Critics call for overhaul of program aimed at employing disabled

For six years, Safeguard Maintenance had one of the best janitorial contracts that the federal government offers in downtown Washington. The Cockeysville, Md., company was paid $183,000 a month by the General Services Administration to clean the corridors, bathrooms, and some of the office space at the 3.1 million-square-foot Ronald Reagan Building and International Trade Center.

But things changed for Safeguard in June 2004, as its seven-year contract was about to expire. The company, which had about 70 employees working at the Reagan Building, offered to cut its price to just under $157,000 a month over a new contract period of five years.

Still, Safeguard lost the contract to a nonprofit organization in Baltimore called Chimes Inc., which hired 72 people -- 34 from Safeguard's own workforce -- to clean the Reagan Building for $216,000 a month, or $59,000 a month above Safeguard's offer.

Why would the GSA dump a longtime contractor and hire a new one that charged a much higher price? The answer is that federal janitorial contracts -- as well as a slew of contracts for other services and supplies purchased by the feds -- are controlled by the little-known Javits-Wagner-O'Day, or JWOD, program. Chimes is an approved JWOD contractor, but Safeguard is not.

Established in 1938 by President Franklin Roosevelt, and expanded in 1971 by then-Sen. Jacob Javits, R-N.Y., JWOD creates paid work for people with disabilities. The independent federal body that runs JWOD has a clunky name: It's the Committee for Purchase From People Who Are Blind or Severely Disabled. But the people who run the committee are appointed by the president and wield considerable power: By law, they can require any federal department or agency to buy thousands of products and services -- from pens to pillowcases -- from JWOD-approved contractors using disabled workers who provide at least 75 percent of the hands-on labor.

JWOD's managers pick the nonprofit vendors, or "partners," that are allowed to manufacture or sell goods or provide services for federal agencies. They also select companies to distribute JWOD-made goods to government buyers. What's more, the federal managers govern the prices that federal procurement officers must pay to the JWOD vendors. On top of all that, 4 percent of the cost of every sale or contract between a vendor and federal customer is remitted to JWOD's management offices to pay for running the program.

The JWOD program has been growing rapidly. In the early 1980s, the value of JWOD-related sales to the government amounted to some $200 million a year. By 2004, sales had reached $2.05 billion, according to JWOD. Ten years ago, JWOD contractors employed 31,000 blind and disabled workers; in 2004, they employed 45,303.

Despite the growth, the program has received scant oversight from Congress or attention from the media. One reason may be a reluctance to examine a program intended to create jobs for people who have physical or mental disabilities and would have trouble competing for work in the commercial marketplace.

A second reason may be the effectiveness of JWOD's lobbying. In 2004, for example, JWOD lobbyists killed a proposal in the House Small Business Committee that would have let officials from the federal Small Business Administration speak -- but not vote -- at meetings of the JWOD procurement committee. Since then, the situation has temporarily cooled down. In a statement to National Journal, JWOD said its management committee met with top SBA managers and extended a standing invitation to the SBA to have a senior official attend JWOD meetings.

JWOD critics -- many of them small, privately owned vendors that want to slow the loss of their contracts to JWOD partners -- argue that the lack of oversight prevents the government from weighing JWOD's benefits against its costs. Every job handed to a JWOD contractor, critics argue, is a job taken away from a private company that employs other workers -- including many poor, disabled, or disadvantaged people.

These critics are trying to rally support on Capitol Hill for oversight and reform of the program. "If you want to find ways to save tax dollars while doing the right thing by blind and handicapped people, this is the place," said Paul Miller, director of government affairs for the Independent Office Products and Furniture Dealers Association, whose 1,300 members have lost much business to JWOD-approved vendors.

Joining Miller's group is the Service Employees International Union Local 82 of Washington, D.C., some of whose members have been laid off from janitorial jobs because of JWOD's expansion. "We want workers, whether they are disabled or not, to be treated fairly and get living wages," said Valerie Long, the president of Local 82.

JWOD represents "command-and-control regulation direct from the 1930s," said Pittsburgh-based lawyer Scott Pavelle, who represents companies in legal disputes with the JWOD program. He has urged closing down JWOD and replacing it with a system that would give an advantage to any federal contractor that hires disabled workers. "You would make every contractor in the world all of a sudden start looking for ways to use these people, and that would achieve untold benefits for the handicapped," said Pavelle.

So far, the efforts of Miller, Long, and other JWOD detractors haven't resulted in change. "It is difficult," Long concedes, because no lawmaker "wants to be seen as being against the disabled."

Thousands of Products
The Committee for Purchase From People Who Are Blind or Severely Disabled is composed of 10 officials from federal departments and five private citizens from nonprofit agencies. JWOD publishes a catalog of more than 160 pages offering janitorial, switchboard, and mail-room services, plus thousands of products that range from pencils, folders, staplers, and shredders to liquid cleaners, sleeping bags, animal traps, furniture, flags, and even fast food. The catalog can be seen at www.jwod.com.

Committee Chairman Steven Schwalb, who is the designee from the Justice Department and is also chief operating officer of Unicor, the government corporation that runs Federal Prison Industries, says that JWOD needs to grow even larger because the vast majority of the country's disabled still need paying jobs.

In fiscal 2004, according to JWOD, the program generated $2 billion in revenues and paid $366 million in wages to disabled employees. The average hourly wage was $10.46 for employees working on service contracts, and $6.21 for employees working on product contracts, according to a statement from the JWOD program office. JWOD agencies are allowed to pay their workers less than the minimum wage when their disability reduces their productivity.

Every JWOD-affiliated nonprofit works under one of JWOD's two nonprofit subsidiaries -- the National Industries for the Blind, located adjacent to the JWOD offices in Alexandria, Va.; or NISH, formerly the National Industries for the Severely Handicapped, based in Vienna, Va. Robert Chamberlin, president and CEO of NISH, says that JWOD workers receive an equally important, if intangible, benefit beyond their pay. "What comes with that job is self-esteem and self-worth," he said.

One expectation is that JWOD employment will help a disabled worker graduate into the commercial job market, but the program has no quotas or goals for such movement. In 2002, only 1,685 workers graduated into commercial jobs, according to JWOD documents.

Competition does not set prices for JWOD-delivered products and services. Instead, prices emerge from negotiations involving the JWOD committee, the JWOD-approved vendors, and federal customers. In many cases, these prices are significantly higher than commercial alternatives -- Safeguard's lower price for cleaning the Reagan Building is one example.

Many products in the JWOD catalog are priced higher than similar items for sale on the Web. JWOD was recently offering a plastic chair mat for $53.82, while Staples was selling a comparable product on its Web site for $36.99. Recycled copying paper from Staples was $30.99 for 5,000 sheets, but JWOD's price was $59.03. Some JWOD items are cheaper. For example, a single mop from Staples was selling for $14.99, while JWOD was offering a box of six mops for $26.68.

Normally, when JWOD managers pick the nonprofit partner on a contract, the nonprofit's managers declare how much revenue they need if they are to complete the job. If a federal contracting manager or purchasing officer refuses to accept that price, the JWOD committee can mediate the disagreement. According to a statement that JWOD submitted to National Journal, the program performs at least 1,000 negotiations each year, with impasses being declared in far fewer than 1 percent of cases. From 2002 to 2004, the committee ruled in favor of federal contract managers 11 times and in favor of the nonprofit once; it had a split decision in three instances, according to the statement.

"We're not the least price, not the highest price, but fair value," said JWOD Executive Director Leon Wilson, explaining that in price negotiations, if government officials "agree to that [JWOD] price, we think it's a fair price." JWOD does not promote competition among its nonprofits for JWOD work, because JWOD managers want "to ensure they don't undercut each other," Wilson said.

The enterprises that win JWOD contracts pay roughly 4 percent of the contract revenues to NISH or NIB -- adding up to approximately $80 million in 2004 on sales of just over $2 billion. Program officials say that the funding allows NIB and NISH to hire teams of experts to find new markets for their nonprofits, to train nonprofits' managers, and to generally help the nonprofits find new work for disabled people.

NISH has a reputation for aggressiveness, even toward other programs for the disadvantaged. Last year, NISH officials sought to win contracts held by blind vendors through the federal Randolph Sheppard program, a 70-year-old program that gives blind business owners a preference in winning contracts for vending facilities in federal buildings and on military bases. Change is needed, NISH Director of Governmental Affairs Tony Young said in 2004, because "we've been losing jobs to Randolph-Sheppard," so reducing job opportunities for the JWOD program's blind and disabled workers.

Staffers for Sen. John Ensign, R-Nev., brokered a deal last year between NISH and Randolph-Sheppard. But Kevan Worley, the blind owner of Worley Enterprises, which operates a dining hall at Buckley Air Force Base in Colorado, says the deal "is coming apart because [NISH officials] are going after our sites."

Good Deal for 3M
JWOD also resells products manufactured by non-JWOD companies. JWOD's Web site, for example, offers a U.S.-made nylon American flag, 3 feet by 5 feet, for $30.46. JWOD buys the flag from Advantus, a distributor in Jacksonville., Fla., and sells it at 75 percent above the $17.48 price that the company charges its retail customers. That price is offered as a convenience to JWOD's customers who might want to add a flag to their order, and is lower than those of most other commercial distributors of the same Advantus-sold flag, according to an e-mail from JWOD spokeswoman Annemarie Hart-Bookbinder.

The suppliers of JWOD vendors also include large corporations, such as 3M. For example, at Blind Industries of Maryland, JWOD employees decant vats of 3M chemicals into smaller containers for use by JWOD-affiliated janitorial workers, or by soldiers, contractors, or civil servants. That's a good deal for 3M and other big companies, as it places their product closer to the top of the government's procurement-preferences list, said Frederick Puente, president of Blind Industries of Maryland, a JWOD nonprofit.

Without JWOD, the large companies' access would be ranked behind that of small firms, as well as firms owned by women, Native Americans, or African-Americans. But, according to Puente, "we get them [moved up] in the food chain from 12 to two." In the case of 3M, JWOD workers cut 3M's tape into smaller sizes for distribution, adding value, he said.

JWOD affiliates also resell products that are made abroad. In some cases, said Wilson, no U.S. company makes the required product, such as surgical gloves. "Everyone goes to the same [overseas] source, but we find a way to get jobs for disabled groups," he said.

Overall, "we are very sensitive to the threat of being [seen as] a front" for larger firms seeking to jump ahead in the priority list, Wilson said. When affiliates simply resell corporate products via JWOD, "we shut that down." But if there is a dispute, he added, "we will err on the side of getting a job for someone who is disabled or blind."

The strongest source of opposition to the JWOD program comes from a variety of private contractors -- office-supply distributors, furniture sellers, janitorial services, food-services companies, to name a few -- that have lost, or fear losing, work to JWOD partners. JWOD is a "well-intentioned federal program gone completely berserk," said Michael Liberman, president of Valley Forge Flag of Womelsdorf, Pa. He said that after JWOD started reserving a portion of the flag business, "we lost probably 100 jobs, and our main subcontractors also lost jobs."

Minimal Oversight
The JWOD program is so little-known that media reports rarely describe it, and Congress has held hearings on it only twice in the past 22 years -- in 1983 and 1996. JWOD is exempt from nearly all federal procurement rules, such as requirements for competition. Federal contract officers have little incentive to push back, in part because JWOD officials have the legal authority to set the price for every contract. Moreover, the transfer of a category of service or product into the JWOD program ends the procurement officer's obligation to conduct a time-consuming competitive awards process.

JWOD's managers do exercise some oversight. During fiscal 2002, 2003, and 2004, JWOD officials intervened against 12 nonprofits that had employed too few disabled workers. JWOD regulations require that 75 percent of "direct labor hours" be performed by disabled workers; this excludes work performed by managers.

But JWOD's oversight is limited: Of the 29 staffers at the JWOD committee, only three are involved in overseeing the roughly 620 nonprofits on compliance matters.

The lack of oversight has caused some embarrassments. In 2003, The Baltimore Sun revealed that Chimes' board had created a subsidiary controlled by board members and that this subsidiary paid those members $2.4 million over three years. Chimes defended the compensation as reasonable.

In 2004, Chimes officials said that they had misunderstood accounting rules in 2002, when they incompletely reported the CEO's compensation to the IRS. The correct value was $714,592, not $257,625, Chimes officials said. Also in 2004, Chimes officials voluntarily released additional accounting information showing that two board members of Chimes ran companies that received payments close to $1 million apiece in fiscal 2003 for leasing property and transportation services to the charity. Another board member got $129,422 for "strategic planning."

In Wisconsin, a JWOD contractor, ORC Industries of La Crosse, paid its president $625,000 in 2002 and set up a retirement account for her worth nearly $1.1 million, according to tax records cited in an article by the La Crosse Tribune. The paper also described a deal in which the nonprofit rented a factory building from the president for $46,317, a figure one-third higher than the local rental rates.

In response to the articles about Chimes and ORC Industries, the JWOD committee last November announced new draft regulations that would require the nonprofits, as well as NIB and NISH, to make public their accounts every year. They would also have to establish independent oversight boards and rotate them annually, disclose internal conflicts of interests, and limit the "reasonable" compensation of top managers to about $207,000. In 2003, the average compensation for the top five executives at NIB and NISH were, respectively, $204,000 and $185,000.

"The committee is now looking at more oversight and expecting NIB and NISH to do more oversight than was historically expected," said James Omvig, a blind lawyer whom President Bush appointed to the JWOD committee in 2003. Any major change to the program, such as allowing competition from companies that adequately employ disabled workers, would require changes to the 1971 law, he said, although "it would be great when the day comes that people with disabilities are employed in companies like anyone else."

The proposed rules have generated protests from a variety of JWOD nonprofits. The JWOD committee doesn't have the authority, or good reason, to impose the new rules, according to statements from executives at Chimes, NISH, ORC Industries, and many other nonprofits. "The [nonprofit] organizations have a lot of oversight by JWOD itself, by NISH, and by the IRS," ORC President Barbara Barnard told National Journal. Under IRS rules, the nonprofits have to disclose to the public an annual Form 990, providing some details of their finances. These documents can generally be found at www.guidestar.org.

According to JWOD executives, other factors and rules already hinder their program. Trade with low-wage countries like China have put pressure on their manufacturing programs, they said. Changes to government procurement rules in the 1990s and the growing use of online shopping have prompted some government procurement officers to bypass the JWOD catalog, they complained. The program gets only one-half of 1 percent of all government procurement dollars, Wilson said.

Critics of JWOD face an uphill task, largely because legislators have little incentive to push for an investigation of the program, given the likely pushback from its officials, supporters, and nonprofit partners. A key factor, said Safeguard President H.T. Brown and other critics, is that no legislator wants to be portrayed on television as a hard-hearted opponent of work for disabled Americans. "NISH threatens to have disabled people lined up outside [a lawmaker's] office if they go against them," said Liberman.

Angela Styles, who headed the Office of Federal Procurement Policy until September 2003, says she can imagine "a way to properly approach the [JWOD] program without scaring people." Styles is now in private practice with the D.C. law firm of Miller & Chevalier. Reform, she said, should "improve the program so that it works more for the disabled and less for people trying to make a profit from it."

JWOD Sales by Year

JWOD sales have grown steadily for more than a decade, but the accelerating growth since 2000 has pushed the program's annual revenues to around $2 billion. Revenue from services has grown faster than revenue from products, partly because JWOD officials have focused increased attention on the relatively better-paying service contracts.

(In millions of dollars)

JWOD Employees
The labor force available to JWOD has expanded in recent years, since Congress broadened its criteria for "disabled workers." The broader definition allows the JWOD program to find enough workers for service contracts, such as those providing janitorial work in buildings owned by the General Services Administration.