Lawmaker urges prison labor program to halt expansion efforts

Federal Prison Industries must stop expanding into new markets that threaten American small businesses, a longtime critic of the government's prison-labor program said Thursday.

Rep. Peter Hoekstra, R-Mich., urged an FPI oversight board to overhaul the process by which the federal corporation enters new markets and sells services to federal agencies. By law, most agencies must buy certain products from FPI, but this "mandatory source" preference does not apply to services. For years, FPI has employed federal inmates to provide services such as data entry, laundry and vehicle retrofitting to agencies, a practice Hoekstra claimed is unfair to private companies.

"FPI's substantial wage and other advantages demand some board-imposed limitations on how many contract opportunities FPI should be able to take, even competitively," he said.

FPI, which operates under the trade name Unicor, employs more than 21,000 federal inmates and had more than $546 million in sales in 2000, making it the 40th-largest federal contractor.

Hoekstra and John Palatiello, executive director of the Management Association for Private Photogrammetric Surveyors, also said FPI should avoid competing with small businesses that already face competition from overseas companies, many of which pay low wages and offer few benefits.

FPI would like to expand production of goods that have no U.S. manufacturers. Donald Elliot, an FPI board member representing industry, said this practice places little burden on U.S. companies.

"I fail to see the harm in FPI bringing back that offshore work if no domestic market exists," he said.

But Palatiello said it is hard to determine when there are no domestic producers of certain goods, since companies may restructure and try to re-enter markets for these goods.

FPI's legislative mandate requires it to employ as many federal inmates as possible while minimizing the impact on private companies. Kenneth Rocks, chairman of the FPI board of directors, told Palatiello that these dual goals are often difficult to reconcile. "If the board would share your concern and take an action to discontinue [FPI] activity in a certain area, what could we substitute in its place?" he asked. "We're going to end up getting complaints from another set of businesses."

Palatiello said he and the U.S. Chamber of Commerce would develop suggestions for market areas that FPI could expand into, including providing certain nonprofit services.

Steve Schwalb, chief operating officer of FPI, said the meeting helped create a dialogue between FPI and its critics. "What Mr. Palatiello and the Congressman were talking about is a real advance from where we've both been to date."