
procedures just two years ago. FPI in January of 1997 asked its Board 
of Directors to ratify its unlawful, unauthorized expansion of 
production of gloves for sale to the military, and to permit further 
expansion of that production. FPI had exceeded its permissible 
production in fiscal year 1992, and continued to do so in the years 
that followed. Between 1990 and 1997, FPI production of gloves doubled. 
FPI produced 100 percent of the military's requirements for 5 different 
types of gloves.
    While FPI was illegally expanding its production of gloves, the 
private sector companies manufacturing gloves for the military were 
laying off employees, losing profits and, in two cases, going into 
bankruptcy.
    UNITE represented workers at four plants supplying gloves to the 
military. Average seniority was over 15 years at four of the UNITE 
plants. The glove-makers depended on their jobs, and did not have other 
options for employment. The non-military glove industry has been 
devastated by imports, and there are few comparable jobs available in 
these communities.
    The unauthorized expansion of glove production directly led to the 
loss of private sector glove jobs, both through the bankruptcy of two 
glove companies during this period, and through workforce reductions at 
others. As an example, Knoxville Glove in Tennessee lost more than half 
of its workforce, cutting its eighty person workforce to thirty-five. 
This loss directly resulted from FPI claiming the military glove work 
that Knoxville was doing. The loss of military glove production left 
the plant struggling to survive and the remaining jobs in jeopardy.
    FPI attempted to justify its predatory expansion through flawed 
research and manipulation of data. Its initial market study, required 
by law to be objective, exaggerated the market for domestic production; 
exaggerated the size of the federal market; fabricated a theory of new 
technology in the glove industry; and made unwarranted predictions of 
future expansion of the federal market. Forced by the glove industry's 
research to revise its study, FPI next attempted to minimize the size 
of the unauthorized expansion by using as a baseline fiscal year 1991 
sales, inflated some 20 percent above normal because of the Gulf War.
    Based on FPI's behavior in the glove case, UNITE believes more 
effective control of FPI by someone other than its own Board of 
Directors is a more critical need than expansion of its mission.
                    some more appropriate solutions
    FPI and its supporters have put forth a variety of proposals for 
expansion of work opportunities in federal prisons. One is the ``import 
substitution'' model discussed above. Another is taking over work in 
the public sector. This would have the same adverse impact on free 
labor as has already been experienced in the manufacturing and service 
sectors. A third option posited is selling into the private commercial 
market, an option expressly forbidden by law. 18 U.S.C. Sec. 4122 (a).
    None of these schemes deals with the critical issue of keeping 
inmates occupied without displacing other workers. UNITE believes that 
this need can best be met in two ways: through enhanced training 
programs, geared to industries in which growth is anticipated, and 
through production of goods for which there is no commercial market.
    The statute creating FPI authorizes it to provide vocational 
training in addition to work opportunities. Within FPI, this appears to 
be an opportunity lost. This is not the case at the state level.
    Local unions have cooperated with state prisons in various areas to 
establish apprenticeship programs in skilled trades. These programs 
provide high-quality training for jobs that exist, and lead to 
Department of Labor certified status at the conclusion of the program. 
Such programs are appropriate, of course, only in areas with identified 
anticipated shortages in certain skilled trades. It should be possible 
to design similar rigorous training programs for other growing 
occupations that not only keep inmates occupied but truly equip them 
for life on the outside.
    Good training programs require careful consultation with the 
knowledgeable and affected people in the area to determine both the 
need for trained workers in certain occupations in the future and the 
nature of the training. They involve positive contact between inmates 
and potential future co-workers. They lead to real jobs when an inmate 
completes his or her term of confinement.
    We believe this is one direction that the Bureau of Prisons should 
be following as its inmate population expands. Unlike the current FPI 
program, it would not be training inmates for jobs that will not exist 
for them on the outside. It would not be increasing the tension between 
the incarcerated population and those who are not confined. It would 
not be competing with workers in either the private or public sector 
for jobs.
    Another option would be to have FPI provide products or services 
for which there is no commercial market; for example, unprofitable 
types of recycling or equipment for low-income social service 
providers. UNITE suggests that Congress determine whether there are 
products or services that could meet this definition; draft a specific 
and narrow statute authorizing short-term pilot projects of this sort; 
and establish a statutory review process outside of the Board of 
Directors of FPI in which workers, companies and other interested 
parties could present evidence on the success of the pilot programs.
    UNITE does not wish to suggest that replacing the current FPI 
program will be easy. We do believe it is both statutorily required and 
necessary for continued public support of prison work programs.
    The goal of Congress and the Administration should be to increase 
investment in education, after-school programs, school counselors, 
social services and job training so that we can lower our extraordinary 
rate of incarceration and the resulting need for prison work programs.
    We would be happy to work with the Subcommittee on any of these 
suggestions. Thank you for your attention.

    Senator Thurmond. Mr. Schwalb.

                   STATEMENT OF STEVE SCHWALB

    Mr. Schwalb. Thank you, Mr. Chairman.
    Mr. Chairman, we recognize there has been a lot of 
criticism of FPI based on concerns of adverse impact or job 
displacement. While we think these concerns are overstated, 
nonetheless, FPI in response has diversified its production and 
restricted its market share.
    We believe these actions have minimized adverse impact, as 
indicated in the private industry's own data. The furniture 
industry, for example, as a whole has experienced increased 
sales, earnings, and employment over the last 20 years, despite 
our presence and our growth, and as Ms. Hoffman said, the 
textile industry certainly has been decimated by imports which 
we think is the bigger part of the problem than FPI.
    We have heard much criticism about the unfair competitive 
advantage that FPI has by mandatory source and below minimum 
wages paid to inmates. But we think it is clear these 
provisions do not provide an unfair advantage to FPI.
    As a correctional work program, we must contend with 
conditions which are inherent to a prison environment, such as 
the high costs of training undereducated and underexperienced 
workers, prison security procedures, labor-intensive work 
practices, and high turnover from inmates being released and 
transferred. Private sector businesses simply do not confront 
these issues to the same extent as FPI.
    In practice, our mandatory source provision is merely a 
procurement vehicle to achieve an important social goal. The 
principal benefits of mandatory source to FPI are the 
attraction of private sector business partners and the 
reduction of our marketing expenses. For many of our product 
offerings, FPI relies on partnerships with private sector 
companies. They bring their research, design, and manufacturing 
expertise to the relationship, and FPI contributes inmate 
labor. The sale of the resulting product under our mandatory 
source affords these companies an additional distribution 
channel for their products. And it should be noted that FPI 
sales under mandatory source generate over $400 million a year 
in purchases of materials equipment, machinery, and services 
for our private sector vendors, 62 percent of whom are small, 
minority-owned, women, and disadvantaged businesses.
    Several companies have told the board in the past they 
would not have responded to our solicitations for partnering in 
the absence of mandatory source. Thus, it is very probable that 
FPI would have to discontinue several major product lines if 
mandatory source were eliminated or eroded.
    The potential undesirable effects of FPI's mandatory source 
are further minimized by the fact that in 1998, for instance, 
90 percent of the waivers to our mandatory source which were 
requested were approved.
    Regarding our prices, GAO recently examined the prices of 
several different FPI products and concluded that for virtually 
every one FPI's prices were within the market range of 
commercially comparable products.
    Regarding earnings, our annual net margin is typically in 
the 2 to 3 percent range, hardly an indication of low cost. In 
short, we do not believe FPI derives an unfair advantage from 
mandatory source or low inmate wages. And, in fact, any 
benefits these provide are more than offset by market 
restrictions, workforce constraints, and the prison environment 
limitations.
    Mr. Chairman, we are constantly searching for new 
alternatives for inmate job creation which will not generate 
opposition, recognizing, however, there are only so many things 
you can make with inmates in a prison environment.
    We have attempted over the years to reduce the ratio of our 
sales derived from mandatory source, from traditional products, 
and from the Federal market. Several such initiatives within 
our current authority are underway.
    For instance, we recently negotiated a pilot waiver of the 
mandatory source for dorm furniture. This will take effect in 
January 2000.
    In addition, we have 2,500 inmates, about 15 percent of our 
workforce in FPI, performing service work for Federal agencies, 
services such as laundry, equipment repair, furniture 
refinishing, computer recycling, and data processing.
    We are considering establishing a commercial services 
program on a pilot basis to seek business partners from the 
commercial sector who are interested in bringing service work 
back from overseas to have it performed by FPI inmates. Several 
of our factories are currently performing subcontracting work 
for such contractors as Northrup Grumman and Lockheed Martin to 
the satisfaction of both companies.
    We are currently working on joint proposals where FPI could 
serve as a subcontractor to the blind and severely disabled 
workshops, which, of course, produce products and services to 
Federal agencies under the provisions of the Javits-Wagner-
O'Day Act.
    Mr. Chairman, we are not advocating the maintenance of the 
status quo. We are willing to work closely with those in 
industry and labor to find that win/win solution the Director 
referred to in her remarks. But as a matter of long-range 
strategy, our objective is to reduce our reliance on sales 
derived from mandatory source, from traditional products, and 
from the Federal market, provided that we can maintain the 
required inmate employment levels.
    As a practical matter, Mr. Chairman, any change to the FPI 
program must ensure a means to create the necessary number of 
inmate jobs and must afford a realistic time period for the 
transition.
    Thank you, Mr. Chairman. I would be happy to answer any 
questions you might have.
    [The prepared statement of Mr. Schwalb follows:]

                  Prepared Statement of Steve Schwalb

    Mr. Chairman and Members of the Subcommittee, I appreciate the 
opportunity to appear before you today to discuss the Federal Prison 
Industries, Inc. (commonly referred to as FPI or UNICOR, it's trade 
name) program.
          fpi's perceived adverse impact on the private sector
    We recognize that there has been criticism of FPI based on concerns 
of adverse impact or job displacement in the private sector, caused by 
the program's mandatory source requirement. Our own assessments and 
statements by various respected economists, however, do not generally 
support such conclusions. Nonetheless, in response to these concerns, 
FPI has diversified its production, concentrated on products where 
total market expansion was forecast, unilaterally restricted market 
share to reasonable levels and pursued business partnerships with the 
private sector.
    We believe these actions minimize adverse impact on the private 
sector. Confirmation of FPI's impact is reflected in the private 
industry's own data. The office furniture industry, for example, as a 
whole, has experienced increased sales, earnings and employment over 
the past 20 years, despite FPI's continuous presence and sales growth 
in this product line.
                 fpi's perceived competitive advantage
    We have heard much criticism about the unfair competitive advantage 
FPI is afforded by the mandatory source provision and by below-minimum 
wages paid to inmates. For the reasons I will outline, we think it is 
clear that these provisions do not provide an unfair advantage to FPI.
    First, FPI is not a business; it is a correctional work program 
which operates in a self-sustaining manner. As a correctional work 
program, FPI must contend with conditions inherent to a prison 
environment, such as the high costs of training an under-educated and 
under-experienced workforce; prison security procedures which reduce 
efficiency (for example, last year FPI lost over 250 production days 
due to lock downs); labor-intensive work practices which both limit 
production and increase costs; high costs of supervising inmates who 
are security risks; high turnover from inmates being released and 
transferred (the turnover rate in FPI is approximately 5 percent per 
month); and, the establishment of many half-day work programs in order 
to afford inmates access to academic, vocational and drug treatment 
programs.
    Private sector businesses do not confront these issues to the same 
extent as FPI.
    In practice, the mandatory source provision is a means of 
supporting an important social goal. Its effect is similar to many 
other public policy programs, such as preferential procurement from 
workshops for the blind and severely disabled or procurement set-asides 
for small, disadvantaged, and women and minority owned businesses. 
Restriction of choice is a deliberate and frequent public policy, such 
as the requirement that veterans seek medical attention at government 
operated Veterans Administration hospitals, instead of receiving 
vouchers for the private hospital of their choice.
    The principal benefits of the mandatory source to FPI are the 
attraction of private sector business partners and the reduction of 
marketing expenses. For many of its product offerings, FPI relies on 
partnerships with private sector companies. These companies bring their 
research, design and manufacturing expertise to the relationship; FPI 
contributes inmate labor. The sale of the resulting product under FPI's 
mandatory source affords these private sector companies an additional 
distribution channel for their products. Several companies have told 
the Board that they would not have responded to FPI's solicitations in 
the absence of mandatory source. It is probable that FPI would have to 
discontinue several major product lines if the mandatory source were 
eliminated. This would affect the prospective sales of FPI's private 
sector partners as well.
    The potential undesirable effects of FPI's mandatory source are 
minimized by statutory requirements that FPI diversify its production 
to the maximum extent practicable, sell products only to the federal 
government and produce no more than a reasonable share of the federal 
market. Further, FPI has established and liberally applied procedures 
to grant waivers of the mandatory source when it cannot meet a 
customer's delivery requirements, technical specifications or price 
needs. Customer requests for FPI to waive its mandatory source are 
granted over 80 percent of the time. This gives the customers free 
choice and re-directs hundreds of millions of dollars in sales to the 
private sector. It should also be noted that FPI's sales under the 
mandatory source generate nearly $400 million per year in purchases of 
materials, equipment, machinery and services for FPI's private sector 
vendors. In 1998, 62 percent of such purchases ($223 million) were made 
from small/minority-owned, and disadvantaged businesses. Many of these 
vendors have expressed concerns about the potential loss of business 
associated with the elimination of FPI's mandatory source.
    FPI's prices are not substantially below the market. In fact, 
almost all of FPI's critics have suggested that FPI's prices are too 
high. In August of 1998, a GAO study examined prices of several 
different FPI products and concluded that for almost every product, 
FPI's prices were within the range of commercial prices for comparable 
products. FPI's enabling statute contemplated this pricing non sequitur 
by requiring that FPI's products be sold at ``not to exceed the current 
market price.'' There is no statutory or other restriction on selling 
below the market price. Of all the complaints FPI has received over the 
years about pricing, we have yet to hear that FPI's prices are too low 
or that FPI is undercutting the market.
    Regarding earnings, FPI's annual net margin is typically in the 2-3 
percent range. Fred Braun, former CEO of Zephyr Products, and 
considered by many to be the modern pioneer of private sector 
employment of inmates, summed it up well recently in comments: ``I 
continue to be frustrated by the many interested people who erroneously 
believe that [inmate] wage rates are the same as labor costs.''
    In summary, we do not believe FPI derives an unfair advantage from 
mandatory source or low inmate wages. Any benefits these provide are 
more than offset by market restrictions, workforce constraints and 
prison environment limitations.
   fpi's strategy to create more inmate jobs while minimizing impact
    We are constantly searching for new alternatives for inmate job 
creation which will not generate opposition. Pursuant to its statute, 
FPI attempts to diversify to the maximum extent possible, recognizing, 
however, that it must select product areas that are conducive to an 
inmate working environment. FPI also attempts to select areas where it 
foresees an increased federal market in order to reduce the potential 
of impact on the private sector.
    FPI has attempted over the years to reduce the ratio of its sales 
derived from mandatory source, traditional products and the federal 
market. Several such initiatives, within our current authority, are 
currently underway.
    With the approval of our Board of Directors, FPI has negotiated 
with the industry association a pilot waiver of mandatory source for 
dormitory furniture, which will take effect in January 2000.
    Mandatory source does not apply to services provided by FPI. Over 
the past several years, we have put a great emphasis on creating inmate 
jobs by providing services to federal agencies. Today, over 2,500 
inmates, approximately 15 percent of those employed by FPI, are 
performing such service work. The services include laundry, equipment, 
and vehicle component repair, furniture refinishing, computer 
recycling, printing, sorting, textile repair, distribution, data 
processing, and computer-aided design. This work is, of necessity, 
labor intensive, and we continue to look for other opportunities to 
provide such services.
    FPI is considering establishing a Commercial Services Program, on a 
pilot basis, to seek business partners from the commercial sector who 
are interested in bringing service work back from overseas for 
performance by FPI inmates. We are still evaluating this new area but 
we believe it may have future potential.
    Mandatory source also does not apply when FPI performs as a 
subcontractor to a federal government contractor. Several of our 
factories are performing work for such contractors as Northrup Grumman 
and Lockheed Martin. We believe this area offers considerable potential 
and we are pursuing several additional contracts.
    We have also had several meetings with the national organizations 
representing the blind and severely disabled, which provide products 
and services to the federal government under the provisions of the 
Javits-Wagner-O'Day Act. We are currently working on joint proposals 
whereby FPI would serve as a non-mandatory source subcontractor to 
these workshops for work normally not performed by the blind and 
disabled workers. We believe this option offers an outstanding mutual 
benefit to our respective constituents.
                     fpi's strategy for the future
    So where do we go from here? We are not advocating the maintenance 
of the status quo. We are willing to work closely with those in 
industry and labor to find that ``win-win'' solution the Director 
stated in her remarks.
    Recently, a Congressionally mandated joint study of the 
procurement, procedures, regulations and statutes that govern 
procurement transactions between the Department of Defense and FPI was 
completed. The study concluded that no legislative changes were 
necessary, but did make three recommendations, which we are adopting. 
These include:

  (1) Raising the threshold for waiver exceptions;

  (2) Expediting the waiver process for orders under $2,500; and

  (3) Initiating a pilot waiver of the mandatory source at eight DoD 
    locations for items which cost less than $2,500 and require 
    delivery within 10 days. As a matter of long-range strategy, FPI's 
    objective is to reduce its reliance on sales derived from mandatory 
    source, traditional products and the federal market, provided that 
    we can maintain the required inmate employment levels. As a 
    practical matter, any change to the FPI program must ensure a means 
    to create the necessary number of inmate jobs and must afford a 
    realistic time period for transition.

    Mr. Chairman, this concludes my remarks. I would be happy to answer 
any questions you or other members of the Subcommittee may have.

    Senator Thurmond. Thank you very much.
    Mr. Oliver, do you generally consider the Defense 
Department and Prison Industries to have a mutually beneficial 
and cooperative relationship, both currently and historically?
    Mr. Oliver. Mr. Chairman, we have been working together 
since 1934. I think that the study pointed out that there is a 
mutually good relationship with the exception that many of the 
respondents to the study, which is really what I am talking 
about because just with respondents to the study, many of the 
respondents to the study were not completely happy with the 
timeliness or the service of the products. The quality they 
thought was good and the price was--they weren't permitted to 
check on the prices, but they felt the others were good.
    Senator Thurmond. Mr. Oliver, do you consider the joint 
study between DOD and FPI to be a complete, comprehensive 
study, and does it adequately address the major issues 
regarding the relationship between DOD and FPI?
    Mr. Oliver. I think that the study, sir, really was a poll 
of several hundred people to see what they thought about what 
they had--what they thought with respect to the prices they had 
paid in the last year and last 24 months and what they thought 
about the product. And the study really focused on getting 
those people's opinion. I think 631 people. And I think that 
that is--the study is a good study and reflects that in the 
data, provides a great depth of data.
    Senator Thurmond. Mr. Oliver, the joint study survey of DOD 
customers found that FPI could improve in some areas such as 
timeliness of delivery. However, overall it appears that the 
survey found that DOD customers were generally satisfied with 
Prison Industries as a supplier. Do you agree?
    Mr. Oliver. Mr. Chairman, I would say that if you looked at 
the study, you would actually see that people were generally 
not satisfied with it as a provider, and I can't find the page, 
but I was looking at the percentages, and essentially the 
people are--with respect to efficiency, timeliness, best value, 
they found them worse than the other people they bought from.
    Senator Thurmond. Mr. Oliver, the joint study concludes 
that no legislative changes are needed in the procurement 
practices between DOD and FPI. For example, it recommends a 
pilot program to determine the impact of raising the waiver 
threshold from $250 to $2,500 for DOD orders. Do you agree with 
the joint study that legislative changes are not warranted?
    Mr. Oliver. Mr. Chairman, we are really anxious to get 
together with FPI and develop the eight places to look at the 
pilot studies to raise the limit to $2,500 and believe that we 
should do these pilot studies as soon as possible.
    Senator Thurmond. Ms. Hoffman, I understand that Harvard 
economist Richard Freeman suggested last week that prisoners 
should make for the commercial market products that are 
currently imported from other countries and produced by foreign 
labor. He said it would help the trade balance, help prisoners, 
and help U.S. businesses. Do you agree with that?
    Ms. Hoffman. Not at all. In addition to what I said in my 
statement, the businesses that used to do that work have now 
gone out of business. The businesses that would be helped are 
the retailers here who are doing just fine. It would do nothing 
to build up the U.S. economy. It would just create replacement 
products for what is currently being sold, and I think it is 
not a positive thing to do at all.
    Senator Thurmond. Ms. Hoffman, you suggest in your 
testimony that Prison Industries should provide products or 
services from which there is no commercial market. How could 
Prison Industries remain a self-sufficient corporation if it 
made products without a commercial market?
    Ms. Hoffman. I think the concept of self-sufficiency is 
wrong. I think that all that is doing is putting on to whatever 
industries and workers Federal Prison Industries compete with 
the cost of Federal Prison Industries. It is not self-
sustaining. It is making money from the economy, and it does 
that by taking work away from people who are not in prisons and 
companies that ought to be able to continue performing that 
work.
    Senator Thurmond. Mr. Schwalb, do inmates in Prison 
Industries generally pay more restitution than other inmates 
who work in other areas of the prisons?
    Mr. Schwalb. Yes, Mr. Chairman, they do. Because they earn 
a higher wage and because we have a minimum 50 percent 
requirement for them to pay, our data shows that they pay 
roughly about twice as much per capita toward restitution as 
inmates who are not in Prison Industries.
    Senator Thurmond. Mr. Schwalb, I understand that DOD and 
other Federal agencies are working to create more flexibility 
in their procurement practices such as by making more credit 
card purchases. Does FPI interfere in Defense or other 
agencies' streamlining efforts?
    Mr. Schwalb. Well, we certainly don't attempt to, Mr. 
Chairman. We are trying to assist all the Federal agencies in 
their efforts. We accept credit cards for our orders. We are 
doing Internet orders. We are doing electronic transmission of 
invoicing and ordering data. We are trying to parallel the 
efforts of all the Federal agencies so that we can be viewed as 
an attractive alternative rather than an impediment to their 
streamlining efforts.
    Senator Thurmond. Mr. Schwalb, as proposed in the defense 
authorization bill, FPI could lose its preference for making 
certain products because they are part of a larger product that 
is used for military intelligence or weaponry. What impact 
could this have?
    Mr. Schwalb. Well, Mr. Chairman, we think that could have a 
substantial impact, particularly on our electronic product 
line. The majority of the products we make for the Defense 
Department are cable assemblies and other related items that, 
in fact, are components of other products, and especially if it 
was broadly construed, we think it would have a very 
substantial impact on that entire product line, which is about 
20 percent of our sales.
    Senator Thurmond. Mr. Schwalb, if Congress were to create 
broad exemptions from the mandatory source preference for 
Defense Department procurement, such as those proposed in 
section 806 of this year's defense authorization bill, would 
you explain how such a provision would specifically affect 
Federal Prison Industries?
    Mr. Schwalb. Well, Mr. Chairman, as the Director mentioned 
in her comments earlier, the impact of the provisions of the 
current amendment we believe could affect about 75 to 80 
percent of the orders that we receive from DOD. And, of course, 
when you translate that into the number of inmates, it could 
affect adversely about half of our inmate workforce who work in 
those factories that produce those products.
    Mr. Chairman, as I have said and as the Director has said, 
we are not opposed to the idea of revisiting or reforming the 
way FPI's mandatory source works. What we are opposed to are 
all this nibbling around the edges, whether it is an amendment 
to this bill or a restriction in that category without stepping 
back and collectively in a consensus way addressing all of the 
concerns and providing, in the absence of mandatory source, 
alternative means for us to create the jobs for the burgeoning 
inmate population in enough time to make the transition.
    Senator Thurmond. Mr. Schwalb, the joint study between DOD 
and FPI found that FPI should develop a guide to explain how to 
conduct business with FPI. Also, an October 1998 DOD inspector 
general study found that DOD often lacks effective means for 
appealing waiver requests. Is FPI attempting to better educate 
its customers in areas such as the waiver process?
    Mr. Schwalb. Absolutely, Mr. Chairman. As Mr. Oliver 
suggested, we are collaborating with them on their purchasing 
vehicles, like their e-mail that they use for their customers. 
We are also collaborating as a result of the joint study on the 
joint development of a procurement brochure, if you will, that 
will go out to all the DOD customers. It will explain 
everything from what FPI is, how to do business, how to secure 
waivers. The most efficient transaction relationship we can 
have is what we are trying to secure.
    Senator Thurmond. Mr. Oliver, the executive summary of the 
joint study states, ``On the whole, respondents seemed to be 
very satisfied with quality and service, most satisfied with 
price, and least satisfied with delivery.'' The study also 
states, ``Most respondents rated FPI either good or average as 
an overall supplier in efficiency, timeliness, and best 
value.''
    Is this your understanding of the study?
    Mr. Oliver. Mr. Chairman, that is an accurate statement of 
the executive summary, and I think it is an accurate summing of 
the numbers in the respondents.
    Senator Thurmond. Mr. Oliver, given that Prison Industries 
is a preferred source of supply, does Prison Industries offer 
DOD some advantages in procurement over private suppliers?
    Mr. Oliver. Mr. Chairman, first of all, there are two 
facts. One is that the Congress does the balancing between 
various programs, and the second is the administration 
establishes policy for me and other appointees. But with 
respect to defense alone, and with respect to what we are 
trying to do with best value and improving our procurement, 
many of the things with respect to a specified source are 
opposite to what we are trying to teach our buyers to do. We 
are trying to teach them to look for best value in the 
marketplace and be very adaptive to market conditions.
    Senator Thurmond. Mr. Schwalb, some are proposing that the 
Department of Defense determine whether an FPI product is as 
comparable in price, quality, and timely delivery as the 
private sector. Are you concerned about permitting agencies to 
decide for themselves whether the FPI preference is applicable?
    Mr. Schwalb. Well, Mr. Chairman, we certainly don't have 
any suggestion that customers shouldn't determine what they 
need and whether or not we can satisfy that. The current 
process provides for the customer to review what we offer and 
make a comparison, and then if they believe that we cannot 
satisfy their needs, they submit a waiver request. We granted 
last year, as I mentioned, 90 percent of the waiver requests, 
and we did it within 4 days. So we try to be very liberal and 
reasonable about the application of the mandatory source.
    But it seems to me that if you take it beyond the concept 
of the waiver process and say that everybody essentially must 
buy from us if they think they should--that is essentially what 
happens when you say the customer makes the determination--then 
you might as well cancel the mandatory source outright because 
that will be the practical effect.
    Senator Thurmond. Mr. Schwalb, a June 1998 GAO report found 
that problems remain in FPI's delivery performance. Also, the 
joint DOD and BOP study found that timely delivery remains a 
major concern of DOD customers and that FPI should develop data 
to objectively measure timeliness. How are you working to 
address this problem, especially for defense customers?
    Mr. Schwalb. Mr. Chairman, we agreed with the 
recommendations of both of those reports, and we have taken a 
lot of efforts to improve our deliveries. It has improved every 
year since we have been at this effort. In 1998, the average 
on-time delivery for the entire year was 91 percent. As the 
Director said earlier, 91 is not as good as 100, and we are not 
going to be satisfied until we improve it. But we have 
continued to improve this year, and I am happy to report that 
at the end of April our on-time delivery for this year was 93 
percent. So we continue to improve that, and that is for all 
customers, including DOD.
    Senator Thurmond. I think that completes the testimony 
unless somebody has something you want to add. Mr. Oliver or 
Ms. Hoffman or Mr. Schwalb, do you have anything else you want 
to say?
    Mr. Oliver. No, sir.
    Ms. Hoffman. No, sir.
    Mr. Schwalb. No, sir.
    Senator Thurmond. Well, we thank you for your presence and 
thank you for your testimony. It adds greatly to this record.
    Now, we will leave the hearing record open for 1 week for 
additional material and for followup questions. If that is all, 
the hearing is adjourned.
    [Whereupon, at 4:22 p.m., the subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              

                         Questions and Answers

                              ----------                              

                        U.S. Department of Justice,
                                 Federal Bureau of Prisons,
                                   Washington, DC, October 1, 1999.
The Honorable Strom Thurmond,
Chairman, Subcommittee on Criminal Justice Oversight,
Committee on the Judiciary, U.S. Senate, Washington, DC.
    Dear Mr. Chairman: This is in response to follow-up questions from 
the May 24, 1999 hearing entitled ``Bureau of Prisons Oversight: The 
Importance of Federal Prison Industries.''

  Responses of Kathleen Hawk Sawyer to Questions From Senator Thurmond

    Question 1. The Inmate Financial Responsibility Program.(IFRP), 
which began in 1987, provides a means for collecting special 
assessments, debts to the IRS, court-ordered child support or alimony, 
and fines or restitution from the incarcerated debtor. In fiscal year 
1998, nearly $2 million was collected from UNICOR inmates toward these 
obligations, $1.4 million of which provided restitution to victims. It 
appears to me that all inmates, whether they are in Prison Industries 
or work in other jobs, should have to pay fifty percent of their income 
toward court ordered fines and restitution. Will you consider 
implementing such a program for all inmates?
    Ansewr 1. All federal inmates are encouraged to participate in the 
IFRP, and inmates who refuse to participate suffer a host of 
consequences including being quartered in the lowest status housing, 
denied participation in community-based programs, denied incentive for 
participation in drug treatment programs (including sentence 
reductions), and denied the opportunity to purchase particular items 
from the commissary. Inmates who work in UNICOR are required to 
contribute 50 percent of their earnings toward obligations that are 
tracked through IFRP; other inmates contribute an amount (at least $25 
per quarter) established by the staff who work closely with the 
inmates. Please note that in establishing this amount, staff review 
both inmate earnings and outside contributions to inmate accounts to 
encourage higher payments from inmates with significant community 
resources.
    It would not seem appropriate to require all inmates who 
participate in IFRP to contribute 50 percent of their earnings for two 
reasons. First, we currently require inmates to purchase several items 
from the inmate commissary. For example, inmates are encouraged to 
purchase over-the-counter medication from the commissary. This results 
in savings to the Bureau in the form of pharmacy expenditures and staff 
processing time. The Bureau of Prisons also generally urges inmates to 
purchase stamps and personal hygiene items through the commissary. 
Mandating that all inmates relinquish 50 percent of their performance 
pay may result in inmates in low-paid positions (and without community 
resources) being unable to make commissary purchases, ultimately 
driving up Bureau costs. Moreover, such a requirement would also put 
greater undue pressure on inmate families: when inmates deplete 
earnings to meet the 50 percent requirement, families may feel even 
greater pressure to send money to support inmate commissary and 
telephone purchases.
    Second, as a result of the Inmate Telephone System (ITS) court 
settlement, all inmates are permitted to maintain $75.00 per month in 
their inmate trust fund account exclusively for use toward telephone 
calls. The Bureau must exclude that $75.00 from the IFRP financial 
plan. Mandating that all inmates contribute 50 percent of their 
performance pay to IFRP would necessitate court intervention to address 
the impact of the ITS exclusion in light of a mandatory IFRP 
contribution.

    Question 2 Would Federal-Prison Industries (FPI) agree to give up 
its mandatory source regarding federal agencies if it could make 
products to sell in the commercial market that are now being made in 
foreign countries? Also, what type of repatriated work is FPI 
interested in pursuing?
    Answer 2. FPI is strongly in favor of gaining new authorities from 
Congress to pursue new markets that will help us create the requisite 
number of jobs to accommodate our increasing inmate population. Not 
only will repatriation help us achieve this goal, but it will also 
benefit private industry and labor. FPI repatriation programs will 
create additional jobs for U.S. citizens as FPI operations purchase raw 
materials, supplies, transportation, and other services. In addition, 
FPI repatriation programs will provide relief for our business partners 
from foreign language challenges, tariffs, unstable host economies, and 
overseas transportation costs.
    However, repatriation alone will not create sufficient market 
opportunity to completely offset the loss of the mandatory source in 
the federal market. In order to create the necessary number of jobs 
needed in the future to employ and train a burgeoning federal prison 
population, and to replace existing FPI jobs that may be lost as a 
result of elimination of the mandatory source, FPI will need the 
ability to sell other products that are currently being produced in the 
U.S. domestic market as well. It is expected that such authority will 
be accompanied by appropriate protections, including the payment of 
minimum wage to inmates for the manufacture of certain products, that 
will afford protection to private industry and minimize any impact on 
labor it is worthwhile to note that states have had similar authority 
available to them for twenty years through the Prison Industry 
Enhancement (PIE) program, and both business and organized labor agreed 
to the provisions involved in the PIE legislation.
    Please do not hesitate to contact me if you would like additional 
assistance with this or any other matter.
            Sincerely,
                                      Kathleen Hawk Sawyer,
                                                          Director.
                               __________
                U.S. Department of Justice, UNICOR,
                           Federal Prison Industries, Inc.,
                                   Washington, DC, October 1, 1999.
The Honorable Strom Thurmond, Chairman,
Subcommittee on Criminal Justice Oversight,
Committee on the Judiciary, U.S. Senate, Washington, DC.
    Dear Mr. Chairman: I appreciate the opportunity to respond to your 
follow-up questions pursuant to the May 24, 1999, Bureau of Prisons 
Oversight hearing.

     Responses of Joseph Aragon to Questions From Senator Thurmond

    Answer 1. You ask what role the Ombudsman has played in improving 
Federal Prison Industries (FPI) relationship with its customers, and 
what avenues have been made available to the private sector for sharing 
its concerns about FPI's development and significant expansion efforts.
    The Office of Ombudsman was established by FPI's Board of Directors 
in 1992 as a ``focal point'' for channeling and resolving issues of 
importance and concern to FPI from industry, trade associations, labor 
and federal agencies.
    More specifically, the Ombudsman routinely assesses FPI's internal 
operations policies to ensure that they impact fairly on federal 
customers and the private sector. To this end, the Ombudsman has taken 
significant strides towards the elimination of delinquent orders and 
the expeditious resolution of waiver requests (the current average 
being 3 days), The Ombudsman has 'demystified the waiver process by 
presenting workshops to both federal customers and the private sector. 
The Ombudsman is called upon to resolve a myriad of issues from 
external sources and has been instrumental, over the years, in 
maintaining open lines of communication with industry representatives. 
The Ombudsman also regularly updates the Board about FPI customers' 
evolving needs and candidly discusses FPIs ability to satisfy them in 
terms of its product offerings, servicing expertise, and quality 
assurance levels. The Ombudsman offers an impartial avenue through 
which federal agencies' appeals to denied waivers can be negotiated and 
equitably resolved.

    Answer 2. As a segue to your second question, the ombudsman acts as 
a facilitator of the guidelines process, formulates outsiders' market 
share concerns in their most representative light, and relays them to 
the Board for consideration. It is not unusual for the ombudsman to 
meet in private session with the Board to convey industry's concerns 
about FPI's intent to introduce new products, or significantly expand 
production levels. Further, FPIs public involvement procedures call for 
it to contact known parties having interest in a proposal, announce its 
proposed changes in the Commerce Business Daily (CBD), furnish copies 
of FPI's impact studies to all interested parties, and solicit comments 
from the private sector within 45 days of the announcement. Such 
comments are submitted to the Board, intact, for consideration prior to 
voting. Industry representatives are welcome and encouraged to testify 
during FPI's new product/product expansion hearings, which are 
generally convened just prior to the Board's deliberations (and 
decisions made by majority vote).
    If you have any further questions, please do not hesitate to 
contact me.
            Sincerely,
                                             Joseph Aragon,
                                  Chairman, FPI Board of Directors.
                               __________

    Responses of David R. Oliver to Questions From Senator Thurmond

                         fpi performance level
    Question 1. You stated during your testimony that ``if you looked 
at the study, you would actually see that people were generally not 
satisfied with [FPI] as a provider, and I can't find the page, but I 
was looking at the percentages, and essentially the people are--with 
respect to efficiency, timeliness, best value, they found them worse 
than the other people they bought from.'' The Executive Summary of the 
Joint Study provides: ``In response to questions regarding the price, 
quality, delivery, and service of specific products purchased in the 
last 12 months, FPI generally rated in the good to excellent or average 
ranges in all categories. On the whole, respondents seem to be very 
satisfied with quality and service, mostly satisfied with price, and 
least satisfied with delivery * * * Most respondents rated FPI either 
good or averages, as an overall supplier, in efficiency, timeliness, 
and best value.'' Please explain how your oral answer is consistent 
with the findings of the study.
    Answer 1. The statement quoted in your question was intended to 
describe what the study revealed about the overall view of FPI as a 
supplier expressed by the respondents to the Department of Defense 
(DoD)/Federal Prisons Industries (FPI) Study. Table IV-4, page 31 of 
the study reflects the ratings given to FPI as an overall supplier. In 
three out of the four categories identified, a majority of the 
respondents rated FPI as average, fair, or poor as an overall supplier. 
The three categories in which a majority of the respondents rated FPI 
as average, fair or poor are timeliness, quality, and best value. In 
only one category, efficiency, did a majority of the respondents rate 
FPI as either excellent or good. The fact that the overwhelming 
majority of the study respondents indicated that they used FPI because 
it is a mandatory source (87 percent), indicates to me that the 
majority of respondents continue to use FPI because of its status as a 
mandatory source and not because they are satisfied. If other sources 
could be used, the data suggests that a majority of respondents, 
seeking sources that were better than just average, would not use FPI.
                  waivers from purchasing fpi products
    Question 2. A Department of Defense Inspector General Report stated 
the DOD does not have a service-wide procedure for obtaining waivers 
from purchasing Federal Prison Industries products, and does not 
maintain waiver data. Has the DOD initiated a program to inform and 
educate your procurement officials concerning the waiver process and 
establish a way to keep track of the waivers which are requested and 
received?
    Answer 2. There is no need to establish a service-wide procedure to 
obtain waivers from FPI. The process and procedures for obtaining 
waivers from FPI are established and controlled by FPI and implemented 
by each purchasing organization. Procurement personnel are fully 
educated in acquisition from FPI and the waiver process is part of 
mandatory training for all 1102 personnel. Since FPI maintains waiver 
data for all Government organizations, it would be a wasteful 
duplication of effort with no additional value added for DoD to collect 
and maintain a separate database.
                     dod inspector general findings
    Question 3. In October 1998, the Department of Defense Inspector 
General conducted an audit of Defense Logistics Agency procurements 
from Federal Prison Industries. In this report the IG reported that in 
a majority of purchases, the price of FPI supplies compares favorably 
with the price for the same supplies purchased from the commercial 
sector and both had the same quality defect rate of one percent. Are 
you aware of these findings, and do you believe they are accurate?
    Answer 3. We are aware of the findings in the DoD Inspector General 
Report that the price of FPI supplies compares favorably with the price 
for the same supplies purchased from the commercial sector and both had 
the same quality defect rate of one percent. The findings of the report 
are not inconsistent with the findings of the DoD-FPI Study. Generally, 
FPI products are reasonably priced and are not defective. However, it 
should also be pointed out that the DoDIG report found that the Defense 
Logistics Agency ``* * * could have purchased the supplies in our 
comparisons at a lower price if its buyers had purchased or been able 
to purchase the supplies at the lower of the FPI or commercial price * 
* * For the 20 percent of the supplies that matched, FPI prices were 
higher than commercial sector prices. Had DLA been authorized to 
purchase these supplies at the lower of commercial unit prices or 
negotiated a comparable price with FPI, DLA could have reduced its 
costs by $2.6 million.''
                         defective supply items
    Question 4. Of the items reported to have a deficiency, the IG 
reported that the Defense Supply Centers did not exercise FPI's 
warranty provisions and missed the opportunity to replace about 
$127,000 in defective supply items. Why did the Defense Supply Centers 
not follow through with FPI's warranty provisions? Has the Defenses 
Logistics Agency established a new procedures that can track this types 
of items and allow them to replace detective items through FPI's 
warranty provisions?
    Answer 4. There is no single answer why the Defense Supply Centers 
did not exercise warranty rights against FPI for defective products. 
DLA activities may generally be less likely than their Service 
counterparts to exercise warranty rights because they often are not the 
ultimate consumers of the items they purchase. Under commercial 
warranty conditions, by the time a DLA inventory control point (ICP) 
becomes aware of a quality defect in a tendered item via the product 
quality deficiency report (PQDR) process, the warranty may have 
expired. The ICPs may not previously have been aware that the FPI 
``escape proof guarantee'' amounts to a lifetime warranty with no 
expiration date. DLA has taken steps since the publication of the cited 
DoD Inspector General Report to ensure that the buying activities 
familiarize themselves with this FPI consumer policy. The revised DLA 
Instruction 4155.2, Quality Assurance Program Instruction for DLA ICPs, 
which already required PQDRs to be provided through Defense Contract 
Management Command to the contractor for source inspected items, and 
directly to the contractor for destination-inspected items, now 
emphasizes applicability of the FPI escape proof guarantee to this 
process. Tracking of replacement items, though, is beyond DLA's purview 
as a wholesale supplier.
    In addition the Department has linked FPI's data base and ordering 
systems to our web sites to facilitate easy of use by our contracting 
officers. We have initiated discussions with FPI regarding the 
recommendations included in the report to pilot-test abbreviated waiver 
procedures. However, FPI has informed us that they wish to study the 
issue instead of testing.
                               __________
                  Union of Needletrades, Industrial
                                     and Textile Employees,
                                     New York, NY, October 1, 1999.
RE: Hearing on ``Bureau of Prisons Oversight''

The Honorable Strom Thurmond, Chairman,
Subcommittee on Criminal Justice Oversight,
U.S. Senate, Washington, DC.
    Dear Senator Thurmond: I am writing in response to the follow-up 
questions you submitted to me, based on my testimony at the May 24, 
1999 Oversight Hearing on BOP. The questions and answers are as 
follows:

      Responses of Ann Hoffman to Questions From Senator Thurmond

    Question 1. You stated in your prepared testimony that one reason 
prisoners should not make products only made overseas is that this work 
will not provide them with specific, employable job skills. You also 
state that inmates should make products for which there is no 
commercial market. How will making products [for] which there is no 
commercial market provide inmates with specific employable skills?
    Answer 1. I suggested as examples of the kinds of products and 
services that might be appropriate ``unprofitable types of recycling or 
equipment for low-income social service providers.'' The skills 
involved in performing recycling work or making equipment for low-
income social service providers are clearly applicable to profitable 
recycling, and to equipment manufacture for the commercial market.
    In addition, I suggested that ``Congress determine whether there 
are products or services that could meet this definition and authorize 
pilot projects subject to review and analysis by someone other than the 
Board of Directors of FPl. I am confident that such a process might 
result in more consensus than exists currently.

    Question 2. At a symposium on May 14th, several nationally 
respected economists argued that the sale of inmate-made products in 
the commercial market would not have an adverse effect on the economy. 
Do you agree with this assessment? Why or why not?
    Answer 2. I am not aware of a symposium on May 14th, so I cannot 
react to the premise of the question. I believe the thrust of my 
testimony was to the effect that expansion of prison industries, into 
the commercial market or otherwise, will have an adverse impact on the 
economy for the reasons stated therein.
            Sincerely,
                                               Ann Hoffman,
                                              Legislative Director.
                               __________
                        U.S. Department of Justice,
                                 Federal Bureau of Prisons,
                                Washington, DC, September 21, 1999.
The Honorable Strom Thurmond, Chairman,
Subcommittee on Criminal Justice Oversight,
Committee on the Judiciary, U.S. Senate Washington, DC.
    Dear Mr. Chairman: I appreciate the opportunity to respond to your 
follow-up questions pursuant to the May 24, 1999, Bureau of Prisons 
Oversight hearing. Our responses are as follows:

     Responses of Steve Schwalb to Questions From Senator Thurmond

    Question 1. You mentioned in your testimony that FPI is pursuing a 
commercial services initiative as an example of an initiative which 
does not rely on mandatory source. How will FPI's Commercial Services 
Program be implemented? (No. 1 and No. 7 are the exact same question.)
    Answer 1. FPI's commercial market services (CMS) initiative is 
being pursued cautiously, with the authorization of the Department of 
Justice and approval by FPI's Board of Directors. The CMS initiative is 
being undertaken as a pilot effort, with the first projects to be 
implemented all involving service work that is currently being 
performed outside of the United States. FPI will repatriate that work, 
thus having no adverse impact on domestic U.S. jobs. In fact, the CMS 
initiative may result in the creation of new U.S. jobs (e.g., inmate 
supervision and purchases of equipment, supplies, and services) in 
support of the work that will be done by inmates inside our Federal 
prisons. The work we will focus on seeking will be labor intensive, 
such as data services, sorting, and packaging.

    Question 2. Some have argued that for every job an inmate has in 
Federal Prison Industries, there is one less job for a law-abiding 
citizen losing his or her job. Why do you not believe that to be the 
case?
    Answer 2. Since one of FPI's mandates is to employ the greatest 
number of inmates, it does not conduct its manufacturing process in the 
same manner the private sector does. FPI uses techniques that are labor 
intensive, thereby minimizing any impact on private sector jobs. It has 
been established and well documented (Deloitte & Touche, market study 
report to Congress, 1991) that on average, prison industries output 
equates to approximately one fourth that of a worker producing 
comparable goods in the free world. Thus, even at a superficial level, 
it would take four inmate workers to equate to one private sector job.
    There are several other factors that should be considered before 
any FPI sales are assumed to result in any job displacement in private 
industry. A principal consideration is growth in the economy. As long 
as the economy is growing, inmate jobs do not come at the expense of 
private sector workers. This is because inmate jobs are created out of 
an overall expanding market pie. Take the furniture industry, for 
example. The overall U.S. market for office furniture grew from 
approximately $10 billion in 1996 to nearly $13 billion in 1999. The 
expanded inmate jobs created during this time period are simply a small 
fraction of the overall growth. Thus, inmate jobs do not come at the 
expense of someone's job in the private sector, since private industry 
is hiring and creating new jobs at the same time.
    In a more stable, or even declining, market such as textiles, any 
impact would be dispersed across multiple manufacturers in the 
industry. Thus if the contracts awarded to FPI were to be awarded to 
the private sector instead, the work would likely be divided up among 
several different firms. Thus any impact of FPI's having this work is 
likewise dispersed among several companies in the industry.
    Another factor to consider is attrition. That is, even if a company 
does reduce the size of it workforce, a certain amount of that 
reduction will occur through normal attrition, i.e., retirements, 
turnover, etc. Thus the most often asserted scenario by FPI critics, 
i.e., actual direct displacement of persons in existing jobs, is one 
that is the least likely to occur.
    A company's capacity utilization is also a factor. Much of FPI's 
work, if it were not being performed by FPI, would be absorbed into the 
existing capacity of a number of firms across the industries in which 
FPI operates. If FPI sales were to go to the private sector, it is 
highly unlikely that these sales would result in the creation of new 
jobs. FPI's impact is most likely felt in a slightly reduced profit 
margin on the part of private companies rather than on employment per 
se.
    On the positive side of the ledger, it cannot be overlooked that 
FPI actually creates jobs. First, FPI employs nearly 2,000 civilian 
staff in support of its operations. Second, of every dollar spent by 
FPI, 94 cents is returned to the private sector in the way of purchases 
of raw materials, staff salaries, utilities, equipment maintenance and 
supplies. These contributions by FPI help create private sector jobs. 
Therefore, in lieu of FPI's existence in the marketplace, the jobs 
directly supported by FPI operations would be adversely affected, 
resulting in a loss of jobs to the economy.

    Question 3. Please discuss the percentage of products and services 
that the Federal government purchases from FPI compared to other 
suppliers.
    Answer 3. FPI's share of total Federal government purchases is 
about one quarter of one percent (i.e., FPI sales of roughly $600 
million out of total Federal procurements of nearly $200 billion). 
FPI's market share in only those 88 Federal Supply Class (FSC) codes in 
which FPI provides goods and services is slightly higher, at 3.6 
percent. FPI has a market share higher than 20 percent in only 15 out 
of the 88 FSC codes in which it operates. (Four of these FSCs are in 
services, for which FPI is not mandatory.) If we include the broader 
overall commercial market for the products and services that FPI 
provides, its market share in most cases is only a fraction of one 
percent.

    Question 4. Based on the May 21st symposium that you attended, do 
economists believe that FPI has an economically significant impact on 
the American economy? Please explain.
    Answer 4. An article was published in the May 20, 1999, edition of 
the Wall Street Journal entitled ``Economists Join Debate on Prison 
Work.'' The article was published the day before George Washington 
University hosted a day-long seminar of nationally recognized 
economists and others to discuss this critical issue of prison work. 
There was virtual consensus among those in attendance at this seminar 
that increased opportunities for prison work could be beneficial rather 
than detrimental to the overall U.S. economy. Professor Richard 
Freeman, a respected labor economist from Harvard University, in 
discussing the benefits of inmates repatriating work to the U.S., 
stated, ``That helps the trade balance, it helps the prisoners, it 
helps U.S. businesses, at almost no cost to the people who are free.'' 
In that same article, Morgan Reynolds, a Texas A&M economist stated 
``Production by prisoners creates rather than destroys jobs'' as a 
result of the multiplier effect, whereby workers making things require 
other workers to produce and deliver their raw materials, transport 
their finished goods, etc.
    Similarly, at a recent House Crime Subcommittee hearing held on 
August 5, 1999, chaired by Congressman McCollum, representatives for 
both the textile and office furniture industries testified in response 
to a question from Congressman Bobby Scott, that FPI's impact on their 
overall industries is relatively insignificant.

    Question 5. Federal Prison Industries has received criticism in the 
past for employing non-citizen inmates in your factories which learn 
skills and then upon their release they take these skills back to their 
country. Does FPI employ foreign nationals in your factories, and what 
is your policy in this regard?
    Answer 5. In accordance with a final rule published in the Federal 
Register on June 15, 1999, inmates or detainees who are currently under 
an order of deportation, exclusion, or removal, are no longer permitted 
to work in FPI (UNICOR). Inmates or detainees for whom no decision has 
been made are unaffected by this policy. The only exception to this 
policy is where a deportation order has been issued, and the inmate is 
from a country that will not accept them back, in which cases such 
inmates may be permitted to work in UNICOR.

    Question 6. FPI recently published a proposed rule that some have 
claimed precludes agencies from comparing FPI's products to commercial 
sources. Can you please address this?
    Answer 6. FPI's proposed rules were intended only to codify long 
standing policies and practices. In light of renewed legislative 
efforts to pass comprehensive legislation that would grant FPI new 
market authorities and overhaul the current way FPI operates, FPI has 
withdrawn the draft rules referenced.

    Question 7. You mentioned in your testimony that FPI is pursuing a 
commercial services initiative as an example of an initiative which 
does not rely on mandatory source. How will FPI's Commercial Services 
Program be implemented?
    Answer 7. Same as Question #1 (see response to Q. #1)

    Question 8. A March 1998 GAO report said that FPI is unable to 
demonstrate with any degree of certainty the level of customer 
satisfaction it delivers. It remains vulnerable to assertions by its 
critics that federal customers are dissatisfied and should no longer be 
required to buy FPI products, and misses opportunities to improve its 
operations by having better data on how federal customers view its 
performance. What is FPI doing to improve their management information 
systems to obtain feedback on timeliness, price, and quality from 
federal customers?
    Answer 8. In April 1999, FPI and the Department of Defense 
submitted its joint study of business transactions conducted between 
the two agencies. The study was directed by the Congress as part of an 
Amendment to the 1998 DoD authorization bill sponsored by Senator Phil 
Gramm. As part of the study, DOD and FPI conducted a comprehensive 
survey of DOD customers to determine their views about FPI.
    In the jointly conducted survey, questions were asked regarding the 
price, quality, delivery, and service of specific products purchased 
within the last 12 months, with FPI generally rated in the average, 
good, or excellent ranges in all categories of the DOD customers 
surveyed, 88 percent rated FPI average to excellent for efficiency, 69 
percent rated FPI as average to excellent for timeliness, 85 percent 
rated FPI's prices average to excellent, and 88 percent rated FPI as 
average to excellent for quality.
    In addition to this in depth review of DoD customer satisfaction, 
FPI is in the process of developing a customer satisfaction database. 
We continue to develop survey questions for implementation. The surveys 
are expected to begin in October 1999. The database will be started 
concurrently with the implementation of the surveys.

    Question 9. A June 1998 GAO report showed that FPI's delivery times 
continue to need improvement. What specific steps has FPI taken in the 
past year to increase the timeliness of its customers orders?
    Answer 9. One of the questions posed to DoD customers in the joint 
DoD-FPI study was whether FPI had improved in the past year. Of those 
surveyed, 63 percent indicated that FPI had indeed improved, 
empirically substantiating verbal feedback that FPI has received from 
its Customer Advisory Group and others.
    Moreover, FPI has been closely tracking progress on achieving its 
on-time customer delivery goals. In fiscal year 1999, FPI's on-time 
deliveries have improved from 85 percent in October to almost 92 
percent at the end of July. Other specific steps that are being taken 
by FPI include plans to reduce its standard (non quick ship orders) 
delivery lead times in its office seating line from 90 to 60 days.
    Finally, FPI is currently preparing for implementation of a new 
Enterprise Resource Planning system in May of 2000. This new management 
information system will provide enhanced capability for tracking, on a 
real-time basis, customer status and requirements for price, 
specifications, and timeliness, and will result in improved overall 
customer service.
    Again, we appreciate the opportunity to respond to your concerns. 
Please do not hesitate to contact me if you require additional 
information.
            Sincerely,
                                             Steve Schwalb,
Assistant Director, Industries, Education, and Vocational Training.

                 Additional Submissions for the Record

                              ----------                              

              Prepared Statement of Administration Policy

    (this statement has been coordinated by omb with the concerned 
                               agencies.)
    The Administration supports prompt congressional action on the 
national defense authorization bill for fiscal year 2000; however, S. 
1059 raises serious budget concerns and a number of policy concerns 
outlined below.
                             funding levels
    The Administration opposes the extent of the base funding increases 
for defense programs S. 1059. The President's defense budget for fiscal 
year 2000 provides a $9 billion increase proposed in over the fiscal 
year 1999 enacted level, excluding emergencies enacted in the fiscal 
year 1999 Omnibus Appropriations Act. The Presidents budget ensures 
that critical readiness needs are met, allows for weapons 
modernization, and proposes an appropriately generous military 
compensation plan, while ensuring, that other critical U.S. priorities 
receive sufficient funding. The Senate bill, in contrast would 
authorize $8 billion more in total spending for defense than the $280.8 
billion requested in the President's budget, potentially draining 
critical resources, from other programs. The Administration believes 
that S. 1059 must be considered in the context of deliberations on a 
comprehensive budget framework that addresses Social Security, 
Medicare, and all discretionary spending. For these reasons, the 
Administration opposes the magnitude of the base funding levels of S. 
1059.
                  base realignment and closure (brac)
    The Administration is disappointed that the bill fails to support 
the Department of Defense's proposal to authorize two additional rounds 
of base closures and realignment. Defenses base in a structure is far 
too large for its military forces and must be reduced. The failure to 
downsize Defense's base infrastructure proportionately is apparent in 
the fact that since fiscal year 1989 force structure has been cut 36 
percent compared to only 21 percent in base structure through four BRAC 
rounds. Future BRAC rounds are critical to secure funds for readiness, 
modernization, and quality of life priority programs and to allow the 
Department to reshape its base infrastructure to match changing mission 
requirements for the 21st century.
                       military pay and benefits
    While the Administration is pleased that S. 1059 endorses the key 
elements of the President's plan to improve military compensation, we 
are concerned about the excessive costs of the committee bill. The 
Administration is concerned that program costs of the bill's military 
pay increases exceed the Defense program for fiscal year 2000-2005 by 
nearly $6 billion. They also create a disparity with civilian pay 
raises. The bill's retirement reform would be significantly more costly 
in the long run than the Administration's proposal.
     central transfer account to fund programs to combat terrorism
    The Administration objects to Section 1007, which creates a central 
transfer account to fund the combating terrorism aspect of the force 
protection mission. This central funding of a fundamental command 
responsibility would impede efforts by commanders to insure the 
security and readiness of their forces. Additionally, the total amount 
of funding consolidated into section 1007 exceeds the amounts for 
combating terrorism in the President's budget request that would be 
otherwise located in other titles of the bill. This has the effect of 
unintentionally cutting critical readiness spending. The Administration 
would strongly prefer to work with Congress to finalize the 
Administration's proposed process to provide the committee with the 
oversight information it now finds lacking.
                      department of energy issues
    The Administration is pleased with the bill's support for most of 
the programs under the President's Extended Threat Reduction initiative 
to improve the security of weapons of mass destruction in Russia. The 
Administration, however, is disappointed with reductions to the Nuclear 
Cities Initiative (NCI) and the Initiative for Proliferation Prevention 
programs. Furthermore, the bill would place burdensome restrictions on 
these programs that could bring them to a halt. The most problematic is 
requiring agreement from Russia to close weapons production facilities 
as a condition for assistance from the NCI program.
    The Secretary of Energy has taken decisive measures with regard to 
counter-intelligence, safeguards and security issues at Department of 
Energy (DOE) facilities. His efforts will be strengthened by a number 
of provisions in this bill. However, the Administration objects to the 
proposed moratorium on cooperative program with Russia. China, and 
other nations pending certain security-related certifications. This 
provision could negatively impact a number of vital national security 
programs, such as disposition of Russian missile material. With respect 
to the provision requiring detailed background investigations for all 
employees who work in the vicinity of restricted data, the 
Administration believes that this costly and intrusive provision is 
inconsistent with procedures throughout the Executive Branch 
established by Executive Order 12968. DOE is implementing measures that 
will more effectively deal with the concerns this provision seeks to 
address, including improved security, use of polygraphs, and counter-
intelligence initiatives. While Supporting accelerated completion of 
DOE closure projects, the Administration opposes the provision that 
would authorize the Secretary of Energy to accept loans from cleanup 
contractors and use the funds for additional cleanup. This provision is 
detrimental to ongoing contract and management reform initiatives at 
the DOE and is inconsistent with longstanding policy on Federal agency 
borrowing.
                                spectrum
    The Administration strongly opposes Section 1049, which would 
elevate the Defense Department's use of the spectrum above all other 
Federal, State and local government, and private sector uses. It would 
undermine the President's authority to set spectrum management 
priorities for the Federal Government and impair the Federal 
Communications Commission's (FCC) ability to manage the spectrum for 
the private sector and State and local governments. It could also 
discourage investment in new and more spectrum-efficient technologies, 
create disincentives for spectrum sharing, and impose significant costs 
on Federal, State and local governments, and the private sector.
    The Administration also opposes Section 1050 which prohibits the 
Federal Government from providing licenses, permits and funding to 
entities broadcasting without specific authorization from outside the 
United States into the country on frequencies reserved to or used by 
the Defense Department. This provision infringes upon international 
spectrum management, which is appropriately addressed by the FCC and 
others through the International Telecommunications Union (ITU). It 
would be inconsistent with U.S. obligations under the ITU and could set 
a precedent that other countries could follow to the detriment of U.S. 
interests abroad.
          federal prison industries mandatory source exemption
    The Administration opposes Section 806 which would essentially 
eliminate the Federal Prison Industries (FPI) mandatory source with the 
Defense Department. Such action could harm the FP1 program which is 
fundamental to the security in Federal prisons. In principle, the 
Administration believes that the Government should support competition 
for the provision of goods and services to Federal agencies. However, 
to ensure that Federal inmates are employed in sufficient numbers, the 
current mandatory source requirement should not be altered until an 
alternative program is designed and put in place. Finally, this 
provision would only address mandatory sourcing for the Defense 
Department, without regard to the rest of federal government.
                       strategic force structure
    The Administration appreciates the bill's endorsement of our plan 
to reduce the Trident submarine force from 18 to 14 boats, while 
maintaining a survivable, effective START 1-capable force. However, we 
prefer repealing the bill's general provision that maintains the 
prohibition, first enacted in the fiscal year 1998 Defense 
Authorization Act, against obligating funds to retire or dismantle any 
other strategic nuclear delivery systems below specified levels unless 
START II enters in force. The Administration believes this provision 
would unnecessarily restrict the President's national security 
authority and ability to structure the most capable, cost-effective 
force possible.
        theater missile defense upper-tier acquisition strategy
    The Administration strongly opposes Section 221, which proposes a 
management and funding structure that negates the Department's overall 
Ballistic Missile Defense strategy. The Department's strategy will 
allow for the earliest, affordable delivery of an effective upper-tier 
system. This would not be the case if the Department had to develop the 
Theater High Altitude Area Defense and the Navy Theater Wide systems 
concurrently. The provision cannot be implemented with the resources 
provided and would seriously impact the safety of our troops on the 
ground.
                   patriot anti-cruise missile (pacm)
    The Defense Department's top Theater Missile Defense system 
priority is the Patriot Advanced Capability--3 (PAC-3) missile, and it 
supports the $212 million increase for this program. However the 
Department did not request funding for and does not support the bill's 
$60 million authorization for the Patriot Anti-Cruise Missile (PACM), 
for which the Army does not have an operational requirement.
                      inventory of major end items
    The Department of Defense objects to Section 1024, which requires 
each military service to conduct an inventory of all major end items 
(i.e. aircraft, ships, missiles etc.) and report the results, including 
the status and location of each accountable item. This would be a 
costly duplication of thorough inventories already conducted and is 
based on the incorrect assumption that our military commanders are 
derelict in their oversight of their assigned end items.
    troops-to-teachers
    The Administration believes that the Department of Defense should 
continue to have authority to administer the current Troops-to-Teachers 
program until the Administration's proposed ``Transition to Teaching: 
Troops to Teachers'' initiative is enacted to expand this important 
effort as part of the reauthorization of the Elementary and Secondary 
Education Act.
                            land withdrawal
    The Administration agrees that legislation on renewal of military 
land withdrawals is needed and looks forward to presenting its proposal 
to and working with the Congress on this issue.
                           procurement reform
    The Administration urges the incorporation of our proposed 
provisions that would further improve the acquisition process and its 
ability to support the Defense mission. Activities would include, among 
other things, reducing government-unique accounting requirements, 
streamlining the acquisition of commercial items, and taking greater 
advantage of electronic commerce.
                  voluntary early retirement authority
    The Administration does not oppose the provision accelerating the 
effective date of the Defense Department's Voluntary Early Retirement 
Authority. However, the Administration urges the Congress to adopt the 
Administration's proposal to extend the availability of comparable 
early out authority government-wide.
                         pay-as-you-go scoring
    S. 1059 would affect receipts and direct spending; therefore, it is 
subject to the pay-as-you-go requirements of the Omnibus Budget 
Reconciliation Act of 1990. This office's pay-as-you-go scoring of S. 
1059 is under development.
    The Administration will continue its review of the bill and may 
identify other issues. The Administration looks forward to working with 
congressional leaders to forge a strong Authorization Act for fiscal 
year 2000.
[GRAPHIC] [TIFF OMITTED] T5147.004

    Prepared Statement of American Apparel Manufacturers Association

    Thank you for providing an opportunity for American Apparel 
Manufacturers Association (AAMA) to present its views on Federal Prison 
Industries.
    AAMA is the central trade association for US companies that produce 
clothing. Our members are responsible for about 85 percent of the $100 
billion worth of garments sold at wholesale in this country every year. 
While the industry is large, most of the companies are relatively 
small. Three-fourths of our members have sales under $20 million and 
more than half have sales under $10 million. Our members manufacture 
every type of garment and are located in nearly every state. About 50 
of our members supply uniforms and clothing to the military and, 
therefore, are in direct competition with FPI. Our industry employs 
more than 700,000 Americans.
    AAMA is not seeking the dissolution of FPI or seeking special 
protection for the apparel industry. Rather, we are suggesting two 
simple solutions that can resolve current complaints with FPI's 
operations and provide a groundwork for how FPI's future activities can 
be evaluated.
    And those solutions are relatively straightforward. First, FPI must 
operate within its statutory mandate to cause no undue damage to the 
private sector. Second, oversight should be strengthened to ensure FPI 
adherence to this mandate.
                     background on apparel industry
    AAMA's 50 or so government contracting companies have a long 
history of making specialized products to exacting military standards. 
Many only make a handful of distinct products and most of them only 
have one customer--the US military. They represent a key component of 
the warm industrial base that is so critical for our ``ready to go to 
war'' capability. Without them, we would not be able to respond easily 
to US security threats, such as those posed by Saddam or Milosevic.
    But outside of this role, these apparel companies have few options. 
They have little or no experience in the already overcrowded commercial 
marketplace. Half of that market already has been taken by imports, 
while the other half is contested by about 12,000 domestic firms. 
Moreover, the apparel industry in the United States is shrinking 
dramatically. In the last five years, we have lost more than 220,000 
jobs.
    At the same time, FPI now dominates the government contracting 
market for apparel. In its fiscal year 1998 report, FPI's apparel sales 
equaled $134 million, or about 25 percent of FPI's total net sales. It 
operates 23 textile and apparel plants in 17 states and employs more 
than 5000 inmates. FPI is now the single largest apparel supplier to 
the Defense Department.
    Our government contracting companies have a long history dealing 
with FPI and their repeated expansions into the apparel industry. It is 
this perspective that we want to share as you evaluate FPI's 
operations.
                         the current situation
    FPI responds to a clear social need--controlling an ever-expanding 
inmate population. But it is doing so at the expense of a very small 
segment of our country. Because the hurt is concentrated in a few 
industries, such as apparel, we are shouldering a disproportionate 
share of the burden. We are rapidly being driven out of business. This 
is not a healthy model and is clearly not what the Congress intended 
when FPI was originally authorized 65 years ago. Congressman Connery of 
Massachusetts said it best in 1934--during the debate on legislation 
authorizing FPI--when he stated ``The only solution is to permit them 
to make a little of this, a little of that, so that there will not be 
undue competition with the private sector.''
So what should we do?
    Reform of FPI starts with the fundamental realization that FPI 
currently exceeds its statutory authorization. FPI authorizing law 
requires it to diversify its production, minimize competition with the 
private sector, and avoid capturing more than a reasonable share of the 
Federal Government market for any specific product. The experience of 
government contractors in the apparel industry is that each of these 
mandates has been routinely disregarded.
    Attached to this testimony is a list of apparel products for which 
FPI has been authorized to produce 100 percent of defense procurement 
needs. Even though FPI is expressly prohibited from taking more than a 
reasonable share of the market for any specific product, it has done so 
repeatedly as this list shows. How? Because there is no clear 
definition of ``reasonable'' or ``specific product.'' FPI often 
measures its expansion plans by looking at the entire industry--both 
commercial and military. Such analyses overstate the size of a 
particular market and, in so doing, mask the damage FPI does to 
government contractors.
    Like the proverbial camel's nose under the tent, the other mandates 
fall in quick succession. As it consumes such high percentages of the 
market share of specific products, FPI is also clearly failing to 
diversify its industries. In many cases, it is far easier to consume a 
larger share of an existing product than expand production into 
completely new areas. Again, with no guidelines on reasonable market 
share, FPI finds it relatively easy to ignore its diversification 
mandate as well.
    Finally, by concentrating in existing industries and certain 
product lines, FPI finds itself unable to minimize competition with the 
private sector. This is especially true when you remember that some of 
these contractors produce only one or two distinct products. By 
consuming one hundred percent of a specific product, FPI may force 
three of the firms that manufacture that product to close entirely and 
two others to fire half their production staff.
    We believe FPI has been able to disregard these mandates because of 
two fatal flaws built into the FPI system itself. First, FPI enjoys 
incredible power as an unlimited mandatory source provider to the 
Federal Government. Quite simply, FPI has the ability to take 
practically any federal contract it wants. This is a power that is all 
too easy to abuse--especially when FPI is under pressure to expand its 
operations to absorb new inmates. Because its mandates on not competing 
with the private sector are so loosely worded, FPI has little incentive 
to NOT use this mandatory source power.
    Second, there is little institutional oversight to restrict FPI's 
activities. In many respects, it seems as if FPI answers to no one--not 
Congress, not its Federal customers and certainly not private industry. 
From our experience, its public decision-making process appears largely 
designed to ratify previously approved decisions. Nor are we convinced 
that the Board exercises any oversight or independence. Several years 
ago, for example, we negotiated with the FPI Board to secure specific 
limits on future expansion in the battle dress uniforms (BDUs). Several 
weeks later, those limits were disregarded when FPI staff went forward 
with a dramatic increase in the expansion anyway.
    FPI also uses its role as a quasi-public agency to maximize its 
power and minimize its restrictions. For example, it claims status as a 
federal agency to exempt itself from Federal Acquisition Regulations 
(FAR) provisions governing purchases from the private sector. Yet it 
claims status as a private corporation to justify the fact that, after 
65 years of operation, it is only now attempting to codify its rules of 
operation. While we have considerable disagreement over the substance 
of these rules, we find it incredible that it has taken so long for FPI 
to even issue such guidelines.
                            recommendations
    As mentioned before, we believe there are two principles that would 
help rectify the current situation while ensuring smooth operations in 
the future. We believe these principles should be at the heart of any 
reform proposal.

    1. Require FPI to live within the confines of its statutory 
authorities regarding competition with the private sector. FPI should 
be compelled to refrain from taking more than a ``reasonable share'' of 
any ``specific product'' as required by 18 USC 4122(b)(2) Since FPI has 
shown it is incapable of establishing limits for these two phrases, we 
would propose Congress perform this task. A reasonable market share 
should be defined as 10 percent. That is, FPI can either exercise its 
mandatory source or compete, but only up to a 10 percent limit of a 
specific product. The term ``specific products'' in turn should be 
narrowly defined to refer to actual, specific items not generic product 
groupings or dollar amounts. Finally, FPI should be compelled to 
rollback its existing production so that it meets these newly 
articulated guidelines.
    We also strongly support language (Section 806) in the Senate Armed 
Services Committee version of the fiscal year 2000 Defense 
Authorization Bill that limits FPI by empowering the Defense Department 
to void mandatory source in cases where FPI products do not compare 
with private sector products in terms of price, quality, and delivery 
time. We see this as an important first step in asserting limitations 
over FPI's operations.

    2. Improve oversight of FPI activities to prevent undue burden to 
private sector. To ensure that FPI lives up to its statutory 
requirements, Congress should establish more effective oversight over 
FPI operations. Such oversight could include submission of annual 
statements to assess FPI's impact on the private sector, Senate 
confirmation of FPI Board members, and establishment of penalties if 
FPI exceeds its authorization in the future.

              UNICOR Generic Items--100 Percent Authorized

    1. Bag, Flyer's Helmet 2. Bag, Mail 3. BDU Coat (all types) 4. BDU 
Coat, Camouflage, Woodland 5. BDU Trousers (all types) 6. BDU Trousers, 
Camouflage, Wood 7. BDU Trousers, Camouflage, Wood 8. Blanket, Disaster 
9. Body Armor, Fragmentation Vest 10. Case, Flag 11. Case, Small Arms 
Ammunition 12. Cloth, Terry 13. Coat, Aircrew BDU, Tan 14. Coat, 
Aircrew BDU, Woodland 15. Coat, Combat, Black, 357, Type VIII 16. Coat, 
Combat, Desert Camouflage 17. Cover, Bivy 18. Cover, Body Armor, 
Fragmentation 19. Cover, Field Pack 20. Cover, Individual, Desert 
Camouflage 21. Cover, Individual, Snow, Camouflage 22. Cover, 
Individual Woodland Camo 23. Cover, Water Canteen (2-quart) 24. Cover, 
Water Canteen, 2 quart 25. Gaiter, Neck 26. Glove Insert, Chem Prot 
(LGE) 27. Glove Insert, Chem Prot (MED) 28. Glove Insert, Radioactive 
Cont 29. Gloves, Anti-Flash 30. Gloves, Anti-Flash, Flame Resi 31. 
Gloves, Cloth, Flannel 32. Gloves, Cloth, Leather Palm 33. Gloves, 
Cloth, Work, Leather P 34. Gloves, Driver, Work, All Leather 35. 
Gloves, Heavy Duty Cattlehide 36. Gloves, Leather, Anti-Contact 37. 
Gloves, Leather, Work 38. Gloves, Men's 39. Gloves, Men's and Women's, 
Leather 40. Gloves, Men's/Women's Light Du 41. Gloves, Work, All 
Leather 42. Helmet Shell, CVC 43. Helmet, Combat Vehicle Crewman 44. 
Helmet, Pasgt (Kevlar) 45. Helmet, Phonetalker, Navy 46. Helmet, 
Shipboard Battle 47. Jacket, Man's Utility 48. Jacket, Utility, Unisex 
49. Jacket, Utility, Unisex, Coast Guard 50. Jacket, Woman's Utility 
51. Liner, Coat, Cold Weather 52. Pillowcase, Fire Retardant 53. 
Screen, Latrine W/Cover, Pins 54. Sheet, Muslin, White 55. Shirt, Cold 
Weather (ECWCS) 56. Shirt, Man's 57. Shirt, Man's Ctn/Ply, Poplin 58. 
Shirt, Man's Enlisted, Blue 59. Shirt, Man's Navy White 60. Shirt, 
Man's P/W, Long Sleeve 61. Shirt, Man's Short Sleeve 62. Shirt, Man's 
Utility, Ctn/Poly 63. Shirt, Man's, Enlisted, Navy W 64. Shirt, Man's, 
L/S, Utility 65. Shirt, Man's, Officer, Navy Wh 66. Shirt, Man's, S/S, 
Utility 67. Shirt, Qtr Length Sleeve 68. Shirt, Woman's 69. Shirt, 
Woman's Long Sleeve, PO 70. Shirt, Woman's Tuck-in, L/S 71. Shirt, 
Woman's Tuck-in, S/S 72. Shirt, Woman's Type I Khaki 73. Shirt, Woman's 
Utility 74. Shirt, Woman's Utility, Frt 75. Shirt, Woman's, L/S, 
Utility 76. Shirt, Woman's, S/S, Utility 77. Smock, General Purpose 78. 
Suspension Assembly 79. Sweatpants 80. T-Shirt 81. T-Shirt, PCU 82. T-
Shirt, PFU 83. Tarpaulin 84. Tarpaulin, Laminated, Blu/Wh 85. Towel, 
Bath, Cotton Terry, BR 86. Towel, Bath, Cotton Type 1, W 87. Towel, 
Bath, Cotton/Poly, Whit 88. Trousers, Aircrew BDU, Tan 89. Trousers, 
Aircrew BDU, Woodland 90. Trousers, BDU 91. Trousers, Combat, Black, 
357, Type 92. Trousers, Combat, Hot Weather 93. Trousers, ECWCS 94. 
Trousers, Men's Medical Assistant 95. Trousers, Woodland Camouflage 96. 
Trunks, General Purpose 97. Trunks, General Purpose (MC) 98. Trucks, 
PCU 99. Trunks, PFU 100. Trunks, Swim 101. Undershirt, Man's Brown 102. 
Undershirt, Man's Crewneck 103. Undershirt, Man's White Crew N 104. 
Undershirt, Man's, White Crew 105. Undershirt, Man's, White V-Nec 106. 
Washcloth, Terry, White

    Source: DSCP
                               __________
                                               U.S. Senate,
                                      Washington, DC, May 21, 1999.
    Dear Colleague: S. 1059, the fiscal year 2000 Defense Authorization 
bill, contains a provision which would destroy the ability of the 
Federal Bureau of Prisons to keep inmates engaged in constructive work 
and vocational training.
    Section 806 of the bill, sponsored by Senator Levin, would 
undermine federal inmate labor activities by carving out for the 
Department of Defense (DoD) special exemptions to the current statutory 
requirement that Federal agencies, including DoD, purchase the products 
of the Federal Prison Industries when such goods meet the needs and 
specifications of the agency. For 65 years, this program has played a 
key role in the safe and effective administration of the federal prison 
system, and has dramatically reduced the recidivism rate among those 
federal prisoners who work while in prison.
    Two years ago, you joined us in soundly defeating a similar 
amendment to the fiscal year 1998 Defense Authorization bill. At that 
time, we directed the Defense Department and the Federal Prison 
Industries to undertake a joint study of the policies and regulations 
that govern their procurement transactions and how they could be 
improved. Last month, Congress received the results of that lengthy and 
exhaustive review.
    In their summary of the study's results, David R. Oliver, Jr., 
Principal Deputy Under Secretary of Defense (Acquisition and 
Technology), and Kathleen Hawk Sawyer, Director of the Federal Bureau 
of Prisons and Chief Executive Officer of Federal Prison Industries, 
stated that ``* * * the study has afforded us the opportunity to fully 
explore the issues involved and offer viable recommendations that will 
improve the efficiency and reduce the cost of procurement transactions 
between the two agencies. The recommendations proposed herein can be 
accomplished within existing statutory authority and do not require 
legislative action.'' (emphasis added)
    Clearly, there is no reason to reduce the size of the only market 
in which prison-made goods are permitted to be sold in America. The 
Levin amendment threatens to idle over 8,000 inmates, or more than 40 
percent of those now employed in a productive capacity. Restitution 
payments to victims of crime would be dramatically reduced and, as the 
Federal Prison Industries lose revenue, the taxpayer would be forced to 
bear a greater burden of prison operating costs.
    When the fiscal year 2000 Defense Authorization bill is considered 
by the Senate next week, we once again intend to oppose the Levin 
language. With your help, we defeated the amendment two years ago by a 
vote of 62 to 37. We ask for your continued support in the effort to 
ensure that inmates continue to work and build the skills that will 
allow them to lead productive lives outside prison.
    If you have any questions, please call us or have your staff 
contact Pete Olson in Senator Gramm's office at 4-0715.
            Yours respectfully,
                                   Phil Gramm,

                                   Orrin Hatch,

                                   Strom Thurmond.

                                     

```