[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

                                _______

                  U.S. GOVERNMENT PRINTING OFFICE
76-147                     WASHINGTON : 2001


____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                      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

                              ----------                              
                                                                   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

                              ----------                              


                        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.]

    [GRAPHIC] [TIFF OMITTED] T6147A.001
    
    [GRAPHIC] [TIFF OMITTED] T6147A.002
    
    [GRAPHIC] [TIFF OMITTED] T6147A.003
    
    [GRAPHIC] [TIFF OMITTED] T6147A.004
    
    [GRAPHIC] [TIFF OMITTED] T6147A.005
    
    [GRAPHIC] [TIFF OMITTED] T6147A.006
    
    [GRAPHIC] [TIFF OMITTED] T6147A.007
    
    [GRAPHIC] [TIFF OMITTED] T6147A.008
    
    [GRAPHIC] [TIFF OMITTED] T6147A.009
    
    [GRAPHIC] [TIFF OMITTED] T6147A.010
    
    [GRAPHIC] [TIFF OMITTED] T6147A.011
    
    [GRAPHIC] [TIFF OMITTED] T6147A.012
    
    [GRAPHIC] [TIFF OMITTED] T6147A.013
    
    [GRAPHIC] [TIFF OMITTED] T6147A.014
    
    [GRAPHIC] [TIFF OMITTED] T6147A.015
    
    [GRAPHIC] [TIFF OMITTED] T6147A.016
    
    [GRAPHIC] [TIFF OMITTED] T6147A.017
    
    [GRAPHIC] [TIFF OMITTED] T6147A.018
    
    [GRAPHIC] [TIFF OMITTED] T6147A.019
    
    [GRAPHIC] [TIFF OMITTED] T6147A.020
    
    [GRAPHIC] [TIFF OMITTED] T6147A.021
    
    [GRAPHIC] [TIFF OMITTED] T6147A.022
    
    [GRAPHIC] [TIFF OMITTED] T6147A.023
    
    [GRAPHIC] [TIFF OMITTED] T6147A.024
    
    [GRAPHIC] [TIFF OMITTED] T6147A.025
    
    [GRAPHIC] [TIFF OMITTED] T6147A.026
    
    [GRAPHIC] [TIFF OMITTED] T6147A.027
    
    [GRAPHIC] [TIFF OMITTED] T6147A.028
    
    [GRAPHIC] [TIFF OMITTED] T6147A.029
    
    [GRAPHIC] [TIFF OMITTED] T6147A.030
    
    [GRAPHIC] [TIFF OMITTED] T6147A.031
    
    [GRAPHIC] [TIFF OMITTED] T6147A.032
    
    [GRAPHIC] [TIFF OMITTED] T6147A.033
    
    [GRAPHIC] [TIFF OMITTED] T6147A.034
    
    [GRAPHIC] [TIFF OMITTED] T6147A.035
    
    [GRAPHIC] [TIFF OMITTED] T6147A.036
    
    [GRAPHIC] [TIFF OMITTED] T6147A.037
    
    [GRAPHIC] [TIFF OMITTED] T6147A.038
    
    [GRAPHIC] [TIFF OMITTED] T6147A.039
    
    [GRAPHIC] [TIFF OMITTED] T6147A.040
    
    [GRAPHIC] [TIFF OMITTED] T6147A.041
    
    [GRAPHIC] [TIFF OMITTED] T6147A.042
    
    [GRAPHIC] [TIFF OMITTED] T6147A.043
    
    [GRAPHIC] [TIFF OMITTED] T6147A.044
    
    [GRAPHIC] [TIFF OMITTED] T6147A.045
    
    [GRAPHIC] [TIFF OMITTED] T6147A.046
    
    [GRAPHIC] [TIFF OMITTED] T6147A.047
    
    [GRAPHIC] [TIFF OMITTED] T6147A.048
    
    [GRAPHIC] [TIFF OMITTED] T6147A.049
    
    [GRAPHIC] [TIFF OMITTED] T6147A.050
    
    [GRAPHIC] [TIFF OMITTED] T6147A.051
    
    [GRAPHIC] [TIFF OMITTED] T6147A.052
    
    [GRAPHIC] [TIFF OMITTED] T6147A.053
    
    [GRAPHIC] [TIFF OMITTED] T6147A.054
    
    [GRAPHIC] [TIFF OMITTED] T6147A.055
    
    [GRAPHIC] [TIFF OMITTED] T6147A.056
    
    [GRAPHIC] [TIFF OMITTED] T6147A.057
    
    [GRAPHIC] [TIFF OMITTED] T6147A.058
    
    [GRAPHIC] [TIFF OMITTED] T6147A.059
    
    [GRAPHIC] [TIFF OMITTED] T6147A.060
    
    [GRAPHIC] [TIFF OMITTED] T6147A.061
    
    [GRAPHIC] [TIFF OMITTED] T6147A.062
    
    [GRAPHIC] [TIFF OMITTED] T6147A.067
    
    [GRAPHIC] [TIFF OMITTED] T6147A.068
    
    [GRAPHIC] [TIFF OMITTED] T6147A.069
    
    [GRAPHIC] [TIFF OMITTED] T6147A.070
    
    [GRAPHIC] [TIFF OMITTED] T6147A.071
    
    [GRAPHIC] [TIFF OMITTED] T6147A.072
    
    [GRAPHIC] [TIFF OMITTED] T6147A.073
    
    [GRAPHIC] [TIFF OMITTED] T6147A.074
    
    [GRAPHIC] [TIFF OMITTED] T6147A.075
    
    [GRAPHIC] [TIFF OMITTED] T6147A.076
    
    [GRAPHIC] [TIFF OMITTED] T6147A.077
    
    [GRAPHIC] [TIFF OMITTED] T6147A.078
    
    [GRAPHIC] [TIFF OMITTED] T6147A.079
    
    [GRAPHIC] [TIFF OMITTED] T6147A.080
    
    [GRAPHIC] [TIFF OMITTED] T6147A.081
    
    [GRAPHIC] [TIFF OMITTED] T6147A.082
    
    [GRAPHIC] [TIFF OMITTED] T6147A.083
    
    [GRAPHIC] [TIFF OMITTED] T6147A.084
    
    [GRAPHIC] [TIFF OMITTED] T6147A.085
    
    [GRAPHIC] [TIFF OMITTED] T6147A.086
    
    [GRAPHIC] [TIFF OMITTED] T6147A.087
    
    [GRAPHIC] [TIFF OMITTED] T6147A.088
    
    [GRAPHIC] [TIFF OMITTED] T6147A.089
    
    [GRAPHIC] [TIFF OMITTED] T6147A.090
    
    [GRAPHIC] [TIFF OMITTED] T6147A.091
    
    [GRAPHIC] [TIFF OMITTED] T6147A.092
    
    [GRAPHIC] [TIFF OMITTED] T6147A.093
    
    [GRAPHIC] [TIFF OMITTED] T6147A.094
    
    [GRAPHIC] [TIFF OMITTED] T6147A.095
    
    [GRAPHIC] [TIFF OMITTED] T6147A.096
    
    [GRAPHIC] [TIFF OMITTED] T6147A.097
    
    [GRAPHIC] [TIFF OMITTED] T6147A.098
    
    [GRAPHIC] [TIFF OMITTED] T6147A.099
    
    [GRAPHIC] [TIFF OMITTED] T6147A.100
    
    [GRAPHIC] [TIFF OMITTED] T6147A.101
    
    [GRAPHIC] [TIFF OMITTED] T6147A.102
    
    [GRAPHIC] [TIFF OMITTED] T6147A.103
    
    [GRAPHIC] [TIFF OMITTED] T6147A.104
    
    [GRAPHIC] [TIFF OMITTED] T6147A.105
    
    [GRAPHIC] [TIFF OMITTED] T6147A.106
    
    [GRAPHIC] [TIFF OMITTED] T6147A.107
    
    [GRAPHIC] [TIFF OMITTED] T6147A.108
    
    [GRAPHIC] [TIFF OMITTED] T6147A.109
    
    [GRAPHIC] [TIFF OMITTED] T6147A.110
    
    [GRAPHIC] [TIFF OMITTED] T6147A.111
    
    [GRAPHIC] [TIFF OMITTED] T6147A.112
    
    [GRAPHIC] [TIFF OMITTED] T6147A.113
    
    [GRAPHIC] [TIFF OMITTED] T6147A.114
    
    [GRAPHIC] [TIFF OMITTED] T6147A.115
    
    [GRAPHIC] [TIFF OMITTED] T6147A.116
    
    [GRAPHIC] [TIFF OMITTED] T6147A.117
    
    [GRAPHIC] [TIFF OMITTED] T6147A.118
    
    [GRAPHIC] [TIFF OMITTED] T6147A.119
    
    [GRAPHIC] [TIFF OMITTED] T6147A.120
    
    [GRAPHIC] [TIFF OMITTED] T6147A.121
    
    [GRAPHIC] [TIFF OMITTED] T6147A.122
    
    [GRAPHIC] [TIFF OMITTED] T6147A.123
    
    [GRAPHIC] [TIFF OMITTED] T6147A.124
    
    [GRAPHIC] [TIFF OMITTED] T6147A.125
    
    [GRAPHIC] [TIFF OMITTED] T6147A.126
    
    [GRAPHIC] [TIFF OMITTED] T6147A.127
    
    [GRAPHIC] [TIFF OMITTED] T6147A.128
    
    [GRAPHIC] [TIFF OMITTED] T6147A.129
    
    [GRAPHIC] [TIFF OMITTED] T6147A.130
    
    [GRAPHIC] [TIFF OMITTED] T6147A.131
    
    [GRAPHIC] [TIFF OMITTED] T6147A.132
    
    [GRAPHIC] [TIFF OMITTED] T6147A.133
    
    [GRAPHIC] [TIFF OMITTED] T6147A.134
    
    [GRAPHIC] [TIFF OMITTED] T6147A.135
    
    [GRAPHIC] [TIFF OMITTED] T6147A.136
    
    [GRAPHIC] [TIFF OMITTED] T6147A.137
    
    [GRAPHIC] [TIFF OMITTED] T6147A.138
    
    [GRAPHIC] [TIFF OMITTED] T6147A.139
    
    [GRAPHIC] [TIFF OMITTED] T6147A.140
    
    [GRAPHIC] [TIFF OMITTED] T6147A.141
    
    [GRAPHIC] [TIFF OMITTED] T6147A.142
    
    [GRAPHIC] [TIFF OMITTED] T6147A.143
    
    [GRAPHIC] [TIFF OMITTED] T6147A.144
    
    [GRAPHIC] [TIFF OMITTED] T6147A.145
    
    [GRAPHIC] [TIFF OMITTED] T6147A.146
    
    [GRAPHIC] [TIFF OMITTED] T6147A.147
    
