[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
HEARING ON FEDERAL PRISON INDUSTRIES: IMPACT ON SMALL BUSINESS IN
FEDERAL PROCUREMENT
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, JUNE 6, 2001
__________
Serial No. 107-11
__________
Printed for the use of the Committee on Small Business
_______
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
W. TODD AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on June 6, 2001..................................... 1
Witnesses
Hoekstra, Hon. Pete, Member, U.S. House of Representatives....... 4
Maloney, Hon. Carolyn, Member, U.S. House of Representatives,
14th district, New York........................................ 6
Aragon, Mr. Joseph, Chairman, Federal Prison Industries.......... 14
Gentile, Ms. Bobbi President, Q-Mark, Dayton, OH................. 17
DeGroft, Mr. Robert, President, Source One Office Furnishings,
Albuquerque, NM................................................ 19
Green, Ms. Kass, President, Pacific Meridian Resources,
Emoryville, CA................................................. 21
Votteler, Mr. Carl, President, Chapter 144, Federal Managers
Association.................................................... 26
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 54
Velazquez, Hon. Nydia........................................ 59
LoBiondo, Hon. Frank......................................... 61
Prepared statements:
Hoekstra, Pete............................................... 63
Maloney, Carolyn............................................. 69
Aragon, Joseph............................................... 71
Gentile, Bobbi............................................... 77
DeGroft, Robert.............................................. 82
Green, Kass.................................................. 98
Votteler, Carl............................................... 106
Additional Information:
Statement of Lawrence Skibbie, President, National Defense
Industrial Association..................................... 112
Statement of the Small Business Legislative Council.......... 116
Additional material submitted by NDIA........................ 118
Mr. Aragon's responses to post hearing questions............. 154
HEARING ON FEDERAL PRISON INDUSTRIES: IMPACT ON SMALL BUSINESS IN
FEDERAL PROCUREMENT
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WEDNESDAY, JUNE 6, 2001
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m. in room
2360, Rayburn House Office Building, Hon. Donald Manzullo
(chairman of the Committee) presiding.
Chairman Manzullo. The Committee will come to order. If the
panel will have a seat?
Who has my book? Is this the one I brought? Okay. Thank
you.
Today the Committee will be examining the role of Federal
Prison Industries and its role in government procurement and
the effect it has on small businesses and the provisions of
H.R. 1577, the Federal Prison Industries Competition and
Contracting Act.
At the outset, let me say this. I believe prisoners need
training and education and real life skills. I believe in the
goal of prison work and Federal Prison Industries. The goal--I
think it is important that prisoners are not idle and that they
contribute in some way to restitution for their victims.
However, I believe that these goals cannot overshadow the
increasing impact that Federal Prison Industries has on private
sector businesses, particularly small businesses seeking to
sell to the federal government.
For example, in the congressional district I am proud to
represent, there is a blind and drapery manufacturer, John
Miceli, Sr., of Marengo, Illinois. He would have been here
today, but a recent heart attack prevented his testifying. If
he were here, he would tell us that he was completely shut out
of federal contracting for draperies and has been for several
years. This is because Federal Prison Industries has seized all
opportunities in that field. He does not even get to bid.
The same thing occurs to other small businesses in various
industries all across the country. There are laws that prohibit
the importation of goods produced by prison labor into this
country, yet U.S. companies face competition from home grown
prison labor at slave labor wages. That competition continues
to grow.
How are people who are law abiding, pay the taxes and
follow the increasingly ridiculous regulations supposed to
compete against the government subsidized, tax exempt,
regulation exempt behemoth that continues to grow and grow and
grow?
Worst of all, FPI meets in secret. No FPI industry board
meeting is open to the public. They can come and testify if
they submit their testimony two weeks in advance, but when the
decisions are made the doors are closed. How can this be an arm
of the government?
FPI is constantly seeking to expand into new products and
now plans to move into the service sector of federal
procurement, all the while combating changes to the many
advantages that they enjoy--direct borrowing from the Treasury,
low cost labor, subsidies from the Bureau of Prisons and
preferential treatment in federal contracting.
Our first panel will be Representative Peter Hoekstra, the
author of H.R. 1577, a legislative proposal to reduce some of
these competitive advantages and allow businesses to compete
with Federal Prison Industries. He will be joined by
Congresswoman Carolyn Maloney of New York.
On our second panel, we will hear firsthand about the
competitive disadvantages facing small business from three
small business people. We will also hear from Mr. Joseph
Aragon, the chairman of the Board of Federal Prison Industries.
I want to thank him for coming because I believe we need to
have all sides fully explored. Finally, we will hear from Mr.
Carl Votteler from the Federal Managers Association, an
organization which represents federal procurement officials and
civil servants.
I am going to yield to Mrs. Velazquez, our Ranking Minority
Member, and then I have one Member that wants to give a very
brief statement in lieu of being able to stay here and question
the witnesses. Mrs. Velazquez has a similar request.
Mrs. Velazquez?
[Chairman Manzullo's statement may be found in appendix.]
Mrs. Velazquez. Good morning, and thank you, Mr. Chairman.
One of the most important roles this Committee plays is to
serve as a watchdog for the interests of small businesses. Too
often, even though small businesses remain the driving force in
the economy, they must do so on a less than level playing
field. In our work, we see a whole host of examples where small
businesses are forced to compete without many of the advantages
enjoyed by their competitors.
Time and time again, whether it is health care, pension or
worker training, we have one set of rules for small business
and one set of rules for corporate America. This Committee has
well documented the unfair treatment that small businesses have
received in the federal marketplace through such practices as
contract bundling where we have seen opportunity after
opportunity stalling from small businesses all in the name of
streamlining government. Unfortunately, we all know the real
story, which is the fact that due to these practices, small
businesses are being streamlined right out of business without
a single penny of taxpayers' money saved.
Today, we look at another form of unfair competition for
small businesses, that coming from the Federal Prison
Industries. The idea behind FPI is to use work as a means of
rehabilitation and to teach inmates a skill which can be used
to put them back on the right track. Every Member of this
Committee supports this.
If it was only that simple. Unfortunately, somewhere along
the way this honorable goal has gone awry. This laudable goal
of giving individuals a means for a second chance has turned
into an industry whose sole focus is not rehabilitation, but
turning a profit.
In just five years, the number of industries FPI has dealt
with has nearly doubled, making them the fortieth largest
federal contractor, just ahead of Motorola. This level of
involvement might be justified, but when you realize that while
FPI has become a mega contractor and it benefits only 17
percent of the federal prison population, clearly something is
wrong.
FPI has expanded their system through the use of
preferential contracting treatment, exemption from such labor
laws as OSHA and minimum wage standards to an unendless line of
credit from the federal government. FPI has used this benefit
to expand its market share. When you look at how the playing
field has become so skewed in favor of FPI, it is little wonder
any small business can compete.
Compounding these advantages is that FPI are not even held
to basic standards of product quality or requirements to meet
deadlines. If any one of the small businesses testifying today
ran their business the way FPI does, they would quickly find
themselves out of business. This isespecially a concern because
many of the problems that come from FPI are used by the troops in our
military and agencies like FAA that ensure safe transportation.
These are areas that cannot be taken lightly. We have an
obligation to ensure that the public is safeguarded. Today the
Committee will examine just how to put the brakes on the
runaway train that is Federal Prison Industries. One thing is
clear. The FPI system is robbing small businesses of
opportunities with little or no benefits to this nation's
inmates, and that must change.
Thank you, Mr. Chairman.
[Mrs. Velazquez's statement may be found in appendix.]
Chairman Manzullo. Thank you.
I am going to recognize Mr. LoBiondo, who has to go to the
Floor and manage a bill, and then after him Mr. Udall. They
both have to leave. Then we will get on with the questioning.
Mr. LoBiondo?
Mr. LoBiondo. Thank you, Mr. Chairman, for the courtesy
extended. Many of my comments, and I will shorten them up in
the interest of time, follow yours and Ms. Velazquez's.
Last October I testified before the House Education and
Workforce Committee, Subcommittee on Oversight Investigation,
regarding Federal Prison Industries' proposed expansion into
the military apparel market. At that hearing, Mr. Hoekstra had
given me the courtesy of allowing one of my constituents, Mr.
Donald DeRossi of Donald DeRossi & Son in Vineland, to testify
about the difficulties with business experience that this would
create.
In essence, what we are hearing this morning is that
Federal Prison Industries would allow convicted felons to take
jobs from Main Street, America. Basically what we are talking
about here are hardworking men and women who would be thrown
out of work almost immediately because the word that they use,
compete, is used very loosely. They really do not have to
compete because they are a mandatory source.
I strongly support the introduction of this legislation,
support Mr. Hoekstra in his work on this legislation, and ask
us all to take a very close look at this on this Committee and
in this Congress.
Do we want convicted felons making military uniforms for
our men and women in armed services? Do we want convicted
felons to be taking jobs from Main Street America? How are we
going to go back home and explain that to hardworking men and
women who have jobs that have good benefits that we are just
going to by the stroke of a pen with this situation allow that
to happen?
I echo the Chairman's statements about wanting to make sure
that we have activities for prisoners that allow our
corrections officers to remain safe, but this is good
legislation that Mr. Hoekstra has introduced. It is common
sense legislation that I think we need to all support, so thank
you very much, Mr. Chairman.
Chairman Manzullo. Thank you.
Mr. Udall.
Mr. Udall. Thank you, Mr. Chairman, for the courtesy and
Ranking Member Velazquez. Unfortunately, I am trying to juggle
a couple of things today, and I am going to be over on the
Resources Committee to hear Secretary Norton testify.
I just wanted to take this time to welcome all the
witnesses who are here with us today. Mr. Robert DeGroft, from
my home state of New Mexico, is here. Mr. DeGroft is a small
business----
Chairman Manzullo. Why do you not have Mr. DeGroft stand up
so we can recognize him?
Mr. Udall. He is right here.
Chairman Manzullo. Thank you.
Mr. Udall. He is a small business operator in Albuquerque,
New Mexico. I am glad he is with us to share his views as they
pertain to today's hearing.
Mr. Chairman, I would just ask that my full statement be
placed in the record, and I hope that I might be able to make
it back to hear some of the panels.
Thank you very much.
Chairman Manzullo. All statements will be placed in the
record of all Members of Congress and all witnesses.
Welcome, Congressman Hoekstra, and welcome, Congresswoman
Maloney. Which of you wants to go first? Who has the worst
schedule? Whoever wants to go first, just start.
Mr. Hoekstra. All right.
Ms. Maloney. I will respect the Majority.
STATEMENT OF THE HONORABLE PETER HOEKSTRA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Hoekstra. Thank you, Mr. Chairman and Ms. Velazquez.
I will just take one exception with Ms. Velazquez's opening
statement. I think many small businesses in America would love
to conduct their business exactly the way that Federal Prison
Industries does, which means they could go to their captive
customers and mandate the product that they will buy, the price
that they will pay and when they will receive the product.
Other than that, I think your characterization of Federal
Prison Industries is very accurate.
I want to thank this Committee for scheduling this hearing.
Over the last number of years, we have tried to carry this ball
somewhat in the Education and Workforce Committee, but as this
business definitely impacts small business, this is the
appropriate venue to have this dialogue, this debate and this
discussion as to exactly what is happening with Federal Prison
Industries and how it is impacting what many of you have
described and passionately believe the engine of growth in
America, which is small businesses. I think in a
disproportionate way, the impact of Federal Prison Industries
has been felt by our small businesses, the entrepreneurs that
make this such a special place.
The hearings that we have held through the 1990s have
demonstrated that what is going on with Federal Prison
Industries has only gotten worse. FPI has expanded its
traditional product and service lines to its captive federal
agency ``customers''. By 1999, FPI had annual sales of $566
million. It is now the thirty-sixth largest government
contractor. It employed almost 21,000 inmate workers at a
centrally managed chain of 100 factories across the country.
This is a formidable competitor.
Beginning in 1998, FPI began a statutorily what we believe
unauthorized expansion into the commercial market for services.
This expansion was based on a very flimsy legal opinion.
As you will hear from one of today's witnesses, businesses
of all sizes continue to be denied the opportunity to even bid
on government contracts funded with their own taxpayer dollars.
Law abiding workers continue to lose job opportunities or their
very jobs. Federal managers must obtain FPI's permission before
they can make purchases that will get them the best value for
the taxpayer dollars entrusted to their care.
Even federal inmates would have a better chance to make a
successful return to society if they had more access to modern
hands-on vocational training linked to needed remedial
education.We share the Chairman's goal of making sure that
prisoners work, but, most importantly, that they receive the skills
that will enable them to make the transition back into private life
when they leave prison.
The bill that we have introduced, the Federal Prison
Industries Competition in Contracting Act of 2001, has probably
been one of the more rewarding opportunities that I have had to
work on in my time in Congress not because of the progress that
we have made, but because of the relationships that we have
built and the coalitions that we have put together to work on
this issue.
Representative Maloney has been with us from the beginning.
Mac Collins is another lead co-sponsor, but on the Democratic
side the person that has been the lead co-sponsor has been
Representative Frank from Massachusetts, so we have a good
cross section of the Congress, a bipartisan consensus that
change needs to take place.
Also with outside groups we have been able to bring the
Chamber of Commerce, the AFL-CIO, the Teamsters, you know,
various business groups and labor organizations together. We
have the Federal Government Managers Association, who is
supporting what we are taking a look at doing.
We have, I think, put together a good coalition that has
obviously looked at this issue from a number of different
vantage points and said this bill represents a fair return to
competitiveness, to protecting the interests of American
taxpayers, American workers and American businesses.
You know, Mr. Chairman, you mentioned in your opening
statement some of the comments or the practices of the Federal
Prison Industries, the board that provides oversight. I am glad
that they are testifying today because I think that you have a
number of good questions that need to be asked and need to be
fully explained.
The expansion into services, into the commercial market.
Where does that authority come from? An explanation as to why
the decisions that they make that have such an impact on
American workers and American businesses; why those decision
are made in secret? Why the door is not opened up on this
process and why in many cases with the Federal Prison
Industries Board with their mandate being to protect the
interest of taxpayers, of workers and American businesses, why
so often the decisions appear to become a captive of Federal
Prison Industries with their main goal and interest being to
protect the interest of Federal Prison Industries rather than
the interest of American workers. How has that change come
about?
You know, you have pointed out also a number of other
advantages and benefits that Federal Prison Industries has
versus the private sector. I would like to submit my entire
statement for the record and will stay to answer any questions
or comments that you may have.
Again, thank you very much for leading this oversight
effort through this Committee, and we look forward to working
with you and the other Members of your Committee.
[Representative Hoekstra's statement may be found in
appendix.]
Chairman Manzullo. Thank you very much.
Congresswoman Maloney?
STATEMENT OF THE HONORABLE CAROLYN MALONEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Ms. Maloney. Thank you very much, Mr. Chairman. I am
particularly proud to be here with Ranking Member Velazquez and
Sue Kelly from the great State of New York, and I thank all of
you for being here today and for having this oversight hearing.
I would request that my entire testimony be placed in the
record. I know you are anxious to hear the people testifying.
As my colleague mentioned, we have broad bipartisan support
from Members in Congress and also business, labor and really
all factions of our society.
I feel very passionately about this bill. I believe that it
is important, and I congratulate Congressman Hoekstra for his
leadership. I would like to publicly thank him for his efforts
to help me in New York to save jobs that we would have lost to
the galloping prison industry that is going forward in many
cases claiming jobs and not even following their own procedures
of hearings and openness.
I went to my office one day. I think all of you as Members
of Congress can identify with this. I was greeted by roughly 50
people who worked in Glamour Glove factory and their owner, Mr.
LaBovier. They announced that they were making gloves for many
places, but one of their biggest clients was the U.S.
Government. They were making the military gloves, the dress
gloves, the gloves that our officers and combat personnel wear
when they defend this country.
They woke up one day and found out that they had lost their
entire government order and that they would then be going
bankrupt because this was a very important part of their
business.
This is an example where the FPI did not follow their own
rules. They were supposed to have a hearing. They were supposed
to notify. With Congressman Hoekstra, we appealed to FPI. We
went through several years, through letters, meetings, et
cetera, and we reversed that decision.
It is hard enough for American workers to compete with
foreign competition, but to have prisoners who have basically
guaranteed work against your job where you are paying taxes and
you are law abiding is absolutely dead wrong. I can tell you
that in this particular case and in every case in short the
FPI, the Federal Prison Industries, has a corner on the federal
market.
Under the FPI authorizing statute, all federal agencies are
required to purchase products from the FPI if FPI believes its
products meet the agencies' needs and if its prices do not
exceed the highest price offered to the government.
This preferential status is expanded further by the
provisions of the government wide Federal Acquisition
Regulation which designated FPI's status as, ``mandatory source
of supply'' by requiring an agency contracting officer to
obtain FPI's clearance before purchasing any product on FPI's
list of approved products from a commercial source.
Now, we have two areas that we need to look at. I know that
we all are concerned about saving revenues, saving taxpayers
dollars, and also protecting American jobs, but under the FPI
procedures now you are not getting the best price for the
product because the American worker is not allowed to even
compete if that product is on FPI's list. They can then just
contract with the Federal Bureau of Prisons.
Now, I totally support rehabilitative work, and I totally
support supporting our convicts and getting them education and
training them for jobs, but not at the expense where they are
basically subsidized and they have a lock on the door to keep
American workers from competing with them.
What is very good about the bill that the congressman has
put forward, and I am proud to be original co-sponsor and to
have worked with him on this for roughly now five years, or is
it getting to be six? In any event, we have worked on this
steadily every single year, and the American worker is not
allowed to compete.
Under our bill, the American worker would be able to
compete for the business, and government would hire the person
who gives the best price. That saves the government's money,
and it also allows the hardworking citizens to keep their jobs
and not have them taken away by convicted felons.
I feel that this is an extremely important bill, and I
support it completely. I look forward to hearing the testimony
of the various businesses that are coming forward today and
workers who are coming forward today, and I hope that it will
be considered in a positive way by the Committee.
[Representative Maloney's statement may be found in
appendix.]
Chairman Manzullo. Thank you very much. I have no questions
of both of you.
I would request that the Members here on the panel if
possible limit the amount of time that they would take in
questioning our two Members so that we can get on to the second
panel because many of them have traveled a great distance.
Mrs. Velazquez, you had a question?
Mrs. Velazquez. Yes. I have two questions. First and
foremost, I want to congratulate both of you for the work on
this issue and being persistent regarding this issue.
Congressman, I have two questions regarding your
legislation. I see there are two items that were not included
in your legislation. I did not see any specific requirement
that FPI be held responsible for workplace safety issues like
OSHA requirements that every other U.S. business is subject to.
Have you considered adding workplace safety requirements such
as OSHA oversight?
Mr. Hoekstra. No, but we will take it under advisement, and
we will consider it.
Mrs. Velazquez. Okay.
Mr. Hoekstra. That is a very good suggestion. Thank you.
Mrs. Velazquez. Great. Thank you.
Additionally, I understand that FPI can borrow expansion
funds from the U.S. Treasury at reduced rates. This is not fair
to U.S. businesses. Why not require in your legislation FPI to
only access capital at similar rates to small businesses?
Mr. Hoekstra. I think that is another good suggestion. We
are glad we are here today. We are looking at ways to improve
the legislation. Obviously we have not thought of everything as
we have gone through this process. Actually, I did not even
know about that until last night when I think maybe somebody
from your staff or whatever had notified us that there was an
interest on that.
My understanding is yes, that they do get loans from the
Treasury at very favorable rates and then on occasion actually
go back and invest those dollars at a higher rate, which again
that is another thing that some of our small businesses would
like to have what FPI does.
A very good suggestion. We will take a look at both of
those issues.
Mrs. Velazquez. Great. I look forward to working with you--
--
Mr. Hoekstra. Yes.
Mrs. Velazquez [continuing]. On those issues.
Mr. Hoekstra. Great. Thank you.
Mrs. Velazquez. Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Mr. Toomey?
Mr. Toomey. Thank you, Mr. Chairman.
I also would like to commend you for your work on this. You
know, I was, frankly, shocked when constituents of mine first
explained to me the nature of this problem and the fact that we
have a system in which small businesses and law abiding workers
are systematically denied jobs and business by a government
monopoly, essentially, that is employing convicted criminals.
It is really shocking I think to most people's sensibility.
I want to congratulate you for developing this bill. I am
happy to be a co-sponsor of the bill. A couple of questions. I
want to make sure I understand some features here.
What I understand is that your bill would allow the FPI to
compete for business. What it takes away is the mandate that
would force government agencies to purchase their products. Is
that correct?
Mr. Hoekstra. That is right. I mean, there is a possibility
that we could come back or someone would come back in three or
five years after this goes into effect and says hey, FPI is
still taking jobs.
What the business community has really in a compromise mode
said is we are willing to compete. Just give us the opportunity
to compete. There is nothing more frustrating to see this
business, you know, like the glove business go to Federal
Prison Industries without even providing this company with the
opportunity to bid.
Mr. Toomey. You know, I am glad you mentioned the glove
business because in my district the textile and garment
industry has been terribly hurt with terrible job loses that
have come from a variety of factors. It seems to me kind of
outrageous that we would impose further job losses from the
government's own doing.
Are you concerned that this is really just a modest step
and, in fact, that prison industries would still have
tremendous competitive advantages in their cost structure, for
instance, that we need to go back to look at subsequently?
Mr. Hoekstra. I think this is an initial step. You know,
once we open it up it will change the nature of how FPI
competes in the markets that it goes into, I believe, when you
eliminate the mandatory sourcing.
I think, you know, what we can actually see them going into
is a whole different set of businesses, which I think would be
recommended. Remember how they get their business today. They
do not do it on quality or competitiveness. They just go in and
say we would like to do this. By the way, you have to buy from
us.
We would have to see how Federal Prison Industries would
respond, but, you know, we never get anything right the first
time, and I would guess that this would require constant
oversight for both reasons.
We want to see what it does to small business, but we also
want to see the impact on the inmates to make sure that they
are still getting or that they would have the opportunity to
get the training and the skill necessary to make the successful
transition when they leave prison.
Ms. Maloney. I appreciate Mr. Toomey's statements, and I
support your statements. We have had this bill around for a
long time, and it is a modest bill. I agree with you. We should
have gone farther but we have not passed it yet.
What we are saying is we do not want companies like Glamour
Glove to have to close down because FPI decides without notice
they are going to take their business away from them. As the
owner and the workers said to me, give us an opportunity to
compete. We can beat the prison workers--we are sure of it--if
you would just give us an opportunity to compete.
Until we got involved, they were not even giving them a
chance to compete. They were just taking the business away and
giving it to FPI without even allowing them to say I can do it
better and I can do it faster and I can do it at a better cost
to the government.
Mr. Toomey. Well, I think the--I will wrap up, Mr.
Chairman.
Chairman Manzullo. Yes. Let me cut you off there. I really
want to move on.
Mr. Toomey. I will yield the balance of my time.
Chairman Manzullo. Mr. Davis, you had a question?
Mr. Davis. Yes, I did, Mr. Chairman, if I could. I have a
statement that I will submit for therecord.
I certainly want to commend both the witnesses in terms of
their work on the issue. However, I must confess that the
questions and comments that I have been hearing have caused
some serious concerns in my mind in terms of whether or not we
are just talking about making sure that there is an opportunity
for businesses to compete. I hear people talking about a
comparison between law abiding citizens having a chance to
work, as opposed to these convicts. That alarms me.
I mean, when I think of the number of people who are
incarcerated in this country and the poor job of rehabilitation
that we are doing and the fact that they come out of the
penitentiary and jail each and every week in worse shape when
they were when they went in wrecking havoc back on the
communities where they come.
I think that we have to seriously be about the business of
making sure that people who are incarcerated not only have an
opportunity to work, but to learn skills, to learn work ethics,
to be trained, that they have all of the assessments that are
needed so that when they come out they are not in worse shape
than they were when they went in because if they are they are
going right back in, and we are going to be using the
taxpayers' money to take care of them.
I also want to know what is going to happen as the trend is
developing where there are many people who believe that
individuals who are incarcerated should be paying for their
stay. I think there are people now, a school of thought,
suggesting that people who are incarcerated should be paying
for their keep. If they do not have an opportunity to work,
then how do they pay for their keep?
I am a strong defender of small businesses and small
business development, but I have a great deal of concern about
our prison system and what we are doing and whether or not we
just want to correct this so that there is competitiveness or
are we concerned that these inmates are working and other
people are not?
I mean, I hope that is not the case, and I am not
suggesting that that is the intent of the sponsor, but I must
confess that some of the comments that I am hearing as we
discuss the issue seem to be suggesting that.
Mr. Hoekstra. Just to comment, I mean, we are also through
this bill taking a look at other opportunities where prisoners
could work and where they could make the successful transition.
We have talked about, and it is not part of the bill, but
it is something that we are considering as we are working with
the Judiciary Committee, who has the jurisdiction over a lot of
these other issues. We are taking a look at perhaps allowing
and facilitating work with the prisoners with not-for-profit
organizations, things like Habitat for Humanity and those types
of things. We would work with the business community and
organized labor. Working on those kinds of projects actually
might give the prisoners some of the training that would enable
them to go into the construction trade after they leave prison.
We are very aware of that issue.
As the Chairman indicated in his opening remarks, we are
concerned about providing the vocational training and the
essential skills necessary for when they leave prison.
Ms. Maloney. I want to congratulate Mr. Davis for the
points that he brought up that are very important. I totally,
completely support rehabilitation, work opportunities and
supporting and educating our clientele, our citizens that are
in prison.
But, Danny, if you could have seen the faces of the 50
people who came to my office and were basically told that they
did not have a job by the federal government because they took
the contract away, and when I looked in the faces of those
people--many of them were in their forties, their fifties,
their late thirties. I could just see that they would never get
another job. The jobs are not there. The jobs in their industry
are not there. It is the last glove factory in New York. The
jobs were not there for those people.
We are hearing two things. You know, some people say we
should be more supportive to prisoners, and I am supportive to
prisoners, but not to the extent that government allows them to
take away a job and does not even allow the American workers to
compete for it. That is wrong, too; especially some of these
jobs where the people are older. They cannot learn a new skill.
The jobs are not there. I remember just looking at their faces.
Actually, I compliment my colleague. He came to New York
and toured the factory. I would say that most of those people,
if they lost their job, would not find another one.
Mr. Davis. And I would agree with you because I want to go
ahead and let the Chairman move ahead, but when I see the
helplessness, the hopelessness, the numbers of families who are
impacted because they have relatives who have come out of the
penitentiaries who can do nothing but live off them, who do not
have a job, cannot work, it is a big debate. I think we are
going to be debating it a great deal.
I certainly do not want to, Mr. Chairman, delay your
movement on to other witnesses. I think it is a real issue, and
I think it is one that is going to require tremendous analysis
and debate as we move to the point of making some decisions.
Again, I commend you and thank you both for your work on
the issue and the legislation.
Chairman Manzullo. Thank you.
Mrs. Kelly?
Mrs. Kelly. Thank you, Mr. Chairman.
Danny, I, too, have some concern. I represent a great many
state prisons, as well as a federal prison, and I have been
through those facilities. There are a couple of underlying
currents I hear here, and I understand what you are talking
about, but I also know that perhaps you may, as I, be concerned
about prison guards.
I am concerned that if the prisoners have nothing to do but
body build--we have reduced the number of prison guards because
we have reduced the amount of monies going into the prisons.
The guards' lives are at stake at times. It is important that
we acknowledge that.
I am pleased to see the new provisions in this bill where
you say that you have enhanced the deductions from the wages of
inmates of FPI to pay for the restitution to their crime
victims--I think that is really good--and to support the
inmates' family and to help accumulate that gate fund that they
need in order to get back into the community. I think that is a
very good thing. I am glad to see it is here in the bill.
My only question about the bill at this point, and I stand
very strongly in favor of making the FPI live up to the same
mandates that everyone in small business has to do. I do not
have a problem with that. I only am sorry that we can only
reach the federal prison system and not the state prison system
because all prison systems need to be affected here.
When you say here that what this bill would do is eliminate
FPI's ability to overcharge by specifying that FPI's price not
exceed a fair market price, which is perfectly logical, as
determined by the agency contracting officer, then you say
generally through competition. When would there be exceptions?
I cannot imagine that there would ever be an exception to
competition in this kind of a situation.
What are you thinking about in terms of acceptance, if any?
Mr. Montalto. I am Bill Montalto, special counsel to Mr.
Hoekstra, and have some experience in government procurement.
There are in current law seven statutory exceptions to
competition, so it is possible that FPI could be a producer of
an item that they are the only source at this time of the
government inwhich case you cannot have competition because it
is not possible.
I was just trying to key this statutory change into the
1984 Competition in Contracting Act. That is I think----
Mrs. Kelly. Thank you very much. That very succinctly
answers my question.
Thank you very much. I want to thank both of you for
appearing here today. This is a very important issue for our
small businesses.
Chairman Manzullo. Thank you, Mrs. Kelly.
Mrs. Tubbs?
Mrs. Tubbs Jones. Thank you. I came in late on the
testimony. Unfortunately, today or tomorrow is my page's last
day, and I wanted to do a one minute on the Floor to salute
him.
I did come in hearing some of the same commentary that my
colleague--Mr. Chairman, thank you very much; I apologize; and
Ranking Member--was making with regard to inmates. Both of you
know that I am a former Judge, as well as a former prosecutor,
district attorney from Cuyahoga County, and I say this with a
lot of heartfelt feeling about the issue to suggest to you that
if in fact we are going to move some of the work from FPI to
some of the small businesses perhaps then we might include in a
requirement that they employ ex-offenders.
We have a ton of ex-offenders out here who need jobs, who
need to be paid. If they are not going to be able to get the
work in prison, perhaps we could put a stipulation on the end
that they would be encouraged to do that.
I know that might be kind of forward thinking and far
thinking, but there are people who are out of jail who have
paid their time and who have done their dividend, and they need
to have employment. Why not let them do some of the work that
they have already been trained to do in a penitentiary
somewhere?
I would secondly encourage my colleagues that even though
people may be ex-offenders or convicts that they are still
human beings in our society and all are due the same respect as
other members of our society.
I am for small business. I spoke with the small business
organization this morning at 8:00 at their breakfast, and I
think as we do things to make changes to supporting small
business we need to keep in mind that in addition to small
business there are other people out there, and there has to be
a balancing. Let us put FPI in check, but let us not do it to
the detriment of those who are supported by it as well.
Thank you very much, Mr. Chairman, and I congratulate both
of you on the work that you are doing. If I can be of
assistance, please do not hesitate to let me know.
Mr. Hoekstra. Just a quick comment to that. I think we are
very concerned about the integrity of the prisoners. I mean,
one of the folks that we have brought into this has been Chuck
Colson in Prison Fellowship to make sure that the things that
we will do will enhance the dignity of the people in the
prisons and the process that they go through rather than reduce
the dignity.
Mrs. Tubbs Jones. Thank you.
Chairman Manzullo. I appreciate it very much. You know, I
was telling Mrs. Velazquez with regard to her suggestion to
make prisons subject to OSHA that you might have the first time
in history where Republicans would be in favor of the expansion
of OSHA. [Laughter.]
You know, in a sense what she says makes sense because if
the purpose of OSHA is for workplace safety, then prisoners
should be treated as anybody else and have the opportunity to
work in a safe place. The theory is there; one of the other
things that I would suggest is perhaps treating goods that come
from FPI the same as we do with the general system of
preferences, GSP, which we do for imports. Those are special
laws that allow imports from third world nations, and we have
special laws that say that they really cannot compete in
private sectors, et cetera.
You know, maybe by making your bill more complicated--I am
serious--it can gain more foothold in more Committees.
We really want to take this opportunity to thank both of
you for coming here. We appreciate your wisdom and your insight
and the tremendous amount of work that you have been doing.
Obviously we believe that you are headed in the right
direction. Thank you for coming.
Mr. Hoekstra. Good. Thank you.
Mrs. Maloney. Thank you.
[Panel excused.]
Chairman Manzullo. If the panel will come up, we can
continue our hearing.
[Pause.]
Chairman Manzullo. Glad to have you here. The lights up
here, when it is on green that is go. Do not push it yet. When
it is yellow, that means you have one minute to go. It is
usually a five minute clock.
First of all, thank you for coming today. If I mispronounce
your name, please do not hesitate to correct it.
Our first witness will be Mr. Joseph is it Aragon?
Mr. Aragon. Aragon, Mr. Chairman. Aragon.
Chairman Manzullo. Aragon. Okay. First I thought it was an
Italian name like mine with a vowel missing like Mr. Pascrell.
I tease him all the time on it.
I appreciate your coming here, and we look forward to your
testimony. Thank you very much.
STATEMENT OF JOSEPH ARAGON, CHAIRMAN, FEDERAL PRISON
INDUSTRIES, ACCOMPANIED BY STEVE SCHWALB, CHIEF OPERATING
OFFICER
Mr. Aragon. Thank you, Mr. Chairman. As a fellow
restaurateur, Mr. Chairman, my roots, I guess Italians and
Hispanics, we share a lot of commonalities.
I am a small businessman. I believe I have a lot of
commonalities with the people in this room. Mr. Chairman, Ms.
Velazquez and other Members of the Committee, I appreciate the
opportunity to appear before you today to discuss Federal
Prison Industries, which I will refer to in my testimony as
FPI, and its relationship with small businesses.
I might also mention, Mr. Chairman, that I have been
honored to be selected as the Small Businessman of the Year for
Colorado for 1996 and have long--thank you, Mr. Davis. And have
long been appreciative of the support this Committee has for
small businesses.
It is widely accepted that small businesses are the most
prolific producers of jobs in America. As a member of the Small
Business Administration's National Advisory Committee, I
recognize how critical small businesses are to the economic
vitality of our country. While that position is similar to my
FPI role in that it is non-paid public service, I continue to
work in those capacities so that I may carefully monitor the
state of small businesses in this country.
The hearing today is entitled Federal Prison Industries:
The Need for Reform. Let me state at the outset that the FPI
board has endorsed for many years reforming the 67-year-old
statute under which FPI operates. The question before us is not
whether we should reform it, but how we should reform it. With
the presumption in favor of change, I would like to provide
certain facts and address several premises which need to be
taken into consideration as public policychoices are made.
It is well established that FPI is an effective means of
teaching inmates valuable job training and work skills, thereby
directly impacting their ability to successfully reintegrate
into society following release from prison. Inmates who work in
FPI are less likely to return to criminal activity.
Additionally, FPI provides work assignments for substantial
numbers of inmates in medium and higher security prisons who
would be prone to engage in illegal and violent activities if
not productively occupied. FPI is wholly financially self-
sufficient, thereby substantially lowering the cost to the
taxpayer of a safely managed federal prison.
According to the Bureau of Prisons, by 2006 the federal
inmate population will likely reach as high as 200,000 inmates.
The Bureau of Prisons has 29 new prisons under development to
keep pace with this growth. I might point out, Mr. Chairman,
that not 20 years ago those 29 federal prisons that are under
development represented the total amount of federal prisons
that were in operation. Now we have 100 more.
All of these new prisons will house medium and high
security inmates, which are the most difficult inmates to
safely manage and are those who most need to positively change
their lives by acquiring strong work habits and job skills.
We also know that over 95 percent of all federal inmates
will return to our communities upon completion of their
sentences. Professional, rigorous research has demonstrated
that inmates who participated in vocational training and FPI
work are 24 percent less likely to recidivate and are 14
percent more likely to be employed even as long as 12 years
after release. This research has also confirmed that inmates
from racial and ethnic minority groups, which are the fastest
rising subgroups in prisons, as well as those who benefit more
from Federal Prison Industries, and the research has
demonstrated that many times.
With the growth trend in the federal inmate population and
the future activation of so many new prisons, it is clear that
if the Bureau of Prisons is going to continue to operate safe
and secure federal prisons and reduce recidivism, the number of
inmate jobs provided by FPI will need to grow correspondingly.
This needed growth has drawn increased attention to the
program, not all of it positive. Several industry trade
associations and organized labor unions have expressed their
strong reservations about FPI because of the presumed negative
impact on their constituencies. The board disagrees with this
characterization of FPI's impact and strongly opposes the
abolishment of FPI's mandatory source status without providing
some sort of alternative such as providing FPI with the
authority to offer its products to the commercial market.
The alternative would allow FPI to generate the business
necessary to occupy its inmate workforce. FPI would also need
ample time to transition to new alternatives, and the board of
directors has discussed various alternative legislative
proposals that would provide FPI with markets in which to sell
their goods that could replace existing sales to the federal
government pursuant to the current mandatory source.
However, the board is convinced that the best means of
creating a legislative proposal that would be beneficial to all
is through an open dialogue involving all parties to the
controversy, which the FPI board has consistently endorsed.
The FPI board members bring a broad array of perspectives
to bear on the manner in which FPI operates. As I mentioned
earlier, the small, service oriented business I founded in 1984
actually performs some work for the government which FPI also
provides. While my company could conceivably perform that work,
our employees also recognize and support the need for FPI's
role in public service.
Our vice-chair, Mr. Arthur White, is also an original
founder of his firm and has been personally involved in the
establishment of several national organizations which focus on
literacy and work skills such as Jobs for the Future and
Reading is Fundamental.
Susan Loewenberg is the producing director of the Los
Angeles Theater Works and has been involved for years in
education and training programs for juveniles and adults. Mr.
Richard Womack represents organized labor on our board and has
been particularly instrumental in reviewing inmate job
proposals with an eye towards protecting workers.
Our newest member, Deidre Lee, directs the procurement
program for FPI's largest customer, the Department of Defense.
Her extensive federal procurement experience has been
invaluable in FPI's continuing efforts to expand its business
partnerships with the small business community.
There are numerous examples of FPI's support for and
avoidance of harm to small businesses. Our procurement program
regularly meets or exceeds goals for purchases from small and
minority owned businesses or women owned businesses. For six
years in a row, FPI has been recognized by the Department of
Justice for our support of these businesses. Last year, 63
percent of all of our purchases, nearly $260 million, were
awarded to small firms.
Our statute requires that whenever we are considering----
Chairman Manzullo. Time is running. If you could sum up,
sir?
Mr. Aragon. Yes. I am on my last statement, Mr. Chairman.
Our statute requires that whenever we are considering a new
product or the expanded production of an existing product, we
prepare a detailed written analysis of the probable impact on
the private sector. We carefully consider those people who
consult with us, including the Small Business Administration,
and we do everything in our power to make decisions and avoid
impacting negatively small businesses.
In summary, it is our goal that inmate employment be viewed
as a legitimate means of fostering positive economic
development and supporting private sector job growth. This is
possible if the parties not view their interests as mutually
exclusive and conflicting. FPI must be just as committed as the
private sector to economic growth and is also committed to
protecting companies and their workers.
Mr. Chairman, that concludes my remarks. I would be happy
to answer any questions you or other Members may have.
[Mr. Aragon's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much.
Our next witness is Bobbie is that Gentile?
Ms. Gentile. Yes.
Chairman Manzullo. Okay. I have to struggle with these
names here.
Ms. Gentile. Very good.
Chairman Manzullo. She is with Q-Mark, Inc.
I will take this a little bit out of order here, but I
understand you have been trying to get one of those impact
statements available?
Ms. Gentile. Yes, sir, we have.
Chairman Manzullo. Have you been denied that?
Ms. Gentile. Yes. We have never received one.
Chairman Manzullo. Mr. Aragon, would you be willing to
furnish this Committee with copies of the impact statements
that you put out in the last couple of years?
Mr. Aragon. Absolutely, Mr. Chairman.
Chairman Manzullo. When can you have those here by?
Mr. Aragon. Probably within an hour after this meeting is
held. All of our impact studies are published in the Commerce
Business Daily.
We conduct impact studies, Mr. Chairman, on all products we
consider expanding in or adding to our process, but we
produce----
Chairman Manzullo. Do you have an impact statement as to
each contract that you enter into?
Mr. Aragon. We have an impact statement--I cannot say that
that is accurate, Mr. Chairman.
Chairman Manzullo. Which one have you been seeking, Mrs.
Gentile?
Ms. Gentile. I have been seeking the impact study on the
connector specification, MIL-C-5015.
Mr. Aragon. I am not familiar, Mr. Chairman, with that
specific case, but I certainly will look into it.
Chairman Manzullo. Whom have you asked?
Ms. Gentile. I have asked Tony Griffin, who is the
Associate Director of small and disadvantaged business, at
Defense Supply Center-Columbus. He is also the FPI liaison at
Defense Supply Center-Columbus.
Chairman Manzullo. I would suggest to anybody here at the
table or anybody in this room if you are requesting documents
from FPI and you cannot get them to contact our Committee.
Mrs. Gentile.
STATEMENT OF BOBBIE GENTILE, PRESIDENT, Q-MARK; ROBERT DeGROFT,
PRESIDENT, SOURCE ONE OFFICE FURNISHINGS
Ms. Gentile. Thank you. Good morning, Mr. Chairman and
Members of the Committee.
Chairman Manzullo. Could you put the mike a little bit
closer to you? Thank you.
Ms. Gentile. Good morning, Mr. Chairman and Members of the
Committee. Thank you for holding this hearing and allowing me
to testify on Federal Prison Industries.
My name is Bobbie Gentile, the owner of Q-Mark, Inc., a
small, woman-owned business in Dayton, Ohio. I am a member of
the National Federation of Independent Business and the
president of the National Association of Manufacturers and
Representatives.
In 1990, I made a decision to pursue one of my goals and
opened Q-Mark. Q-Mark is a manufacturers' representative firm.
Presently we have five employees, three of whom are the sole
providers in their household. Q-Mark represents 15
manufacturing firms. Of these 15 firms, 12 are small business,
and four of the small business are electronic connector
manufacturers.
I am here today because my small business and the small
businesses I represent cannot compete against FPI's unfair
monopoly over federal contracts. FPI continues to penetrate the
electronic connector market, enjoying mandatory source status.
This means that the federal government agencies must purchase
these products from FPI.
Many small businesses are not permitted to compete fairly
in the government marketplace, even if they can produce lower
pricing, on-time delivery and better quality. FPI must issue a
waiver in order to have our quotes even considered. Keep in
mind that the items are used in critical applications for the
defense of our country, which includes anything that flies,
floats, rolls or shoots.
I represent J-Tech, Inc., a small business connector
manufacturer in Tustin, California. J-Tech was founded in 1987.
The initial product in which they invested was the same product
that FPI is now restricting. The time, effort and money that it
took J-Tech to become a military qualified manufacturer was a
huge investment for a new small business.
In order to maintain their qualification, costly tests must
be completed on a yearly basis. It is estimated that in the
last 12 years, J-Tech has spent over $5 million on the
qualification of MIL-C-5015. The series of parts that FPI is
now supplying is the lifeblood of J-Tech and Q-Mark. The loss
of this revenue would cause us both to rethink our employment
and our growth strategy.
Last April, FPI became a value added distributor on a large
portion of this specification, meaning that all they added to
the product was the assembly of the connectors. FPI teamed with
Amphenol/Bendix, one of the largest electronic manufacturers in
the world. I think it is important that you know that not one
small business I represent was solicited by FPI, even though
they are military qualified sources and have been supplying
these same parts to the federal government for years. Once the
partnership was complete, FPI declared their right to the
mandatory set-aside.
Based on the volume of business my company and the
companies I represent stood to lose to FPI, I requested a copy
of the impact study performed by FPI, which was never received.
By law, this study must show that the federal monopoly would
not adversely affect small business. Had FPI conducted a proper
study, they would have found that out of the five
manufacturers, three were small business that would be
devastated by the loss of this business.
Regarding the impact studies, FPI performs the impact
studies and reviews the impact studies without any review by an
impartial source. Is it not like the fox watching the henhouse?
Who is protecting industry from FPI?
Last week, I was advised by Defense Supply Center-Columbus
that they are in the process of reviewing for an award to FPI
235 part numbers under the exact connector specification of
which I just spoke. The estimated value of this five year order
is $1 million per year for a total value of $5 million. This
five year order would cover FPI should Representative
Hoekstra's bill, H.R. 1577, pass.
To make this situation even worse, I was told that the
military specification had between 2,000 and 3,000 parts
listed, and this was just the first order. The situation with
FPI is becoming worse as time progresses. FPI has the right to
demand that the government set aside any connector series FPI
chooses. They now successfully dominate the circular connector
market.
I have brought with me today examples of quotes that I sent
to the government. In all cases, my price was lower than the
price offered by FPI. FPI received the award. Once again, the
government had no option but to award to them. I find that
their pricing is an example of price gouging when their labor
rates are so low.
In conclusion, I would like to thank you again for inviting
me to testify and urge you to support Representative Hoekstra's
bill, H.R. 1577, that will help end unfair competition, as well
as the unfair hold that FPI has on federal government
procurement.
Thank you, Mr. Chairman.
[Ms. Gentile's statement may be found in appendix.]
Chairman Manzullo. Thank you very much.
Our next guest is Bob DeGroft, Sr., owner of Source One
Office Furnishings, and also chairman of the Independent Office
Products and Furniture Dealers Association. Welcome.
STATEMENT OF ROBERT DeGROFT, OWNER, SOURCE ONE OFFICE
FURNISHINGS
Mr. Degroft. Thank you. You said it better than I did.
Chairman Manzullo. I said it slowly.
Mr. Degroft. Mr. Chairman and Members of the Committee, I
appreciate the opportunity to testify before your Committee
today to address the issue of Federal Prison Industries reform
and in support of H.R. 1577, the Federal Prison Industries
Competition in Contracting Act.
My name is Bob DeGroft, Sr., and I am the owner of Source
One Office Furnishings located in Albuquerque, New Mexico, and
I serve as chairman of the Independent Office Products and
Furniture Dealers Association. The IOPFDA is the trade
association for independent dealers of office products and
office furniture.
My company, Source One Office Furnishings, is a family
owned and operated company founded by my wife, Karla, and I in
1977. We are a small company by anyone's standards, employing
just seven employees. I am here today in hopes that you will
hear the plea of business and labor communities and change the
system under which FPI currently operates on the federal level.
As a small businessman, I do not have a problem with open
and fair competition. What I have a problem with is the fact
that FPI is not competing with anyone, but instead is
guaranteed by statute all the government business it wants.
For instance, if a government agency needs to buy office
furniture it must first look to purchase these items through
FPI regardless of price, quality of product or service. If FPI
can provide it, the government must buy the product from them
even if the agency can get a better product for less money from
a small business like mine.
If this is not hard enough to fathom, FPI has begun looking
to broaden its interpretation of the current statute governing
the way it operates in a way that will allow them to enter and
sell their products in the commercial marketplace. If this is
allowed to continue, FPI will not only continue to have a
monopoly over federal contracts, but would now be in a position
to expand their scope and compete unfairly in the open market
against honest, hardworking small business owners like myself.
I find it ironic that we have laws in this country that
prohibit the United States from importing products that are
made by prisoners in other countries, but here at home our own
government in many cases is solely dependent on prison labor
for its goods.
I agree with those who believe prisoners should learn
skills and trades while incarcerated that they can use outside
prison walls to earn a living. However, it should not come at
the expense of hardworking small businessmen and women, and
skills learned while in prison should apply to the new economy.
Let us focus on the real problem, the educational,
vocational and every day living experiences inmates lack that
we take for granted. If FPI is serious about helping inmates,
let us focus less on jobs that will not be around when they get
out and more on real life skills that will help inmates in real
life situations.
FPI was created in 1934 with the mission of providing
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 that mission. What you have today is a 1930s
philosophy that does not fit today's FPI and its mission.
If you look closely at FPI, its mission appears to be more
about expanding FPI and turning a profit than it is in inmate
rehabilitation. A perfect example is in the area of office
furniture. What you see is what I like to call ``drive by''
manufacturing. Having inmates simply assembling furniture or,
even worse case, just unloading fully assembled products from
trucks and putting FPI labels on it is not teaching inmates
real skills that they can expect to use and support themselves
and their families once released back into the community.
Reform is desperately needed to help level the playing
field for small business, in particular small office products
and furniture dealers like myself, who are the hardest hit by
the unfair and monopolistic advantage FPI has over us. The
Federal Prison Industries Competition in Contracting Act
changes the way FPI is able to operate and forces them to
compete openly and fairly for contracts they are currently
guaranteed by statute.
As you may or may not be aware, this legislation received
broad bipartisan support in the 106th Congress. With support
from Republicans, Democrats, business and labor, it is my hope
that this piece of legislation is one Congress passes this
year. With your help and support, small business can achieve a
level playing field.
This reform is necessary because the numbers and problems
are staggering. During fiscal year 1999, FPI generated roughly
$550 million in sales, of which 40 percent came at the expense
of the office products and furniture industry. Should FPI
branch out into the commercial market, this move would be a
blatant disregard for current law and could force some of the
office products industry people to close their doors.
As the owner of a small furniture dealership in New Mexico,
I can tell you that having to deal with prison industries has
not been easy and one that has come at a high price. Take my
state of New Mexico, for example. Ten years ago, New Mexico had
a law in place that gave state prisons in Los Lunas and Las
Cruces mandatory source status for building office furniture
and panel systems.
With this law having serious impacts on my business and
others in the community, three other New Mexico office
furniture dealers and I banded together for the purpose of
trying to change the way New Mexico Corrections operates. Our
goal was to get the state legislature to level the playing
field for businesses in New Mexico trying to compete with New
Mexico Corrections by opening up the prison business to outside
competition.
After what seemed like an eternity, we prevailed and
changed the system. Changing the system cost me and my
colleagues $14,000 out of our own pockets. It was a decision I
had to make, and I was glad I made it, but I was lucky that I
could afford to do that. How many others in my position were
not? I do not know.
Today I am happy to report that the New Mexico state prison
industries program is alive and well, employing over 400 New
Mexico inmates in furniture, telemarketing, garment, dairy and
print shop industries.
Mr. Chairman, for time purposes I have touched on the state
program in New Mexico, and I hope that during the question
phase of today's hearing we can get into greater detail of how
this was accomplished in New Mexico.
In closing, my written testimony submitted today is filled
with real life stories from dealers all across the country that
have been impacted by FPI's practices. I hope each of you will
take a moment to read each of them because they touch on the
every day real problems we encounter with the way FPI is
currently able to operate.
Mr. Chairman and Members of the Committee, thank you for
allowing me the opportunity to testify here today. I hope you
will take a hard look at FPI's practices and pass reform in the
form of H.R. 1577 this year.
I would be happy to answer any questions.
[Mr. DeGroft's statement may be found in appendix.]
Chairman Manzullo. Thank you, Mr. DeGroft. I appreciate it.
Our next witness is Kass Green of Pacific Meridian
Resources. She is with the Management Association for Private
Photogrammetric Surveyors.
Ms. Green. It took me two years to get that, so that was
pretty good.
Chairman Manzullo. Welcome. If you could watch the green
light, we would appreciate it. We expect a series of votes, and
I want to make sure that all of your testimony gets in before
that.
Ms. Green. Certainly. Certainly.
STATEMENT OF KASS GREEN, PACIFIC MERIDIAN RESOURCES
Ms. Green. Mr. Chairman, Members of the Committee, MAPPS is
a national trade association of more than 160 private firms
doing professional mapping and related geographic information
services. We are pleased to have this opportunity to testify
this morning.
We hear a lot of talk about that the government should be
run more like a business. However, Mr. Chairman, Federal Prison
Industries has taken that idea too far. MAPPS is deeply
concerned that federal and state prisons have discovered the
market for geographic data conversion services and is using
convict labor to encroach into our business and displace
hardworking, law abiding, taxpaying citizens with criminals
employed by a new form of government sponsored, unfair, tax
exempt, below market, non-profit competition. It is a
systematic and predatory strategy to take market share from the
private sector.
Specifically, FPI has developed the capability to provide
mapping services. FPI has created a loophole for itself in the
law. It has determined administratively that the requirement to
consult with an affected industry prior to introducing a new
product or embarking upon the expansion does not apply to
services. I want to emphasize that. They have determined that
it does not apply to services. Thus, FPI was judge, jury and
prosecutor when it came to deciding to compete with private
firms for mapping services.
FPI must understand that entering the mapping field
adversely affects small businesses. Numerous studies, including
those by the Office of Management and Budget, recognize that
the federal government is in competition with the private
sector in mapping, and Congress has repeatedly targeted mapping
activities in federal agencies for increased contracting out.
While FPI is not a mandatory source in services as it is in
the product area, it does enjoy the status of preferential
source. Services must be purchased by federal agencies from FPI
without going through competitive procurement procedures,
seriously impairing the ability of private firms, particularly
small businesses, to compete.
Recently, FPI announced proposed regulations providing a
huge expansion of activities without any legislative authority
from Congress. Specifically, FPI proposed to provide services
such as mapping services described above not just to other
government agencies, but to the private commercial market as
well.
The Justice Department has astonishingly ruled that a
current provision in law which prohibits the interstate
commerce of prison made products does not apply to services.
While FPI withdrew its regulations, it is still proceeding with
offering services in the commercial market.
FPI has actually hired private consultants to enable FPI to
compete in our market, yet they have never conducted an
analysis that the impact of their entry into our market would
have on the private sector. FPI is now productive in this area,
providing mapping data conversion, data entry, optical scanning
and digitizing services for a variety of federal agencies. This
is clearly an inappropriate area for prison industry activity.
In recognition of the importance of using the highest
quality contractors to perform mapping services, Congress in
1972 enacted a qualifications based selection law. This law
required federal agencies to award mapping contracts to firms
based on their demonstrated competence and qualification rather
than awarding such contracts to the lowest bidder.
Public health, welfare and safety is dependent on the
quality of work performed by professionals in the fields of
architecture, engineering and surveying. To add to these highly
technical and professional services images and maps processed
by prison inmates is not only an affront to the professionals
in this field, but questionable to the public interest.
Permitting prisons access to data that becomes important to
national security is unwise. We question the wisdom of giving
prisoners access to important information about the precise
location of underground utilities, water, electrical and fiber
optic lines, as well as pipelines.
It is questionable from a civil liberties and personal
privacy standpoint to provide prisoners access to homeowner
data, property appraisal and tax assessment records and other
information. Most citizens would be horrified and outraged to
know that such data is in the hands of inmates.
Finally, and most alarming, we are at a loss as to why
prison industries are training inmates in scanning, imaging and
digitizing skills that with little embellishment and
imagination can be used for counterfeiting.
FPI claims it is concentrating its efforts on performing
commercial services that are currently being performed outside
the United States, being performed offshore. We would like to
state that this is simply untrue.
As mentioned earlier----
Chairman Manzullo. How are you doing on time, Mrs. Green?
Ms. Green. Excuse me?
Chairman Manzullo. Your red light just went on there.
Ms. Green. Yes, I know.
Chairman Manzullo. Are you going to sum up?
Ms. Green. That is why I was skipping ahead to some pages.
Chairman Manzullo. Please.
Ms. Green. I am almost done right now.
Chairman Manzullo. Thank you.
Ms. Green. Mr. Chairman, we are not unmindful of the
difficult challenge prison administrators face. It is
unfortunate that in our society today prison populations are
increasing. It is obvious that something must be done to keep
inmates occupied, to train and rehabilitate them and to pay
their debt to their victims and to society at large. However,
in that process another law should not be violated, the law of
unintended consequences.
In summary, I want to hold up the services from Unicor
Services. It is a summary. Frankly, it is their marketing
document for Unicor Services. In the back of this is a map that
they have produced of an area of San Francisco. My home office
is in the San Francisco Bay area, and what I would like to know
is what do I tell my law abiding employees who I only have
about three months of work left for right now? What do I tell
them when they find out that they are losing work to federal
industries rather than me being able to get contract work for
them?
It is incredible reading this document and this marketing
material that just blatantly competes with small businesses.
[Ms. Green's statement may be found in appendix.]
Chairman Manzullo. I want to stop you right there and ask a
question. I know this is very unusual.
Mr. Aragon, was there an impact study made on her industry
before FPI went into that?
Mr. Aragon. Mr. Chairman, I am unaware of the specifics in
this particular case.
Chairman Manzullo. You were not with FPI at the time? Is
that so?
Mr. Aragon. No, sir. I have been on the board for six or
seven years, Mr. Chairman.
Chairman Manzullo. You are not aware of the study going
into a brand new area?
Mr. Aragon. The board of FPI, Mr. Chairman, tasks our staff
to look at all areas where we can possibly have business
opportunities that do not hurt small business, but I would have
to know the specifics of that particular case.
Chairman Manzullo. Well, she just said it. My question is
were you aware of this document that she just showed to the
congressional Committee?
Mr. Aragon. The staff of FPI, Mr. Chairman----
Chairman Manzullo. I do not care about the staff. As a
board member, were you aware of this?
Mr. Aragon. Of this particular study?
Chairman Manzullo. That is correct.
Mr. Aragon. I answered your question, Mr. Chairman.
Chairman Manzullo. The answer is no?
Mr. Aragon. No. The answer is I would have to familiarize
myself with the specifics on that.
Chairman Manzullo. How many are on the board?
Mr. Aragon. There are five members of the board, Mr.
Chairman.
Chairman Manzullo. Mrs. Green, when was this document
issued?
Ms. Green. This was over 1998.
Chairman Manzullo. And you were a member of the board at
the time?
Mr. Aragon. Yes, I was, Mr. Chairman.
Chairman Manzullo. Are these studies given to the board by
the staff to review and look at?
Mr. Aragon. Yes, they are.
Chairman Manzullo. And how many of these studies would be
done each year? Do you have any idea?
Mr. Aragon. Impact studies for new businesses and
expansions? Oh, I would say 20 or so.
Chairman Manzullo. Okay. All right.
Ms. Green. Mr. Chairman, I would like to emphasize that FPI
has not done an impact study. This is their marketing material.
Chairman Manzullo. Okay. My question is has FPI done an
impact study on her industry? You do not do them on service
expansions?
Mr. Aragon. Well, we do not have mandatory source in the
services, Mr. Chairman.
Chairman Manzullo. So when you told us that before you go
into an area, before you compete with the private sector, that
you do an impact study that that impact study you do for
services? Is that correct?
Mr. Aragon. Mr. Chairman, we are not a mandatory source in
the services area. The only----
Chairman Manzullo. Can you give me a yes or no on that?
Either you are mandated by law to do it or you are not. I am
trying to get to the bottom of this.
The answer is no, you are not mandated by law to do that?
Mr. Aragon. To do an impact study on services?
Chairman Manzullo. Right.
Mr. Aragon. No, because that is not a mandatory source in
the services area.
Chairman Manzullo. Therefore, your statement that you are
concerned about the impact on the private sector is meaningless
when you do not have to do an impact study to go into new
areas?
Mr. Aragon. That is inaccurate, Mr. Chairman.
Chairman MANZULLO. Well, how would you know if you do not
have to do an impact study?
Mr. Aragon. The only work we do in the services sector, Mr.
Chairman, is work that is brought to us by the customer because
they request us to----
Chairman Manzullo. I understand that they want a cheaper
price. What I am trying to get at is the fact here, and, Mr.
Votteler, just bear with me; is the fact that you testified
that you had to do an impact statement as to each area that you
go into, and I am not sure if you said just manufactured
product or services, although now we are at the point in the
age of technology where perhaps furnishing data is more
manufactured materials than services.
We are in a situation right here before everybody, before
the reporter, before Members of Congress, where now we have
somebody telling us that this document was put out, that FPI
went into a brand new area. There was no impact study made. Is
that correct?
Mr. Aragon. Mr. Chairman, that is not accurate as I
understand it. I would need to know the specifics in that case,
but I can tell you----
Chairman Manzullo. Do you know if there was an impact study
made in this area? If you do not know, I can understand that. I
will not be hard on you.
Mr. Aragon. Well, no, Mr. Chairman. I think if the
testifier would offer more information about the circumstance.
Are you saying, ma'am, that FPI actually has work now in
that area? I know we do not----
Ms. Green. Absolutely. Yes. Yes. Yes. Yes.
Chairman Manzullo. Is there anybody here from FPI that can
answer my question with you, Mr. Aragon?
Mr. Aragon. Certainly there is. The chief operating officer
of FPI is here, Mr. Chairman.
Chairman Manzullo. Why do you not have him sit next to you
at the table? That way he can help you in some of these
questions.
Let me get on to Mr. Votteler, and then he can assist you
because there are technical questions that if you need help
with I would like to have your person there with you.
Mr. Aragon. Thank you.
Chairman Manzullo. You bet.
Mr. Votteler?
STATEMENT OF CARL C. VOTTELER, PRESIDENT, FEDERAL MANAGERS
ASSOCIATION
Mr. Votteler. Chairman Manzullo, Ranking Member Velazquez
and Members of the Committee, my name is Carl C. Votteler, and
I am president of Chapter 144 of the Federal Managers
Association.
On behalf of the 200,000 executives, managers and
supervisors in the federal governmentwhose interests are
represented by FMA, I would like to thank you for inviting us to
present our views before the Committee on Small Business regarding the
requirement for federal agencies to purchase certain products from the
Federal Prison Industries, FPI.
I work for the Public Buildings Service, General Services
Administration. I am a buildings management specialist in our
Washington headquarters. I have worked as a manager for GSA for
the past 28 years. The views expressed in my testimony are my
own in my capacity as a member of FMA and not intended to
represent the official views of GSA.
Mr. Chairman, the main message that FMA wants to convey to
you and Members of the Committee today is that federal managers
and supervisors and the civil servants we lead try extremely
hard to be good stewards of the tax dollars and entrusted to
us. We dedicate ourselves daily to delivering to the American
people the most value for their hard earned dollars. Routinely,
we are called upon to do it better, faster and cheaper. Doing
more with less is the norm, not the exception.
In our view, the FPI mandatory source requirement ties the
hands of federal managers when it comes to making smart
purchasing decisions. While combating inmate idleness and
providing 20 percent of the inmate work opportunities for
federal prisoners are important public policy objectives, the
cost of the FPI program should not be transferable to the tight
budgets of other agencies with their own missions in service to
the American people from national defense to providing other
agencies the workspace, products, services, technology and
policy they need to accomplish their mission. That is why FMA
supports passage of H.R. 1577, which would eliminate this
mandatory source requirement burdening federal agencies.
You have heard about waivers of FPI grants permitting
federal agency managers to make purchases from the private
sector. I would ask you to consider some fundamental questions
about the waiver process and how it works. To begin, why should
federal managers be required to seek FPI's permission before
being able to spend the money of American taxpayers in the best
possible manner?
Under the waiver process, FPI, rather than the buying
agency, determines whether FPI's offered product, delivery
schedule and reasonableness of FPI's offered price meet the
needs of the agency. A 1998 GAO study of 20 FPI products found
that FPI generally did not offer federal agencies the lowest
prices for products that they had purchased. Therefore, if it
were not for FPI's mandatory source status customer agencies
might have decided to purchase comparable products at less
cost. This assessment is consistent with the anecdotal
experiences of our members.
FMA members are also concerned that it frequently takes
longer to receive products from FPI than from other commercial
vendors. Another GAO report regarding the timeliness of FPI
deliveries showed similar results. In more than 50 percent of
the cases reviewed, the actual delivery date was later than the
buying agency had originally requested. Again, this is
congruent with the experiences of our members.
Small business in the private sector, on the other hand,
strives to keep costs low, quality good and delivery services
efficient. Otherwise they would find themselves out of
business. Consumers benefit from their efforts. These benefits
do not exist when a business holds its customers hostage as is
the case with FPI and federal agencies.
As a taxpayer first and civil servant second, FMA members
want to see their tax dollars used in the most productive
manner possible. A couple of important factors contribute to
our current heightened concern about making the best use of
scarce agency resources: agency downsizing and public/private
competition for federal functions.
In closing, Mr. Chairman, federal managers and supervisors
are currently receiving two conflicting messages from
Washington, D.C. On the one hand, we are being asked to do more
with less. From Congress, we frequently hear about the
bureaucracy and how they should act more like the private
sector. In contrast, the law requires us to purchase over half
a billion dollars worth of supplies from a non-competitive
source that frequently overcharges more than commercial
vendors.
The lament from managers and supervisors in the field is
that this Catch-22 is all too typical of the way the federal
government operates. Congress and the White House want us to
compete with the private sector, but they will not permit us to
act like the private sector when it comes to purchasing
supplies.
FMA appreciates the efforts made by Congressman Hoekstra
and the more than 70 current co-sponsors of H.R. 1577 to help
us be better stewards of the taxpayers' hard earned dollars by
untying our hands when it comes to making smart purchasing
decisions. We urge Congress to pass this legislation to
eliminate the FPI mandatory source requirement.
Thank you again for inviting FMA to present our views, and
we look forward to working with you on this important issue.
This concludes my prepared remarks. I would be happy to
answer any questions anyone may have.
[Mr. Votteler's statement may be found in appendix.]
Chairman Manzullo. I appreciate your testimony very much.
Mr. Aragon, your counsel is? What is your name again? Could
you please state your name for the record, please?
Mr. Schwalb. Mr. Chairman, my name is Steve Schwalb. I am
the----
Chairman Manzullo. Do you want to spell the last name for
the record?
Mr. Schwalb. S-C-H-W-A-L-B. I am the chief operating
officer of Federal Prison Industries.
Chairman Manzullo. Okay. Thank you.
I want to follow up and first of all thank all of you for
your testimony. I want to follow up on this issue of the impact
statements. I am reading out of the Code of Federal
Regulations, subpart 8.6, Acquisition from Federal Prison
Industries, Inc., where it says in paragraph (c), ``FPI
diversifies its supplies and services to prevent private
industry from experiencing unfair competition from prison
workshop or activities.''
Now, I am reading that. As I read this, this indicates to
me that there has to be some type of an impact study done
before you go into a new area of supply or services. Mr. Aragon
or Mr. Schwalb?
Mr. Schwalb. Mr. Chairman, what Mr. Aragon's testimony is
referring to is the FPI statute, which is related to this----
Chairman Manzullo. Okay.
Mr. Schwalb [continuing]. Regulation that you just read.
The statute requires that whenever the corporation is going to
propose an expansion in products, because that is where the
mandatory source supplies and that is where the statute is
written to cover a mandatory expansion, that they have the
hearings and the impact studies that the Chairman referred to.
Chairman Manzullo. So that is only on products?
Mr. Schwalb. It only applies to products. In services we do
not do that impact study per se, but we have meetings with the
board four times a year and advise them of the additional
business plans.
To address the specific question of the mapping services,
the majority of our work there is done really as a
subcontractor. There are private companies in the business who
have the technology, and they need the labor to do the scanning
or the data work. We partner with them, and they usually make
the presentation to the federal customer for the proposal.
Chairman Manzullo. So the subcontractor then would be at a
competitive advantage over Mrs. Green and members of her
association. Would you agree with that?
Mr. Schwalb. It depends on the individual job, Mr.
Chairman, but our approach in services, as our marketing
document indicates, is to market the opportunity for any
company that wants to utilize our inmate labor as a part of a
proposal to be able to do that.
Chairman Manzullo. But I think we agree at this point there
has been no competitive impact study done on mapping services
before FPI went into this industry?
Mr. Schwalb. Not as referred to in the statute under
products. That is true. Yes.
Chairman Manzullo. All right. Mr. Aragon was in the private
sector himself. I mean, prisons could go into the restaurant
business. They could open up--I am serious. They might have
mashed potatoes and roast beef all the time, but there is
nothing to stop them from opening up on the outside of the
prison and saying on Sunday afternoon we are going to have
fried chicken, a complete meal for $2, as opposed to somebody
else.
Is there not some type of a moral responsibility here to
make sure that you are not impacting or hurting somebody else
before you go into a new service area?
Mr. Aragon. Mr. Chairman, absolutely there is a
responsibility to look at how whatever work we do affects small
businesses.
Perhaps to clarify, I am not a former businessman. I am a
businessman, a small businessman, and my board activity is as
the other non-paid board members who have real world jobs as
they say, so I appreciate your letting Mr. Schwalb be here for
technical questions, but I can certainly respond to questions
about the board's responsibilities and how we make our
decisions.
The service work that we look for, Mr. Chairman, and I
should not even say look for. The service work that we provide
is typically brought to us by customers who would like us to
work.
Chairman Manzullo. Yes, but what does that mean? They want
a cheaper price?
Mr. Aragon. Sometimes it means, Mr. Chairman, that they
want a better job done by our inmates than they get from the
private sector.
Chairman Manzullo. I mean, when you say people come to you
for services, I mean, how does that make it any different? I
mean, are they saying the services they are now getting are not
competent?
Mr. Aragon. Mr. Chairman, an example would be on military
bases where the customer, the Air Force, and we have prisons on
military bases, prison camps as they are referred to.
The customer, the Air Force, comes to Prison Industries and
says will you do the laundry for the base for us, thereby
saving the federal government tremendous amounts of money for
work that they would have to contract out for and may not even
be able to provide.
Chairman Manzullo. Do you know what has happened in my
district? The VA hospital has gone to the commercial laundry
business, and they are knocking out a business employing 100
people, most of whom are minorities.
I mean, the impact of this is just not in this room here,
but it is an attitude that an arm of the government could be in
direct competition with people in the private sector, and yet
nobody seems to be concerned about it.
I mean, would you agree that it would be best if you had to
do an impact statement for the privates before you go into
services?
Mr. Aragon. Mr. Chairman, one of the proposals that we have
as the board is that we be allowed to have authority to operate
in that sector so that we would----
Chairman Manzullo. That is all we need. I mean, it is a
non-government sector. To offer services into the non-
government sector.
Mr. Aragon. The commercial market, Mr. Chairman, is not--
the only work we do in the commercial market is brought to us
by agencies, as I said.
Typically we partner with small businesses as in the case
of this data mapping. We are a partner with them. We provide
labor. It is not a competitive advantage to the companies that
we work with because every company has the opportunity to
utilize our labor source in similar kinds of circumstances.
Chairman Manzullo. Mrs. Green, did you have a rejoinder to
that?
Ms. Green. I would like to point out that most of the time
when it is offered or when it is offered it is at a much lower
cost, dollar cost, from the Federal Prison Industries than the
private sector or certainly small businesses could offer
because of the differential. All we are asking for is the
ability to fairly compete.
Chairman Manzullo. What I am concerned about is the fact
that at present FPI has no obligation to do a competitive
impact study on products that it sells to the government. I am
sorry. On services that it sells to the government. That is
correct?
Mr. Aragon. That is correct, Mr. Chairman.
Chairman Manzullo. Now you want to go out into the
commercial area to sell to non-government purchasers. Is that
correct?
Mr. Aragon. What we want to do, Mr. Chairman, is to find a
way to avoid impacting small businesses or minority owned
businesses as much as possible.
Chairman Manzullo. Wait a second. You are doing that now,
and now you want to expand your market.
Mr. Aragon. No. No.
Chairman Manzullo. Am I missing something here?
Mr. Aragon. Mr. Chairman, what we want to do is the reason
we would like to have authority for commercial services or
services in the commercial market is so that we can lessen the
kind of pressure on Federal Prison Industries to sell to the
federal government.
Chairman Manzullo. That does not make sense. You are
already expanding your sales within the federal government, and
now you are saying to lessen the expansion in the federal
government you want to go into the commercial market.
Mr. Aragon. No. It makes perfect sense, Mr. Chairman,
actually, because the issue is the impact. As inmates continue
to go to prison, and there are 200,000 inmates in prison, it is
our statutory responsibility to create jobs for them.
Our limit is the federal government, the federal
marketplace, and so what the board is trying to do is to keep
away from these kinds of circumstances where small businesses
or other businesses are impacted by opening up our ability to
create jobs.
One of those proposals is work that has gone offshore that
has been offshore for a long time. Those jobs are never going
to be provided by American citizens. One of our offers or one
of our requests as a board is to say bring back the work that
has gone offshore and let us do that.
Chairman Manzullo. What would be an example of that?
Mr. Aragon. Much of the textile business, Mr. Chairman. I
have heard testimony about the textiles here and in the past,
and the fact of the matter with the textile arena is so much of
that work has gone offshore it will never come back.
What we have said is let us provide some of the textile
work that will not ever be performed here, and that will help
support the remaining textile businesses in business now.
Chairman Manzullo. I have to move on. You are doing that
with gloves now.
Mrs. Velazquez?
Mrs. Velazquez. Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Mrs. Velazquez. Mr. Aragon, the Committee received your
testimony this morning. Were you aware of that; that you sent
your testimony to us this morning?
Mr. Aragon. No, I was not aware of that, Ms. Velazquez. I
know that it was sitting at various agencies who have to
approve testimony.
Mrs. Velazquez. But you were supposed to send it to us two
days ago. How do you think we could prepare for this hearing if
we only have one hour to read your testimony?
Mr. Votteler. Ms. Velazquez, on behalf of the chairman I
apologize for that. He is located in Denver. We had his
statement prepared. We approved it, and he is a government
employee as an appointee of the board.
Mrs. Velazquez. I thought that there was a top secret that
you were dealing with in your testimony.
Mr. Votteler. I wish it was that exciting.
Mrs. Velazquez. Okay.
Mr. Votteler. It is a matter of just getting clearance from
everybody in the Administration for his statement. It did not
occur until 11:00 last night. I am sorry.
Mrs. Velazquez. For the next hearing, because there will be
other hearings on this topic, please make sure that like every
other witness that his testimony gets here two days in advance.
Mr. Votteler. We are as disappointed as you are.
Mrs. Velazquez. Thank you.
Mr. Aragon, how many contracts was FPI awarded in fiscal
year 2000?
Mr. Aragon. I have no idea. I do not know that information,
Ms. Velazquez.
Mrs. Velazquez. Sir, you come here today, and you know the
scope of this hearing. You are not prepared to answer those
questions?
Mr. Aragon. Ms. Velazquez, any $550 million business that
sells chairs for $112, for example, I can tell you that nobody
would be able to sit here and tell you how many of those
purchase orders are processed or contracts were allowed. I
think it is a perfectly correct answer.
Mrs. Velazquez. Well, I hope that you, and I request, Mr.
Chairman, that he submit to us in a written answer the number
of contracts that were awarded by FPI in fiscal year 2000.
Chairman Manzullo. What we will do is we will give Members
of this Committee ten days within which to submit questions to
both of our counsel, and then we can send one letter on a joint
letterhead and request whatever we want on it.
Ms. Velazquez, we have a vote. What do you suggest now?
Should we go vote and then come back?
Mrs. Velazquez. That we go vote and come back.
Chairman Manzullo. And come right back?
Mrs. Velazquez. Yes.
[Pause.]
Chairman Manzullo. What we are going to do is we are going
to break for votes now because I do not want to interrupt her
train of thought and keep her questions into one solid block
and not split it up. We are going to vote and then come back.
[Recess.]
Chairman Manzullo. We are going to reconvene the meeting.
The votes are over. If the witnesses would have a seat along
with Mr. Schwalb? Two of you can share a mike there.
Mrs. Velazquez, I called a break back then because I did
not want to have to much of a break in your questions.
Mrs. Velazquez. Yes.
Chairman Manzullo. Please.
Mrs. Velazquez. Mr. Aragon, as I said before, I want you to
submit to us the number of federal contracts that were awarded
in fiscal year 2000, and I also want to know how many inmates
worked on each contract on the average.
Mr. Aragon. Yes, Congresswoman. I have some preliminary
information to share if I could give that to you on the number
of contracts.
Mrs. Velazquez. Yes?
Mr. Aragon. Just in a big picture kind of scenario, FPI
received somewhere between 78,000 and 82,000 orders during last
fiscal year, the full fiscal year. Approximately a third of
those are large, multi-year contracts, and the rest are
purchases using government credit cards and those sorts of
things. We will provide the additional information.
Mrs. Velazquez. How many inmates?
Mr. Aragon. Yes.
Mrs. Velazquez. Okay.
Mr. Aragon. We employ approximately 22,000 inmates.
Mrs. Velazquez. Twenty-one thousand, six hundred and eight-
eight?
Mr. Aragon. Yes, ma'am.
Mrs. Velazquez. Yes. Of the 126,000 individuals currently
incarcerated. I want you to tell me, Mr. Aragon, if one inmate
works on five separate contracts is that work counted five
times or one time?
Mr. Aragon. One time. The worker is--that is the
population, Congresswoman, so regardless of how many contracts
they work on it is the same inmate working on all those
contracts.
Mrs. Velazquez. Can you tell me what is the FPI definition
for the term prison mate?
Mr. Aragon. Yes. I can paraphrase, I believe. I cannot tell
you the exact definition, but we typically want to do as much
work as possible in the prison with our inmates. We are very
different from the private sector inasmuch as we want to be
labor intensive. We do not care what we are doing, but the more
inmates we can----
Mrs. Velazquez. Okay.
Mr. Aragon [continuing]. Have working the better, but----
Mrs. Velazquez. Okay. Let me ask you another question
related to the same question. Is there any requirement in the
definition of prison mate that FPI use a certain percentage of
incarcerated individuals in the manufacture of an item?
Mr. Aragon. No, there is no written policy to that effect.
Mrs. Velazquez. So there is no requirement?
Mr. Aragon. Well, we again try and use as much inmate labor
as possible. Different products we manufacture have a different
amount of labor, inmate labor involved.
Mrs. Velazquez. Can you help me understand then what was
the statutory mandate of the FPI corporation when it was
created? It was created to help rehabilitate inmates through
training and work placement----
Mr. Aragon. Yes.
Mrs. Velazquez [continuing]. And then yet when we go to the
definition of prison mate there is no requirement that inmates
are used in the manufacture of an item.
Mr. Aragon. Not that I know of that it is there, but we
want to use as many inmates as possible in manufacturing our
goods at all times.
Mrs. Velazquez. So let me ask you another question. The
statutory mandate for the FPI is that this corporation helps
rehabilitate through training and work placement or work the
inmate population, and yet we found that only 17,000 out of the
entire population is employed by FPI.
Mr. Aragon. Well, 22,000 are employed by FPI.
Mrs. Velazquez. Okay. Okay.
Mr. Aragon. There are many inmates that are ineligible for
FPI jobs. At minimum security camps we do not have industries
or all the metropolitan detention centers like the one in your
district, Congresswoman, because of the nature of that facility
with people in and out all the time. All of those inmates are
not eligible for FPI jobs because it is not practical.
Mrs. Velazquez. Can you tell me what type of action plan do
you have so that you provide more training to more than just
22,000?
Mr. Aragon. Well, that is a tough question. We again would
want to make as many jobs as possible and provide that
training. On a practical matter, though, that is the concern
that we are speaking of about here.
We also want to have the least impact as possible on the
private sector, so the number of jobs for inmates that we have
is the number of inmates in the institutions who are available
for our work, and we employ as many of those as possible. We
could employ more inmates in industries, but we do not just to
try and minimize our impact to the outside community.
Mrs. Velazquez. But yet your margin of profit is increasing
every day and every year.
Mr. Aragon. I would not say that is accurate,
Congresswoman.
Mrs. Velazquez. No?
Mr. Aragon. No.
Mrs. Velazquez. You told me that you were awarded 78,000 to
82,000 orders.
Mr. Aragon. We received orders----
Mrs. Velazquez. Federal contracts.
Mr. Aragon. Yes.
Mrs. Velazquez. And yet only 21,000 inmates were employed.
That works out to less than one inmate per contract. Can you
please explain that math?
Mr. Aragon. Well, the vast majority of those orders, the
78,000 to 82,000, are orders that are less than $25,000 made on
a government purchase order contract. What do you call it?
Credit card.
That may be just one chair or one specific item, so the
factory where we make chairs may process in a given month
several hundred orders for individual chairs, but they are made
by the same inmates who would work on one as another. They just
manufacture chairs at that particular prison.
Mrs. Velazquez. Mr. DeGroft, do you have any documentation
as to how many inmates are employed by FPI on office furniture
contracts that are awarded to them?
Mr. DeGroft. I do not have any information about that. We
do not get any information.
Mrs. Velazquez. Mr. Aragon, can you provide that
information to you?
Mr. Aragon. The number of inmates that are employed with
office furniture?
Mrs. Velazquez. Employed with office furniture contracts.
Mr. Aragon. Well, it represents approximately 40 percent of
our business.
Steve, do you have the exact number?
Mr. Schwalb. I do not have the number. I could get it for
you, though.
Mr. DeGroft. Congresswoman, if I am right, 44 percent of
the total business that you do is in office furniture, but in
terms of how many people that involved doing it, never asked.
Mrs. Velazquez. Never?
Mr. Aragon. I would imagine that it follows roughly the
number of sales, Congresswoman, but we will get you the exact
number.
Mrs. Velazquez. Thank you.
Ms. Gentile?
Ms. Gentile. Yes?
Mrs. Velazquez. In some cases your prices have been nearly
half of what FPI's prices have been, and yet you have no real
recourse to challenge FPI's expansion into connectors. A
lawsuit would obviously be drawn out and cost prohibitive.
How many of your suppliers would be affected by the Defense
Supply Center in Columbus contracting for connectors in FPI?
Ms. Gentile. Of my personal suppliers there would be four.
In the National Association of Manufacturers and
Representatives we have probably I would say 30 percent of them
in contracts, and they represent massive amounts of companies.
This would impact not just our companies, but where you
have manufacturers, you have representatives, you have
distributors, and you have brokers that all bid to the federal
government on these connectors.
Mrs. Velazquez. Mr. Aragon, regarding this specific
contract how many or what is the percentage of that contract
that is going to be performed by inmates?
Mr. Aragon. On this specific contract you are speaking of,
Congresswoman?
Mrs. Velazquez. Yes.
Mr. Aragon. I do not know. I do not know the details.
Mrs. Velazquez. Can I get a commitment from you that 100
percent of the work that will be performed will be performed by
inmates?
Mr. Aragon. It would be my commitment to do that with all
products if at all possible, Congresswoman, yes.
Mrs. Velazquez. And then you are going to supply to us what
is the percentage of each of the contracts that have been
awarded to you what is the percentage of inmates that have been
participating in performing the job of each one of them?
Mr. Aragon. Each one of these particular products?
Mrs. Velazquez. Of all the contracts. Federal contract.
Mr. Aragon. Yes. We will get you----
Mrs. Velazquez. I just want to see what type of
programmatic plan do you have in place in order to help inmates
rehabilitate themselves through training and work.
I want to see that you are serious when you tell us that
yes, you deserve all the benefits that businesses are not
getting because you are performing a social mission as an
institution, and the only way to do that is by seeing how many
or what percentage in each contract, what percentage of that
work is being performed by inmates.
Mr. Aragon. We will give you whatever information we can,
Congresswoman. I will say that as it relates to the preference,
the mandatory source that Unicor has, Mr. Montalco, Congressman
Hoekstra's counsel, I appreciated him pointing out that we are
only one of sevenpreferences. There is a preference for blind
and disabled people. There is a preference for minorities, small
business, small business owners under the 8(a) program.
We are one of seven areas where Congress has seen fit to
say there needs to be sort of a different playing field to
address the social needs of these constituencies.
Mrs. Velazquez. Mr. Aragon, I understand that FPI does a
lot of work with Kroeger International. Would you briefly
explain that relationship?
Mr. Aragon. It is actually Creager, and that relationship
is a similar relationship that we have with other businesses
and small businesses, and that is that we provide some stage of
the manufacturing process labor where, for example, with that
particular company----
Mrs. Velazquez. Okay. Can you answer to me is Creager a
small business company?
Mr. Aragon. No, it is not.
Mrs. Velazquez. No?
Mr. Aragon. As far as I know.
Mrs. Velazquez. Can you tell me how much of the office
furniture currently made by FPI comes fully assembled from
Creager or any other manufacturer FPI uses?
Mr. Aragon. Very little comes fully manufactured. As I
started to say earlier, Congresswoman, what our job is is
somewhere in the manufacturing process we may get for a desk,
for example----
Mrs. Velazquez. What is very little?
Mr. Aragon. Less than one percent a year.
Mrs. Velazquez. And on that type of contract, what are
inmates actually doing?
Mr. Aragon. Well, again let us take a desk, for example.
Our inmates may fit in the process at any stage.
For example, we may get fully--for a desk we may get
drawers manufactured by a company, a small business company or
some other company, and what we do is take various components,
the nuts and bolts that we buy from another business, et
cetera, and our inmates would do the final assembly and then do
the quality control, the finishing and painting, et cetera.
Mrs. Velazquez. Do you know how many inmates once they are
released go to work for Creager?
Mr. Aragon. We cannot say specifically with that company,
but I can tell you that we do employ inmates in the businesses
where they work in Unicor when they are released to the
community.
Mrs. Velazquez. Give me the data. How many of the inmates?
Mr. Aragon. Well, the problem with that, Congresswoman, is
this. We would love to be able to provide you data, but once an
inmate leaves one of our prisons----
Mrs. Velazquez. You do not have any more responsibility
with him?
Mr. Aragon. No. They do not want to have anything else to
do with us.
Mrs. Velazquez. I know, but let me ask you. Let me ask you.
I am not trying to be funny here because this is serious
business.
Mr. Aragon. No.
Mrs. Velazquez. Let me ask you this. How could you measure
success if you do not know how many of the inmates once they
are released get a full-time job?
Mr. Aragon. Because we can measure it. We have measured it
empirically, as I have testified to earlier, with studies.
Additionally, most of the information we have----
Mrs. Velazquez. Do you know what? I understand why inmates
would not want to have any relationship with you any more once
they are released.
Mr. Aragon. Any prison, Congresswoman.
Mrs. Velazquez. Right. Sure.
Mr. Aragon. Any prison. I apologize. I did not mean to be
humorous.
We would love that information to be able to demonstrate
how effective our training is, but when an inmate leaves they
want to close that chapter in their life, plus we cannot
mandate them providing us information because there are privacy
laws, and 95 percent of the inmates in prison, regardless of
where it is at, go back into the community. We want them to
have good jobs and be able to resume a normal life.
Mrs. Velazquez. So there is no way for you to gather that
information?
Mr. Aragon. We have----
Mrs. Velazquez. What about if you work with the parole
officers?
Mr. Aragon. Well, the Congress did away with parole many
years ago, Congresswoman. There is no parole in the federal
system.
Mrs. Velazquez. There is no parole?
Mr. Aragon. There is no parole.
Mrs. Velazquez. I am finished with my questions.
Chairman Manzullo. Mr. Issa?
Mr. Issa. Thank you, Mr. Chairman.
Mr. Aragon, Mr. Schwalb, relax. I am not going to be your
friend. I am not going to be kind to you, but you might at
least appreciate that I have sat in your chair. I was on the
prison industry board in California. None of these arguments
are new.
I would like to maybe use this opportunity to point out the
flaws that exist in a system that you have inherited as
chairman. By the way, were you appointed to this?
Mr. Aragon. Yes, I was, Congressman.
Mr. Issa. Is it a Presidential appointment?
Mr. Aragon. Yes, it is, sir.
Mr. Issa. I would write a letter. I did one to Pete Wilson
saying thanks, buddy.
Mr. Aragon. Thank you, sir.
Mr. Issa. He still thinks he is a friend after he appointed
me to that.
Let me just give you a hypothetical. We will assume for a
moment that the slightly smaller program that California
operates, actually by magnitude a little less than half the
size, but still a substantial program, has some similarities.
Let us see. You get a mixed message, if I understand
correctly. You are supposed to supply a lot of jobs, but you
are also supposed to not lose money providing them. You are
supposed to do training, but, in fact, training funds are
minimal, and training costs you. You tend to use lifers because
they are a reliable workforce, but, of course, lifers never
leave so the training, per se, is wasted on them.
You are expected to make a high quality product, but, at
the same time, you have this high turnover. You have no
significant control over rotations on inmates, at which are the
will of the system based on a lot of needs. You cannot control
lock down.
Have I hit some of the high points of what you deal with
every day?
Mr. Aragon. Keep going, sir. You are doing just great.
Mr. Issa. So wanting to be your friend, I also have to be
your Dutch uncle here today.
You come before a Committee that is upset because you are
taking jobs from private America. You have a reputation for
making less than the best quality, but do not feel bad. Every
prison industry suffers from the reality that being competitive
with a workforce that is constantlyturning over can be very
difficult.
Is it not time that your organization, in light of this
kind of continued oversight and some of the things you've heard
today, come before the Congress with a significant change in
how we do business in prison industries, a single mission to
rehabilitate prisoners, and it will be a hypothetical, and you
tell me if you agree.
Should you not really take your character prisoner only
three or four years before release so that in fact taking a
prisoner with ten years left on his sentence is irrelevant
because if it only takes a year to train him then you want to
catch him with the minimum time so you can have the maximum
number of people trained. Would that not be a change that you
would like to have?
Mr. Aragon. That would certainly be something that we would
want to pursue. Yes, sir.
Mr. Issa. Right. Mr. Schwalb, would that not cost you a lot
of money because you now would be doing a training program, and
you would not be able to be as competitive?
Mr. Schwalb. Sir, you are correct that the shorter term an
inmate you take obviously the higher turnover, so it does
enhance the training program, but it is a disruptive
manufacturing strategy. I agree with that.
Mr. Issa. But your goal, as I understand it, is to supply a
trained workforce to the private sector, one that has skills
and a work ethic. Is that correct?
Mr. Aragon. That is absolutely correct.
Mr. Issa. And so if your mission is the same as
California's, it is confused because you are using a lot of
lifers, and you are getting people for as long as you can keep
them, as stable as you can keep them, because you also have
this pressure to turn out this $500 million and not lose money
doing it. Is that roughly correct?
Mr. Aragon. That is, Congressman.
Mr. Issa. If you leave with nothing else here today and if
my colleagues leave with nothing else, you have a proactive
responsibility. Whether or not your preferential position
remains or is taken away, you need to come to us and say we are
training 20,000. We should be training 80,000. We are training
people and keeping them for long periods of time. We should not
be.
We have very few joint ventures, and those joint ventures
are sometimes very opportunistic. You need to say you need to
have a joint venture that includes government incentives and
credits so that they are not opportunistic and do offer jobs in
the aftermarket.
I think the Chairman, Mrs. Velazquez, and others are
telling you your program is in serious trouble and you are
trying to defend a program that has a bad reputation.
In your follow up, I would strongly suggest that you give
this Committee whatever you have or can generate in the way of
the reforms that would justify the Congress--not just this
Committee, but the entire Congress--in having faith in the job
that I do not think you now have tasked before you as your
prime task for which if you experience the same thing as a
volunteer board man and small businessman that I experienced,
you wish that was your only job; to get people with a work
ethic who have a will to go into private sector.
If you are given that and the funding to do it, because
obviously you are not going to be profitable doing that, these
folks here who are so mad might in fact be more supportive,
especially if you had a positive joint venture program as part
of it.
I know I did not ask you a lot of questions, but hopefully
we are pointing out a direction that you can follow up in
writing for this group and after hopefully educating the entire
Congress.
Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Mrs. Napolitano?
Mrs. Napolitano. Thank you, Mr. Chairman. I was not able to
sit here through all, so forgive me if I am repetitive in some
of the questions.
I have three concerned areas. One, of course, is the waiver
because that was discussed, but I did not catch all of it. I
will get into that. The second one, of course, is the education
and training, which has just been covered; not totally, though.
The third one is your advertisements.
I will start off with waiver issues. Who oversees the
waivers that are given?
Mr. Aragon. There is a person on staff with Federal Prison
Industries who is our ombudsman who has program responsibility
for the waiver process. Of course, the board listens. That
person makes a presentation at every single board meeting that
we have. It is one of the few officials that talks to us about
waivers.
Mrs. Napolitano. How many waivers would you say that the
board listens to at any one given time?
Mr. Aragon. We get a complete report on waivers in process
being worked at every board meeting. Waivers is a very
important area to us. I can tell you that 90 percent of the
waivers that are requested are approved, given to those folks,
and then in the electrical connectors specifically because I
look at that at the break, Congresswoman, we have in my memory
and in Mr. Schwalb's as well--I have seven years; he has much
longer. We have never denied a waiver in the electrical
connector area.
If a contracting officer wants to buy a product from this
company and it is something that we make and we would have
mandatory source, if they were to ask us for a waiver they
would be given a waiver for that to be able to buy from that
company.
Am I correct, Steve, that we have never----
Mrs. Napolitano. So in other words, the board does oversee
the ombudsman, the waiver, the individual who handles them?
Mr. Aragon. Yes, ma'am.
Mrs. Napolitano. Is all the FPI contract work done in the
prisons?
Mr. Aragon. I am not certain I understand. All the
factories are in prisons. The work on various components of
products may be done outside with one of our partners, and then
we would fit in someplace in the manufacturing process.
Mrs. Napolitano. So some of them may come to you already
pre-made or----
Mr. Aragon. Partially.
Mrs. Napolitano [continuing]. Partially assembled?
Mr. Aragon. Yes. We may get items, Congresswoman, from a
dozen different suppliers, small businesses, et cetera, just as
any other company would do if they are manufacturing a desk. We
would get all those pieces and then basically put it together
and finish it and then ship it.
Mrs. Napolitano. In the waiver process, and my mind is
racing because as you are answering I am thinking. Is there any
small business input into the process of the waivers so that
you have some checks and balances?
Mr. Aragon. Small business input in----
Mrs. Napolitano. In the ones that were participants in some
of the areas. Not necessarily the ones that are doing
contracting with you, but in order to be able to see if it is
fair that these waivers are appropriate or not?
Mr. Aragon. We consider each of the waivers on a stand
alone individual basis. While I cannot tell you with direct
knowledge that small business status is one of the checkmarks
for somebody that we can consult, I can tell you that the board
has given very clear direction to the person who oversees the
labor program----
Mrs. Napolitano. Do you have any kind of report that
indicates that to the board?
Mr. Aragon. The number of small businesses that are
affected? That we have consulted with small business? I am not
certain I understand your question, Congresswoman.
Mrs. Napolitano. I am trying to figure out if these waivers
have any kind of checks and balances so that small business,
and you all know that most federal agencies have to meet a
certain cap. In other words, they are a percentage of meebe-
weebe-deebies. Am I correct?
Mr. Aragon. You are correct.
Mrs. Napolitano. Some of this is not happening supposedly,
and I am just wondering how you can help make sure and ensure,
if you will, that some of these areas are being looked at and
not ignored.
Mr. Aragon. I can tell you that the board is very vigorous
in paying attention to that.
Mrs. Napolitano. Is there something in writing that tells
what their achievements have been so that we can understand
that they have at least attempted to do that?
Mr. Aragon. As it relates to the waivers, I can----
Mrs. Napolitano. As it relates to not only the waivers, but
any of the business that the board does approve.
Mr. Aragon. I can tell you that I received some contract
information for fiscal year 2000, the last complete fiscal
year, that of the 1,818 procurement actions over $25,000 that
we had, 1,068 of those purchases were with small businesses and
minority owned businesses.
Yes, we very carefully track that information, but I can
give you further details, Congresswoman.
Mrs. Napolitano. I would prefer, Mr. Manzullo, Mr. Chair,
if some of that information were given to the rest of the
Members of this Committee so that we can all be aware that they
are in effect complying.
Chairman Manzullo. If you would yield? If you could get us
the exact questions----
Mrs. Napolitano. I will.
Chairman Manzullo [continuing]. That you want answered,
then we will put those into one big letter and send it out.
Mrs. Napolitano. Okay. The other one is, and I will go into
the advertisement. My understanding is I really do not know how
much money Unicor spends on advertisement and marketing in say,
for instance, last year.
Mr. Aragon. I would like to get that technical answer from
Mr. Schwalb if I could.
Mr. Schwalb. I would have to hazard a guess, and I would
prefer to give you an exact answer in writing. I do not know.
Mrs. Napolitano. Okay. I would like to see that and make
sure that we all have that. I will include that in one of my
questions.
Chairman Manzullo. If you would yield?
Mrs. Napolitano. Certainly.
Chairman Manzullo. You know, one of the reasons that we
asked FPI here is to have some balance and get some answers,
but, you know, the CEO of any company has at least a percentage
estimate as to what they are spending on advertising. You have
no idea?
Mr. Schwalb. If you want a wild guess or a ball park idea,
I would be happy to provide that. My estimate----
Chairman Manzullo. It is Ms. Napolitano's question. It is
just that we are at the point now where everything that we need
we have to send in a letter.
It is your question. I would----
Mrs. Napolitano. No. Go ahead. You are doing fine.
Chairman Manzullo. Please.
Mr. Schwalb. It depends on how broadly we are going to
define the term. I would prefer to define it as broadly as
possible to be as responsive----
Chairman Manzullo. Sure.
Mr. Schwalb [continuing]. To your question. That includes
our staff, for instance, who go out and interact with customers
and do sales work. It would include contracts we have with
companies that do representation and sales and installation for
us. It would include marketing brochures, website maintenance.
I mean, there is quite a category if you define it as marketing
very broadly.
Chairman Manzullo. Sure.
Mr. Schwalb. All together, I am going to estimate that that
number is probably $25 million or $30 million a year.
Chairman Manzullo. Okay.
Mrs. Napolitano. Great. You kind of alluded to some of the
marketing materials you utilize. Do any of these consist of
items given to federal employees, such as notepads and pens and
the like?
Mr. Aragon. Yes. That is correct. We print calendars,
notepads that we distribute to employees.
Mrs. Napolitano. Then that kind of begs the next question
of why does Unicor spend taxpayer dollars advertising when it
is a mandatory source? I mean, it is a monopoly, a source the
federal agencies are required by law to use. It seems like it
is just an incredible taxpayer waste.
Mr. Aragon. Well, from our perspective our advertising, our
marketing, is simply a method to educate our customers about
what products we have and----
Mrs. Napolitano. But they have no choice. You are the only
game in town.
Mr. Aragon. Actually, Congresswoman, there are choices. As
I said, we granted over 90 percent generally in a broad manner
of waiver requests that were given to us. One of the----
Mrs. Napolitano. Would you tell me how this would educate
somebody about what you do, this notepad?
Mr. Aragon. Actually, what we do in a circumstance like
that is again creating jobs to not impact the private sector.
We need pads to write and figure, you know, as any business
does. If we print them ourselves, then it is not a product that
we are going to have to, you know, procure from the outside. We
are saving money.
Mrs. Napolitano. I just feel that this is not really what
our taxpayers' dollars should be going to to provide somebody
else with the name of U.S. Department of Justice Unicor and a
calendar when like we use one plain piece of paper if this is
what we need to advertise on.
Mr. Aragon. Congresswoman, actually what we are doing is we
are saving taxpayer dollars by printing those ourselves. You
know, frankly, the way I see it is that if we have a calendar
on the piece of paper that we are writing on we do not need to
print the calendar as well.
Mrs. Napolitano. But that is a waste of space, sir. Every
day the use of this is totally a waste of space. I will be
submitting questions on that area.
Now, the next topic would be, of course, one of my
favorites, education and training. You answered some of the
questions that Mr. Issa had left in regard to what you are or
are not doing.
I have long been a proponent that somehow when we
incarcerate we are being punitive. We are not being
restorative. Although I agree there should be maybe some
funding from Education or Labor or other agencies to be able to
promote the education of the incarcerated since most ofthem do
not have a high school diploma at best is that we, and I agree with the
joint venture idea that we need to begin to be a little more proactive
in ensuring that some of the folks that we turn lose have at least the
ability to go out and seek a job if not from Unicor, from other
agencies that they may be able to be successful in doing so.
Now, I am not sure whether anybody has looked at it,
whether your board has considered it, whether there has been
any dialogue, but it is very seriously an idea that I think we
need to begin to look at is making sure that while these people
are incarcerated they are a captive audience that we need to
make sure that somehow we get education to them available to
them and even maybe mandating so that these folks, when they
leave, are able to sustain their families and themselves.
Now, would you answer?
Mr. Aragon. Yes, Congresswoman. Actually, I appreciate you
saying that because that is where Unicor really believes that
we do probably the most public good in everything, all the work
we do, is that typically inmates who come in the federal system
have very, very low educational skills, so Unicor, as the most
preferred job in the institution, we require inmates to get a
GED or GED equivalent before we even will hire them.
There is a huge motivation for an inmate to at least get to
that educational level to even be eligible for a Unicor job.
That is something that the board has been very focused on
doing.
As Congressman Issa was speaking of before he left, one of
the other important pieces of what Unicor does is the long-term
inmates that, yes, we do employ in our factories, inmates who
come to our institutions typically do not have work skills.
They do not know how to get up in the morning and go to work
and perform a good, honest day's work.
If they do not get up and come to work or they get in
trouble in the institution, they lose their Unicor job, so
there is a huge incentive for the inmate to continue their
education.
Mrs. Napolitano. I am glad to hear that. I am very happy to
hear that, but that does not really answer my question of how
many people you are working with to be sure that you are
allowing them or helping them get the GED and even beyond that
because we should not stop there.
Mr. Aragon. No. Unicor--in fact, the nature of the
organization is Mr. Schwalb is not only the chief operating
officer for Unicor, but he is also the person with program
responsibility in the federal prison system over education and
training because we believe there is a very close correlation
between training opportunities and education.
Mr. Schwalb, can you----
Mrs. Napolitano. As you go through that, you also made
reference that Unicor does employ some of the people leaving
prison, but you do not have any kind of hands-on of how many
you employ or where they are coming from. That kind of leaves
it quite open.
Do you provide those employees any other assistance for
education?
Mr. Aragon. Actually, perhaps I mis-spoke earlier to the
Congresswoman's question. We do not employ inmates once they
leave.
What that discussion involved was that our inmates are
employed when they leave federal prison with people who are
manufacturers of the same product they do internally. Once an
inmate is released, we do not track them to know.
Mrs. Napolitano. Can you give us some figures of what
businesses employ them or names of the businesses?
Mr. Aragon. Absolutely. I can tell you that I am one of
them. I have employed Unicor people in my business who are
federal inmates who were released.
Mrs. Velazquez. Would the gentlelady yield?
Mrs. Napolitano. I would yield.
Mrs. Velazquez. You said that in terms of work ethics. I
want to know what type of incentive would you provide for this
inmate to get up and go to work?
Mr. Aragon. What do we provide?
Mrs. Velazquez. At Unicor, yes.
Mr. Aragon. Well, the incentive is that if they do not get
up and come to work at Unicor, they lose their Unicor job. That
means that----
Mrs. Velazquez. How much do you pay? What is the average
wage?
Mr. Aragon. Well, the average wage goes from--I do not know
what the average wage is, but it goes from 25 cents an hour to
$1.18 an hour.
Mrs. Velazquez. That is a great incentive.
Mr. Aragon. Congresswoman, they send much of that money
that the inmates earn. Half of that money goes to victim
restitution, which is a huge contribution to society. The rest
of that money they use. They send home to their families, you
know, families who are now without a father or a mother, so it
is a substantial amount of money.
Mrs. Velazquez. Yes, sure. It is a lot of money that the
victims are getting from those inmates.
Mr. Aragon. How much is it, Mr. Schwalb?
Mr. Schwalb. Last year it was about $2.5 million for the
victims.
Chairman Manzullo. Is there any withholding done?
Mr. Aragon. No, there is not.
Chairman Manzullo. Nothing? I guess why have social
security if you are a lifer. You know, that really would not
make sense. Well, you could have children.
Mr. Aragon. Ninety-five percent of inmates who are in
institutions return to the community at some point, Mr.
Congressman, so, you know, the term lifer. Yes, we have a lot
of people doing a lot of time, but that is the point about
Unicor is that ultimately a lot of those people come back into
the community.
Chairman Manzullo. The goal then is to have people who
worked in a certain area at Unicor once they leave prison go
out and perhaps become employed or set up a business whose
skills were learned in prison. Is that correct?
Mr. Aragon. That is correct. And work habits and those
sorts of things.
Chairman Manzullo. Now, my understanding, and you can
correct me if I am wrong, is that several small businesses were
started by ex inmates in the process of furniture installation,
office furniture, or they worked for small businesses that did
installation.
Mr. Aragon. I would say that is accurate. Earlier
Congressman Hoekstra referred to the person, Chuck Colson, who
was one of our inmates, who founded Federal Prison Industries.
By the way, they do not support H.R. 1577 because they
believe it will be detrimental to helping ex offenders in
society.
Chairman Manzullo. Well, the prison guards do. If this is
your goal to have people who do that same type of work, learn
that type of work in prison, get on the outside and then set up
their own businesses or go to work for people that do that same
type of work, then why did FPI bundle all of your installation
work and give one prime contract to GMG? You put a lot of ex
prisoners whose skills had been learned in prison out of work.
Mr. Aragon. I would disagree with the latter part of your
statement. I would not say that we put ex inmates out of work.
I would actually----
Chairman Manzullo. That will be the next hearing because
the next hearing will be oncontract bundling. You will be
there, and right next to you will be a prisoner who learned a skill in
prison. Then he got out, and because of contract bundling with FPI the
job that he learned in prison during which time he displaced people
like these, once he.
Why not, Mr. Aragon?
Mr. Aragon. There certainly is a way for dealers to
interact. We have dealers interact with us all the time, Mr.
Chairman.
Chairman Manzullo. Do you answer their letters?
Mr. Aragon. Oh, absolutely. Absolutely.
Chairman Manzullo. Mr. DeGroft?
Mr. DeGroft. The way we work with our customers when we
talk about these waiver forms and so forth, we are----
Chairman Manzullo. Could you explain what that waiver form
is? Who is waiving what?
Mr. DeGroft. We are put in a position, if I can tell you a
little bit of the whole story----
Chairman Manzullo. Go ahead. Explain that.
Mr. DeGroft. We are put in a position where----
Chairman Manzullo. Mr. Votteler, if you want to jump into
this because you talked about the waivers also.
Mr. DeGroft. As a salesperson, a customer comes to us and
asks for information. A federal customer comes to us and wants
us to do something. We are put in a position of having to
explain our competition to our customer.
Mr. Customer, do you know that you probably cannot buy
anything from me? When it comes time to place a purchase order,
sooner or later these guys, Unicor, are going to step in and
take the order.
Then the customer comes back. In this case, let us say it
is the Air Force because that is who we work with in New Mexico
a lot. The customer comes back and says do not sweat it. We can
handle that. We want to buy your merchandise. We can get the
waiver.
We go through all the selling process of design
specification, pricing, and so do probably two or three other
people in our town do the same thing. That then gets submitted,
and somewhere along the line the customer, our customer, the
federal agency that is buying, has to submit a waiver form to
this group.
Chairman Manzullo. To FPI?
Mr. DeGroft. Yes.
Chairman Manzullo. And FPI has to sign off----
Mr. DeGroft. On the waiver form----
Chairman Manzullo [continuing]. To allow the federal
government to buy from you?
Mr. DeGroft. Right. On the waiver form it says----
Chairman Manzullo. So they control the whole flow of sales?
Mr. DeGroft. On the waiver form it says price,
availability, suitability of product or delivery are not good
excuses for asking for a waiver.
Mr. Aragon. Mr. Chairman, we approved $450 million in
waivers last year, 90 percent of the requests. As I----
Mr. DeGroft. It must have been somewhere else.
Chairman Manzullo. That is 90 percent of your business was
waivers.
Mr. Aragon. I am sorry?
Chairman Manzullo. I have it here.
Mr. Aragon. No. $450 million of business we could have had,
but we waived because the customer, the Air Force or whoever it
happened to be, requested it.
As I said earlier, in the area of the electronic connectors
we have never denied a waiver. If the customer says we want to
buy from this company, we have never denied that opportunity.
Chairman Manzullo. Ms. Gentile or whoever, go ahead.
Ms. Gentile. Yes.
Mr. DeGroft. If you will let me finish?
Chairman Manzullo. I am sorry.
Mr. DeGroft. When that waiver is sent in, it is sent in by
the buying agency, the request for a waiver. It sometimes comes
back very quickly. Sometimes it comes back in a month, you
know, but we are out of that loop.
As the dealer, they are not asking us any questions about
our stuff, and so it will come back either refused or in the
case of the Air Force, the last one, I was refused on.
Chairman Manzullo. Then who signs the waiver, FPI?
Mr. DeGroft. No. The waiver is either approved or denied by
FPI.
Chairman Manzullo. By FPI.
Mr. DeGroft. Solely by FPI.
Chairman Manzullo. Is there any review of that process?
Mr. Aragon. Yes, there is, Mr. Chairman. The waivers
initially go to product managers in that particular field, so
it is the furniture people. If it is a furniture issue, it goes
to the manager of that particular area.
Chairman Manzullo. This is an internal review?
Mr. Aragon. Then if that person does not waive it, and, as
I say, 90 percent of the time we waive the right for them, the
government, to buy from anybody, but then if in fact we deny
the waiver for whatever reason then it goes to our ombudsman,
who is a person with ultimate responsibility for making the
decision on whether the appeal is supported or denied.
Mrs. Velazquez. Mr. Chairman, who appoints the ombudsman?
Mr. Aragon. It is appointed by the chief executive officer,
so it is a staff member. It is not----
Mrs. Velazquez. It is one of you guys?
Mr. Aragon. Congresswoman, I had not finished the last
response.
Then if in fact that person denies the waiver again, the
customer has the opportunity to go to the next level, which is
outside our agency. It is something that this board, under my
direction, created, and that is a review panel of three experts
in the business of government contracting, somebody from GSA,
somebody from Department of Defense and somebody from Justice
Department. Those are independent people who----
Chairman Manzullo. But they are all government employees.
Mr. Aragon. Well, sir, government employees in this
organization do a tremendous job. They are very professional.
Chairman Manzullo. I am not saying that.
Mr. Aragon. Those people, though, review that waiver
process independent of our control, and they have the final
authority. Of the three times--well, I do not want to give
you----
Chairman Manzullo. Is the SBA represented?
Mr. Aragon. The SBA is not on that committee.
Chairman Manzullo. Well, they should be.
Mrs. Velazquez. The Small Business Administration is not?
Mr. Aragon. Well, we certainly can entertain that,
Congressman.
Chairman Manzullo. Mr. DeGroft?
Mr. DeGroft. I just have to respond to that. I do not know
where the 90 percent of the waivers that are granted are
granted because they are not granted in New Mexico.
Chairman Manzullo. What has been your experience?
Mr. DeGroft. Well, when I----
Chairman Manzullo. Give us a real life experience.
Mr. DeGroft. A real life experience is----
Chairman Manzullo. A real life contract that you had and
you lost.
Mr. DeGroft [continuing]. With the Air Force a $20,000
quote for computer furniture for Kirtland Air Force Base comes
back, and I get three chairs. The rest of it is taken by Prison
Industries.
Now, on paper this sounds wonderful that there is this
appeal process and everything, but the customer is cowed by the
process----
Chairman Manzullo. How long do they wait?
Mr. DeGroft [continuing]. Once he finds out that there is
this waiver process. You know, these customers are not buying
furniture a year from now. They are probably buying furniture
they need next month.
All of a sudden all this process starts going, you know, of
you have to do this and you have to do that and you have to see
the ombudsman and all that stuff. They do not love me. I mean,
they are not my brother that is doing this, so they just cave
in.
Chairman Manzullo. Ms. Gentile, you wanted to interject
something?
Ms. Gentile. Yes. I would like to challenge the waiver
process. If you take the 235 part numbers that are going to
equal $5 million over a five year period, we have never been
solicited on the contract because they have a price list from
Federal Prison Industries.
I would like to have my company have the opportunity to
quote those and then have a waiver granted by FPI on 235 parts
that are directly going to impact three small businesses that
are listed on a QPL that only has five.
Federal Prison Industries teamed with a large business
manufacturer. I have several examples right here on that exact
thing. Two hundred and thirty five pieces. I bid $11. Federal
Prison Industries bid $19. Federal Prison Industries was
awarded that product. Did you waive that product? I have been
told by DLA that for every case they have to have a waiver.
Chairman Manzullo. Well, DLA is their friend after you see
what happened with that last mess that we had with this four
and a half hour hearing. I think somebody retired as a result
of that hearing. Two people retired in fact.
Do you know what happened as a result of that last hearing
we had with the berets?
Ms. Gentile. Yes.
Chairman Manzullo. Do you know that foreign procurement of
clothing has come to an end? That is 23 percent of $40 billion.
That is not bad for a day's work, is it Mrs. Velazquez?
Mrs. Velazquez. Yes.
Chairman Manzullo. You were never solicited for orders on
that?
Ms. Gentile. Mr. Chairman, on this it is a mandatory set
aside for Federal Prison Industries. These 235 parts--we have
never been solicited in a bundle of the 235 parts.
Chairman Manzullo. That would be Congress' fault because of
the set aside, and they are using that to fulfill their
statutory----
Ms. Gentile. Absolutely, but that will definitely displace
us.
Chairman Manzullo. Okay. We cannot blame that one on Mr.
Aragon. He is getting enough grief.
Mr. Aragon. Congressman?
Chairman Manzullo. Yes, please?
Mr. Aragon. With what I just heard with that price example,
had a waiver request been processed that is a valid reason for
granting a waiver. I can tell you also----
Chairman Manzullo. Because FPI would be higher?
Mr. Aragon. There is a variety of considerations, but also
I heard earlier in the testimony about how burdensome the
waiver process is. Four days. Four days the customer has their
response yes or no on an average with a waiver request. It is
very important that we process them immediately so that we are
not leaving people waiting.
Mrs. Velazquez. Mr. Aragon, you mentioned before that 90
percent of the waivers had been granted.
Mr. Aragon. Requests requested are granted.
Mrs. Velazquez. Of that, how many waivers were granted in
the furniture industry?
Mr. Aragon. I could not tell you that statistic off the top
of my head, but I can certainly get it for you. I will also say
that it probably tracked the amount of business that we do in
that area. It is about 40 percent of our business. We get a lot
of waiver requests in the furniture area.
The way it typically happens, Congresswoman, and some of
the gamesmanship that occurs in this process is the customer,
as was testified to earlier, the customer, the Air Force, says
I want to buy these chairs. The dealer, the person who wants to
sell the chairs, will say okay. You have to ask for this kind
of chair because if it is that kind of chair Unicor gets it. We
have to figure out how we can specify a chair that Unicor does
not carry so they can get around the ordering process.
Then that generates typically a waiver request. They say we
will send in a waiver request. Even then, even under those
circumstances, 90 percent, $450 million in business last year,
we waived. Never have we not issued a waiver on electrical
connectors. I suspect these parts that were just testified to,
they could have sold those parts if the process had been
followed.
Mrs. Velazquez. Mr. Votteler, how does 90 percent sound to
you?
Mr. Votteler. I do not know. It sounds a little high to me.
I was not aware of the three person panel that the decision on
the waivers could be taken to if the ombudsman--basically FMA's
position has been that the ombudsman thing did not work because
the ombudsman is an employee and a senior person with FPI, so
they are not very likely----
Mrs. Velazquez. Mr. Aragon, would you please----
Mr. Votteler [continuing]. To be unbiased, but my own
personal experience has been that there are a lot of waivers
processed and granted, but it is also a time consuming process,
and why would we have to go through the waiver process.
Managers do not like having to add in time and then not
knowing. Basically it is unilateral, at least it has been in
the past. What I am hearing is it is no longer that way.
Chairman Manzullo. Could you yield?
Mrs. Velazquez. Sure.
Chairman Manzullo. My understanding is the Air Force wants
to buy this office furniture. The people that have the first
shot at furnishing it are FPI, and then FPI has to sign off on
it. Okay. Is there a set aside? You have a preference, not a
set aside. Is that correct?
Mr. Aragon. That is correct, Congressman.
Chairman Manzullo. So it is a mandatory preference
regardless.
Mr. Aragon. Yes, and the contracting officer for the Air
Force should not be speaking to those folks if we manufacture
the product. They should be saying okay, Unicor, I have this
order.This is what it is. We would say okay within four days,
you know, get it someplace else.
Chairman Manzullo. So you control the gate on all the
sales? On all federal sales, you are the gatekeeper?
Mr. Aragon. No. No, that is not accurate, Congressman. Not
on all federal sales. For sales in areas where Unicor has
mandatory source, the preference, and products that we
manufacture.
Chairman Manzullo. What would those areas be, Mr. Aragon?
Mr. Aragon. Well, the products we manufacture.
Chairman Manzullo. Whatever you manufacture, a federal
agency must buy that from you unless you waive and tell them to
go somewhere else?
Mr. Aragon. Unless we tell them they can, yes. In fact, one
of the things that Unicor does as a public service and one of
the reasons we are so valuable to many of our federal customers
is that there are a lot of products like products that a
manufacturer on the private sector does not manufacture like
battle helmets. You know, they cannot keep a business operating
to manufacture helmets for the Army and sell them, you know,
and have a viable, ongoing business.
We maintain capacity at Unicor so when the Army needs
helmets we make helmets. We have that capacity in numerous
products.
Mrs. Velazquez. This is my time so, Mr. Aragon, let us talk
about the products that you manufacture, but also other small
businesses manufacture as well.
Mr. Votteler, what has been your experience? Have you had
any direct experiences with lesser quality products coming from
and provided by FPI?
Mr. Votteler. My own personal experience is the one product
in the past, and they are no longer in the business of making
shoes, but it was footwear. We used to be required to purchase
safety shoes from Federal Prison Industries.
Employees would continuously complain of the feet and have
foot problems as a result and eventually--they are no longer
made. As far as I know, I do not think FPI is in the footwear
business. That has been some time ago.
There have been complaints. The main complaint was in
delivery time, I guess, from managers that have talked with me
on getting delivery.
Mrs. Velazquez. Mr. DeGroft, will you please tell us more
about what happened in New Mexico? What was the situation like
before the law was changed, and how do things work now since
the law has changed?
Mr. DeGroft. Well, about ten to 12 years ago the New Mexico
state legislature passed a law requiring that all state, city,
county, schools and universities in New Mexico must buy from
New Mexico Corrections. You may or may not be aware that many
states have their own programs such as modeled after an FPI
type standard.
For us, the dealers in New Mexico, this was an
instantaneous stop to a tremendous amount of business. Myself
and three other dealers hired a lobbyist--we spent $14,000 of
our own money to do this--and went up to the legislature to try
to get a change.
The biggest thing that we tried to do is we removed the
mandatory status on the bill and said that they may buy prison
industry furniture or prison industry product if they chose to.
They may, but they do not have to.
The secondary item was that we wanted to have whatever they
made at least 50 percent really manufactured by inmate labor.
When we talk about manufacturing, I think we have a little
problem here with the definition of what is manufacturing.
Bolting an ergonomic chair together that comes out of the box
in three pieces is not manufacturing. That is what they do.
That is what New Mexico was doing as well in some categories of
products. We said we cannot have you just be assemblers.
So we did that, and then the third part was it is funny how
this whole thing is tracking because New Mexico Prison
Industries began getting space at the state fair to show their
products, and then they leased space in downtown Albuquerque
beginning to open a retail operation to sell furniture. That is
when we were able to get it stopped.
Now, we had all of the same arguments there that we do here
about what are we going to do about prisoners? Everybody is
going to go broke, and there is not going to be anything for
the prisoners to do.
I am very happy to report there are 400 inmates right now
working in New Mexico making furniture and other types of
products. We get along extremely well. We do not necessarily
run into each other very much at all. The system works.
They have had to, by virtue of being forced to, be a free
enterprise agent, they are being forced to make better products
and respond more timely to their customers and so forth. It has
been a very workable situation.
Mrs. Velazquez. Mr. Aragon, does Unicor manufacture or
assemble?
Mr. Aragon. We are manufacturers, and some of the work we
do is assembling, much as the work done by Americans across the
country.
Mrs. Velazquez. Tell me how much is manufacturing, and how
much is assembling?
Mr. Aragon. As I said earlier----
Mrs. Velazquez. You do not know?
Mr. Aragon. As I said earlier, less than one percent of the
products we made last year you could characterize as pass
through kind of work.
In those cases, typically in those very rare cases where
that occurs it is because we are trying to provide a service to
a customer. The agency wants a product. We do not happen to
have the capacity to get that product, but they need it
immediately. They utilize our source to get it, and they are
getting it from people who manufacture it who are small
businesses and women owned businesses, et cetera.
Mrs. Velazquez. Mr. Chairman, I have a problem here, and
that is that he could come before us and tell us about one
percent and a 90 percent waiver and so on. You know, how can we
have a vehicle in place where----
Chairman Manzullo. To find out?
Mrs. Velazquez. Yes.
Chairman Manzullo. We could take his deposition under oath.
Mrs. Velazquez. Mr. Votteler and Mr. DeGroft and Ms.
Gentile, do you agree that it is just one percent based on your
own experience?
Mr. Aragon. Do you know what they are speaking of? One
percent of products that we do not manufacture the product in
prison, the assembled product. That is the one percent.
Mr. DeGroft. Of the $550 million worth of product, one
percent is not manufactured by you?
Chairman Manzullo. Do you mean it is pass through or drive
by manufacturing? Is that what you are saying?
Mr. Aragon. That is the question that was on the table
earlier where the one percent came in in the furniture area.
Yes, sir.
Chairman Manzullo. How do you define manufacturing versus
assembling?
Mr. Aragon. Well----
Chairman Manzullo. I mean, when it comes to a chair, you
got three chairs?
Mr. DeGroft. Three chairs out of a $20,000 quotation.
Chairman Manzullo. All right. FPI got the rest?
Mr. DeGroft. They got the rest.
Chairman Manzullo. How do you manufacture an office chair?
What do you do?
Mr. Aragon. Well, I can tell you because the board goes to
factories. Every other board meeting we are physically in the
factories watching them. A chair----
Chairman Manzullo. At the prison?
Mr. Aragon. At the prison. Absolutely.
Chairman Manzullo. Okay.
Mr. Aragon. We manufacture a chair just as I guess
everybody else manufactures it.
Chairman Manzullo. Do you stamp the metal?
Mr. Aragon. We stamp the metal. We do the molds. We cut the
material. We manufacture a chair exactly the same way as
another chair manufacturer except we use a lot more inmates
doing it.
Chairman Manzullo. Do you import any raw materials?
Mr. Aragon. I do not believe we do.
Mr. Schwalb. Mr. Chairman, the only example I am aware of
is a postal bag we make for the post office, which has a
specification that is only provided from India. It is a raw
material. That is the only one I can think of off the top of my
head. Typically we are----
Chairman Manzullo. What about steel? Where are your sources
of steel? Do you use American steel or imported steel?
Mr. Schwalb. We use American.
Chairman Manzullo. Is that part of the FPI mandate that you
use American products in it?
Mr. Schwalb. We are a federal agency in that respect. We
follow the same procurement guidance as any other agency would.
Chairman Manzullo. I understand. I have no further
questions.
Do you have questions?
Mrs. Velazquez. Thank you.
I just want for the record to reflect that the other
witnesses do not agree with the one percent that was stated
before by Mr. Aragon, and I guess we need to reconcile this
type of information.
Let me just say to the small business people that are here
I know that you are frustrated with this hearing today, but I
just want for you to keep hope alive. I promise you that we are
going to be dealing with this issue.
We all are aware that small businesses are hit by the
federal government when it comes to federal contracting
opportunities. They do not achieve the goal, the statutory
goals. We are going to be dealing with contract bundling. We
are going to be holding hearings on contract bundling. Not only
are you affecting and impacting small businesses by going into
areas and expanding those areas that affect small business
people in our country, but also you are into the practice of
contract bundling.
The problem that we have with you is that apparently there
is not oversight, you know. You have a panel review, a review
process to either accept or deny a waiver, but you are policing
yourselves. You have your own people telling you yes, you
should do this. What do you think they are going to do? They
are going to go with you. They are not going to go with a small
business.
Mr. Chairman, we have to work together in drafting
legislation that will bring some fairness and equity into this
whole dynamic of the FPI and small businesses in our nation.
Thank you.
Chairman Manzullo. I appreciate those statements.
Let me thank the witnesses, those of you who came a great
distance.
Mr. Aragon, I want to thank you for your candor. You have
been put in a tough position, and you have told us what you
know. What you do not know you told us you did not know, and I
appreciate the fact that you have been totally up front with
this Committee.
Any lack of information that you have is a matter of the
institution with which you work and not a matter of lack of
credibility or sincerity on your part. I want to thank you----
Mr. Aragon. Thank you, Mr. Chairman.
Chairman Manzullo [continuing]. For standing up very well
under a lot of excitement.
We are very zealous when it comes to representing small
businesses. We are both products of small businesses. That is
where our hearts are. We deal with a tremendous number of small
businesses around the country that have been hit very, very
hard, and if there is any way that we offended you by our zeal
to do our job, I would ask your forgiveness for that right now.
I also want to take you up on your offer to be able to have
a transparent relationship, to sit down in areas of concern.
One of the things that I would encourage the members of the
panel and any people here in this room is I think it is a shame
that you would have to go through Freedom of Information
requests to get information from a government agency.
We have I think six lawyers on staff on our Small Business
Committee. We also have the Office of Advocacy within the Small
Business Administration. It was that Office of Advocacy acting
on behalf of Mrs. Velazquez and me that stopped the Air Force
from ordering 104,000 baseball hats from a Chinese firm. That
is when the Air Force decided to get together with the
Government Printing Office to do their procurement. Evidently
the Air Force thought that hats were printed and not
manufactured.
We have an in-house law firm with the SBA. We would be
willing to work with you on that. I do not want to see any
witnesses coming in here again and having to testify that they
had to use Freedom of Information. If you cannot get the
information that you want, you come to us. We will get it from
Prison Industries. If it is not forthcoming, I have no
hesitancy to issue a subpoena.
Again, we want to thank you for coming. I appreciate it
very much.
This Committee is adjourned.
[Whereupon, at 1:25 p.m. the Committee was adjourned.]
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