Competing With Inmates

After years of fighting policies that guarantee customers for prison workshops, private industry is getting its way.

Bobbie Gentile founded Q-Mark Inc., a small electronics company, 15 years ago. Since then, she's managed to hold the Dayton, Ohio-based firm's sales relatively steady. But until recently, one potential client has been elusive: the Pentagon.

Q-Mark's electronic connectors can be used on just about "anything that flies, floats or shoots," Gentile says. The Pentagon needs thousands, but historically, Defense officials have been required to buy them first from prison workshops, even if Q-Mark can offer the same connector for $10 to $20 cheaper, Gentile says.

That's changed in the past few years as a result of vigorous lobbying from furniture, textile, electronics and other businesses that compete with Federal Prison Industries Inc., the government corporation created in 1934 to run the workshops. Since 2002, when trade associations won their first victory in a long-standing effort to unravel FPI's corner on the federal marketplace, Q-Mark's government business has "easily doubled," Gentile says.

Lawmakers established FPI, also known as Unicor, during the Depression to keep federal inmates busy and to help them develop vocational skills and reduce recidivism. FPI sustains itself without congressional appropriations. But the corporation has benefited from a captive audience: Until recently, agencies have been required to buy office furniture, uniforms and other products made at prison workshops.

A provision in the 2002 Defense Authorization Act partially pulled that safety blanket from FPI by requiring the Pentagon to conduct market research before buying prison products. The fiscal 2004 omnibus appropriations bill temporarily extended the 2002 mandate to civilian agencies, and the fiscal 2005 omnibus appropriations bill made the requirement permanent.

FPI's presidentially appointed board of directors also has changed some policies. The board, for instance, in 2003 agreed to let agencies shop around for items worth $2,500 or less. Previously, they had to seek FPI's permission to look elsewhere for products worth more than $25.

Prison industry officials emphasize that the workshops remain a mandatory source for larger purchases, if market research shows that items produced there are similar to what's available in the private sector. "Comparable" doesn't mean "best available," Marianne Cantwell, general counsel for FPI, wrote in comments on regulations implementing the 2005 appropriations law. "The price, quality and delivery of the FPI product each need only be similar to like products available from the private sector."

The appropriations law requirements and the FPI board's changes are relatively new, so their ultimate effect is difficult to gauge. "We see [an increase in] federal orders, but we can't really substantiate if we would have gotten that order under the old rules," says Thomas Walker, director of government programs for Haworth Inc., a Holland, Mich.-based office furniture company with sales of $1.26 billion in 2004. He declined to provide figures on the company's sales to federal agencies, but said they remained level over the past few years and started to grow around April.

The law, however, will be slow to take hold in all corners of the government, according to Patrick Lyden, legislative affairs manager for the National Federation of Independent Business, a 600,000-member advocacy group based in Washington, and Larry Allen, executive vice president of the Coalition for Government Procurement, a Washington-based nonprofit association of contractors. "Knowledge of the new rules is not perfect," Allen says, and FPI is hardly eager to spread word of the changes. "They're not going to give up their business quietly," he says.

FPI has "no reason to believe that agencies are not aware of the requirements," says Traci Billingsley, a spokeswoman for the Justice Department's Bureau of Prisons, where the workshops reside. The civilian and defense agency acquisition councils published guidelines last year for implementing the 2004 appropriations language, and in April released interim regulations for the 2005 provision.

To remain financially viable, FPI will "continue to provide quality products and services that are market-priced and delivered in a timely manner," Billingsley says. Trends in prison industries' sales are mostly "driven by customer demand," she adds.

FPI's revenues rose by nearly 22 percent between fiscal 2003 and fiscal 2004, from $721.9 million to $879.4 million, driven by increased sales in electronics and textiles. But if not for sales to support the Defense Department's war effort, FPI would have lost money during fiscal 2004, Chief Executive Officer Harley Lappin said in the corporation's annual report.

Because the spike in demand is likely temporary, FPI decided to fill the extra orders by letting already trained inmates work overtime rather than by hiring more inmates, Kenneth Rocks, chairman of the corporation's board of directors told Bloomberg News Service in May. Orders from the war are still strong, but FPI can't predict how long that will last, Billingsley says.

When Phil Glover looks ahead, he sees nothing but cost-cutting measures "to remain in the black." The number of jobs in workshops decreased by more than 3,000 between 2001 and 2004, falling from 22,560 to 19,337. Glover, president of the American Federation of Government Employees' National Council of Prisons Local 3951 in Johnstown, Pa., attributes the drop in employed prisoners directly to the recent changes in the law and the FPI board's move to allow more competition. "We've taken quite a hit," he says.

The decrease in work opportunities is all the more troubling to Glover and the board because the federal inmate population grew by 23,000 over the same period. "For a correctional program whose primary mission is to provide job skills training and work experience to the greatest number of inmates possible, this is a disappointing trend," the board stated in FPI's fiscal 2004 annual report.

Representatives of trade associations that have lobbied for a repeal of FPI's mandatory-source status say they aren't trying to kill prison labor programs; they simply don't want inmates to work at the expense of other citizens' livelihoods.

They say they'd be happy to see the government corporation get involved in charitable work for such organizations as Habitat for Humanity, a nonprofit that helps low-income families build affordable homes. Glover says he'd be pleased to see FPI do that as well. The problem is that somebody would have to pick up the tab. With budgets across government getting tighter, "nobody wants to fund that," he says.

Proposals to expand into anything but volunteer work anger private sector competitors, leaving FPI in a no-win situation. "Whatever you have an inmate do, there's somebody out there who would say: 'I could be doing that work,' " Glover says.