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

                                                            S. Hrg. 108-697

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

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

                                    HEARING

                                   before the

         FINANCIAL MANAGEMENT, THE BUDGET, AND INTERNATIONAL SECURITY
                                  SUBCOMMITTEE

                                     of the

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 7, 2004

                                   __________

          Printed for the use of the Committee on Governmental Affairs

                        U.S. GOVERNMENT PRINTING OFFICE
    94-448                      WASHINGTON : 2004
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                       COMMITTEE ON GOVERNMENTAL AFFAIRS

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

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

                                     ------

         FINANCIAL MANAGEMENT, THE BUDGET, AND INTERNATIONAL SECURITY
                                  SUBCOMMITTEE

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

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

                                C O N T E N T S

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

                                   WITNESSES
                            Wednesday, April 7, 2004

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

                         Alphabetical List of Witnesses

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

                                    APPENDIX

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

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

                                  ----------

                            WEDNESDAY, APRIL 7, 2004

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

                OPENING STATEMENT OF SENATOR FITZGERALD

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

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

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

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

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

                   OPENING STATEMENT OF SENATOR LEVIN

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

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

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

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

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

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

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

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

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

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

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

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

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

                                A P P E N D I X

                                  ----------

                    PREPARED STATEMENT OF SENATOR LAUTENBERG

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

        [GRAPHIC] [TIFF OMITTED] T4488.001

        [GRAPHIC] [TIFF OMITTED] T4488.002

        [GRAPHIC] [TIFF OMITTED] T4488.003

        [GRAPHIC] [TIFF OMITTED] T4488.004

        [GRAPHIC] [TIFF OMITTED] T4488.005

        [GRAPHIC] [TIFF OMITTED] T4488.006

        [GRAPHIC] [TIFF OMITTED] T4488.007

        [GRAPHIC] [TIFF OMITTED] T4488.008

        [GRAPHIC] [TIFF OMITTED] T4488.009

        [GRAPHIC] [TIFF OMITTED] T4488.010

        [GRAPHIC] [TIFF OMITTED] T4488.011

        [GRAPHIC] [TIFF OMITTED] T4488.012

        [GRAPHIC] [TIFF OMITTED] T4488.013

        [GRAPHIC] [TIFF OMITTED] T4488.014

        [GRAPHIC] [TIFF OMITTED] T4488.015

        [GRAPHIC] [TIFF OMITTED] T4488.016

        [GRAPHIC] [TIFF OMITTED] T4488.017

        [GRAPHIC] [TIFF OMITTED] T4488.018

        [GRAPHIC] [TIFF OMITTED] T4488.019

        [GRAPHIC] [TIFF OMITTED] T4488.020

        [GRAPHIC] [TIFF OMITTED] T4488.021

        [GRAPHIC] [TIFF OMITTED] T4488.022

        [GRAPHIC] [TIFF OMITTED] T4488.023

        [GRAPHIC] [TIFF OMITTED] T4488.024

        [GRAPHIC] [TIFF OMITTED] T4488.025

        [GRAPHIC] [TIFF OMITTED] T4488.026

        [GRAPHIC] [TIFF OMITTED] T4488.027

        [GRAPHIC] [TIFF OMITTED] T4488.028

        [GRAPHIC] [TIFF OMITTED] T4488.029

        [GRAPHIC] [TIFF OMITTED] T4488.030

        [GRAPHIC] [TIFF OMITTED] T4488.031

        [GRAPHIC] [TIFF OMITTED] T4488.032

        [GRAPHIC] [TIFF OMITTED] T4488.033

        [GRAPHIC] [TIFF OMITTED] T4488.034

        [GRAPHIC] [TIFF OMITTED] T4488.035

        [GRAPHIC] [TIFF OMITTED] T4488.036

        [GRAPHIC] [TIFF OMITTED] T4488.037

        [GRAPHIC] [TIFF OMITTED] T4488.038

        [GRAPHIC] [TIFF OMITTED] T4488.039

        [GRAPHIC] [TIFF OMITTED] T4488.040

        [GRAPHIC] [TIFF OMITTED] T4488.041

        [GRAPHIC] [TIFF OMITTED] T4488.042

        [GRAPHIC] [TIFF OMITTED] T4488.043

        [GRAPHIC] [TIFF OMITTED] T4488.044

        [GRAPHIC] [TIFF OMITTED] T4488.045

        [GRAPHIC] [TIFF OMITTED] T4488.046

        [GRAPHIC] [TIFF OMITTED] T4488.047

        [GRAPHIC] [TIFF OMITTED] T4488.048

        [GRAPHIC] [TIFF OMITTED] T4488.049

        [GRAPHIC] [TIFF OMITTED] T4488.050

        [GRAPHIC] [TIFF OMITTED] T4488.051

        [GRAPHIC] [TIFF OMITTED] T4488.052

        [GRAPHIC] [TIFF OMITTED] T4488.053

        [GRAPHIC] [TIFF OMITTED] T4488.054

        [GRAPHIC] [TIFF OMITTED] T4488.055

        [GRAPHIC] [TIFF OMITTED] T4488.056

        [GRAPHIC] [TIFF OMITTED] T4488.057

        [GRAPHIC] [TIFF OMITTED] T4488.058

        [GRAPHIC] [TIFF OMITTED] T4488.059

        [GRAPHIC] [TIFF OMITTED] T4488.060

        [GRAPHIC] [TIFF OMITTED] T4488.061

        [GRAPHIC] [TIFF OMITTED] T4488.062

        [GRAPHIC] [TIFF OMITTED] T4488.063

        [GRAPHIC] [TIFF OMITTED] T4488.064

        [GRAPHIC] [TIFF OMITTED] T4488.065

        [GRAPHIC] [TIFF OMITTED] T4488.066

        [GRAPHIC] [TIFF OMITTED] T4488.067

        [GRAPHIC] [TIFF OMITTED] T4488.068

        [GRAPHIC] [TIFF OMITTED] T4488.069

        [GRAPHIC] [TIFF OMITTED] T4488.070

        [GRAPHIC] [TIFF OMITTED] T4488.071

        [GRAPHIC] [TIFF OMITTED] T4488.072

        [GRAPHIC] [TIFF OMITTED] T4488.073

        [GRAPHIC] [TIFF OMITTED] T4488.074

        [GRAPHIC] [TIFF OMITTED] T4488.075

        [GRAPHIC] [TIFF OMITTED] T4488.076

        [GRAPHIC] [TIFF OMITTED] T4488.077

        [GRAPHIC] [TIFF OMITTED] T4488.078

        [GRAPHIC] [TIFF OMITTED] T4488.079

        [GRAPHIC] [TIFF OMITTED] T4488.080

        [GRAPHIC] [TIFF OMITTED] T4488.081

        [GRAPHIC] [TIFF OMITTED] T4488.082

        [GRAPHIC] [TIFF OMITTED] T4488.083

        [GRAPHIC] [TIFF OMITTED] T4488.084

        [GRAPHIC] [TIFF OMITTED] T4488.085

        [GRAPHIC] [TIFF OMITTED] T4488.086

        [GRAPHIC] [TIFF OMITTED] T4488.087

        [GRAPHIC] [TIFF OMITTED] T4488.088

        [GRAPHIC] [TIFF OMITTED] T4488.089

        [GRAPHIC] [TIFF OMITTED] T4488.090

        [GRAPHIC] [TIFF OMITTED] T4488.091

        [GRAPHIC] [TIFF OMITTED] T4488.092

        [GRAPHIC] [TIFF OMITTED] T4488.093

        [GRAPHIC] [TIFF OMITTED] T4488.094

        [GRAPHIC] [TIFF OMITTED] T4488.095

        [GRAPHIC] [TIFF OMITTED] T4488.096

        [GRAPHIC] [TIFF OMITTED] T4488.097

        [GRAPHIC] [TIFF OMITTED] T4488.098

        [GRAPHIC] [TIFF OMITTED] T4488.099

        [GRAPHIC] [TIFF OMITTED] T4488.100

        [GRAPHIC] [TIFF OMITTED] T4488.101

        [GRAPHIC] [TIFF OMITTED] T4488.102

        [GRAPHIC] [TIFF OMITTED] T4488.103

        [GRAPHIC] [TIFF OMITTED] T4488.104

        [GRAPHIC] [TIFF OMITTED] T4488.105

        [GRAPHIC] [TIFF OMITTED] T4488.106

        [GRAPHIC] [TIFF OMITTED] T4488.107

        [GRAPHIC] [TIFF OMITTED] T4488.108

        [GRAPHIC] [TIFF OMITTED] T4488.109

        [GRAPHIC] [TIFF OMITTED] T4488.110

        [GRAPHIC] [TIFF OMITTED] T4488.111

        [GRAPHIC] [TIFF OMITTED] T4488.112

        [GRAPHIC] [TIFF OMITTED] T4488.113

        [GRAPHIC] [TIFF OMITTED] T4488.114

        [GRAPHIC] [TIFF OMITTED] T4488.115

        [GRAPHIC] [TIFF OMITTED] T4488.116

        [GRAPHIC] [TIFF OMITTED] T4488.117

        [GRAPHIC] [TIFF OMITTED] T4488.118

        [GRAPHIC] [TIFF OMITTED] T4488.119

        [GRAPHIC] [TIFF OMITTED] T4488.120

        [GRAPHIC] [TIFF OMITTED] T4488.121

        [GRAPHIC] [TIFF OMITTED] T4488.122

        [GRAPHIC] [TIFF OMITTED] T4488.123

        [GRAPHIC] [TIFF OMITTED] T4488.124

        [GRAPHIC] [TIFF OMITTED] T4488.125

        [GRAPHIC] [TIFF OMITTED] T4488.126

        [GRAPHIC] [TIFF OMITTED] T4488.127

        [GRAPHIC] [TIFF OMITTED] T4488.128

        [GRAPHIC] [TIFF OMITTED] T4488.129

        [GRAPHIC] [TIFF OMITTED] T4488.130

        [GRAPHIC] [TIFF OMITTED] T4488.131

        [GRAPHIC] [TIFF OMITTED] T4488.132

        [GRAPHIC] [TIFF OMITTED] T4488.133

        [GRAPHIC] [TIFF OMITTED] T4488.134

        [GRAPHIC] [TIFF OMITTED] T4488.135

        [GRAPHIC] [TIFF OMITTED] T4488.136

        [GRAPHIC] [TIFF OMITTED] T4488.137

        [GRAPHIC] [TIFF OMITTED] T4488.138

        [GRAPHIC] [TIFF OMITTED] T4488.139

        [GRAPHIC] [TIFF OMITTED] T4488.140

        [GRAPHIC] [TIFF OMITTED] T4488.141

        [GRAPHIC] [TIFF OMITTED] T4488.142

        [GRAPHIC] [TIFF OMITTED] T4488.143

        [GRAPHIC] [TIFF OMITTED] T4488.144

        [GRAPHIC] [TIFF OMITTED] T4488.145

        [GRAPHIC] [TIFF OMITTED] T4488.146

        [GRAPHIC] [TIFF OMITTED] T4488.147

        [GRAPHIC] [TIFF OMITTED] T4488.148

        [GRAPHIC] [TIFF OMITTED] T4488.149

        [GRAPHIC] [TIFF OMITTED] T4488.150

        [GRAPHIC] [TIFF OMITTED] T4488.151

        [GRAPHIC] [TIFF OMITTED] T4488.152

        [GRAPHIC] [TIFF OMITTED] T4488.153

        [GRAPHIC] [TIFF OMITTED] T4488.154

        [GRAPHIC] [TIFF OMITTED] T4488.155

        [GRAPHIC] [TIFF OMITTED] T4488.156

        [GRAPHIC] [TIFF OMITTED] T4488.157

        [GRAPHIC] [TIFF OMITTED] T4488.158

        [GRAPHIC] [TIFF OMITTED] T4488.159

        [GRAPHIC] [TIFF OMITTED] T4488.160

        [GRAPHIC] [TIFF OMITTED] T4488.161

        [GRAPHIC] [TIFF OMITTED] T4488.162

        [GRAPHIC] [TIFF OMITTED] T4488.163

        [GRAPHIC] [TIFF OMITTED] T4488.164

        [GRAPHIC] [TIFF OMITTED] T4488.165

        [GRAPHIC] [TIFF OMITTED] T4488.166

        [GRAPHIC] [TIFF OMITTED] T4488.167

        [GRAPHIC] [TIFF OMITTED] T4488.168

        [GRAPHIC] [TIFF OMITTED] T4488.169

        [GRAPHIC] [TIFF OMITTED] T4488.170

        [GRAPHIC] [TIFF OMITTED] T4488.171

        [GRAPHIC] [TIFF OMITTED] T4488.172

        [GRAPHIC] [TIFF OMITTED] T4488.173

        [GRAPHIC] [TIFF OMITTED] T4488.174

        [GRAPHIC] [TIFF OMITTED] T4488.175

        [GRAPHIC] [TIFF OMITTED] T4488.176

        [GRAPHIC] [TIFF OMITTED] T4488.177

        [GRAPHIC] [TIFF OMITTED] T4488.178

        [GRAPHIC] [TIFF OMITTED] T4488.179

        [GRAPHIC] [TIFF OMITTED] T4488.180

        [GRAPHIC] [TIFF OMITTED] T4488.181

        [GRAPHIC] [TIFF OMITTED] T4488.182

        [GRAPHIC] [TIFF OMITTED] T4488.183

        [GRAPHIC] [TIFF OMITTED] T4488.184

        [GRAPHIC] [TIFF OMITTED] T4488.185

        [GRAPHIC] [TIFF OMITTED] T4488.186

        [GRAPHIC] [TIFF OMITTED] T4488.187

        [GRAPHIC] [TIFF OMITTED] T4488.188

        [GRAPHIC] [TIFF OMITTED] T4488.189

        [GRAPHIC] [TIFF OMITTED] T4488.190

        [GRAPHIC] [TIFF OMITTED] T4488.191

        [GRAPHIC] [TIFF OMITTED] T4488.192

        [GRAPHIC] [TIFF OMITTED] T4488.193

        [GRAPHIC] [TIFF OMITTED] T4488.194

        [GRAPHIC] [TIFF OMITTED] T4488.195

        [GRAPHIC] [TIFF OMITTED] T4488.196

        [GRAPHIC] [TIFF OMITTED] T4488.197

        [GRAPHIC] [TIFF OMITTED] T4488.198

        [GRAPHIC] [TIFF OMITTED] T4488.199

        [GRAPHIC] [TIFF OMITTED] T4488.200

        [GRAPHIC] [TIFF OMITTED] T4488.201

        [GRAPHIC] [TIFF OMITTED] T4488.202

        [GRAPHIC] [TIFF OMITTED] T4488.203

        [GRAPHIC] [TIFF OMITTED] T4488.204

        [GRAPHIC] [TIFF OMITTED] T4488.205

        [GRAPHIC] [TIFF OMITTED] T4488.206

        [GRAPHIC] [TIFF OMITTED] T4488.207

        [GRAPHIC] [TIFF OMITTED] T4488.208

        [GRAPHIC] [TIFF OMITTED] T4488.209

        [GRAPHIC] [TIFF OMITTED] T4488.210

        [GRAPHIC] [TIFF OMITTED] T4488.211

        [GRAPHIC] [TIFF OMITTED] T4488.212

        [GRAPHIC] [TIFF OMITTED] T4488.213

        [GRAPHIC] [TIFF OMITTED] T4488.214

        [GRAPHIC] [TIFF OMITTED] T4488.215

        [GRAPHIC] [TIFF OMITTED] T4488.216

        [GRAPHIC] [TIFF OMITTED] T4488.217

        [GRAPHIC] [TIFF OMITTED] T4488.218

        [GRAPHIC] [TIFF OMITTED] T4488.219

        [GRAPHIC] [TIFF OMITTED] T4488.220

        [GRAPHIC] [TIFF OMITTED] T4488.221

        [GRAPHIC] [TIFF OMITTED] T4488.222

        [GRAPHIC] [TIFF OMITTED] T4488.223

        [GRAPHIC] [TIFF OMITTED] T4488.224

        [GRAPHIC] [TIFF OMITTED] T4488.225

        [GRAPHIC] [TIFF OMITTED] T4488.226

        [GRAPHIC] [TIFF OMITTED] T4488.227

        [GRAPHIC] [TIFF OMITTED] T4488.228

        [GRAPHIC] [TIFF OMITTED] T4488.229

        [GRAPHIC] [TIFF OMITTED] T4488.230

        [GRAPHIC] [TIFF OMITTED] T4488.231

        [GRAPHIC] [TIFF OMITTED] T4488.232

        [GRAPHIC] [TIFF OMITTED] T4488.233

        [GRAPHIC] [TIFF OMITTED] T4488.234

        [GRAPHIC] [TIFF OMITTED] T4488.235

        [GRAPHIC] [TIFF OMITTED] T4488.236

        [GRAPHIC] [TIFF OMITTED] T4488.237

        [GRAPHIC] [TIFF OMITTED] T4488.238

        [GRAPHIC] [TIFF OMITTED] T4488.239

        [GRAPHIC] [TIFF OMITTED] T4488.240

        [GRAPHIC] [TIFF OMITTED] T4488.241

        [GRAPHIC] [TIFF OMITTED] T4488.242

        [GRAPHIC] [TIFF OMITTED] T4488.243

        [GRAPHIC] [TIFF OMITTED] T4488.244

        [GRAPHIC] [TIFF OMITTED] T4488.245

        [GRAPHIC] [TIFF OMITTED] T4488.246

        [GRAPHIC] [TIFF OMITTED] T4488.247

        [GRAPHIC] [TIFF OMITTED] T4488.248

        [GRAPHIC] [TIFF OMITTED] T4488.249

        [GRAPHIC] [TIFF OMITTED] T4488.250

        [GRAPHIC] [TIFF OMITTED] T4488.251

        [GRAPHIC] [TIFF OMITTED] T4488.252

        [GRAPHIC] [TIFF OMITTED] T4488.253

        [GRAPHIC] [TIFF OMITTED] T4488.254

        [GRAPHIC] [TIFF OMITTED] T4488.255

        [GRAPHIC] [TIFF OMITTED] T4488.256

        [GRAPHIC] [TIFF OMITTED] T4488.257

        [GRAPHIC] [TIFF OMITTED] T4488.258

        [GRAPHIC] [TIFF OMITTED] T4488.259

        [GRAPHIC] [TIFF OMITTED] T4488.260

        [GRAPHIC] [TIFF OMITTED] T4488.261

        [GRAPHIC] [TIFF OMITTED] T4488.262

        [GRAPHIC] [TIFF OMITTED] T4488.263

        [GRAPHIC] [TIFF OMITTED] T4488.264

        [GRAPHIC] [TIFF OMITTED] T4488.265

        [GRAPHIC] [TIFF OMITTED] T4488.266

        [GRAPHIC] [TIFF OMITTED] T4488.267

        [GRAPHIC] [TIFF OMITTED] T4488.268

        [GRAPHIC] [TIFF OMITTED] T4488.269

        [GRAPHIC] [TIFF OMITTED] T4488.270

        [GRAPHIC] [TIFF OMITTED] T4488.271

        [GRAPHIC] [TIFF OMITTED] T4488.272