New regulation further limits awards to Federal Prison Industries

Federal acquisition regulations now require agencies to perform market research before awarding contracts to Federal Prison Industries, a government-owned company that relies on prison labor.

Prior to an announcement Monday in the Federal Register, agencies only were required to do market research for purchases made with fiscal 2004 funds, and otherwise were allowed to award contracts to FPI without considering other vendors. Market research involves comparing prices and quality available from other contractors before awarding a contract, which makes it more competitive.

"It's not full and open competition, but it at least allows our foot in the door," said Patrick Lyden, manager of legislative affairs for the National Federation of Independent Business, a small-business advocate and longtime opponent of FPI privileges. He said his organization will follow how contracting officers implement the regulation, and how often they award contracts to non-FPI vendors.

In written comments submitted prior to Monday's announcement, contracting officers said they were confused about the requirements relating to FPI, particularly whether or not the market research requirement applied to purchases under $2,500. The agencies responsible for FAR said that it does.

Agencies long have been required to award certain contracts to FPI, which is managed by the Justice Department's Bureau of Prisons, with the goal of training prisoners and enabling them to earn small amounts of money. Last year, FPI's revenue peaked at $860 million, which came primarily through sales of electronics, services, furniture and other goods to federal agencies.

In its fiscal 2004 report, FPI's board of directors said they supported the elimination of the requirement that agencies buy from FPI for purchases under $2,500, but did not address whether or not agencies should conduct market research before awarding contracts to FPI.

The move toward requiring market research started with the 2002 National Defense Authorization Act, which required Defense to conduct market research before awarding contracts to FPI. The fiscal 2005 omnibus bill extended that requirement to civilian agencies, introducing a heightened level of competition into FPI contracts.

Small businesses and their advocates argue that awarding contracts to FPI, also known as UNICOR, without competition is unfair.

When the omnibus bill was signed late last year, NFIB said it would allow small businesses to compete for formerly restricted contracts.

"For too long, unfair competition by FPI has essentially amounted to a 'closed' sign for those small businesses wanting to do work with the federal government," Dan Danner, NFIB's senior vice president of public policy, said at the time.

Lyden said he expects future bills to further open up competition between private contractors and FPI. He said his members, whom he described as mom-and-pop operations, already were reporting that the regulation changes are helping them win more contracts.

Bob Welch, a partner at the consultancy Acquisition Solutions Inc., said that in the past, the quality and price of FPI products have been questioned, and the government may have ended up paying more for contracts to FPI without competition. "Competition is a good thing," he said, because buyers can choose contracts with the best value.

It is not clear how the rule change will affect FPI's business. Its fiscal 2004 report shows demands for its products has been temporarily boosted by the Iraq war. FPI's chief executive Harley Lapin said without that boost, the company would have lost money in 2004.

Carla Wilson, a spokeswoman for the Bureau of Prisons, said because the rule was just published, FPI is still reviewing it.

After reviewing it, FPI will provide written comments, she said.

"OMB believes this new proposed rule will enhance competition and consequently save taxpayer dollars…OMB does not think mandatory source requirements for (FPI) are good for industry, the government, or for prison industries," said an OMB official.