[Senate Hearing 108-697]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 108-697

 LEGISLATIVE HEARING ON S. 346, A BILL TO AMEND THE OFFICE OF FEDERAL 
 PROCUREMENT POLICY ACT TO ESTABLISH A GOVERNMENTWIDE POLICY REQUIRING 
   COMPETITION IN CERTAIN PROCUREMENTS FROM FEDERAL PRISON INDUSTRIES

=======================================================================

                                HEARING

                               before the

     FINANCIAL MANAGEMENT, THE BUDGET, AND INTERNATIONAL SECURITY 
                              SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 7, 2004

                               __________

      Printed for the use of the Committee on Governmental Affairs


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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                      Amy B. Newhouse, Chief Clerk

                                 ------                                

     FINANCIAL MANAGEMENT, THE BUDGET, AND INTERNATIONAL SECURITY 
                              SUBCOMMITTEE

                PETER G. FITZGERALD, Illinois, Chairman
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
ARLEN SPECTER, Pennsylvania          THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

                   Michael J. Russell, Staff Director
              Richard J. Kessler, Minority Staff Director
            Nanci E. Langley, Minority Deputy Staff Director
                       Tara E. Baird, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Fitzgerald...........................................     1
    Senator Levin................................................     8
Prepared statement:
    Senator Lautenberg...........................................    39

                               WITNESSES
                        Wednesday, April 7, 2004

Hon. Craig Thomas, a U.S. Senator from the State of Wyoming......     4
Hon. Debbie Stabenow, a U.S. Senator from the State of Michigan..     5
Harley G. Lappin, Director, Federal Bureau of Prisons............    11
Jack R. Williams, Jr., Assistant Regional Administrator, Federal 
  Supply Service, Region 3, U.S. General Services Administration.    13
John M. Palatiello, President, Management Association for Private 
  Photogrammeteric Surveyors, on behalf of the U.S. Chamber of 
  Commerce.......................................................    15
Kurt Weiss, Senior Vice President and General Manager, U.S. 
  Business Interiors, on behalf of the Office Furniture Dealers 
  Alliance.......................................................    16
Andrew S. Linder, President, Power Connector, Inc., on behalf of 
  the Correctional Vendors Association...........................    18
Philip W. Glover, President, Council of Prison Locals, American 
  Federation of Government Employees, AFL-CIO....................    19

                     Alphabetical List of Witnesses

Glover, Philip W.:
    Testimony....................................................    19
    Prepared statement with attachments..........................    94
Lappin, Harley G.:
    Testimony....................................................    11
    Prepared statement...........................................    47
Linder, Andrew S.:
    Testimony....................................................    18
    Prepared statement...........................................    87
Palatiello, John M.:
    Testimony....................................................    15
    Prepared statement...........................................    64
Stabenow, Hon. Debbie:
    Testimony....................................................     5
    Prepared statement...........................................    43
Thomas, Hon. Craig:
    Testimony....................................................     4
    Prepared statement...........................................    40
Weiss, Kurt:
    Testimony....................................................    16
    Prepared statement with attachments..........................    71
Williams, Jack R., Jr.:
    Testimony....................................................    13
    Prepared statement...........................................    62

                                APPENDIX

Copy of S. 346...................................................   163
Additional prepared statements for the Record from:
    Hon. Pete Hoekstra, U.S. House of Representatives, Second 
      District of Michigan.......................................   173
    Hon. Mark Green, U.S. House of Representatives, Eighth 
      District of Wisconsin......................................   183
    Edwin Meese, III, former Attorney General, representing the 
      Enterprise Prison Institute................................   187
    J. Michael Quinlan, former Director of the Federal Bureau of 
      Prisons (1987-1992)........................................   189
    Reginald Wilkinson, Director, Ohio Department of 
      Rehabilitation and Correction..............................   191
    Christopher P. Pearce, Director of Congressional and 
      Regulatory Affairs, American Furniture Manufacturers 
      Association................................................   199
    The Coalition for Government Procurement.....................   203
    National Correctional Industries Association.................   207
    Contract Services Association of America.....................   209
    Roger F. Cocivera, President and CEO, Textile Rental Services 
      Association of America.....................................   215
    Union of Needletrades, Industrial and Textile Employees 
      (UNITE!)...................................................   218
    AFL-CIO......................................................   224
    Delco Remy International, Inc................................   225
    Federal Managers Association.................................   230
    Franklin Sports..............................................   235
    Tennessee Rehabilitative Initiative in Correction (TRICOR)...   237
    Power Connector Inc. follow up letter from Andrew Linder.....   248
Information provided by Mr. Lappin...............................   250
Brochure entitled ``UNICOR Presents Goelst,'' provided by Mr. 
  Palatiello.....................................................   304

 
 LEGISLATIVE HEARING ON S. 346, A BILL TO AMEND THE OFFICE OF FEDERAL 
 PROCUREMENT POLICY ACT TO ESTABLISH A GOVERNMENTWIDE POLICY REQUIRING 
   COMPETITION IN CERTAIN PROCUREMENTS FROM FEDERAL PRISON INDUSTRIES

                              ----------                              


                        WEDNESDAY, APRIL 7, 2004

                                     U.S. Senate,  
                  Subcommittee on Financial Management,    
                  the Budget, and International Security,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:09 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Peter G. 
Fitzgerald, Chairman of the Subcommittee, presiding.
    Present: Senators Fitzgerald, Levin, and Pryor.

            OPENING STATEMENT OF SENATOR FITZGERALD

    Senator Fitzgerald. The hearing will come to order. I would 
like to get underway right away, even though we have some 
Senators who are just getting back from lunch and will be 
joining us shortly. We have two roll call votes on the floor 
beginning at 2:15 p.m. I think we can safely go up to almost 
2:30 p.m. before we break for those votes. I see Senator Thomas 
from Wyoming is already here waiting patiently, so I will begin 
with my opening statement and then we will proceed to Senator 
Thomas, and to any other Senators who will be joining us by 
that time.
    Today, we consider S. 346, a bill introduced by Senator 
Levin, Senator Thomas, and others to amend Federal procurement 
policy as it affects certain procurements from Federal Prison 
Industries, FPI. The bill has been referred to this 
Subcommittee, and today's hearing will provide an opportunity 
to assess the implications of the legislation for the Federal 
Prison Industries program.
    I want to thank Senator Thomas for being here today. We 
will also be joined later by Senator Stabenow, and we will hear 
from the Director of the Federal Bureau of Prisons, a senior 
procurement official from the GSA, and other well-informed 
stakeholders who hold diverse views on the bill and on the 
Federal Prison Industries program.
    Federal Prison Industries, Inc., which operates under the 
trade name UNICOR, was established in 1934 to provide job 
training opportunities to Federal inmates by employing them to 
produce goods and services for Federal agencies. UNICOR has 111 
factories in over 70 locations and employs nearly 22,000 inmate 
workers, which represents 22 percent of the prison population 
that is eligible for such employment opportunities. UNICOR has 
eight business groups: Clothing and textiles, electronics, 
fleet management and vehicular components, office furniture, 
graphics, industrial products, recycling activities, and 
services.
    One of FPI's services, coincidentally, was highlighted in a 
hearing this Subcommittee held on March 1 of this year on 
oversight of the Federal Thrift Savings Plan. Namely, the 
materials that are provided to millions of TSP participants are 
printed by inmates from the Federal Prison Industries program.
    The Federal Bureau of Prisons reported that as of March 25, 
2004, there were 175,952 Federal inmates nationwide. Ninety-
three percent of these inmates are male and 7 percent are 
female. Of this total, approximately 4,800 inmates are confined 
in four Federal facilities and several halfway houses in my 
home State of Illinois. Three of these four Federal 
correctional institutions--in Pekin, Greenville, and Marion--
operate prison industries involving metalworking, clothing, 
textiles, and electronics.
    The debate over the proper role of the prison industries 
programs and the extent to which inmates should be able to 
perform work that competes with the private sector is literally 
as old as the Republic. As far back as the 1770's, the 
Philadelphia Quakers advocated that criminal offenders be set 
aside from society to become penitent rather than being 
subjected to harsh corporal or capital punishment, as was the 
prevailing colonial practice. This advocacy gave rise to the 
establishment of facilities known as penitentiaries. It became 
quickly apparent, however, that prisoners fared poorly without 
some activity or labor. Therefore, during the 19th Century, 
prison work programs arose and flourished.
    Over the years, various forms of prison industry programs 
were criticized by private sector businesses, labor groups, or 
inmate rights advocates. In the early 1930's, as the country 
was deep in the Great Depression, Congress adopted several 
pieces of legislation to address these controversies. One law 
established Federal Prison Industries as a government 
corporation, operated as an internal organization within the 
Bureau of Prisons. Three other laws, the Smoot-Hawley Act, the 
Sumners-Ashurst Act, and the Hawes-Cooper Act, impose various 
restrictions on prison-made goods in interstate commerce. These 
laws and related executive orders first issued by President 
Theodore Roosevelt remain in effect to this day.
    With limited exceptions, products made by inmates are 
prohibited from interstate commerce. These laws are silent, 
however, on the issue of inmate performed services. Over the 
past 20 years, several State Attorneys General, and more 
recently the Department of Justice, have issued opinions that 
such services are legally permissible. Thus, State and Federal 
Prison Industries programs evolved in which inmates performed 
certain services, such as recycling and staffing call centers 
for private companies.
    Congress has adopted additional amendments regarding the 
Federal Prison Industries program over the past few years. 
Provisions in the Defense Authorization Acts of 2002 and 2003 
require that DOD's contracting officers conduct market research 
to determine whether FPI's products are comparable to products 
available from the private sector that best meet the 
Department's needs in terms of price, quality, and delivery. If 
DOD determines that FPI's products are not comparable, then a 
competition is required. A provision in the Consolidated 
Appropriations Act of 2004 requires all Federal agencies that 
purchase a product or service offered by FPI to first make a 
determination that the specific product or service provides the 
best value to the buying agency.
    The bill we are considering today, S. 346, would repeal the 
``mandatory source'' authority found in the 1934 legislation 
that created Federal Prison Industries. The bill would thus 
require that all Federal agencies conduct a competition for any 
products those agencies would otherwise have purchased from FPI 
on a sole source basis.
    The bill provides three exceptions to the competitive 
bidding requirement. One, the attorney general determines that 
the FPI cannot reasonably expect fair consideration in a 
competitive bidding scenario and the award to FPI is necessary 
to maintain safe and effective prison administration. Two, the 
product is only available from the FPI. And three, the agency 
head determines that the product would otherwise be furnished 
by prison labor abroad.
    Additionally, as I previously noted, other existing 
provisions generally bar the interstate transportation of 
prison-made goods. S. 346 would also bar prison industry 
programs at both the Federal and State levels from performing 
services in the commercial market with inmate labor. While the 
sole source issue has occupied much of the policy debate, I am 
aware that the issue of prohibiting inmate-performed services 
in interstate commerce has generated a great deal of 
controversy.
    Therefore, I look forward to hearing from our witnesses 
with their views specifically regarding the issue of inmate-
performed services.
    I know we all appreciate that our prisons are becoming more 
crowded and that most individuals sent to prison eventually 
return to our communities. As taxpayers, we all want prisons to 
be as cost effective to operate as possible and as safe as 
possible for prison guards. We also expect that inmates who are 
discharged will be better equipped to reenter society as law-
abiding citizens. Extensive research indicates that one of the 
most critical attributes inmates will need when reentering 
society is the experience of how to work and the desire to make 
a gainful living in a legal manner.
    How inmates receive work in prison, how this work 
experience helps maintain discipline within correctional 
facilities, and the extent to which the products and services 
inmates produce impact the private sector, both positively and 
negatively, are some of the issues that today's hearing will 
explore.
    At this point, we are joined by Senator Levin, who is an 
original cosponsor of S. 346. We have two votes coming up. I 
wonder if prior to your opening remarks we could permit 
Senators Thomas and Stabenow to give their opening remarks so 
they don't have to return after votes, or would you like to 
make your statements now?
    Senator Levin. You are Chairman. Whatever you----
    Senator Fitzgerald. Do you have the time to give them? They 
have been waiting, so in the interest of sparing you a round 
trip here, why don't we go ahead with Senator Thomas, who was 
here first, and then we will hear from Senator Stabenow.
    Senator Thomas, thank you very much for appearing before 
this Subcommittee.

  TESTIMONY OF HON. CRAIG THOMAS,\1\ A U.S. SENATOR FROM THE 
                        STATE OF WYOMING

    Senator Thomas. Thank you, Mr. Chairman. Senator Levin, I 
am glad you are here. I will try and be brief. You have covered 
it quite well. I want to thank you for having the hearing on S. 
346.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Thomas appears in the 
Appendix on page 40.
---------------------------------------------------------------------------
    I have always been concerned when the government unfairly 
competes with the private sector, and I think there is evidence 
that this is the case here. That is why I have worked with my 
colleague to put together this bill. It establishes a 
governmentwide policy requiring competition, competition in 
procurement. I think that is an important word here. We will 
hear from the American business community that they have been 
injured and unfairly by monopolistic practices. We will hear 
from those involved in the government that its impacts and the 
sole sourcing is cause for concern, and so on.
    You have mentioned the background. Currently, I have 
different numbers than you. About 21,000 Federal prisoners are 
involved here. That is 12 percent of the Federal prison 
population of 174,000, so a relatively small amount.
    You listed the many different items--office furniture, 
clothing, electronics, eyewear, mapping, and so on. So it is 
quite a broad thing, as a matter of fact, and it is important 
to have prisoners keep working. But this goal should not come 
at the cost of a government monopoly like FPI now has.
    I think this bill is a step forward. It injects competition 
where we now have a monopoly. It limits unfair government 
competition with the private sector. This important and timely 
legislation will eliminate mandatory contracting requirements 
that Federal agencies are subject to under the Federal Prison 
Industries. Under current law, all Federal agencies are 
required to purchase products made by FPI.
    Simply put, this will remove that mandatory sourcing 
requirement. FPI will have to compete with the private sector 
for Federal contracts. It allows contracting officers within a 
Federal agency to use competitive procedures for procurement of 
products as opposed to being forced to use FPI on a sole-source 
basis. It allows procurement officials to select contracts if 
they believe FPI can meet the requirements. Products must be 
offered at a fair and reasonable price as a result of open 
competition. It places government control of government 
procurement in the hands of contracting officers rather than 
the hands of FPI.
    Opponents will argue their bill will lead to idle 
prisoners, resulting in a more dangerous prison environment. 
Our bill, as you mentioned, allows the attorney general to 
grant a waiver to this process if a particular contract is 
deemed essential to the safety and the effective administration 
of a particular prison.
    This minimizes the unfair competition with the private 
sector companies, restores the authority and the procurement 
decisions where it belongs, with the agency contracting 
officials.
    The Department of Defense has had some successes. Senator 
Shelby included a provision in the 2004 omnibus bill to 
eliminate FPI mandatory purchases for the Department of 
Defense. FPI has taken steps to provide some relief from FPI's 
mandatory sourcing within the Department of Defense and just 
recently to all Federal agencies.
    In fiscal year 2002, FPI was ranked 72 on the list of top 
100 DOD contractors. In 2003, the FPI had moved up to 69th, so 
competition does work. Unfair advantages, of course, exist now. 
What began in the 1930's as a program to give inmates job 
skills for reentry into society has become a money-making 
enterprise. FPI has expanded into a range of products and 
services offered in the private sector with little 
Congressional oversight. Congress has the advantage of paying 
lower wages, of course, between a quarter and a dollar-and-a-
quarter, not subject to regulations such as benefits and 
retirement, health insurance costs, compliance with OSHA and 
those kinds of things. It has a guaranteed client base.
    FPI's mandatory source requirement not only undercuts 
private employers throughout America, but often costs the 
American taxpayers more money. So really the bottom line, we 
are looking for the most efficient government operation we can 
have, the most efficient business operations, and certainly 
looking for a need for competition.
    So that is what it is all about, competition. Clearly, 
competitive bidding is a reasonable process that ensures the 
taxpayers' dollars are being spent to the best and responsibly. 
I am confident that allowing competition for contracts will 
save dollars, restore management decisions where they belong, 
with individual agency officials. The elimination of the 
mandatory source preference will encourage cost savings and 
eliminates the monopoly.
    I think it is a fairly reasonable thing for us to do. It 
does not take away all the activities, but makes it competitive 
for a more efficient government for the taxpayers. Thank you, 
Mr. Chairman.
    Senator Fitzgerald. Senator Thomas, thank you. Senator 
Stabenow.

 TESTIMONY OF HON. DEBBIE STABENOW,\1\ A U.S. SENATOR FROM THE 
                       STATE OF MICHIGAN

    Senator Stabenow. Thank you, Mr. Chairman. It is wonderful 
to be back before you. A couple of weeks ago, I had the 
opportunity on a matter to testify in front of you and I want 
to thank you very much for this hearing. I thank Senator Thomas 
for his leadership, and I want to particularly thank my 
colleague from Michigan, Senator Levin, for his leadership on 
the Department of Defense provisions that are now in the law 
and for his ongoing leadership on this issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Stabenow appears in the 
Appendix on page 43.
---------------------------------------------------------------------------
    I have been involved in this issue for some time. When I 
was in the Michigan legislature, I chaired the Small Business 
Committee and this was a concern I won't tell you how many 
years ago as we worked through various issues with prison 
industries and other government services.
    Coming to the House of Representatives, I was pleased to be 
a cosponsor of Congressman Pete Hoekstra's bill. I am very 
pleased to see that has now passed the House and we are looking 
forward to, I think, the ability to bring this bill before the 
Senate, and hopefully with your support and a strong bipartisan 
group, we can finally get this done, because it has been a long 
time in coming for many people who are concerned and affected 
by this issue.
    I am pleased to be a cosponsor of S. 346, and more 
importantly, I do come representing people in Michigan, 
businesses in Michigan who are being hurt by the current anti-
competitive laws that prevent Michigan businesses from 
competing against the monopoly called the Federal Prison 
Industries, Incorporated.
    Right now, there is an entity with over $500 million in 
annual revenues which does not pay local, State, or Federal 
taxes. It is not required to abide by Federal or State 
workplace rules, as Senator Thomas indicated, and pays 
employees between 23 cents an hour and $1.15 an hour. This is 
not the Chinese government. It is not the Mexican government. 
This is not India, but a government program established by the 
U.S. Congress and run by the U.S. Department of Judiciary's 
Bureau of Prisons. In other words, our own government is, 
unfortunately, undermining our Nation's manufacturing industry 
at a very critical time.
    As was indicated, in 1934, Congress established Federal 
Prison Industries and placed it under the control of the 
Department of Justice's Bureau of Prisons. Its purpose is to 
serve as a means for managing, training, and rehabilitating 
inmates. I support that fully. I believe that is a worthy goal 
and can be achieved in a way that does not have the effect that 
it is now having.
    Under current law, FPI is a mandatory source for the 
Federal Government, making it the sole source for more than a 
half-a-billion dollars in Federal contract opportunities. 
Unfortunately, FPI also has the power to determine whether its 
products and delivery schedule meet the Federal agencies' needs 
rather than the buying agency determining whether or not it 
meets their needs.
    Hundreds of small businesses from Michigan and around the 
country have seen FPI take away jobs from their companies and 
give them to inmates in Federal prisons, even when these 
businesses could have supplied the government with a better-
quality product on a better timeline at a lower price, and that 
is really the issue, Mr. Chairman. It is not about whether or 
not we ought to be training or providing opportunities for 
people within the walls of our prisons. But when, in fact, 
businesses can supply a product with better quality, better 
timeline, lower price, we believe they should have the right to 
compete and that, in fact, taxpayers would benefit strongly, as 
well as our communities, from this.
    In 2002, FPI's business in two industries that are critical 
to Michigan's economic health, automotive components and 
furniture, grew by 216 percent for automotive components and 24 
percent in furniture. Furniture manufacturers in West Michigan 
are in the midst of the worst economic recession in history. 
Literally every day, Senator Levin and I open the paper and see 
headlines of businesses that are closing, of layoffs that are 
happening in West Michigan.
    For example, in January, Steelcase, a West Michigan 
furniture manufacturer, announced it was cutting 77 of its 
skilled trades workers, which are some of the most highly 
skilled and highly paid jobs in the factory. The company 
extended the layoff warning for 60 days for another 360 
employees. Over the last 3 years, the office furniture 
manufacturing industry has laid off about 30,000 people.
    The inability of Michigan businesses to fairly compete with 
prison industries exacerbates an already difficult economic 
situation.
    According to February 2004 figures from the Bureau of Labor 
Statistics, Michigan's unemployment rate is 6.6 percent, a full 
percentage point above the national average. And last year, 
Michigan lost more jobs than any other State, 78,800 jobs lost 
in just 1 year. We also had the largest unemployment increase 
of any State last year. In 2003, Michigan's unemployment went 
up one percent, the highest increase of any State, and we have 
lost over 175,000 manufacturing jobs since 2001, which is 19 
percent of our manufacturing base.
    This issue, and frankly, Michigan is at the heart of 
America's manufacturing jobs crisis, and this bill can help 
make a difference.
    Mr. Chairman, I want to indicate again that I certainly am 
not opposed to the 1934 law that created Federal Prison 
Industries. It is important that prisoners should have work 
opportunities that build their job skills and enable them to 
make a successful return to society once they are released. 
However, it is only fair that our small business owners and 
manufacturers be able to compete for these Federal contracts if 
they can offer competitive products and services. Our 
manufacturers are not asking for an advantage. They are not 
asking to exclude FPI from competing. All they want is the 
opportunity to compete fairly and on an equal footing for these 
contracts.
    As I indicated before, because of Senator Levin's 
leadership, the private sector can now compete for Federal 
defense contracts. An amendment that was indicated before to 
the defense authorization bill ended the monopoly on that 
issue.
    At the minimum, it is time to give the private sector 
access to the playing field and let them compete for Federal 
contracts. To do so, I am very pleased to be a cosponsor of the 
bill in front of you, along with colleagues Senators Thomas, 
Levin, Grassley, Chambliss, and Shelby. The bill will enable 
Michigan businesses and the rest of America to have an 
opportunity to compete for contracts with their government.
    Senator Thomas also spoke to other provisions in the bill 
that I will not go into, except to indicate that by holding the 
hearing, Mr. Chairman, and by giving us an opportunity to be 
here today, we are very grateful to have the opportunity to 
speak about this issue and what has been happening. Eliminating 
FPI's monopoly will make businesses eligible for more than a 
half-a-billion dollars in business opportunities that 
translates into critical jobs for our communities, and this is 
a much needed shot in the arm for many Michigan businesses as 
well as businesses across the country. Thank you.
    Senator Fitzgerald. Thank you, Senator Stabenow.
    I am advised that we only have a few minutes before our 
first vote closes out, so we all have to go to the floor. I am 
wondering if I could ask one real quick question, and normally 
you don't ask Senators questions, but the first thing that 
comes to my mind is your bill would allow private companies to 
compete with the Federal Prison Industries, where they are now 
the sole source on all these Federal contracts. How could any 
private business possibly compete with the FPI if they are 
paying 25 cents or $1.25 an hour or whatever and they pay no 
taxes and they don't have to comply with all the regulations 
that a private company does? So how could they effectively 
compete?
    Senator Levin. That is the question every single business 
owner asks. They say the idea that we are precluded as a 
business from competing is absurd. It is difficult enough to 
compete against 25 or 50 cents an hour labor. If they can be so 
efficient that they can outbid prison industry, for heaven's 
sake, how can we not allow them to bid? That is what this is 
all about. But they ask exactly the same question that you do 
and they throw up their hands at us and they say, my heavens. 
It is difficult enough to bid against 50 cents an hour labor. 
To say that we are not even allowed to bid just throws sand in 
our face.
    Senator Fitzgerald. With that, I am advised we only have 2 
minutes, so we had all better go. We will reconvene this 
hearing after the votes. Thank you both very much.
    [Recess.]
    Senator Fitzgerald. I would like to reconvene this hearing, 
and at the outset, I would like to note that our Democratic 
Ranking Member, Senator Akaka, very much wanted to be here but 
due to an unavoidable scheduling conflict, he is not able to 
attend today's hearing.
    Therefore, I would now like to recognize my colleague, 
Senator Levin, for his opening statement.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you very much, Mr. Chairman, and 
again, let me thank you for scheduling this hearing. We are 
very much indebted to you for doing so. You have an awful lot 
on your plate and your willingness to take on the hearing in 
this matter is very much appreciated.
    As has been indicated, I, along with Senator Thomas, 
Senator Stabenow, and a number of other colleagues, introduced 
a bill which is really based on a straightforward premise, 
which is that private businesses ought to be allowed to bid for 
business with their government. It is that simple.
    This is not a situation where we have business people 
saying, how in heaven's name can I compete with 50 cents or a 
dollar an hour labor? This is a situation where business is 
saying, we can compete, for whatever reasons there are, we can 
compete if we are allowed to compete. But when FPI is given the 
authority to unilaterally and arbitrarily set aside items that 
cannot be competed, then we have a situation which is totally 
unacceptable to those who are trying to be productive in the 
private sector.
    This is where businesses just simply say, let us compete. 
If we can provide something more cheaply or a better product at 
the same price, we surely ought to be allowed to offer our 
government our products. This is our taxpayer dollars. These 
are our jobs.
    There are all kinds of reasons why we want people in prison 
to work, and I know that personally from my own experience. As 
I indicated to our Chairman, I represented indigents full time 
who were in prison for many years as an appellate defender in 
Michigan, and my father was on the Prison Commission. So I 
understand personally, up close and personal, how important it 
is to have prisoners work.
    But there is no way in good conscience that we can tell 
people in the private sector who are in business trying to make 
ends meet that that interest comes ahead of their being allowed 
to compete, to offer their government a price and a product. We 
can't look a business person in the eye and say that, even 
though there is value obviously in having people in prison 
work. We can't deny the opportunity to the private sector to 
offer a product to their government. It is their taxes which 
are paying for these items.
    So we made some progress on this matter, Mr. Chairman, as 
has been indicated. We had a vote on the Senate floor in the 
defense bill. It was 74 to 24. It was a hotly debated issue. 
This is not one of the many amendments that we were able to 
work out and perhaps get added in a manager's amendment or what 
have you. This was a hotly debated issue. This was an amendment 
on the defense authorization bill, which, if I remember, 
Senator Phil Gramm tried to strike and there was about a three-
to-one vote in the Senate to eliminate the Federal Prison 
Industries monopoly, this unilateral ability to set aside items 
so that nobody can bid on them in the area of defense 
purchasing.
    It has been in effect now for a couple of years. FPI has 
gained some business and lost some business during this year. 
But at least people have been able to compete. The sales of the 
FPI to the Department of Defense have remained relatively 
constant. There have been some gains and some losses relative 
to Defense Department items. In some areas, the private sector 
has gained significantly when they have been allowed to bid, 
and in other areas, the prison industries have gained.
    So the amount of defense business has been roughly the 
same, but it sure is different from the drastic decline which 
was predicted when we introduced this amendment. I mean, we had 
people coming before us that said we are going to put prisons 
out of business in terms of getting jobs to inmates and that 
has not happened.
    So we also, in the House of Representatives, Mr. Chairman, 
a bill was passed which would make this reform applicable 
governmentwide, and to do that on a permanent basis. That won 
in the House of Representatives by a vote of 350 to 65.
    So the ball is now in our court to try to address the issue 
of whether or not there should be a governmentwide application 
of this very fundamental principle, which is that people in 
private business ought to have an opportunity to bid when it 
comes to offering services and products to their own 
government. It really is that direct and that simple an issue.
    I want to just thank you again, Mr. Chairman, for chairing 
these hearings.
    Senator Fitzgerald. Thank you, Senator.
    I have invited Senator Thomas to sit up here on the dais 
and join in the questioning with us. Thank you, Senator Thomas, 
for joining us.
    I would now like to introduce our second panel, and they 
are all seated. We appreciate your being here.
    Our first witness on this panel is Harley G. Lappin, who 
has served as the Director of the Federal Bureau of Prisons 
since April 2003. Mr. Lappin has had a distinguished career 
with the Federal Bureau of Prisons and he is the seventh 
Director of the Bureau since its establishment in 1930. As 
Director, Mr. Lappin oversees the operations of 104 Federal 
institutions, six regional offices, two staff training centers, 
and 28 community corrections offices located throughout the 
United States.
    Prior to serving as Director, Mr. Lappin served as Warden 
at the Federal Correctional Institution at Butner, North 
Carolina; as Warden at the U.S. Penitentiary in Terra Haute, 
Indiana; and as Regional Director of the Mid-Atlantic Region 
for the Bureau of Prisons.
    Our second witness is Jack R. Williams, who serves as the 
Assistant Regional Administrator for the General Services 
Administration's Mid-Atlantic and National Capital Regions, 
headquartered in Philadelphia. In this role, Mr. Williams 
oversees the Federal Supply Service in GSA's Region 3. His 
management responsibilities include the National Furniture 
Center, which negotiates and purchases all furniture and 
furnishings for the Federal Government's facilities throughout 
the country and around the world.
    In 2001, under Mr. Williams' leadership, the National 
Furniture Center was selected as the most innovative GSA 
acquisition center by the Coalition for Government Procurement 
for making significant strides in the promotion and utilization 
of the GSA Multiple Award Schedules program.
    Our third witness is John M. Palatiello, who is 
representing the U.S. Chamber of Commerce. Mr. Palatiello is 
President of MAPPS, the Management Association for Private 
Photogrammetric Surveys, a national association of firms in the 
mapping, spatial data, and geographic information systems 
field. Mr. Palatiello is a member of the U.S. Chamber of 
Commerce and has been serving as the Chair of the Chamber's 
Privatization and Procurement Council. The U.S. Chamber is the 
fourth largest federation of business organizations, 
representing more than three million businesses and 
professional organizations of every size, sector, and region of 
the country.
    Fourth, we have Kurt Weiss, who is here today representing 
the Independent Office Products and Furniture Dealers 
Association. His organization is the national trade association 
for independent dealers of office products and office 
furniture. The association is composed of two membership 
divisions: The National Office Products Alliances, representing 
office product dealers and their trading partners, and the 
Office Furniture Dealers Alliance, representing office 
furniture dealers and their trading partners. Mr. Weiss is also 
Senior Vice President and General Manager of U.S. Business 
Interiors, which is a dealer for Steelcase, the world's leading 
designer and manufacturer of office furnishings.
    Our fifth witness is Andrew S. Linder, who is a member of 
the Correctional Vendors Association. The association 
represents businesses that currently hold contracts with 
Federal Prison Industries and are concerned about the impact of 
S. 346 on their companies' sales and jobs. Mr. Linder is the 
President and small business owner of Power Connector, Inc., an 
electronics business based in Long Island, New York, that he 
has operated since he started the company in April 1987. Mr. 
Linder's company manufactures products, primarily in the area 
of electronic connectors and cable hardware, for Federal Prison 
Industries, the Department of Defense, and the Nation's primary 
defense contractors.
    Our sixth and final witness on the panel is Philip W. 
Glover, the President of the Council of Prison Locals for the 
American Federation of Government Employees, AFGE. Mr. Glover 
has served as a correctional officer since 1990 at the Federal 
Correctional Institution in Loretto, Pennsylvania. Mr. Glover 
was elected President of Local 3951 at FCI Loretto in 1992, 
Northeast Regional Vice President in 1994, and President of the 
Council in 1997. He has extensive firsthand knowledge of how 
prison industries decrease recidivism and help corrections 
officers maintain order within the prisons.
    Again, I would like to thank our witnesses for being here 
today to testify. In the interest of time, your full statements 
will be included in the record and we ask that you limit your 
opening remarks to 5 minutes. Since we have such a large panel, 
we will adhere to the 5-minute rule to ensure there is 
sufficient time for questions, so if you could watch the light 
on the table, and when it is red, you should stop. You should 
begin thinking about stopping when you see the yellow, too. But 
you are ready to go when it turns green.
    Mr. Lappin, thank you for being here.

 TESTIMONY OF HARLEY G. LAPPIN,\1\ DIRECTOR, FEDERAL BUREAU OF 
                            PRISONS

    Mr. Lappin. Good afternoon, Chairman Fitzgerald and Members 
of the Subcommittee. I appreciate the opportunity to be before 
you today. As Director of the Bureau of Prisons, I also serve 
as the Chief Executive Officer of the Federal Prison Industries 
program. I have served in the Bureau for 19 years in a variety 
of capacities, including Regional Director and Warden at two 
institutions. Although I am not involved in the day-to-day 
operations of the FPI program, I have firsthand knowledge of 
the impact this program has in reducing crime and in making 
prisons safer to manage and less expensive to operate.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Lappin appears in the Appendix on 
page 47.
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    Today, there are more than 176,000 Federal inmates. The 
Federal inmate population has increased more than 600 percent 
since 1980, and is projected to increase another 22 percent, to 
more than 215,000 inmates, in the next 6 years.
    The Bureau of Prisons is sensitive to the concerns of 
Members of Congress, as well as business and labor 
representatives, that any negative impact of the FPI program on 
the private sector should be minimized. Consistent with the 
administration's position, any reform should simultaneously 
provide Federal agencies greater procurement opportunities, 
increase access by private sector companies to government 
purchases, and ensure that the attorney general maintains 
adequate inmate work opportunities in Federal prisons.
    The Bureau has no control over the number of inmates who 
come to prison, their length of stay, or the backgrounds they 
bring with them. We do, however, have some influence over what 
inmates learn in custody and the impact they will have on 
public safety upon their release.
    The Federal Prison Industries program plays an integral 
role in reducing recidivism. Inmates who work in the program 
are 24 percent less likely to commit crimes and 14 percent more 
likely to be employed for as long as 12 years after release, as 
compared to a similar group of inmates who did not have the FPI 
program experience.
    The impact of the FPI program is particularly significant 
because FPI focuses on employing our more serious offenders. In 
fact, 76 percent of FPI inmate workers have been convicted of 
drug trafficking, weapons, and violent offenses. These inmates 
are at higher risk of recidivism because they typically have 
extensive and violent criminal histories, poor educational 
accomplishments, and limited work experiences.
    FPI is a crime-reducing program that is financially self-
sustaining and receives no direct appropriated funds for its 
operations. Although inmates who work in the FPI program 
produce products and perform services, the real output of the 
FPI program is inmates who are more likely to return to society 
as law-abiding taxpayers because of the improved job skills 
training and work experience.
    The FPI program earnestly strives to support the private 
sector. Last year, the FPI program spent nearly half-a-billion 
dollars on purchasing raw materials, supplies, services, and 
equipment from the private sector vendors. This amount 
represents 75 percent of the entire revenue earned by the 
Federal Prison Industries program, and more than 53 percent of 
this money went to small businesses.
    Efforts to reform the FPI program in a balanced manner are 
already underway. We have already reduced the FPI program's 
reliance on mandatory source in our traditional product lines. 
The Congress has already enacted FPI legislation, and the FPI 
Board of Directors recently adopted several resolutions, all 
intended to ensure the FPI program does not place an undue 
burden on private industry.
    The collective effect of these and other factors has been a 
decline in the FPI program's sales and earnings, particularly 
in office furniture. As a result, the FPI program has had to 
close or downsize 13 factories and reduce inmate program 
participation by approximately 2,000 inmates from a year ago.
    If FPI is not able to maintain its viability as a 
correctional program or is not able to maintain adequate levels 
of inmate enrollment, there will be a negative ripple effect. 
Recidivism will likely increase. Small businesses that 
currently depend on the FPI program for their business success 
will be negatively affected. Monies to victims of crime will 
decrease. Inmate idleness will increase. And we will need to 
develop alternative programs to keep inmates productively 
occupied.
    Like the Federal Prison Industries program, our education 
and vocational training programs have a positive impact on 
recidivism and an inmate's ability to find and maintain 
employment upon release. However, they are not a substitute for 
the extended real work experiences provided by the FPI program. 
Moreover, these programs are designed to run for a limited 
time--vocational training is typically 18 to 24 months in 
duration, and the average sentence length for inmates currently 
in the Bureau of Prisons is over 9 years.
    Chairman Fitzgerald, I recognize that this is a complex 
public policy issue with no easy answers and I look forward to 
working with everyone involved to achieve a practical, 
balanced, cost-effective reform of the Federal Prison 
Industries program.
    This concludes my formal remarks and I look forward to any 
questions from the Subcommittee.
    Senator Fitzgerald. Mr. Lappin, thank you very much. Mr. 
Williams.

   TESTIMONY OF JACK R. WILLIAMS, JR.,\1\ ASSISTANT REGIONAL 
 ADMINISTRATOR, FEDERAL SUPPLY SERVICE, REGION 3, U.S. GENERAL 
                    SERVICES ADMINISTRATION

    Mr. Williams. Chairman Fitzgerald, Members of the 
Subcommittee, I appreciate the opportunity to appear before you 
today on behalf of the U.S. General Services Administration, 
GSA, to discuss your ideas to establish a governmentwide policy 
requiring competition in certain procurements from Federal 
Prison Industries.
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    \1\ The prepared statement of Mr. Williams appears in the Appendix 
on page 62.
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    GSA supports the Subcommittee's interest in requiring 
competition to the maximum extent practicable whenever taxpayer 
dollars are being spent to ensure positive results in 
government acquisition. Two fundamental principles need to be 
satisfied in any legislative or administrative reforms. 
Agencies should have the flexibility through competition to 
purchase quality goods and services at fair and reasonable 
prices with the expectation of timely performance. At the same 
time, FPI is an important national program and the attorney 
general must be able to maintain adequate work opportunities at 
Federal prisons to counter the potentially dangerous effects of 
inmate idleness and prepare prisoners for reintegration into 
society.
    Finding a results-oriented approach to meeting FPI's 
national objectives, providing work opportunities for inmates, 
while obtaining additional competition and transparency in the 
government procurement process will result in the taxpayer 
getting better value for their tax dollars and giving Federal 
agency customers a greater range of choices.
    As this Subcommittee knows, the President has called upon 
the entire Federal Government to improve performance by 
focusing on results. Among other things, we have been charged 
with making our agencies citizen-centered, market-based, and 
results driven. Accountability requires that we spend the 
taxpayers' dollars wisely and provide greater insight into how 
their money is being spent.
    S. 346 and other bills are being considered by the Senate 
with regard to the reform of FPI. The administration has taken 
a neutral position on all bills. Therefore, I will not be 
commenting on the specifics of S. 346.
    A number of previous actions by Congress and this 
administration are promoting competition and helping create a 
level playing field with the private sector. GSA, NASA, and the 
Department of Defense revised the Federal Acquisition 
Regulations four times over the past year to implement results-
oriented reforms.
    Namely, in May 2003, agencies began evaluating FPI's 
contract performance, just as they would the performance of any 
other private sector firm. This is a results-driven solution 
focused on actual contract performance. While this did not 
change FPI's mandatory preference status, it was an important 
first step in helping FPI better monitor and improve its 
performance. Results-oriented feedback has proven to be a 
critical tool for the private sector over the last two decades 
in terms of improving both products and services and its bottom 
line, and it is now time to be employed by FPI as they move 
forward towards being competitive in the Federal marketplace.
    Second, the threshold for mandatory use of FPI was raised 
from $25 to $2,500 in May 2003. This change by the FPI Board of 
Directors allows agencies to go directly to the private sector 
or FPI for any purchase under $2,500.
    Third, Section 811 of the National Defense Authorization 
Act for Fiscal Year 2002 was implemented by DOD, requiring that 
before purchasing a product from FPI, DOD must determine 
whether the FPI product is comparable in price, quality, and 
timeliness of delivery to products available from the private 
sector.
    Finally, this same requirement was extended to DOD and non-
Defense Department activities alike in fiscal year 2004 based 
on Section 637(f) of the Consolidated Appropriations Act of 
2004. This statutory provision prohibits all Federal agencies 
from using their appropriated funds to purchase from FPI unless 
the agency making the purchase first determines that the FPI's 
service or product provides the best value to the buying agency 
pursuant to FAR procedures. If FPI's product is found to be 
comparable with private sector offerings that best meet the 
agency's needs in terms of price, quality, and timeliness of 
delivery, agencies should buy from FPI. If not, agencies are 
free to use competitive procedures, including FPI, in the 
competition.
    GSA supports reform of FPI and looks forward to working 
with this Subcommittee in making sure our procurement system is 
based on competitive procedures that are focused on achieving 
results.
    This concludes my prepared remarks. I am happy to answer 
any questions you may have.
    Senator Fitzgerald. Thank you very much. Mr. Palatiello.

   TESTIMONY OF JOHN M. PALATIELLO,\1\ PRESIDENT, MANAGEMENT 
ASSOCIATION FOR PRIVATE PHOTOGRAMMETRIC SURVEYORS, ON BEHALF OF 
                  THE U.S. CHAMBER OF COMMERCE

    Mr. Palatiello. Thank you, Mr. Chairman. I want to commend 
you and the Subcommittee for holding this hearing and we would 
like to thank Senator Levin and Senator Thomas for their 
leadership on the very important issue of injecting more 
competition into Federal procurement and reforming the 
practices of FPI.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Palatiello appears in the 
Appendix on page 64.
---------------------------------------------------------------------------
    The Chamber is the world's largest business federation, 
representing more than three million businesses and 
organizations. I might add that more than 95 percent of the 
Chamber's members are small businesses.
    The Senate Governmental Affairs Committee has jurisdiction 
over the entire Federal procurement process, and I would like 
to put the legislation before us today in the context of the 
Committee's longstanding interest in competition in Federal 
procurement.
    Reform of FPI will ensure fair and full competition to 
ensure that the American taxpayer gets the best value for the 
goods and services that its government buys while removing 
barriers that prevent businesses, particularly small business, 
from competing for government contracts. FPI reform is also in 
line with this Committee's responsibility to assure effective 
and efficient Federal financial management.
    Over the years, this Committee has had a longstanding 
history of advancing pro-competition, pro-reform procurement 
legislation, such as the Competition in Contracting Act, the 
Federal Acquisition Reform Act, the Federal Acquisition 
Streamlining Act, and the Federal Activities Inventory Reform 
Act. All of these had one fundamental principle, and that was 
that competition is good and competition brings better value to 
the taxpayer.
    We believe S. 346 is the next logical step in that series 
of reforms that this Committee has promoted. S. 346 would allow 
the private sector to compete on a fair and level playing field 
with FPI for Federal contracts based on price, quality, and 
timeliness of delivery. The bill also prohibits inmate access 
to personal or financial information, critical infrastructure 
information, or classified information, as well as prohibiting 
FPI from forcing businesses to use FPI as a mandatory 
subcontractor. In many ways, S. 346 simply codifies on a 
governmentwide basis the reforms that have been mentioned 
earlier that have been enacted in the defense authorization and 
omnibus appropriations bills.
    The system that we have today, that we have had since 1934, 
I describe as putting FPI in the place of being judge, jury, 
and prosecutor. It is FPI that gets to set the price they 
charge for their products. It is FPI that determines whether 
those products or services meet the agency's needs. It is FPI 
that decides whether their delivery schedule meets the agency's 
needs.
    FPI has also expanded its products and services without any 
regard to the impact on the private sector, so they have basic 
carte blanche authority to enter wherever they wish regardless 
of the consequence on small business and our employees. Even 
more alarming is their effort to, and their desire to, sell 
inmate-produced services in the commercial market.
    Mr. Chairman, you asked a very good question at the opening 
of this hearing and I would like to take some of my remaining 
time to mention--what was mentioned was 50 cents, or it is 
actually 23 cents an hour to $1.15 an hour. I would like to 
mention some of the other advantages that Federal Prison 
Industries enjoys over the private sector.
    It does not have to pay Social Security, the employer's 
share. It does not have to pay unemployment compensation or 
workers' compensation insurance. It is exempt from all Federal, 
State, and local income taxes, gross receipts taxes, excise 
taxes, and sales taxes. It is not subject to Federal Trade 
Commission oversight, Securities and Exchange Commission 
oversight, Department of Justice antitrust oversight.
    It does not pay fair market value, or in some cases pay at 
all for utilities. It has a special statutory allowance of a 
line of credit from the U.S. Treasury for up to, I believe it 
is $20 million at zero percent interest. I don't know of very 
many private small businesses that have that right.
    It is exempt from all standards, inspections, and fines of 
various State or local or Federal enforcement agencies, such as 
OSHA. It does not have to comply with local zoning. It enjoys 
sovereign immunity, so it has to carry no insurance. It carries 
no health insurance costs, and family and medical leave. And 
these are government contracts, so it is not just minimum wage; 
the private sector has to pay the prevailing wage rate.
    All of those are advantages that FPI has over the private 
sector, which we think would be particularly onerous if they 
entered the commercial market.
    Thank you, Mr. Chairman.
    Senator Fitzgerald. Thank you very much, Mr. Palatiello.
    Senator Pryor has joined us and I would like to welcome 
him, if he wishes, to make some opening remarks at this time 
before we proceed to the second half of this second panel.
    Senator Pryor. No, thank you, Mr. Chairman. I appreciate 
your leadership on this issue.
    Senator Fitzgerald. Well, thank you.
    Mr. Weiss, would you like to go ahead at this time?

 TESTIMONY OF KURT WEISS,\1\ SENIOR VICE PRESIDENT AND GENERAL 
   MANAGER, U.S. BUSINESS INTERIORS, ON BEHALF OF THE OFFICE 
                   FURNITURE DEALERS ALLIANCE

    Mr. Weiss. Mr. Chairman and Members of the Subcommittee, I 
appreciate the opportunity to testify before your Subcommittee 
today to discuss S. 346, a bill which amends the Office of 
Federal Procurement Policy Act to establish a governmentwide 
policy requiring competition in certain procurements from 
Federal Prison Industries.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Weiss, with attachments, appears 
in the Appendix on page 71.
---------------------------------------------------------------------------
    My name is Kurt Weiss and I am the Senior Vice President 
and General Manager of U.S. Business Interiors, a small 
business which employs 74 people. USBI was incorporated in 1990 
by our owner, William Rice, and has always had an established 
culture of a family-owned business.
    I want to share with you my story as it relates to Federal 
Prison Industries. FPI, as you may know, has had up until 
recently a mandatory source advantage in the office furniture 
industry. This mandatory source status has had a major impact 
on small business, both locally and nationally. USBI has 
personally felt and seen the effects of FPI's mandatory source 
status.
    U.S. Business Interiors was involved in an RFQ for the 
Federal Aviation Administration building here in Washington, 
DC. The project was a $5 million solicitation, involved every 
major manufacturer in the furniture industry, including 
Steelcase, Herman Miller, Knoll, Hayworth, and Techniat. FPI 
was not required to bid alongside the other commercial industry 
companies.
    USBI presented our response to the FAA meeting all 
requirements of all areas of the bid, forming three teaming 
arrangements to make sure we could be a turnkey provider to the 
FAA. In responding to the RFQ, every company had to present a 
corporate introduction, project team with resumes and 
experience, references, environmental impact, product 
literature, teaming letters, if needed, warranty information, 
work station typicals, work station specification, work station 
options, finished samples, pricing, and an acknowledgement of 
all RFQ terms, including acceptance of a liquidated damages 
clause.
    As you can imagine, this is a costly and time consuming 
effort and draws numerous resources from our day-to-day 
operations. Over 29 options were specified, including 19 work 
station private office typicals. In addition, 16 optional 
specifications were required for specialty areas. USBI spent 
over 120 man hours in bid preparation, including design, 
administration, value engineering, setting up vendor partners, 
and researching the competition. This resource draw cost USBI 
about $4,800. This is a lot of money for a small business like 
USBI.
    After evaluation of the competitors' bids by FAA and GSA, 
USBI was assessed the best value bid. Within days of notifying 
FPI of the intent to award USBI the FAA project, it was 
communicated to USBI that the FPI waiver had not been granted. 
USBI was notified they must sign a letter to release of our 
best value bid to FPI. On May 6, 2003, FPI sent a response to 
GSA and FAA notifying that a waiver would not be granted. A 
copy of the FPI's corresponding bid was sent to GSA and FAA. 
Upon review of this bid, it was determined that FPI copied 
USBI's best value bid and demanded FAA award the FOB 10(b) 
project to them, and I have copies of both ours and UNICOR's 
response here.
    The time, money, resources, confidential pricing, and 
discounting of this project was not only copied, but was given 
to commercial industry competitors of USBI. As a small 
businessman, I do not have a problem with the open and fair 
competition. What I have a problem with is the fact that FPI is 
not competing with anyone, but instead guaranteed by statute 
all the government business it wants. What FPI has been allowed 
to do in the FAA case is unconscionable. If USBI did this in 
the private market, we would have committed antitrust 
violations. When FPI does this in government, they consider it 
OK.
    The mission of FPI when it was created in 1934 was to 
provide inmates with real skills that they could use once 
released back into society. This is nice in principle, but in 
reality, FPI is not living up to its mission. The FAA project 
is a clear example of how FPI has lost its way.
    Since I am almost out of time, I would like to thank you 
for the opportunity to speak before you and answer any 
questions you might have.
    Senator Fitzgerald. Thank you. Your full statement will be 
entered into the record. Mr. Linder.

 TESTIMONY OF ANDREW S. LINDER,\1\ PRESIDENT, POWER CONNECTOR, 
    INC., ON BEHALF OF THE CORRECTIONAL VENDORS ASSOCIATION

    Mr. Linder. Mr. Chairman, Members of the Subcommittee, I am 
Andy Linder. I am President and owner of Power Connector, a 
small electronics firm based on Long Island, New York.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Linder appears in the Appendix on 
page 87.
---------------------------------------------------------------------------
    Power Connector went into business on April 1, 1987, 17 
years ago last week. When we first put the key in the door, 
there were just two of us, just two people and a lot of hope. 
Now we have 76 employees and we have built what I think is a 
solid reputation, producing high-quality, reliable electronic 
connectors and cable hardware for the U.S. military. Our 
products are relied upon every day by American soldiers all 
over the globe, including our men and women in Afghanistan and 
Iraq. We even made some of the parts that the FPI built for the 
transmitter that saved the life of Air Force Captain Scott 
O'Grady after his plane was shot down in Bosnia in the summer 
of 1995.
    The story of Power Connector is very much the story of 
Federal Prison Industries working with small business. In that 
respect, it is a story that could be told by any one of 
thousands of other business owners, small ones in other States.
    Small businesses have contracts with FPI worth close to 
half-a-billion dollars in gross revenues per year. At Power 
Connector, we have capitalized and hired employees on the 
strength of those contracts. Our employees and their families 
depend upon those contracts to survive. In fact, for every 
dollar purchased by Federal Prison Industries, 74 cents goes 
directly back into small businesses in the private sector just 
like ours.
    Senators, Power Connector would never be in business today 
without FPI and its small business initiatives. As a matter of 
fact, we may not be here tomorrow if you pass S. 346. The 
reason is that FPI recognizes the gains to be made when dealing 
with small businesses like ours and they make doing it a 
priority. They broke down their large comprehensive contracts 
into smaller segments and they have developed a unique 
partnership with small businesses.
    Unlike other Federal agencies, Federal Prison Industries 
gave us the one thing that we needed the most, and that was a 
chance to be competitive in the defense industry. They were 
hard taskmasters when it came to quality, but we delivered on 
time and on budget. Our 76 employees aren't the only ones 
involved. In addition to our own success, the subcontracts that 
we have outsourced over the past 17 years to over 45 other 
small businesses have created jobs for over 140 full-time 
employees outside of our own doors.
    But Federal Prison Industries is not just about creating 
private sector jobs. One day in June 2001, I received a letter 
from a Federal inmate from Fairton, New Jersey. He told me that 
he was about to be released about a month later in July, after 
having spent the last 18 years of his life in State and Federal 
custody. He attached his resume and he asked me for a job.
    Two days after he was released from that prison, I had him 
come to my factory, where he was interviewed by myself and 
three of my managers on a Friday. Well, he made the grade and 
he started working for us the following Monday, and he has been 
one of my most relied-upon employees and productive employees 
ever since that day. He has never missed a day. He is never 
late. And he has integrated himself seamlessly into our 
organization and into our lives. He has performed beyond all 
expectations.
    Today, this man who spent 18 years behind bars supervises 
three other employees in one of the most critical areas of our 
business. He will tell you what turned his life around, the day 
he found religion and the day he and Federal Prison Industries 
found each other. Last year, I was the best man at his wedding, 
and I was even able to help him move this past Saturday into 
his own home.
    When I look at him, I see why I believe in FPI. I am proud 
to call him my friend and I am even prouder to introduce him to 
the Senate. Gentlemen, please welcome my product manager, 
Demitrio Ricciardone.
    [Applause.]
    Mr. Chairman, Members of the Subcommittee, neither I nor 
Dino would be here today if it wasn't for Federal Prison 
Industries. That is why I so strongly oppose S. 346. It would 
hurt small business. It would cost jobs. It will hurt inmates 
just like Dino here. And it will jeopardize the safety and the 
staff of our penal institutions. Thank you for your time and 
your consideration.
    Senator Fitzgerald. Thank you very much. Mr. Glover.

TESTIMONY OF PHILIP W. GLOVER,\1\ PRESIDENT, COUNCIL OF PRISON 
  LOCALS, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO

    Mr. Glover. Chairman Fitzgerald and Members of the 
Subcommittee, my name is Phil Glover and I am the elected 
President of the Council of Prison Locals, American Federation 
of Government Employees. We represent 26,000 Federal employees 
working in the Nation's prison system. We have 100 local unions 
that represent correctional officers, caseworkers, food service 
workers, and Federal Prison Industries employees, and also 
various others.
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    \1\ The prepared statement of Mr. Glover, with attachments, appears 
in the Appendix on page 94.
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    I would like to thank you for holding this oversight 
hearing today on S. 346, a bill that would establish a 
governmentwide policy requiring competition in Federal agency 
procurement from FPI. It is an important topic for the safety 
and security of Federal prisons.
    The proposed legislation would have real consequences for 
the men and women who work in Federal prisons across the 
country. In my written testimony, I have outlined some of the 
history of FPI when it was created. I also talk about the 
actual dollar amounts that FPI sells in the Federal market in 
furniture.
    I also want to add something that has come up several 
times. We are a unionized law enforcement workforce. Our 
members work in FPI. They do not work in non-OSHA standard 
factories. We would not allow it as a union. We wouldn't allow 
them to work in there under any conditions that weren't 
acceptable to the private sector.
    FPI receives about a half of one percent of the Federal 
procurement dollar. This is small compared to the Federal 
market and the larger private market. Furniture sales have 
dropped dramatically since the passage of Sections 811 and 819 
in the Defense Authorization Act. We believe we know what will 
happen if this bill should pass in its present form. We have 
seen 2,000 inmates go idle and 100 staff positions eliminated 
so far. This should concern all Members of the Subcommittee.
    If you change the contracting rules permanently, then 
corrections policy must be changed, as well. It is a broader 
issue than just eliminating mandatory source and changing what 
products and services we can compete in.
    I would also like to point out three memorandums that I 
placed in our statement. One of those memorandums is from a 
staff member in Memphis, Tennessee. It describes a day of a 
riot in 1995 when the Senate and the House didn't change the 
sentencing standards for cocaine and powder cocaine, or crack 
and powder cocaine. I just want to point out one section:
    ``Later that afternoon, the same radical group became 
violent and began destroying government property. They also 
attacked us in front of one of the housing units. Moments after 
attacking us, they went to the rear of UNICOR and began 
breaking open the fire escape door. The inmates on the inside 
of UNICOR helped fight them off and yelled they did not want to 
participate or destroy UNICOR. They turned their attention to 
other areas of the institution and continued their rampage.''
    The other memos continue on the same theme, that inmates 
participating in FPI do not participate generally in these 
types of activities. I can provide more statements, and I would 
certainly do that for the Subcommittee.
    We understand the controversy surrounding FPI, but to 
eliminate it and replace it with nothing is unacceptable. We 
will need massive growth in correctional staffing. We are 
already down 11 percent nationwide in correctional staffing, 
and more funding for additional programs that will have to come 
from appropriated dollars to the Federal prison system.
    The union requested information from management on FPI 
contracts with the private sector. I have attached the full 
list for the record, but want to highlight a few.
    In Pennsylvania, we purchased $77.9 million in goods and 
services in the private sector. In New Jersey, $19.5 million in 
goods and services. In Michigan, we purchased $56.1 million to 
the private sector in Michigan. Mr. Chairman, in your State, we 
provide $33.2 million to the private sector, in Illinois. What 
happens to these people? Where do these people's work go? Who 
replaces them? This means that UPS, Roadway, some textile 
companies in North Carolina, and many other companies will 
probably close their doors.
    Inmate wages were brought up. FPI has two workforces. We 
have security needs. It is a much different program than 
running a factory in the private sector. We have to send 
inmates through metal detectors in and out of each of those 
factories on a daily basis. I doubt any company in here has to 
have staff standing there watching that inmates don't steal 
stuff from the factory so they can stab a staff member back up 
in the housing unit.
    We also have our staff that are paid out of UNICOR non-
appropriated funds. They are not appropriated fund employees. 
All their benefit packages, all of their insurance, all of that 
comes out of FPI sales. So it is not appropriated dollars that 
are paying for staff in the Federal Prison Industries program. 
It is non-appropriated. Therefore, as the program decreases, 
those staff have to be let go.
    I want to thank you for allowing me to testify and I would 
answer any questions you may have.
    Senator Fitzgerald. Thank you all very much.
    I want to start with Mr. Lappin. At the outset, I asked, 
why wouldn't FPI win any bid if private businesses could bid 
for government procurement contracts? Shouldn't FPI be able to 
win the bids, because wouldn't you have lower costs? And if you 
don't have lower costs, why is it that you don't have lower 
costs?
    Mr. Lappin. Thank you, sir. I would be pleased to respond 
to your question. A couple of things. One, when you look at 
those rates, one would assume, how could anyone ever compete 
with that? But I think Mr. Glover mentioned a few issues.
    First of all, let us talk about the inmates that work in 
Federal Prison Industries. They come to us with limited 
literacy skills, few vocational skills, and the majority of 
them have never worked in a normal industry or operation. Few 
of them have worked in a normal situation, so the majority of 
them lack work skills. There is enormous turnover. So there are 
limitations based on the inmates themselves that come to us, 
and certainly it is our job to improve on those skills.
    But I think what is more complicating is the fact that we 
put the majority of these factories in our medium- and high-
security facilities, which create enormous inefficiencies, 
which just by the nature of those institutions complicate the 
ability to run a factory in a location like this. These inmates 
all have histories of violence, all have long, sometimes 
lengthy sentences, so all of those issues complicate management 
of tools, equipment, oversight, and control. So the normal work 
day is not a normal work day as you would compare it to a 
privately-run company. All of these things result in huge 
inefficiencies.
    I think you see this more when you walk in and see this 
operating in person. I would invite the Members of the 
Subcommittee or their staff to visit a couple of institutions 
so we could show you the challenges we face in running 
factories in institutions of this nature, not only because of 
the limitations of the inmates, but because of limitations just 
based on the type of security and oversight and control we must 
have over the equipment, the operations, and the programs.
    Senator Fitzgerald. So your payroll for the prison workers 
may be very low and you don't have the Social Security, 
Medicare, unemployment compensation and workers' compensation 
costs for the prison workers, but you would have to have 
another whole set of employees from Mr. Glover's union that 
would actually watch over the workers while they are doing 
this. Do you also include a cost in your overhead for the 
factory itself?
    Mr. Lappin. Absolutely. What I would like to do for the 
record--I don't have it here in writing----
    Senator Fitzgerald. Are those factories built with 
appropriated amounts or are they built out of the proceeds of 
the----
    Mr. Lappin. The shell of the factory is built with 
appropriated funds. The build out of the factory and all 
equipment, all utilities, all other needs of the program, the 
industry, are paid for by FPI.
    The other thing I would like to mention is let me provide 
in writing for the Subcommittee a list of those things that are 
paid for by appropriated funds and a list of those things that 
are paid for by UNICOR so that we have the facts.
    Senator Fitzgerald. That would be helpful. Do you also have 
financial statements?
    Mr. Lappin. Absolutely.
    Senator Fitzgerald. This is a corporation. Do you have 
audited financial statements?
    Mr. Lappin. Yes, sir.
    Senator Fitzgerald. Balance sheet, income statement, and so 
forth?
    Mr. Lappin. We have to file--we comply with all commercial 
and government accounting standards. We are audited 
independently every year. This audit is conducted or overseen 
by the Inspector General's office. This past year, this audit 
was conducted by PriceWaterhouse Coopers. It was an unqualified 
decision this past year. We post that on our website. We can 
provide you a copy in person.\1\
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    \1\ The information provided by Mr. Lappin appears in the Appendix 
on page 250.
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    Senator Fitzgerald. Mr. Williams, you do a lot of 
purchasing for the Federal Government at the GSA. You 
personally--it is not an administration position, but you 
personally sound like you favor opening up contracts to bid and 
doing away with the sole source requirement for FPI, is that 
correct?
    Mr. Williams. That is correct, Mr. Chairman.
    Senator Fitzgerald. Do you think it would save the 
taxpayers money to do that?
    Mr. Williams. Absolutely, and the reason I believe that is, 
GSA used to be a mandatory source within the Federal 
Government. When we were a mandatory source, we didn't listen 
to our customers in the Federal Government. We didn't work very 
cooperatively with our partners in the private sector. And we 
pretty much dictated what you would get, when you would get it, 
and what the product would be.
    Senator Fitzgerald. So can Federal agencies now go out and 
just buy furniture at a store without going through you, or 
buy----
    Mr. Williams. Federal agencies do not have to use GSA 
sources of supply. We have to earn the business and we have to 
earn the business with good prices and good service.
    Senator Fitzgerald. And that forced you to get better?
    Mr. Williams. We have seen much growth in our financial 
performance since we were mandatory. Now being non-mandatory, 
we have grown tremendously in the amount of sales to Federal 
agencies.
    Senator Fitzgerald. Now, what about the issue with 
services, Mr. Lappin? The FPI is now providing services. I 
understand that prison workers are manning call centers----
    Mr. Lappin. That is correct.
    Senator Fitzgerald [continuing]. That are being used by 
private companies?
    Mr. Lappin. Yes. Years ago, in an effort to reduce our 
reliance on mandatory source, as indicated, we certainly are 
looking for ways to reduce the products that fall under 
mandatory source----
    Senator Fitzgerald. In those cases, you are bidding for 
that work, I would imagine, because the private companies that 
need a call center don't have to follow a statute that requires 
that they use you. I am sure they look around and see where 
they could get a good deal, and you must have won those 
contracts.
    Mr. Lappin. Actually, we are only pursuing work that is 
currently being done offshore or work that would be going 
offshore if we weren't competing. So we are not pursuing those 
types of work ventures which would----
    Senator Fitzgerald. So the billionaire in India who owns 
the call center over in India is making so much money, he might 
hire a Washington lobbyist to come over here and oppose you in 
the Senate because you are competing with him. [Laughter.]
    So you are only competing against foreign call centers?
    Mr. Lappin. In many of the services, we are only pursuing--
a few months ago, the Federal Prison Industries Board asked 
that we look at opportunities outside of those products that 
rely on mandatory source, and that is pretty much where our new 
service area is going, and that we only look at those areas of 
work that is being conducted, and performed, offshore. So 
companies that come to us must certify that work that we are 
competing for, if not for us, would be performed offshore.
    Senator Fitzgerald. OK. Senator Levin, would you like to 
ask your questions?
    Senator Levin. Just following up on that, that is something 
which I have been pressing for in the area of products for a 
long time, as to why the FPI doesn't look at products that we 
import and where there are, for instance, only imported 
products which are purchased by the government and then get 
into that business. It is the analogy to what you are doing in 
services. Why don't you go through that list?
    Mr. Lappin. I certainly think that is an area that we could 
consider.
    Senator Levin. Yes, but I raised that 4 years ago, and 3 
years ago, and 2 years ago, and I was given the same answer. 
That is an area we could consider.
    Mr. Lappin. I think if you look at most of our product 
areas, you are seeing a decline, especially in furniture over 
the last few years, because of the recent legislation that has 
been passed, because of the recent resolutions passed by the 
Board. We are relying less and less on our primary product 
areas of textile, furniture, and electronics.
    I know if you look at this last year, you are going to see 
a bit of a surge, especially in textile and electronics, but 
that is solely because of the surge of the war and our 
commitment to support the troops. But certainly in furniture, 
you are seeing much less business in that regard and you are 
seeing us grow in those other areas, and we are looking at some 
refurbishment of equipment and supplies from overseas as well 
as the Department.
    It takes some time for us to transition, and again, as I 
have indicated before, we are in favor of reform of FPI. We are 
including the eliminating of mandatory source. We are committed 
to relying less on our traditional products lines of----
    Senator Levin. Excuse me, what were those words? Including 
the elimination of mandatory source? Were those the words I 
heard?
    Mr. Lappin. That is correct.
    Senator Levin. That is what this bill is all about.
    Mr. Lappin. That is correct, sir.
    Senator Levin. We are trying to eliminate that, too, so we 
are on the same side now.
    Mr. Lappin. As I said, sir, we are in favor of reform. We 
are in favor of relying less on mandatory source, if not 
elimination, and less reliance on our primary product areas of 
furniture, textiles, and electronics, as long as we can pursue 
products and services in other areas that allow us to keep 
inmates productively occupied.
    Senator Levin. I am glad to hear that you favor the 
elimination of mandatory source, because that is at the heart 
of this bill. The other issue is the services issue, and there, 
you are saying that you are doing what you should have done a 
long time ago with products, which is to look for offshore 
suppliers, to compete with them instead of eliminating 
competition from the American private sector. So I would think 
that in a way, you are at least symbolically or theoretically 
supportive of the direction of our bill.
    But I want to go back to my question about imports on 
products. You say it is a good idea. Has FPI in the last few 
years done a comprehensive search of products that are 
purchased by the Federal Government that are only produced 
offshore? Do you know if that search has been made?
    Mr. Lappin. I am not sure, but again, I will check with the 
staff in FPI and provide for the written record a response to 
that question.\1\
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    \1\ The information provided by Mr. Lappin appears in the Appendix 
on page 250.
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    Senator Levin. We have been pressing that issue year after 
year and have never gotten a satisfactory answer to it.
    Mr. Lappin. I can give you some examples of some of the 
service areas, to include data entry for information from used 
car ads, repair of automotive starters and generators, 
attaching advertising inserts in magazines, sorting and 
reboxing shoes. Those types of things have all been 
repatriated.
    Senator Levin. Mr. Williams, I think you have already 
commented on this, but would you expand a bit on the history of 
GSA? You had a mandatory source requirement until 1996.
    Mr. Williams. Actually, it was 1986----
    Senator Levin. Eighty-six.
    Mr. Williams [continuing]. When we were first given 
permission to use industrial funding to fund GSA operations. 
With that, Congress instructed us that we would no longer have 
mandatory source and that we would be optional for use by 
Defense Department and other Federal agencies.
    Senator Levin. So with some products until 1996?
    Mr. Williams. In 1996, we were fully non-mandatory----
    Senator Levin. Non-mandatory.
    Mr. Williams [continuing]. And we have seen steady growth 
in all of our program areas. I want to just insert here that 
the partners that we worked with in the business community, 
over 40 percent of them are small businesses and we worked 
carefully with industry to be a good partner and at the same 
time getting the best value for the government purchasing 
dollars.
    Senator Levin. Would you expect that GSA's experience in 
that regard would be followed by FPI, that they would have the 
same experience?
    Mr. Williams. I believe if they operated in a business-like 
way, in cooperation and in spirit of cooperation with their 
customers, that they could see the same type of growth, because 
we had to change our practices. We had to change our products. 
We did that in response to agency and customer needs. I believe 
that they could enjoy the same type of growth.
    Senator Levin. Mr. Lappin, back to you just for a minute. 
What is the management structure of FPI? I should know the 
answer to this, but I don't. Is it a government corporation? 
Are all the employees in FPI in the corporate level government 
employees?
    Mr. Lappin. Yes, they are.
    Senator Levin. So you are run like any other owned 
corporation?
    Mr. Lappin. We receive no appropriated funds. They are 
completely self-sustaining----
    Senator Levin. And are the salaries set by you or are they 
set by statute?
    Mr. Lappin. They are set by OPM regulations.
    Senator Levin. For the management?
    Mr. Lappin. That is correct, for management. It goes 
through the same process that other government employees would 
be. Employees that work in our Federal prisons are law 
enforcement employees. They have primary responsibility for the 
care and custody of inmates along with their responsibilities 
in Federal Prison Industries. So they, too, are responsible for 
care and custody of inmates.
    Senator Levin. So your budget is a matter of public record?
    Mr. Lappin. Absolutely.
    Senator Levin. Is it part of the budget of the United 
States--it is not part of the budget documents.
    Mr. Lappin. No, it isn't. We do a projection yearly. For 
example, in 2003, we projected about a $667 million budget. 
Four-hundred-and-ninety-seven million, or 75 percent, was to 
buy material supplies from private sector vendors. About 19 
percent, $130 million, went to staff salaries and benefits. 
About 6 percent, $40 million, was inmate pay. And so we can 
provide that to you in writing. We publish a statement every 
year.\1\
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    \1\ The information provided by Mr. Lappin appears in the Appendix 
on page 250.
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    Senator Levin. OK, thank you. Thank you, Mr. Chairman.
    Senator Fitzgerald. Senator Pryor, would you have any 
questions at this point?
    Senator Pryor. I do, but Senator Thomas, you go first.
    Senator Fitzgerald. Senator Thomas.
    Senator Thomas. Thank you, Mr. Chairman. This has been a 
good panel and I appreciate this.
    You mentioned, Mr. Lappin, in some of your criteria, I 
believe you said it will not place a burden on private 
business. How do you determine that?
    Mr. Lappin. We do a survey prior to going into a new 
product area and service area. We advertise. We ask for 
comments from agencies and governments who may be performing 
that product, or producing that product or service, so that we 
can balance that. We encourage folks who feel as though they 
have been negatively impacted to contact us so that we can 
weigh the consequences of some of our decisions and try to do 
whatever we can to reduce the negative impact----
    Senator Thomas. I know, but how do you determine? You have 
the U.S. Chamber that thinks you are being difficult, and you 
say, well, no, we are not hurting because we check it out.
    Mr. Lappin. No, for the record, say that I recognize that 
we have some negative impact on businesses. There is no doubt 
about that. We cannot completely say we don't have some impact.
    Senator Thomas. You also mentioned, if you didn't do this, 
you would have to develop an alternative program. What is wrong 
with having an alternative program? You can change once in a 
while.
    Mr. Lappin. There are some alternative programs that may be 
applicable, but I know that in many of them that have been 
proposed, we cannot recreate a real-life work environment like 
we have in the industry programs. We value certainly our 
education programs and VT programs, as I have mentioned, and we 
leverage or nudge inmates into those programs because many of 
them come to us lacking literacy skills and vocational skills--
--
    Senator Thomas. What about the other 88 percent----
    Mr. Lappin [continuing]. But they are short term.
    Senator Thomas [continuing]. That you don't deal with? You 
have 88 percent of your prisoners that aren't even involved.
    Mr. Lappin. Well, we have work assignments far beyond 
Federal Prison Industries.
    Senator Thomas. I understand. So why does this become such 
a priority?
    Mr. Lappin. Well, it is by far a much more real-life work 
experience and one that an inmate takes enormous commitment 
into the product, and certainly we see inmates who work in 
Federal Prison Industries being less disruptive in our prisons 
and less likely to come back to prison because of the work 
skills and abilities they learned as a result of that 
experience.
    Senator Thomas. Mr. Williams, I don't quite understand. You 
said agencies don't have a choice of what they buy. This is a 
mandatory program, is it not?
    Mr. Williams. GSA or Federal Prison Industries?
    Senator Thomas. No, the Federal Government agencies.
    Mr. Williams. Federal Prison Industries products for 
furniture have to be purchased by Federal agencies. There have 
been changes in two appropriations bills that have modified 
that temporarily----
    Senator Thomas. Right.
    Mr. Williams [continuing]. But they are required to get a 
waiver from Federal Prison Industries, and if they don't get 
the waiver, then they have to proceed with purchase of products 
from UNICOR. In some cases, they are successful at getting a 
wavier. In others, they are not. Many times, the customer 
agency will work with GSA to get a waiver and we will work and 
communicate with the ombudsman at UNICOR to see if we can get 
that waiver for that Federal agency.
    Senator Thomas. Let me move to Mr. Weiss. You talked some 
about waivers. Did that work well for you?
    Mr. Weiss. Not in the FAA instance. We have had one 
opportunity where a waiver has been successful, but they are 
very--usually, you go through three or four appeals of the 
waiver process before you can go through. It is a lot of 
intimidation on the contracting officer from the FPI level. You 
really have to have somebody on the government side or the 
agency side that is willing to invest time and effort into 
seeing that process through, because it could be a 3-month 
process to get a waiver.
    Senator Thomas. Mr. Linder, you talked about getting some 
of your outsourcing at the Federal agency. Can't you outsource 
in the private sector, as well?
    Mr. Linder. Yes, that is a good question. I just want to 
say that I think free competition and open competition is the 
American way, free enterprise, and that is how I got into 
business. I just want to also add, I would never have even 
started my business if Federal Prison Industries didn't exist 
or even have had an opportunity to bid into that system, 
because my belief and experience has been that to try to sell 
to large businesses is a very difficult process. I think that 
what we are looking at here is if this mandatory preference is 
removed, what will be happening is you will be providing 
opportunity to big business. I think it takes large business to 
manufacture the type of products that are produced by FPI and--
--
    Senator Thomas. There are thousands, hundreds of thousands 
of small businesses that don't operate as you do and are still 
successful.
    Mr. Linder. That may be so, but I am talking about my 
business. You asked me about----
    Senator Thomas. I understand.
    Mr. Linder [continuing]. My business.
    Senator Thomas. Why do you go there, because you can do it 
less expensively?
    Mr. Linder. Why do we go to----
    Senator Thomas. Prison?
    Mr. Linder. Let me explain it to you. Federal Prison 
Industries makes it easy for their subcontractors. They make it 
like paint-by-the-numbers. You don't have to be a master 
painter to provide products to them. They take their products 
and break them down into small----
    Senator Thomas. What about the cost?
    Mr. Weiss. The costs? I compete just like everyone else.
    Senator Thomas. Do you bid? Do you offer bids to others?
    Mr. Weiss. Ever single contract order we have ever 
received, and I believe everybody who ever receives an order 
from FPI does so in the free competitive process.
    Senator Thomas. So you can imagine they are doing it a 
little less expensively, as the gentleman from the Chamber of 
Commerce pointed out, because of less costs, right?
    Mr. Weiss. I believe that Federal Prison is plying their 
product because they have the mandatory preference. They don't 
have to compete against large business, who can--they don't 
have to follow strict guidelines on pricing and formulas. 
Federal Prison Industries is bound by----
    Senator Thomas. Do they pay the costs that the private 
sector does?
    Mr. Weiss. I believe that they have plenty of expenses that 
the private sector won't ever have.
    Senator Thomas. Tell me what they are, would you?
    Mr. Weiss. Yes. I believe that the overhead that----
    Senator Thomas. Retirement? Do they have retirement?
    Mr. Weiss. Certainly.
    Senator Thomas. Do they have health care? Do they have all 
those things that the employer has to pay?
    Mr. Weiss. Not to the inmates, but they certainly have 
heavy-duty supervision. I haven't heard anyone here state the 
numbers, but I believe that they face anywhere from 800 to 
1,000 percent in direct supervisory costs for each inmate. So 
if they pay----
    Senator Thomas. How about those inmates that aren't in 
this? Are they supervised, as well?
    Mr. Weiss. Outside of Federal prison? I believe they have--
--
    Senator Thomas. No, I am saying all Federal prisoners are 
supervised.
    Mr. Weiss. Yes, they are.
    Senator Thomas. It is not quite right to say this group is 
supervised more heavily than others.
    Mr. Weiss. I believe they probably are. I don't have the 
facts in front of me, but----
    Senator Thomas. I just think that you are a business person 
and there ought to be an opportunity for everyone to bid and 
get into the thing. It probably isn't fair if you are getting a 
break from the taxpayers to go to this particular place less 
expensively to other businesses. So these are the kind of 
things I think we have to look at in the broad sense, don't 
you?
    Mr. Weiss. I agree, and if you want to do something good 
for big business, this will do just that. You will give plenty 
of work to large businesses and I think the potential for that 
filtering down to small businesses like mine will be 
dramatically reduced.
    Senator Thomas. I don't agree with you at all, because 
small businesses are the major activities in this country and 
they continue to prosper.
    Thank you, Mr. Chairman.
    Senator Fitzgerald. Thank you, Senator Thomas.
    I have been advised that FPI sometimes engages in so-called 
pass-throughs, or drive-by manufacturing, in which a private 
sector company essentially manufactures a product, FPI orders 
the product and then passes it through to the purchasing agency 
without any meaningful inmate labor involved. For any of the 
panelists, especially Mr. Lappin, does this happen, and if so, 
how frequently does it happen?
    Mr. Lappin. Yes, sir, that does not happen. It was a 
practice in the past during times when we would receive an 
order, and it is called pass-through. I guess that is the term 
that has been tied to this process, in cases where we took 
business and for whatever reason--the factory was closed 
because of a disturbance, because of a problem, we couldn't 
meet the time line, we would go to the customer and get them to 
approve us purchasing the product and passing it to them.
    We ended that prior to my coming into the Bureau of Prisons 
as the Director. We no longer----
    Senator Fitzgerald. You came in what year?
    Mr. Lappin. Last year, a year ago in April. A year ago this 
month. But that was solely----
    Senator Fitzgerald. The end of the prior year----
    Mr. Lappin [continuing]. For the convenience of the 
customer.
    Senator Fitzgerald [continuing]. Coming in, would you know 
exactly when they ended that?
    Mr. Lappin. I don't know exactly. It was one of the 
resolutions that was approved by the FPI Board of Directors, 
who sets these standards. I can provide to you in writing the 
date it was passed and when we stopped that process.
    So now what we do is we just go back to the customer and 
say, because of the factory being closed as a result of a 
problem at the institution, we cannot meet the time line. 
Please go out and pursue that product through a private 
company.
    Senator Fitzgerald. When they did those pass-throughs, was 
FPI taking a mark-up on the product? You go out and buy the 
product and then sell it to the agency. Would you mark it up?
    Mr. Lappin. I don't believe so, but again, when we provide 
you a written response, we will indicate that for you.\1\
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    \1\ The information provided by Mr. Lappin appears in the Appendix 
on page 250.
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    Senator Fitzgerald. You are not doing that any more?
    Mr. Lappin. We are not. That is correct.
    Senator Fitzgerald. And you are not going to go back to 
doing that?
    Mr. Lappin. That is correct.
    Senator Fitzgerald. OK. I understand, reading the statutes 
that go back to the 1930's covering the FPI, it appears that 
the work program can apply to non-Federal facilities, is that 
correct, that there may be some non-Federal prisons? There is a 
reference in one of the statutes to up to 50 non-Federal 
penitentiaries. I was just wondering what that meant.
    Mr. Lappin. Let me just help maybe in clarifying. A granted 
State and some private correctional facilities have industry 
programs. I am not sure exactly what authority they operate 
under. We only have Prison Industries programs in our own 
Federal facilities. In facilities that we contract out the 
work, that if we contract out the operation of the prison, we 
do not have factories in those facilities.
    Senator Fitzgerald. How many prisons do you contract out 
that are run privately in the Federal system?
    Mr. Lappin. Of the 176,000 inmates, we have about 18,000 in 
privately-run facilities. That is probably 12 or 13 facilities, 
thereabouts. I don't have the exact number with me.
    These are primarily low-security facilities housing low-
security criminal aliens, folks that are more than likely going 
to be deported. There are no factories in them.
    Senator Fitzgerald. And those are operated on a contract? 
Some private company has a contract to run that prison?
    Mr. Lappin. That is correct.
    Senator Fitzgerald. Does the Federal Government pay for the 
construction of the prison?
    Mr. Lappin. Typically, no. We only have one facility where 
it was government-built and now privately operated. The rest of 
those are built by the private contractor.
    Senator Fitzgerald. OK. If some of those prisons are 
privately owned, that means somebody owns the prison and they 
have Federal inmates who are working in the Federal Prison 
Industries program?
    Mr. Lappin. No.
    Senator Fitzgerald. No?
    Mr. Lappin. We do not have factories in those facilities.
    Senator Fitzgerald. There are no factories in any of those 
facilities?
    Mr. Lappin. That is correct.
    Senator Fitzgerald. OK. Can State prisons participate in 
this program?
    Mr. Lappin. States have different authorities that they 
work under. I know that States have prison industry programs. 
Some are under the PIE program. Some are run through other 
authorities.
    Senator Fitzgerald. They make drivers' license plates or 
something like that?
    Mr. Lappin. Yes.
    Senator Fitzgerald. OK. By the way, I would be interested, 
if you could submit some information on the Federal prisons in 
Illinois. We have Marion Federal Penitentiary and then we have 
a few others.
    Mr. Lappin. We have FCI Pekin----
    Senator Fitzgerald. In Greenville?
    Mr. Lappin [continuing]. Which is a 1,500-bed medium-
security facility. We produce metal products there, chain link 
fence, prison doors, so on and so forth. We have a Federal 
prison or Federal corrections institution in Greenville, 
Illinois, where we produce BDUs and other dress uniforms for 
the military.
    Senator Fitzgerald. Did you say BDUs?
    Mr. Lappin. Battle dress uniforms for the military.
    Senator Fitzgerald. OK.
    Mr. Lappin. And at Marion, we produce--we have a cable 
operation in support of military contracts.
    Senator Fitzgerald. Yes, I have visited that operation.
    Mr. Lappin. That is a high-security facility.
    Senator Fitzgerald. OK. Could you provide any examples of 
items that FPI produces that are used by the troops in addition 
to the BDUs, battle dress uniforms?
    Mr. Lappin. We have a number of contracts and products with 
the military. We produce Kevlar helmets, wiring harnesses, 
communication cables, battle dress uniforms, portable lighting, 
physical fitness uniforms, towels, sheets, items of that 
nature. We have one service group which is repairing vehicle 
and--it is vehicle and equipment repair. We repair Humvees that 
have been damaged. We refurbish engines, transmissions, items 
of that nature, to be put back in service with the military.
    Senator Fitzgerald. Are you ever competing with the 
arsenals, the domestic arsenals, do you know?
    Mr. Lappin. Actually, many of these customers came to us--
--
    Senator Fitzgerald. OK.
    Mr. Lappin. Because they were struggling, turning around 
these products and looking for one-stop shopping. Can you do 
the whole process? And as a result, much of this business came 
to us, as well as our fleet management program, which we do 
with the Marshals, INS, outfitting their vehicles. We purchase 
the vehicle. We outfit them. Again, because they were 
struggling, they were putting their law enforcement folks out 
trying to get all this work done. They were looking for one 
location where we could outfit the entire vehicle, deliver it, 
take care of their old vehicle, survey it, and do it more 
efficiently and effectively.
    Senator Fitzgerald. OK. Now, Mr. Glover, in answer to 
questions by Senator Levin, it sounded like Mr. Lappin said he 
did not have a problem eliminating the sole source requirement 
that agencies have to go to FPI as long as the FPI could expand 
into a few other areas and remove some of the restrictions?
    Mr. Glover. Senator, the union doesn't always have the same 
position as management, as you may know.
    Senator Fitzgerald. Right. That is why I was checking. 
[Laughter.]
    Mr. Glover. We are extremely concerned with the elimination 
of the mandatory source and I will tell you why, because we 
feel that peaks and valleys--we understand private business and 
we understand this controversy. But this program is designed to 
deal with Federal convicted felons and to get them better, to 
send them back to the street.
    When you talk about the other programs in Federal prisons, 
they are very small. You have to have appropriated money to do 
that. Our funding has been chopped, essentially. We are running 
prisons at 87 to 91 percent funding levels, every facility in 
the system. You are starting out 10 percent short every day in 
staffing, in correctional staffing, and at the same time, we 
are talking about cutting what we believe is our most important 
correctional program as far as--and it may only sound like 20 
percent of the inmates who are eligible to work in this, but 
that is a large number on a day-to-day basis who are down in a 
Federal factory, in one of these factories doing something 
productive.
    Working out on the rec yard or doing something up in the 
education department only lasts so long. Vocational training, 
that is a great idea. We support it. Give us the Federal 
funding to run it properly and put 300 inmates a day into a 
Federal vocational program. We will do it. We will work hard at 
it. We have no problem doing that.
    But what we have seen over the years is less funding and 
then now, basically an attack on this Federal program, and we 
are going to have a problem trying to manage security. That is 
where we are at. I mean, that is where the union is at on this 
issue.
    Senator Fitzgerald. How many of your union members are 
involved in supervising prison workers?
    Mr. Glover. Prison industries?
    Senator Fitzgerald. Inmate workers, yes.
    Mr. Glover. Well, we have probably 2,500 employees, I would 
say, that are union members that work in the Federal Prison 
Industries program.
    Senator Fitzgerald. And how many union members are there in 
all of the Federal prisons?
    Mr. Glover. We have almost 20,000.
    Senator Fitzgerald. OK, so about 10 percent of your union 
members are involved with the program?
    Mr. Glover. Yes, sir.
    Senator Thomas. Just one follow-up question, Mr. Glover. 
You talked about eliminating the program. We are talking about 
competition. Are you opposed to competition? Don't you think 
that this program could continue to go and take away the 
mandatory aspect and continue to----
    Mr. Glover. Here is what I am concerned with, Senator. The 
issue that we see is the competition is fine, but our problem 
is these peaks and valleys that are going to result in 
competition. We are not going to--our concern is to have a 
steady stream of work for the inmate population. When you have 
to lay in 200 inmates, which means send them back up to the 
housing units because you don't have something to produce that 
day, we are concerned with that stream of work.
    The other issue with the bill, if you look at the way S. 
346 is written, it doesn't allow us to go out into the--it 
doesn't allow us to repatriate work from overseas and services. 
It cuts services completely the way we see it.
    And the other issue is, it doesn't allow us to do 
anything--you are cutting our market down. Basically, the 
Federal market is where we have worked forever. We are going to 
compete now for certain Federal product lines that we have 
gotten by mandatory source. So we are seeing a drop in 
employment, and the only reason we haven't seen a bigger drop 
is because of the war effort.
    So our concern is that we need a steady stream of something 
for these inmates to do. I am going to tell you right now, the 
grass cutters of America are going to yell at us if we cut 
grass. Every single interest group that we try to come up with 
something to do for these inmates--we went down and started 
doing the Park Service stuff for a while. We did some 
vocational stuff. We took them out to the Park Service to clean 
national parks. Employees in the National Park Service got 
upset because we had inmates down there working in the national 
parks. The same thing happened in the VA, where we had some 
programs to send them down to the VA to operate around the VA, 
cleaning up the areas, painting, those kind of things. Right 
away, the painters' union, everybody else, they all got upset.
    Senator Thomas. Just like your union is right now.
    Mr. Glover. Exactly, sir.
    Senator Thomas. So it goes that way, that you have to talk 
about competition makes government more efficient. Competition 
gives the private sector, the people who pay your salary, a 
chance to do some things. So really, it is pretty tough to deny 
the fact that there ought to be an opportunity for the private 
sector to compete, and I understand what you are saying.
    Mr. Glover. Could I just say one thing to that, Senator?
    Senator Thomas. I suppose.
    Mr. Glover. I understand that issue. I understand it 
completely. My concern is that we are piecemealing this 
program. This is not a comprehensive change. This is taking a 
piece of the program out and not giving us anything to replace 
it with, similar to the 2,000 inmate jobs that we have already 
lost.
    And so what we see happening is as this competition occurs, 
if we lose another 2,000 inmate positions and the staffing that 
goes with it, we are going to have a management problem.
    Senator Thomas. No one is saying you are going to lose it. 
You want them to compete for business.
    Mr. Glover. I believe we will lose it.
    Senator Thomas. When you are in business, you have to take 
a chance. Everyone else in this place who is in business has an 
opportunity to lose.
    Mr. Glover. I think where the Federal prisons----
    Senator Thomas. There is no way you can be competing with 
business and expect to be guaranteed to have services.
    Mr. Glover. Sir, all I say is this. We are not businessmen. 
We are operating Federal prisons and we have to find a way to 
operate them.
    Senator Thomas. Thank you.
    Mr. Williams. Senator, may I add a comment on competition? 
Defense Personnel Support Center in Philadelphia, this is the 
group of people that provide uniforms, medical supplies, and 
food for our troops all around the world, they were moving from 
one part of Philadelphia to another and they wanted a waiver 
from UNICOR for 3,500 work stations. UNICOR bid $8.6 million to 
furnish that office space. They were moving from one old 
building to another older building, so they had certain 
restrictions with what furniture they could buy.
    Even though UNICOR knew that there was a bid for $4.1 
million, less than half of their price, they would not give a 
waiver to the Defense Department for this move until someone in 
the Defense Department suggested, would this stand the test of 
public scrutiny? Within a day, they had a waiver and we 
proceeded through competitive bidding with a private company to 
furnish that facility.
    So I think if they would compete as we have become non-
mandatory and competitive and work with the private sector, I 
think they could flourish and find business lines to succeed.
    Senator Fitzgerald. We are coming close to wrapping up, but 
I do want to ask a final question of Mr. Palatiello. You 
criticize in your opening statement the mandatory source status 
that was provided in the government procurement process to the 
FPI. Would you be happy if the mandatory source status were 
eliminated, or would you like to go further and eliminate FPI 
altogether? What is the Chamber's position?
    Mr. Palatiello. We have never advocated doing away with FPI 
altogether. We have advocated, as Senator Thomas has so 
eloquently stated, we have advocated competition. We believe 
that is what the legislation before you does.
    Senator Fitzgerald. OK. Now, there seems to be pretty 
widespread agreement that maybe we should do away with 
mandatory source. Even Mr. Lappin could support that under 
certain circumstances if you were given some ability to get 
into some other areas that would compensate for losing the 
mandatory source. Mr. Glover is not so sure about that. Could 
you think about that?
    Mr. Glover. We would certainly look at whatever the Senate 
came up with, sir.
    Senator Fitzgerald. You would think about it. Do you have 
any specifics on what other areas you would like to get into, 
Mr. Lappin?
    Mr. Lappin. Again, I think----
    Senator Fitzgerald. This bill just eliminates mandatory 
source, right? That is what it does.
    Mr. Lappin. I think mandatory source, if it is eliminated, 
needs to be done in such a way that as it is being eliminated, 
we can transition into some of these other product areas and be 
competitive. It doesn't happen overnight. So I think there 
needs to be some consideration of that. I think we are 
exploring opportunities out there currently with the services, 
with some of the repatriated products. Granted, we take a risk 
just like everybody else does. We acknowledge that. But we 
believe there is potential there as long as the legislation was 
to allow us that potential.
    Senator Fitzgerald. OK. Mr. Palatiello.
    Mr. Palatiello. Mr. Chairman, I will leave to Senator Levin 
and Senator Thomas the reason why their bill is a little 
narrower than the House-passed bill. Part of it has to do with 
committee jurisdictions and the like.
    But, for example, we support the House-passed bill and 
particularly a provision in there that would permit Federal 
Prison Industries to become engaged in work for nonprofit 
organizations, things like Habitat for Humanity. We think there 
is room for expansion in areas where there would not be an 
adverse impact on small business and their workers and yet 
still providing work and training opportunities for prisoners.
    If I may, a couple of comments have been made during the 
course of the hearing that I think somewhat of just a very 
superficial discussion made and I would like to clarify a 
couple of things. First, if competition is injected, if there 
is still the demand for the product and services from the 
Federal Government, the supplier community is still going to 
survive and they are still going to thrive. They may become 
suppliers to the private bidders rather than to FPI, but they 
are still going to be suppliers.
    Second, we cannot draw a line between appropriated funds 
and some sort of virtual funding. FPI deals 100 percent with 
appropriated funds. They are appropriated to the Department of 
Defense. They are appropriated to the Department of the 
Interior. They are discretionary, appropriated funds in the 
13--well, 12 appropriations bills, because I don't believe they 
enjoy mandatory source to Congress. But they are appropriated 
funds. They all are.
    With regard to repatriation, Mr. Lappin very carefully 
chose his words, but they get to decide whether something, in 
fact, is going offshore and they can now claim it. There is no 
independent certification by the Labor Department or the 
Commerce Department that this is a lost product or service and, 
therefore, again, they are judge, jury, and prosecutor. They 
get to decide. They do not do impact studies on services. Mr. 
Lappin was slightly incorrect on that. They are not required to 
under the law. They are only required to do so on products. 
They do not do competitive impact analyses on services.
    I would like to enter into the record a brochure--now, this 
may be, and I will admit the Board did take action within, I 
believe, the last 2 years--Congressman Hoekstra brought to the 
attention of the FPI Board a drive-by situation and the 
supplier who FPI was turning around--whose work they were 
getting and turning around and providing to an agency was not 
even a U.S. company. It was a Canadian supplier, no value added 
on the part of the prisoners. It was when Congressman Hoekstra 
brought that situation to the attention of the Board that they 
finally adopted a policy for no more drive-by. But we have a 
brochure that has been jointly produced by FPI and one of its 
suppliers where it talks about that UNICOR is the exclusive 
agent for government customers and there is no value added on 
the part of these things.1
---------------------------------------------------------------------------
    \1\ The brochure provided by Mr. Palatiello appears in the Appendix 
on page 304.
---------------------------------------------------------------------------
    One final thing. The point was made that there is a 24 
percent reduction in recidivism for those inmates who are 
through the FPI work program. What Mr. Lappin failed to tell 
you is there is a 33 percent reduction in recidivism for those 
inmates that go through vocational and remedial education 
programs, and that is from a study called the ``Post-Release 
Employment''----
    Senator Fitzgerald. Is that true, Mr. Lappin?
    Mr. Lappin. Oh, it is, sir, and I would be more than happy 
to respond to that. We see great results from inmates who 
participate in vocational training.
    Senator Fitzgerald. That sounded like we would have less 
recidivism if we place inmates in vocational training, instead 
of placing them in FPI.
    Mr. Lappin. We offer a variety of vocational training, and 
our waiting lists for those programs are very small for those 
inmates who participate. We do not force inmates into 
vocational training programs. We do not force inmates into GED. 
We leverage them. We don't force them into those programs. 
Congress has passed a number of laws that have provided some of 
that leverage, especially for GED, which has been very 
beneficial.
    But I resist, I guess, forcing inmates into programs. We 
all know what happens, when we force somebody into something 
that they don't really want to be there, the negative impact it 
has on all the other participants in that program. So we 
leverage, we cajole, we nudge. We are providing as many 
vocational training programs as I believe we need. It does have 
a great impact on those who participate. We are seeing 33 
percent fewer coming back.
    But again, no different than GED and vocational training, 
drug rehabilitation. We see varying rates of success, but all 
of them tend to see fewer inmates coming back to prison because 
of that participation.
    Mr. Glover. Senator, may I add one thing to that that the 
Director may have missed?
    Senator Fitzgerald. Sure.
    Mr. Glover. Those programs are much smaller. The vocational 
training program, like at Petersburg, Virginia, for instance, 
they have one there. There are maybe 32 inmates in that 
program, not 250 that are working in the Federal Prison 
Industries factory. And again, this goes back to resources, I 
believe. If you want us to do more vocational training--the 
House bill, I would like to correct two things.
    Senator Fitzgerald. You said you were open to that----
    Mr. Glover. Well, we have no problem with it if it is 
funded. What the problem is, is when the funding doesn't come 
through.
    Senator Fitzgerald. And that probably costs a lot of money 
to do that.
    Mr. Glover. It is a lot of money.
    Senator Fitzgerald. Yes.
    Mr. Glover. But when the funding comes through, we are 
seeing a smaller dollar because of homeland security and 
because all these other things that are going on. We are seeing 
a much smaller piece of that pie to run Federal prisons on. We 
would be happy to explore more vocational training and 
rehabilitation.
    One of the comments was that they have a Habitat for 
Humanity issue in the House bill. No one is saying what they 
are going to give us in funding to buy the raw materials, to 
build those things, and then to ship that out to Habitat for 
Humanity. Nobody has talked about how they are going to fund 
that, and it all goes back to that.
    If you want us to provide more of those things, then we 
need more teachers, we need more certified recreation 
specialists, we need more people who can do vocational 
training, brick workers, masonry, roofers, all that stuff. You 
are going to have to increase staffing in the Federal prison to 
run it. What our bottom line is, is we want to make sure the 
prison is safe. We want to make sure our members go home after 
8 hours with no problem in the prison. That is what it comes 
down to.
    Senator Fitzgerald. OK.
    Mr. Lappin. Mr. Chairman, I don't disagree, we have 7 
percent of our entire population in vocational training. 
Granted, could we do more of that? It is possible. My concern 
is, will we get willing participants? It is foolish for us to 
invest money in those types of programs if, in fact, inmates 
are not going to willingly participate. Waiting lists are 
small.
    What is really sad, and I have to say this, is granted we 
have 20,000 inmates working currently in Federal Prison 
Industries. It is the number of inmates that leave prison--
there are at least 20,000 more inmates on those waiting lists 
to work at Federal Prison Industries that never, ever get into 
Federal Prison Industries. And what is sad is they are leaving 
prison after 10, 15, or 20 years with limited work skills 
because we failed to take advantage of this opportunity for 
willing participants to participate in this program.
    Senator Fitzgerald. I understand.
    Mr. Linder. Senator Fitzgerald, two things I would like to 
say, that is very important. One, I think there has been a 
glaring omission made in all of the testimony today about one 
of the provisions of S. 346, and that is that all services for 
non-Federal services would be eliminated in this bill, meaning 
that there are no services permitted, period.
    And another thing I would like to mention is I have heard 
people talk about value, best value. For several years, that is 
what the Department of Defense has required now in many of 
their contracts, is best value, and value is not just the 
bottom-line dollars, and I haven't heard one person here talk 
about the social conscience that is necessary when you talk 
about people in prison. In our American society, I thought we 
were trying to rehabilitate people, and if you think that is 
not important, please, just look Dino Ricciardone in the eye 
and tell him that is not part of your goal. It is a social 
conscience. That is what I have to say.
    Senator Fitzgerald. This has been a wonderful hearing. You 
have all been very articulate and interesting witnesses. I 
think we learned a lot. I want to thank you for your 
attendance.
    The hearing record will remain open until the close of 
business next Friday, April 16, for additional statements and 
questions. If those of you who are asked for additional 
information could provide that to the Subcommittee, we would 
appreciate it.
    If there is no further business to come before the 
Subcommittee, this hearing is adjourned. Thank you.
    [Whereupon, at 4:29 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


                PREPARED STATEMENT OF SENATOR LAUTENBERG


    Mr. Chairman: Thank you for holding this important hearing on the 
Federal Government's procurement policies and ``FPI''--the Federal 
Prison Industries--which does business with government agencies under 
the trade name of ``UNICOR.''
    I approach this difficult issue as a former businessman as well as 
a Senator from New Jersey.
    American businesses large and small are hurting. This is especially 
true in manufacturing. It is tempting to believe that one of the 
problems American businesses face is trying to compete with prison 
labor.
    As someone who started a successful business with two childhood 
friends in Paterson, New Jersey, I know that an efficient marketplace 
requires an ``even playing field'' and all businesses should have an 
opportunity to compete on price, product quality, customer service, and 
product delivery.
    That has been the hallmark of our economic system.
    As a result, Americans enjoy one of the highest standards of living 
in the world.
    As a Senator from New Jersey, I also know that manufacturing jobs 
are disappearing from my home State at an alarming rate.
    But I don't think we can blame this trend on prison industries. 
Rather, it is happening because of our increasing trade deficit, which 
reached a record level of 549 billion dollars in 2003. Our trade 
deficit with one country--China--increased by 20 percent to 124 billion 
dollars in just one year (2002 to 2003).
    Manufacturers have borne the brunt of our trade deficit. Our 
manufacturing trade deficit rose from 430 billion dollars in 2002 to 
471 billion dollars in 2003. Not surprisingly, the sector lost 582,000 
jobs during that period.
    I know that this hearing is not about trade policy but I mention 
these figures only to underscore an important point: Our trade deficit, 
along with the recent recession and productivity increases, account for 
the job losses in manufacturing.
    We need to weigh the costs and benefits of the FPI program very 
carefully before we consider making any changes to it. At a minimum, we 
should wait until we hear from the General Accounting Office (GAO) on 
the subject.
    There is great value to society in having Federal prisoners occupy 
their time constructively, develop a work ethic, and acquire job skills 
that will ease their transition back into civil society upon their 
release.
    As former Deputy Attorney General Larry D. Thompson said, 
``although the FPI program produces products and performs services, the 
real output is inmates who are more likely to return to society as law-
abiding taxpayers because of the job-skills training and work 
experience they received in the FPI program.''
    I agree with Mr. Thompson. Our Federal prisons house 176,000 
people--mostly young men, mostly minorities, mostly poorly educated--
many of whom will eventually be released into our communities, so it is 
imperative that we provide them with useful skills.
    I think that restricting the FPI program will provide little relief 
for the private sector businesses that would compete with FPI for 
government contracts.
    I am concerned that reducing the scope of and participation in the 
FPI program will make it much harder for inmates to acquire the work 
and social skills necessary for reentering society. Without such 
skills, they are more likely to become recidivists and harm the people 
in the communities they are attempting to rejoin.
    This is a subject that requires careful deliberation so I look 
forward to hearing from our witnesses today since each one has 
expertise and an important perspective to share.
    Thank you, Mr. Chairman.

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