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FPI Reform Bill Gets Closer Look From House Small Business Subcommittee
Bloomberg BNA
Dave Hansen
July 02, 2012 9:56PM ET

July 3 (BNA - Federal Contracts Report) -- Congress must pass the Federal Prison Industries Competition in Contracting Act (H.R. 3634) to level the playing field with private companies, bill sponsor Rep. Bill Huizenga (R-Mich.) told the House Committee on Small Business's subcommittee on contracting at a hearing June 28.

While Federal Prison Industries (FPI) reduces recidivism levels, it does so at the expense of American jobs, he said.

The hearing left a strong impression on Subcommittee Chairman Mick Mulvaney (R-S.C.) who promised more hearings this year on whether FPI competes unfairly for federal contracts.

FPI is a “Goliath” with revenues of more than $885 million annually and is the 36th largest federal contractor by gross sales, Huizenga said. It pays down to 23 cents per hour and is exempt from Social Security, unemployment compensation, and worker's compensation insurance taxes, as well as some worker safety regulations, he added.

“Small businesses simply cannot go toe to toe against this large, government-owned corporation,” Huizenga said.

Huizenga's bill would limit FPI's non-competitive awards to those needed to maintain prison work opportunities, and only with an exemption from the Department of Justice. The bill also would strip FPI's “mandatory source” status for some federal contracts.

In addition, the measure would require competitive hourly wages for prisoners and make FPI meet Occupational Safety and Health Administration standards. It also would bar new sales in domestic and foreign commerce.

“If FPI has the lowest price, the best value, or is determined to be the most qualified, it gets the contract,” Huizenga said. “In our current economic climate, this is the prudent thing to do for taxpayers and it just makes common sense.”

Huizenga said his bill would address idleness in prison by creating different opportunities for workers that do not compete with the private sector. For example, the legislation would allow prisoners to work for tax-exempt charities, local governments, religious groups, and schools. It also would create more vocational training programs.

FPI Impact Overestimated?

FPI Deputy Assistant Director Phil Sibal came to his agency's defense, saying the public overestimates FPI's impact on federal contractors.

FPI has been hit hard by the recession, Sibal said. It closed or downsized 43 factories and serves fewer than 13,000 inmates compared to 23,000 five years ago.

Studies show prisoners working in FPI have a 24 percent lower recidivism rate three years after their release, Sibal said. While vocational training programs are the most effective way to cut recidivism, work skills must be taught within 18 to 24 months of an inmate's release to stay current, he said.

Prisoners pay back $1.6 million from FPI earnings in fines and other legal obligations, Sibal said.

The program also gives inmates skills to adapt to a prison environment and avoid violence. “It's a very important tool in prison to manage the population,” he said.

He added that FPI generates work for small businesses by, for exampling, spending 54 percent of its budget for raw materials on contracts with small businesses.

Domestic Jobs at Stake?

Nevertheless, FPI should be reformed so it does not take domestic jobs from the private sector, industry representatives told the subcommittee. The agency sold $238 million worth of apparel to the Department of Defense in 2011, American Apparel and Footwear Association representative Michael Mansh said. That represents about 10 percent of the market and cost thousands of private sector jobs, he said.

FPI sells about $250 million in furniture annually to the federal government, costing private industry about 1,000 jobs, Women Impacting Public Policy representative Rebecca Boenigk said.

Mulvaney said he was “stunned” by the size of FPI even after its recession losses. “Why are they competing with you? They should be competing against General Dynamics,” he said.

“It strikes me that this is something we will do more on, not less,” Mulvaney said at the end of the hearing. “This might be an area that screams out for that kind of attention. This won't be last hearing on [FPI].”