[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
UNLOCKING OPPORTUNITIES: RECIDIVISM VERSUS FAIR COMPETITION IN FEDERAL 
                              CONTRACTING

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

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JUNE 28, 2012

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 112-076
                Available via GPO Website: www.fdsys.gov


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Corolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York
                     ROBERT T. SCHILLING, Illinois
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                        JANICE HAHN, California
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                     Barry Pineles, General Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Mick Mulvaney...............................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Phil Sibal, Deputy Assistant Director, UNICOR, Federal Prison 
  Industries, Washington, DC.....................................     4
The Honorable Bill Huizenga (MI-02), U.S. House of 
  Representatives, Washington, DC................................    12
Michael Mansh, President, Pennsylvania Apparel, LLC, Fort 
  Washington, PA.................................................    17
John M. Palatiello, President, Business Coalition for Fair 
  Competition, Reston, VA........................................    19
Rebecca Elizabeth Boenigk, CEO, Neutral Posture, Bryan, TX.......    20

                                APPENDIX

Prepared Statements:
    Phil Sibal, Deputy Assistant Director, UNICOR, Federal Prison 
      Industries, Washington, DC.................................    33
    The Honorable Bill Huizenga (MI-02), U.S. House of 
      Representatives, Washington, DC............................    38
    Michael Mansh, President, Pennsylvania Apparel, LLC, Fort 
      Washington, PA.............................................    42
    John M. Palatiello, President, Business Coalition for Fair 
      Competition, Reston, VA....................................    45
    Rebecca Elizabeth Boenigk, CEO, Neutral Posture, Bryan, TX...    51
Additional Materials for the Record:
    Andrew Linder, President and Owner of Power Connector, Inc. 
      Statement for the Record...................................    55
    Letter for the Record to Chairman Buck McKeon, House Armed 
      Services Committee.........................................    60
    Woolrich Letter for the Record...............................    63
    Dale Deshotel Statement for the Record.......................    64
    UNICOR Office Furniture Group Products.......................    79


UNLOCKING OPPORTUNITIES: RECIDIVISM VERSUS FAIR COMPETITION IN FEDERAL 
                              CONTRACTING

                              ----------                              


                        THURSDAY, JUNE 28, 2012

                  House of Representatives,
                       Committee on Small Business,
                 Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10 a.m., in room 
2360, Rayburn House Office Building. Hon. Mick Mulvaney 
(chairman of the subcommittee) presiding.
    Present: Representatives Mulvaney, and Chu.
    Also present: Representative Flores.
    Chairman Mulvaney. I call this meeting to order and thank 
everybody for coming.
    Instead of the ordinary introduction, I am going to tell 
you what is going to happen here because it is going to be an 
unusual day as you can probably imagine. I think both 
Republican and Democrat conferences have emergency meetings at 
10:30 to discuss what is happening across the street and what 
is getting ready to happen across the street. So what we are 
going to try and do is get through the opening statements and 
the testimony from the first witness, Mr. Sibal, and then we 
are going to adjourn until 2:30 this afternoon. And as 
inconvenient as that is, and I know that it is and I apologize 
to everybody. There is simply nothing we can do about the 
Supreme Court schedule. It was actually easier on everybody to 
that then it was to cancel this hearing once again and 
reschedule it. So we are going to do our best to sort of slog 
through it in two pieces today.
    So very briefly, I will read my opening statement and then 
turn it over to Ms. Chu. We call this Committee to order on 
Unlocking Opportunities: Recidivism versus Fair Competition in 
Federal Contracting.
    The existence of Prison Labor Industries has been a 
contentious issue in the United States for over a hundred 
years, particular due to the effect on the private sector. In 
today's touch economy, tension surrounding this issue has 
intensified as Federal Prison Industries (FPI), or UNICOR, 
contracts with the government in industries that face declining 
growth and small businesses' fight to survive in this tough 
economy.
    While the Federal Bureau of Prisons highlights UNICOR's 
benefits to society by reducing recidivism rates, small firms 
attest to the difficulties in competing on contracts with an 
organization that does not need to account for healthcare, 
taxes, and minimum wage upon submitting a bid. Further, despite 
previous efforts to move UNICOR from being strictly a mandatory 
source to an entity that competes for contracts, small 
businesses are still concerned that UNICOR is allowed to 
compete for set aside contracts. These include contracts set 
aside for small businesses, as well as contracts aside for 
socially and economically disadvantaged firms, service-disabled 
veterans, women, and HUBZones. Additionally, remaining 
mandatory source provisions requiring that the government 
contact with UNICOR reduces opportunities for small businesses 
and growth.
    In light of this, it is no surprise that over the past 20 
years, Congress has been active in enacting legislation to 
reduce unfair competition and mitigate the effects of UNICOR on 
small business. Today, this trend is continuing in Congress 
with bipartisan support and we are fortunate to have later 
today Representative Bill Huizenga from Michigan testifying on 
our second panel about H.R. 3634, the Federal Prison Industries 
Competition in Contracting Act of 2011.
    In addition to Representative Huizenga's testimony, we will 
also examine several other small business concerns with the 
UNICOR program. The first panel will feature Mr. Phil Sibal, 
the deputy assistant director of UNICORN, excuse me, UNICOR, 
and the third panel will include small business owners and 
representatives from associations affected by Federal Prison 
Industries. We are fortunate today to have Representative Bill 
Flores later on from Texas, who will join us to introduce Ms. 
Boenigk, who hails from his district.
    I would like to thank all of our witnesses for being here 
and for making the special accommodation given the schedule.
    As small firms struggle to overcome the tough economy, this 
Subcommittee has been active in ensuring small business 
contractors receive equitable contracting opportunities. It is 
imperative that the government does not unfairly compete at the 
expense of small businesses. While reducing recidivism is 
certainly a worthy goal, it must be achieved without negatively 
affecting small business. And it is my hope that today's 
examination will provide insight into this particular topic.
    With that, I will yield to Ms. Chu for her opening 
statement.
    Ms. Chu. Thank you, Chairman Mulvaney. Thank you for 
calling the hearing today on Federal Prison Industries. And I 
thank our witnesses for making the time to join us.
    As a buyer of a half trillion dollars worth of goods and 
services annually, the Federal government is a substantial 
economic engine for the country. As we have seen in this 
Committee time and time again, Federal government contracting 
has been a vital source of business for small firms, often 
allowing them to grow and thrive. Since 1934, Federal 
government contracting has also been a vehicle for one of the 
Federal Bureau of Prisons' most successful and important 
programs aimed at reducing inmate recidivism, the Federal 
Prison Industries or UNICOR.
    All able-bodied inmates in our federal prison system are 
required to work, which helps maintain prison security by 
reducing inmate idleness. However, FPI's model is unique and 
highly affected. It is a federal chartered corporation whose 
mandate is to employ and provide job skill training to the 
greatest number of inmates in a self-sustaining manner. And FPI 
accomplishes this by producing market-priced quality goods and 
services that it is authorized to sell to federal government 
agencies.
    The goal of FPI is not to be a business; it is to 
rehabilitate and train inmates for greater success on their re-
entry to the civilian workforce. This mandate has many positive 
social benefits in addition to reducing recidivism rates. Since 
it does not receive appropriations, it does not cost taxpayers 
any money and actually helps save taxpayer dollars by reducing 
future criminal justice costs. In fact, every dollar spent on 
correctional industry programs saves $6.70.
    FPI also increases the safety of our nation's correctional 
workers and almost 80 percent of FPI's revenues go back into 
the program toward purchases of raw materials from the private 
sector, providing opportunities to work with small businesses 
through prime contractors, subcontracts, and innovative public-
private partnerships. I have heard from small businesses for 
which this has been a critical lifeline.
    However, another part of FPI's mandate is to minimize its 
negative impact on private business and labor. Therefore, it is 
important to make sure that as economic conditions change, FPI 
is still fulfilling all parts of its mandate. That is why we 
are here today. We must ensure the right balance between the 
positive contributions of FPI with the concerns of parts of the 
small business community so that both are able to continue 
their operations and continue to benefit America.
    Given its mission, FPI has some unique advantages over the 
private sector. Mandatory sourcing gives FPI first rights to 
sell its products to agencies. At the same time, FPI is an 
important role in supporting the private sector and spurring 
the development and growth of small businesses. In fact, in 
2011, it purchased more than $640 million in raw materials, 
supplies, equipment, and services with 40 percent of its 
purchases made from small businesses.
    However, unlike small firms, there is no limit to the 
amount of a contracts that FPI can subcontract to other 
entities. This means that FPI is often a catalyst for business 
development.
    Balancing the larger social mission of FPI against the 
needs of small businesses is no easy task. Over the last 
decade, several measures have been put in place to help 
mitigate FPI's negative impact on the private sector.
    I look forward to hearing from our witnesses in exploring 
what more we can do to work constructively on this issue. Thank 
you, and I yield back the balance of my time.
    Chairman Mulvaney. Thank you, Ms. Chu.
    Our first witness today is Mr. Philip Sibal, the senior 
deputy assistant director for the Industries, Education, and 
Vocational Training Division of the Federal Bureau of Prisons, 
and in this capacity, responsible for each of the seven 
business groups within Federal Prison Industries, as well as 
overseeing the corporate quality and information system 
branches.
    Now, ordinarily, for those of you familiar with this 
Committee, we let the small businesses go first so they have 
the opportunity to ask questions of the administration 
witnesses that typically go second. Mr. Sibal has some 
important time constraints today so we have agreed in this 
circumstance to let him go first. But he has also agreed 
afterwards that if a question is raised by the private business 
panels, he will answer those questions in writing after the 
hearing.
    So Mr. Sibal, thank you for making that accommodation. If 
you would please go ahead and present your testimony.

 STATEMENT OF PHILIP SIBAL, SENIOR DEPUTY ASSISTANT DIRECTOR, 
               UNICOR, FEDERAL PRISON INDUSTRIES

    Mr. Sibal. Good morning, Chairman Mulvaney, Ranking Member 
Chu, and members of the Subcommittee. I appreciate the 
opportunity to appear before you today. I serve as the Senior 
Deputy Assistant Director of Federal Prison Industries, also 
known as FPI or UNICOR, a government corporation and a 
component of the Department of Justice, Federal Bureau of 
Prisons.
    Today there are over 200,000 inmates in federal prisons, 
housed in 117 institutions and privately-operated facilities 
under contract with the Bureau. The mission of the Bureau is to 
protect society by confining offenders in facilities that are 
safe, secure, and cost efficient, and to provide opportunities 
to inmates for self-improvement necessary for a successful re-
entry into society. FPI is one of the Bureau's most important 
correctional programs. While it operates like a business, the 
real output is inmates who are trained in marketable job skills 
so they can return to the community as productive members of 
society upon release.
    FPI was established by statute and executive order to 
provide training and work experience to federal inmates without 
the need for Congressional appropriations. The statute also 
recognized this training should not place an undue burden on 
any specific industry. The year was 1934, when unemployment in 
this country was at 22 percent. Nevertheless, Congress 
recognized the importance of creating a real-world environment 
in which inmates would learn the valuable skills needed to 
become productive members of society. The enabling statute 
created a procurement preference for FPI, known as the 
``mandatory source'' to ensure sufficient work opportunities 
would exist for the inmate population. More than 75 years 
later, FPI continues to operate without any Congressional 
appropriation, although it has become increasingly difficult in 
recent years.
    The Bureau of Prisons releases approximately 45,000 inmates 
per year back to communities around the country. FPI is 
critical to the Bureau's efforts to prepare these inmates to 
successfully re-enter society. Inmates who work in FPI are 24 
percent less likely to reoffend and 14 percent more likely to 
be employed upon release than their nonparticipating peers. FPI 
provides the greatest benefit to minorities, inmates who are 
often at a greater risk for recidivism. FPI is also critical to 
the Bureau's efforts to manage safe and orderly prisons. 
Inmates who work in FPI are substantially less likely to 
violate prison rules as compared to nonparticipating inmates. 
This is particularly important in high and medium security 
institutions as these institutions are extremely crowded, on 
average holding more than 150 percent of the offenders they 
were designed to house.
    Inmates who work in FPI are required to use half of their 
wages to satisfy financial obligations, including assessments, 
fines, and restitutions to directly and positively impact crime 
victims, the courts, and inmate family members. In fiscal year 
2011, inmates who worked in FPI contributed more than $1.6 
million of their earnings towards these financial obligations.
    The overwhelming majority of FPI's expenses, approximately 
78 percent, go to purchases from private vendors with more than 
a half a billion dollars spent on raw materials, equipment, and 
services from private sector businesses. Year-to-date in fiscal 
year 2012, approximately 54 percent of these purchases are from 
small businesses, including businesses owned by women, 
minorities, and those who are disadvantaged. But the economic 
downturn and changes to procurement laws and policies have 
significantly challenged FPI's ability to continue to operate 
as a self-sustaining inmate program in recent years. We are 
actively pursuing new business opportunities consistent with 
new legislative authorities regarding products made outside the 
United States. Today the FPI program serves less than 13,000 
inmates; 7 percent of the inmate population in Bureau 
institutions, down from more than 23,000 inmates just five 
years ago. Over the same time period, the federal inmate 
population has increased by more than 25,000 offenders. The 
loss of work opportunities within FPI translates into more than 
15,000 inmates who are released back to our communities without 
having the benefit of the skills, training, and work experience 
that has proven to be effective in reducing recidivism.
    Chairman Mulvaney, Ranking Member Chu, and members of the 
Subcommittee, I thank you for the opportunity to testify today 
about Federal Prison Industries, one of the Bureau's most 
important re-entry and recidivism programs, and certainly, a 
critical piece of the Bureau's public safety mission. This 
concludes my remarks. I would be pleased to answer any 
questions you or members of the Subcommittee may have.
    Chairman Mulvaney. Thank you, Mr. Sibal.
    I recognize Ms. Chu for such time as she may consume.
    Ms. Chu. Mr. Sibal, can you explain what would happen to 
FPI if it could not get the federal contracts that allows FPI 
to sustain itself? Do you have any other avenue besides federal 
contracts in order to keep this program whole?
    Mr. Sibal. Until December of 2011, FPI was restricted to 
selling its products to the federal government. In 2011, in 
December, we received authority to bring work back from 
overseas by repatriating products for the--selling products to 
the commercial market that are currently or would otherwise be 
made offshore. We are actively pursuing opportunities to take 
advantage of that new authority. Within weeks after receiving 
it, we had several pilots approved by our Board of Directors.
    However, it is important to recognize that we see that as 
an opportunity to replace some of the 10,000 jobs that we have 
lost in the last five years, rather than as a replacement for 
the 13,000 jobs we have remaining. The reason for that is we 
rely on the existing work we have to cover the fixed expenses 
of our operations. The challenges with repatriated work is the 
wage rates offshore are so low, substantially lower even than 
prison wages, that unless we have that foundation of work for 
the federal government to cover our fixed costs, like building 
depreciation, staff salaries, et cetera, and can treat the 
repatriated work as just incremental work to where the only 
costs we have to apply to it are the raw materials and what we 
call the variable overhead specifically for that product. That 
is the only way economically those projects we believe are 
going to be viable.
    We also faced some significant challenges with those 
projects in other avenues. We have had several projects already 
where we were going full speed ahead and ran into issues with 
corporate policy and corporate perception. There are cases 
where corporate executives simply do not want to be associated 
with prison industries, and there are cases where corporate 
policies specifically prohibit companies from buying from any 
vendor that uses prison labor.
    So this is not a panacea. We are certainly excited about 
the opportunity, grateful to Congress for providing it. We 
think it does absolutely provide us the opportunity to increase 
work, but it is not without obstacles.
    Ms. Chu. We have heard about FPI's benefits to the inmates 
and the issue of recidivism, in fact, that it combats against 
it. But can you describe FPI's benefits to the taxpayers?
    Mr. Sibal. Certainly. You mentioned one of the important 
benefits, and that is the fact that more than any other program 
in the prison system, Federal Prison Industries has a return of 
$6.70 per dollar spent on Prison Industries. So that is a 
significant benefit to the taxpayers. Because of the reduced 
recidivism, costs for the entire justice system from law 
enforcement through prosecution, through incarceration, through 
and including the cost to the victims of crime are greatly 
reduced by a ratio of $6.70 to 1.
    Another important impact that Prison Industries has is the 
financial responsibility program, the money that is turned back 
from the inmate wages to victims of crime, to the special 
assessments, to child care obligations, et cetera. And again, 
that was $1.6 million last year. A significant part of the 
benefit in addition to providing the inmates with skills that 
they need to get a job when they get out is the impact on 
operating the prison. I spent most of my career managing prison 
industries' operations inside federal institutions. The jobs 
that the inmates have in those institutions are very critical 
in their adapting to the prison environment and inmates that 
work in Prison Industries are known to be much less involved in 
violence, in disruptive behavior inside the prison. So it is a 
very important tool inside the prison for helping to manage the 
population.
    Ms. Chu. FPI was created in 1934, during the Great 
Depression, when the U.S. was suffering its highest level of 
unemployment and economic stagnation. And it grew to be a 
successful program that has long enjoyed bipartisan support. 
What kind of economic impact do you believe FPI can have during 
this recession?
    Mr. Sibal. I think our support of small business is a very 
strong impact that we can have. As I mentioned in my opening 
remarks, 54 percent of the dollars that we have spent year-to-
date on suppliers, services, raw materials, are going to small 
business. We work as a partner with small business and open our 
doors to them, the opportunities to work with us either as a 
supplier or as a partner where the private sector company may 
have expertise in one area. We have expertise in another. 
Working together we can be competitive sometimes even with 
offshore. So I think the partnership and the synergism we can 
have with businesses, large and small, can really help the 
economy.
    Ms. Chu. I would like to ask about your relationship with 
the private sector and this mandate to mitigate the negative 
impact on them. What steps has FPI taken to accomplish this 
requirement and to ensure that the private sector, especially 
small businesses, are not hurt by FPI's operations?
    Mr. Sibal. We are certainly very sensitive to our impact on 
private industry, small business and large. We have a very 
stringent new guidelines--new product guidelines process that 
requires for every new product that we come out with or even a 
significant expansion of existing product. It has to go through 
a rigorous process of public vetting where we announce to the 
public our interest in entering into a new product area or 
expanding an existing product. Companies that are concerned 
then have the opportunity to either write to our Board of 
Directors or visit the Board in person and express their 
concerns. The Board of Directors then has the ultimate decision 
as to whether or not we are going to enter into a new product 
area.
    We also have other restrictions imposed by our Board of 
Directors on our market share and recent rules restricting our 
market share with contracts for the Department of Defense.
    Ms. Chu. And there have been some alternatives proposed 
such as increasing the set-asides for small businesses in the 
industrial areas in which FPI operates. What are your views on 
those alternatives?
    Mr. Sibal. I think there is a misperception that FPI--that 
it is an either-or. Either Federal Prison Industries or small 
business, when in fact we have been working hand-in-hand with 
small business and peacefully coexisting since we were first 
created. And I think as I mentioned, the opportunities for 
subcontracting and for partnering present a lot of 
opportunities for small business to grow.
    We are a relatively small part of private industry, and 
including our impact on small business. I believe one of the 
most sensitive areas seems to be the military apparel business 
whereby the statistics directly from the Department of 
Defense--these are not FPI statistics--we represent on average 
just five to seven percent of the pie of the apparel work that 
Defense Logistics Agency Troop Support in Philadelphia buys 
from the federal government. Small business represents a 45 
percent piece of that pie. And again, I would emphasize that 
that is the piece of the federal pie to which FPI is restricted 
with the exception of the new authority that we are beginning 
to explore whereas the private sector companies have access to 
commercial markets, global markets, and we are only allowed to 
sell to the federal government.
    I think there is room for us to coexist. We have shared 
these markets ever since we came into being. What is different 
now is that these contracts, where before we achieved our 
balance with small business through the mandatory source, now 
we are bidding on those contracts. So I think that is something 
that has changed in recent years.
    Ms. Chu. In fact, talking about the mandatory source, you 
have the ability to grant waivers to it, to its ``mandatory 
source'' clause in order to mitigate the negative impact on 
businesses. I have heard from businesses that say that the 
waivers are too rare. Under what circumstances and how often 
are these waivers requested by agencies and granted by FPI?
    Mr. Sibal. In fiscal year 2011, we received requests for 
$165 million in waivers. We granted $156 million in waivers. On 
average, we have been averaging 95+ percent of the waivers 
requested that we grant.
    Ms. Chu. And how have the waivers affected FPI's ability to 
operate, employ, and train inmates, as well as fulfill your 
mandate?
    Mr. Sibal. Business waived is inmate jobs that we do not 
have. But it speaks to our commitment to business that we are 
going to minimize the impact on small business and try to reach 
a balance, both with the customers and with private business to 
coexist and to allow businesses to participate where the 
customer wants a specific product that we do not make or they 
want a specific feature that perhaps we do not provide. I think 
it just speaks to the balance we have been trying to strike 
since we were born.
    Ms. Chu. Okay.
    Chairman Mulvaney. Thank you, Ms. Chu.
    I want to talk about that balance because I struggle with 
this as a small businessperson. I see clearly both sides of it. 
I have seen small businesses benefit from this because they buy 
from you all. I have seen small business suffer from it because 
they compete with you all. And it strikes me that the one thing 
that is sort of, if anything justifies the program, it is the 
recidivism. It is that social cost entailed in teaching folks 
jobs; they can get out of jail and stay out of jail.
    So let us talk about that for a second. Does it work? And 
tell me how you all measure it.
    Mr. Sibal. Absolutely.
    Chairman Mulvaney. Give me some information on why you 
think it is successful in that particular mission.
    Mr. Sibal. Certainly. There was a study called a PREP study 
which is the Post-Release Employment Project that evaluated 
inmates over a number of years, a very rigorous study. And that 
study concluded that inmates working in prison industries were 
24 percent less likely to come back to prison; 14 percent more 
likely to get a job upon release. That study has been 
rigorously analyzed by other institutions. One in particular, 
the Washington State Institute for Public Policy, who uses only 
the most rigorous research, actually used that PREP study as a 
basis for their subsequent studies looking at the cost benefits 
of the Prison Industries' program.
    Chairman Mulvaney. Right. But getting a job upon discharge 
from prison is not recidivism. Recidivism is not going or going 
back to prison. So tell me specifically about that. I 
understand that now they have a skill. They are more likely to 
be employed than folks who do not learn a skill in prison. I 
understand that. But tell me about the rate at which they go 
back to jail.
    Mr. Sibal. And that is the recidivism figure that I used at 
24 percent. That is not an employment figure; that is the rate, 
the lower of the rate at which they come back to prison. And we 
define recidivism as being reincarcerated in the BOP within 
three years after release.
    Chairman Mulvaney. So you are 24 percent less likely to go 
back to jail within three years if you go through this program?
    Mr. Sibal. That is correct. And right now every inmate 
costs us taxpayers $30,000 a year to house. So that is a 
significant savings.
    Chairman Mulvaney. Now, there are other programs designed 
to reduce recidivism rates outside of job training and prison 
labor. How does this program compare to those?
    Mr. Sibal. In the Washington State Institute for Public 
Policy Study, Prison Industries was the most valuable in terms 
of the dollar ratio of savings to the program. The Bureau of 
Prisons offers a variety of really valuable programs to give 
inmates the opportunity to take advantage of their time in 
prison. Adult basic education, vocational training, drug abuse 
treatment, for example. The one program that was shown to have 
a higher impact on reducing recidivism was vocational training. 
So it is frequently asked, well, why do we not put inmates 
through vocational training which does not impact small 
business.
    The problem with vocational training alone is two-fold. 
One, it costs taxpayer dollars. Vocational training is not 
cheap. The second issue is one of timing. Would it really make 
sense, for example, to have someone go through automotive 
training and get his certification as a certified auto mechanic 
10 years before he is going to be released? Vocational training 
is really only effective within 18 months to two years of 
release. Imagine an inmate that receives training as an auto 
mechanic 10, 12 years ago and now he is released into a society 
where what is a hybrid and electric car, et cetera, et cetera. 
So there is an issue of the skills staying current, because 
once an inmate has completed a vocational training program, he 
does not get to hang around and continue to hone those skills. 
He has completed the program. So those skills would get very 
rusty.
    Chairman Mulvaney. Could not the same thing be said about 
Prison Industries though? I mean, why would you put somebody in 
the business of making boxes if they are not going to be out 
for 15 or 20 years?
    Mr. Sibal. That is a question we often hear, and that 
speaks to the question of what we call the soft skills versus 
the technical skills. There was a study by the National 
Association of Manufacturers back in 2005, I believe, in which 
private sector manufacturers were asked about the problems with 
retaining and hiring their workforce. The problems they had 
with hiring and retaining production workers was not that that 
they did not know how to run Microsoft Excel. Not that they did 
not know how to run a computer-controlled machine. They lacked 
the soft skills as we call them. Show up for work on time. Do 
what the boss says. Wear your safety shoes. Get along with the 
other guys in the shop. Those are the skills that we teach the 
federal inmates, and that is first and foremost what we are 
shooting for. By design, we are designed by the--we are by 
mandate required to be very labor-intensive. Obviously, we 
could employ a lot of robots and unemploy a lot of inmates by 
doing that, and thereby, expose them to more marketable skills. 
But we focus on teaching them the soft skills. We certainly 
have examples where inmates are learning very valuable and very 
current skills, whether it be in computer-aided drafting, 
working in a call center. We use a system called SAP as far as 
our production financial system. That is the global market 
share leader in those types of systems. Inmates are on that 
system every day. So they are learning valuable skills.
    Chairman Mulvaney. Can you quantify for me, Mr. Sibal, if 
you believe that Prison Industries were more effective in 
preventing recidivism, then vocational training, can you 
quantify that for me?
    Mr. Sibal. The statistic I would cite, and again, 
vocational training program is proven to be more effective in 
reducing recidivism but the drawbacks to that are the facts 
that it requires appropriations and we have the issues of the 
timing of that program versus the timing of the inmate's 
sentence.
    Chairman Mulvaney. And I appreciate that. I think at the 
end of the day it will cost all taxpayers money one way or the 
other. Whether or not we do an actual appropriation or we 
compete with business and take business away from small 
business and they pay less taxes, sooner or later we have got 
to pay for it one way or the other but that is a bigger story 
for another day.
    I want to talk about where you all work. Because one of the 
things in doing the research for this hearing, one of the 
things I was excited to see was the previous law change from 
several years ago that allowed you, encouraged you to go into 
the businesses that did not compete with domestic producers, 
that had you focus on things that were no longer made here, 
have never been made here and go into that industry and compete 
with folks who are overseas.
    Tell me more about that program. You mentioned a little bit 
in your answer to Ms. Chu. Tell me what you are doing with 
that. Tell me about the growth rates in there and how you are 
focusing on that. And then I want to have some follow-ups as to 
why I like that program so much.
    Mr. Sibal. Certainly. We are very excited about that 
program as well, and again, we are grateful to Congress for 
granting that authority. We just received it in December of 
2011.
    We had a Board Meeting in January, the following month, and 
by that time we already had four pilots that we asked for 
approval by the Board of Directors. Some of them were apparel, 
solar panels, tents, baseball caps, the textile bags that you 
take to the grocery store. And energy efficient lighting was 
another one. So we are aggressively pursuing those. But as I 
mentioned earlier, we have encountered a lot of obstacles in 
trying to actually make that happen. We are actually producing 
some LED lighting at one of our factories in New Jersey. The 
other programs we are still trying to work through the contract 
negotiations.
    Chairman Mulvaney. And these are all items that are not 
made here?
    Mr. Sibal. Yes. These are all items that are not made here. 
Now, they may be made here to some extent, but one of the 
things that we have to evaluate in the information we have to 
provide to our Board is what we refer to as the import 
penetration ratio. There is probably nothing that is 100 
percent made somewhere else in this country. But what we have 
to look at is what would--again, what would our impact be on 
those businesses that do remain?
    Chairman Mulvaney. Mr. Sibal, our time is running short and 
I am not going to get a chance to ask my line of questions 
about specific industries but I want to make a comment for the 
record, which is that you mentioned specifically apparel, 
military apparel. I am from a textile area, and it is one of 
those places where we have more labor now than we have demand 
for that labor. And it strikes me as somewhat against the 
purposes to be--having prison labor competing in areas where 
folks are having difficulty finding jobs in the private sector, 
and to encourage you I am going to ask some follow-up questions 
in writing on whether or not your program can instead focus on 
areas where there is a shortage of labor. And I am speaking 
specifically in my district of agriculture. They cannot find 
people to do these jobs. And it strikes me that that might be 
an area where you all can grow your base without going into 
direct competition with the private sector because we need that 
labor. We are not able to get that labor. Immigration is 
preventing us from getting particular folks to work that. 
Domestic workers do not want to do the job so we have ended up 
losing entire industries in my state because they cannot find 
the people. And maybe that should be something the federal 
prison programs can focus on that would still allow you to 
accomplish what you want to accomplish without competing with 
folks who are out there trying to make shirts and pants for the 
military.
    But again, I am going to be respectful of everybody's time. 
My phone is blowing up. I do not if anybody else's is. I have 
got 15 different answers on what happened across the street. We 
are not really sure what the deal is yet so we are going to go 
find out. What we will do now is we will adjourn until 2:30. I 
thank Mr. Sibal, I thank everybody else for the accommodation, 
understanding that it is a very special day. We are going to 
adjourn now until 2:30.
    [Recess.]
    Chairman Mulvaney. On that cheerful note we will call the 
meeting back to order. And again, I thank everybody for the 
special accommodations today. I cannot apologize enough. I know 
how difficult it is to work these things into your schedule to 
begin with, but there was really obviously no way around it 
today. So thank you for coming back.
    Panel number two is Mr. Huizenga, who is going to talk to 
us about a bill that he is working on. Where is my 
introduction? Good. And I am pleased to welcome you, Mr. 
Huizenga. And I have a nice little phonetic spelling of your 
last name which is cool.
    He represents the Second District of Michigan. He is a 
small business owner himself and he understands the issues that 
this Committee seeks to address, and his introduction of H.R. 
3634, the Federal Prison Industries Competition and Contracting 
Act of 2011 is especially relevant to what we are doing today.
    So with that, welcome to Mr. Huizenga and I will give you 
as much time as you need, Bill.

 STATEMENT OF THE HONORABLE BILL HUIZENGA, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Huizenga. Mr. Chairman, I appreciate the opportunity to 
be in front of you, and Ranking Member Chu, thank you for your 
time and your attention. This is something that is very 
important and on a very, very busy day I am glad we could get 
together and have this conversation because competition with 
the private sector by Federal Prison Industries is an issue 
that is important not only to those of us on the West Side of 
Michigan or in Michigan in particular, but really across the 
nation.
    When I was district director for Congressman Pete Hoekstra, 
my predecessor, we had an interesting experience when the 
Social Security Administration opened up a brand new office 
building in town. And when they did so, they were--obviously 
needed to put new furniture into it. Unfortunately, the 
hometown that I am from, two of the world's largest of the 
three largest office furniture makers in the world are located 
in the Holland area. The third one, Steel Case, is about 20-25 
miles away. They were actually not even allowed to compete for 
that contract. And what happened is the opening of the office 
was delayed because the office furniture was not actually 
delivered on time and the irony was we were literally a rifle 
shot away from one of those office furniture makers who could 
have had that there in literally, if not the same day, by the 
next day, and we could have had that office opened. And it was 
not because of the mandatory sourcing that UNICOR has and that 
the Federal Prison Industries put forward on this.
    So the impact of it hits communities all over. Our 
colleague, Carolyn Maloney, has been a long-time supporter of 
this initiative and worked with Congressman Hoekstra at the 
time. I want to make sure I get the name right. It was the 
Glamour Glove Company on Long Island that had its existence 
threatened by FPI. Many of Ms. Maloney's constituents were 
employees of the company, and they lost 80 percent of its glove 
business before a compromise was negotiated with FPI.
    Ace Electronics of Bel Air, Maryland, and Troy, Michigan, 
manufacturers wiring and cable assemblies, fiber optics, 
connectors, and other products. Ace will likely lose out to FPI 
on a $300 million contract because of the rule that allows FPI 
to capture up to five percent of the market share in a 
particular area.
    General Linen Service of New Hampshire was forced to 
compete for a contract against the prison system that they had 
previously serviced without incident. The Textile Rental 
Services Association member was informed that their service 
contract was being terminated and awarded to the prison system 
without any reasons given. While the company eventually won the 
contract back, the cost of having to recomplete and restructure 
the contract was a significant burden on the business.
    UNICOR has been sort of argued in some hands and some 
quarters as not really being a significant operation. That is 
not the case at all. They occupy more than four million square 
feet of manufacturing and service space. FPI is far from a 
small business. This bureaucratically-run corporation competes 
with private business job creators in over 300 individual 
products and services. It is comprised of seven divisions 
including clothing and textiles, electronics, fleet management, 
office furniture, industrial products, recycling, and services, 
including call centers and data and document conversion as 
well.
    Revenues range from $745 to $885 million annually. FPI is 
the 36th largest federal contractor when measured by gross 
sales to federal agencies. Prisoners working in UNICOR 
factories are paid somewhere between 23 cents to $1.15 per 
hour. Can you imagine the uproar in the public or in Congress 
if we were importing goods manufactured from China and using 
prison labor there? It is no wonder American-grown companies 
cannot even compete with a Goliath like that that is paying 
literally pennies on the dollar where our companies are forced 
to pay obviously at least minimum wage.
    In addition to low wages, FPI does not have to pay 
employees Social Security, nor the employer's share. It does 
not pay unemployment compensation, workers' compensation 
insurance, 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, or Department of Justice review. 
It even has a special statutory allowance for a line of credit 
through the Department of Treasury for up to $20 million at 
zero percent interest.
    On a very bipartisan basis, I introduced H.R. 3634, the 
Federal Prison Industries Competition and Contracting Act. It 
was a wide range of support, including lead Democratic sponsors 
Barney Frank of Massachusetts and Carolyn Maloney of New York, 
as well as former Judiciary Committee Chairman Jim 
Sensenbrenner of Wisconsin and former Small Business Committee 
Chairman Don Manzullo of Illinois. The bill is nearly identical 
to previous versions that had passed the House by votes of 350 
to 65. That was in 2003. And then again in 2006, when a bill 
passed 362-57.
    We must pass, I believe, my bill, and work with our Senate 
colleagues to pass it in the other body as well. That had been 
where the holdup had been previous years. I am pleased to 
report that in the coming days, Senator John Thune of South 
Dakota and others will be introducing a bipartisan FPI reform 
bill there.
    My narrowly written bill would establish market-based, 
government-wide procurement policies for purchases that are 
based on competitive procedures. It establishes competition as 
the standard for the Federal agencies when they do their 
purchasing.
    Currently FPI, not the buying agency, determines if the 
product FPI offers and the delivery schedule that it offers 
meets the needs. That is pretty much backwards from any other 
procurement that happens. Our bill puts the purchasing 
decisions in the hands of the buying agencies requiring them to 
research which products are available on the market, not just 
to flip through an FPI catalogue and know that they have to 
take what is being offered. Specifically, our bill requires FPI 
to compete for business opportunities by removing the mandatory 
source status that UNICOR enjoys. It requires FPI to complete a 
probability impact study on private industry before entering 
into a brand new market. So at this point they are able to just 
basically say, hey, that sounds like a good idea. We will start 
expanding into this new area or that other area, and this would 
require them to do an impact study. It forces UNICOR to 
gradually pay competitive hourly wages for prisoners performing 
the work and makes OSHA standards mandatory at prison 
factories. And it also prevents UNICOR from selling products in 
commercial settings and from entering new interstate or foreign 
commerce contracts.
    So H.R. 3634 is mindful of idleness of prisoners as well. I 
do not think anybody wants to see these guys or these women 
sitting around not learning a skill or not being kept active, 
and it does actually address recidivism. It creates new 
opportunities for prison workers that do not result in unfair 
competition with private business, particularly small business, 
and the employees in companies that lose out to FPI, but it 
allows prisoners within FPI to work for a tax-exempt charity, 
religious organization, or even local units of government. And 
I know in Michigan, when I served in the state legislature 
there, we had kind of a similar situation where there was a bit 
of a state version of this. And we went in, changed the law, 
and I was aware of it because having prior--immediately prior 
to being in the state legislature I had worked as the district 
director for Congressman Hoekstra, and so I was aware, very 
much aware of our efforts on the federal level with FPI, so I 
went into the state legislature looking at if we did anything 
like that and discovered that we were. So one of the things 
that we did is we said, okay. We worked with Habitat for 
Humanity and we now have state prisoners building modules and 
components of homes for Habitat for Humanity. And then as those 
would then get shipped off to those building sites it was 
saving a tremendous amount of time and cost while we were 
giving prisoners skills that hopefully they will be able to use 
on the outside, but it also authorizes private businesses to 
participate in work training and apprenticeship programs for 
prisoners as well.
    It establishes an Enhanced In-Prison Educational and 
Vocational Assessment and Training Program to help people with 
release readiness preparation. The Bureau of Prisons' own 
studies have shown that vocational training programs have 
historically been the most successful in decreasing recidivism. 
By giving prisoners the training they need to find and maintain 
a job once released, we are providing them, their families, and 
our communities, with the greatest of services, I believe. 
Taking jobs away from honest, hardworking Americans in the 
process though, is not how we accomplish this goal.
    So again, I thank you very much for the invitation and the 
opportunity to be with you this afternoon. And we are looking 
for all the support that we can get for H.R. 3634, and would 
love to have your participation as we move forward on that. 
Thank you, Mr. Chairman.
    Chairman Mulvaney. Thank you, Mr. Huizenga.
    Ms. Chu, I recognize you for as much time as you would 
consume.
    I have just a couple, Bill. Thanks very much.
    Oh, I want to recognize Mr. Flores who is here. I will tell 
you what, as I was getting ready for this hearing I was not 
really aware of the scope of the Federal prison program. I knew 
it existed, and I had folks who had used it and competed with 
it, both back home, but that number you threw out today, that 
stuns me that it is, you know, $750, $800 million a year. That 
is a big, big company. Are you telling me, by the way, that 
story about Michigan, that we actually bought the furniture for 
the Social Security Administration building in your district 
from Prison Industries?
    Mr. Huizenga. Correct. Yeah. We all make it locally. Yeah. 
And all the Aeron chairs that people sit in are literally made 
in my district. And I am not saying we necessarily want to have 
Social Security Administration flooded with Aeron chairs, but 
that is the scope of it. I mean, all of the system's furniture 
is centered--the biggest three but also probably out of the top 
10 office furniture makers, seven of them are located within 
the West Michigan area.
    Chairman Mulvaney. I had no idea. As you go forward on the 
bill, something came up in the first panel today I would 
encourage you to consider, which is--and I think you have in 
this impact study that you are requiring them to make as they 
go into new industries, you know, I have got industries in my 
district that cannot get people. They cannot find labor, 
specifically agriculture. And it would make sense, it would 
seem to encourage the Prison Industries to go where there is a 
shortage of labor, not where there is a surplus of labor, like 
in textiles or in your circumstance, furniture. So if that is 
contemplated in your bill, I commend you on that. If not, I 
would encourage you to consider adding something like that. The 
competitive wages, by the way, I thought was interesting as 
well.
    What is the pushback on the bill? Have you heard anything 
yet or not?
    Mr. Huizenga. Well, other than UNICOR, they are obviously 
not real interested in moving in that direction. They would 
like to have as much flexibility and freedom as they possibly 
can. I can tell you that when we explain it, especially for a 
number of the freshmen that are coming in who have not dealt 
with this in the past, you kind of get that same reaction where 
it is like, really? I mean, we have got three-quarters of a 
billion dollar industry that is getting run through our Federal 
prisons.
    Chairman Mulvaney. At $1.15 an hour or something like that.
    Mr. Huizenga. Yeah. Yeah, 23 cents to $1.15 an hour. And we 
ought to maybe take a closer look. So we have gotten very 
positive feedback on that. And obviously, by those votes, it is 
rare to see 350+ votes for anything, but you know, this was a 
culmination of many, many years of work. That 2003 vote, 
Congressman Hoekstra had started working on this back in the 
mid-90s, about '97, '96. And where it came from frankly, you 
know, the office furniture industry is a multi-billion dollar 
entity. And the dotcoms were going on. When you had a good idea 
but it was all based on Internet, what did you do? You went and 
rented some of the most cool office space and bought the most 
expensive furniture you could find. Right? And so the office 
furniture industry was just going nuts. And when that dot bomb 
happened, the dotcom bubble burst, suddenly they were looking 
for business. They had ramped up to a tremendous amount of 
output, and they were looking for new areas where they could 
go.
    Well, at that point, UNICOR was doing about $100 to $125 
million a year in office furniture. Not insignificant, but when 
you are a multi-billion dollar industry, it was kind of like, 
okay, we knew it was sort of happening over here and they were 
playing some games. They would import parts from certain 
manufacturers and then they would assemble them in the prisons 
and they would, you know, they would call it Prison Industries 
or they would try to come up with some of these partnerships. 
But when they started looking around for new areas and new 
avenues to expand their business, a $100 million target was 
significant. So that was really what prompted Congressman 
Hoekstra and Congressman Frank and Ms. Maloney and others to 
sort of get engaged. And my understanding, I believe it was 
also textile-related when Mr. Frank and Mr. Hoekstra came 
together on this. They were sort of coming at it from different 
industries but with the same outcome, which was seeing private 
sector jobs disappearing because of mandatory sourcing through 
UNICOR.
    Chairman Mulvaney. I have to ask you one last question I 
did not get a chance to ask the previous gentleman who was here 
on our first panel, would your bill ban UNICOR from receiving 
future stimulus money?
    Mr. Huizenga. From future stimulus money? That is one of 
the questions that we have, is whether it has or not. And I 
need to go back because I am not sure I can answer that 
accurately. So if I can double-check on that for you and we 
will get back to you, Mr. Chairman.
    Chairman Mulvaney. Thanks, Mr. Huizenga. Unless there are 
further questions, thank you very much for your testimony 
today. And we will go ahead and panel the third group. Thanks.
    Mr. Huizenga. Thank you. I appreciate it.
    Chairman Mulvaney. All right. Thanks to the final panel 
that is making its way up.
    In this third group we are going to have Michael Mansh, 
president of Pennsylvania Apparel, LLC, a small business based 
in Fort Washington, Pennsylvania with factories in Olive Hill, 
Kentucky; Macon, Georgia; and Buckhannon, West Virginia. He is 
also the chairman of the American Apparel and Footwear 
Association's Government Contractors Committee.
    Mr. Mansh, are you here, sir?
    Mr. Mansh. Yes, sir.
    Chairman Mulvaney. Come on up, please.
    I would also like to welcome John Palatiello. John is the 
president of the Business Coalition for Fair Competition, an 
organization comprised of trade associations, businesses, and 
organizations dedicated to free enterprise, relief from unfair 
government-sponsored competition, and maximum government 
reliance on the private sector. They are also the organizer of 
the Federal Prison Industries Competition in Contracting Act 
Coalition, a group of firms and associations seeking a full and 
open competitive procurement market with a level playing field 
between the private sector, especially small business and 
Prison Industries.
    And our third witness is going to be introduced by my good 
friend from Texas, Mr. Flores.
    Mr. Flores. Thank you, Chairman Mulvaney. I would like to 
thank you for the opportunity to join your committee today. And 
I would like to take the opportunity to introduce one of my 
constituents from College Station, Texas. Rebecca Boenigk 
serves as the chairman and CEO of Neutral Posture, Inc. She has 
over 23 years of experience in research development, design, 
and the manufacturing of ergonomic seating. Ms. Boenigk has 
grown Neutral Posture to an international company with numerous 
award-winning patented products. Together, Rebecca and her 
mother have led Neutral Posture, Inc., from the startup to 
becoming a publicly held company of nine years. In 1997, 
Neutral Posture, Inc. completed an initial public offering, 
becoming the first certified women-owned business to be traded 
on the NASDAQ. In 2006, Rebecca was appointed to serve on the 
National Women's Business Council, which serves as advisors to 
the president, to Congress, and to the U.S. Small Business 
Association. Rebecca is the immediate past president of the 
Business and Institutional Furniture Manufacturers Association. 
She is a past member of the Board of Directors for the Women's 
Business Enterprise National Council. She is a national 
founding partner for the Women Impacting Public Policy, and she 
served on the Board of Directors of the Institute for Economic 
Empowerment of Women. And I have known Rebecca personally for a 
long time, and I know she will add value and insight to this 
conversation today. Thank you, Mr. Chairman.
    Chairman Mulvaney. Mr. Flores, thank you for your time.
    We will start with Mr. Mansh.

 STATEMENTS OF MICHAEL MANSH, PRESIDENT, PENNSYLVANIA APPAREL, 
LLC, TESTIFYING ON BEHALF OF THE AMERICAN APPAREL AND FOOTWEAR 
ASSOCIATION; JOHN M. PALATIELLO, PRESIDENT, BUSINESS COALITION 
 FOR FAIR COMPETITION; REBECCA ELIZABETH BOENIGK, CEO, NEUTRAL 
 POSTURE, TESTIFYING ON BEHALF OF WOMEN IMPACTING PUBLIC POLICY

                   STATEMENT OF MICHAEL MANSH

    Mr. Mansh. Thank you. Thank you, Chairman Mulvaney, Ranking 
Member Chu, and members of the Subcommittee for affording me 
this opportunity to speak today on the adverse impact that 
Federal Prison Industries has had and continues to have on our 
business and our industry.
    I am Michael Mansh, president of Pennsylvania Apparel, LLC, 
a company based in Fort Washington, Pennsylvania, with 
factories operating in Olive Hill, Kentucky; Macon, Georgia; 
and Buckhannon, West Virginia. I am also a member of the 
American Apparel and Footwear Association, where I serve as 
chairman of its Government Contracts Committee, which 
represents the domestic manufacturing base of clothing, 
footwear, and textile producers for the U.S. Military.
    In November 2002, I appeared before the House Small 
Business Committee and explained the deleterious impact of 
Federal Prison Industries on my company and the industry at 
large. In the last 10 years, I can tell you that things have 
only gotten worse.
    Pennsylvania Apparel has been both a prime contractor and a 
subcontractor for the Department of Defense for the last 50 
years. My company's survival against the unfair and unjust 
competition from FPI would not have been made possible if it 
were not for the efforts of Senators McConnell and Paul and the 
effective representation of our industry by the American 
Apparel and Footwear Association.
    We are in support of two pieces of legislation that seek to 
reform the program--H.R. 3634, the Federal Prison Industries 
Competition and Contracting Act introduced by Congressman 
Huizenga and H.R. 2312, the DOD Textile and Apparel Procurement 
Fairness Act introduced by Congressman Walter Jones. One of the 
most important features of both pieces of legislation is the 
restriction that they place on FPI from being able to take any 
contract specifically reserved for small businesses.
    When I last appeared, I testified that my company's main 
product was the Utility Jacket for the U.S. Navy, which was 
made in Olive Hill from 1987 through 1997. Olive Hill is a 
small town of 1,600 people located in a HUBZone with high 
unemployment where my factory alone employs more than 10 
percent of the eligible workforce. FPI took that product and I 
had no ability to fight the decision.
    I was able to keep my Olive Hill plant open by securing a 
contract for the Air Force Lightweight Windbreaker, an item 
worn by each member of the U.S. Air Force. This item is well-
known to many Americans as it is worn by the President of the 
United States on Air Force One, as well as the Air Force One 
flight crew. My company and its workers have been successfully 
and proudly making this jacket for the last 15 years.
    In December 2011, I learned that FPI was planning to steal 
this jacket away from my company when the contract expires at 
the end of 2012. The law does not require FPI to give me any 
formal notice of this action or allow me to submit any protest 
to FPI's legalized theft of this product from my company and 
its workers. Fortunately, my appearance on FOX and Friends 
television program allowed me to publicly explain the real and 
direct impact the FPI program has on American manufacturing 
jobs, which put pressure on FPI to exercise a waiver of its 
mandatory source preference the very next day.
    While this version of the same story I told 10 years ago 
ended positively for my company and its employees this time, 
there are Olive Hill, Kentuckys all across this country who 
face the threat of FPI every day. Unlike other products 
procured by DoD, our industry is predominantly one fueled by 
small business interests. These companies are women-owned, 
veteran-owned, minority-owned, operate in areas of high 
unemployment like Olive Hill, and even employ blind and 
disabled workers under the AbilityOne program. None are immune 
from FPI's preference.
    While we understand the goals of the FPI program, we do not 
understand the logic behind a federal policy that requires the 
government to take jobs away from law abiding, taxpaying 
American citizens as the only way to accomplish the goals of 
the FPI program. In 2011, FPI reported $745 million in total 
sales of which $238 million was in their clothing and textiles 
business segment, accounting for 32 percent of their total 
corporate sales. Moreover, these numbers show that FPI is not 
following its statutorily mandated responsibility to diversify 
its business among its seven segments. If that were so, FPI's 
sales in clothing textiles should have only been approximately 
$100 million in FY11. Can you imagine how many jobs $138 
million could create in the time when unemployment is in excess 
of eight percent?
    In 2002, I stated in my testimony and I quote, ``The time 
for FPI reform is now.'' In 2012, I submit that the time for 
FPI reform is long overdue.
    In closing, I urge this Committee and this Congress to work 
with your colleagues in the House Judiciary Committee and the 
Senate to undertake and pass reform legislation to correct the 
imbalance that FPI has caused as soon as possible.
    I thank you for your invitation to appear before you today 
and look forward to answering any questions.
    Chairman Mulvaney. Thank you, Mr. Mansh. Mr. Palatiello.

                STATEMENT OF JOHN M. PALATIELLO

    Mr. Palatiello. Good afternoon. Thank you, Mr. Chairman. I 
appreciate the opportunity before you. Ms. Chu, Mr. Flores.
    I am John Palatiello, president of the Business Coalition 
for Fair Competition. I also have the privilege of being the 
executive director of maps, a trade association of private 
mapping and geographic information or systems or GIS firms.
    Mr. Chairman, you said you have become much more familiar 
with FPI. What you probably do not realize is yes, the 
prisoners are even in the mapping and GIS business. BCFC 
standards behind what we call the Yellow Pages test, and that 
is if the government is doing something that you can find 
private businesses in the Yellow Pages are doing the same 
thing, we really ought to examine whether the government should 
be doing that in the first place. This is a classic example of 
where the Yellow Pages test is being violated.
    Mr. Chairman, let me expand upon some of the comments that 
Congressman Huizenga made and put it this way. If Congress were 
considering a new procurement system today, does anyone believe 
it would approve a system where the provider can preempt all 
other competition in providing products? Or it can be a sole 
source preferred provider of services, even if services are not 
even mentioned in their authorizing statute.
    Where the provider and not the procuring agencies gets the 
grant waivers to these preferences, where the customer must buy 
from the provider, even if the product is inferior in quality, 
does not meet the buyer's requirements, is higher priced, and 
cannot deliver on time. Would Congress create an entity to sell 
services in the commercial market in direct competition with 
small business? Would Congress permit a contractor to the 
government to pay significantly less than the minimum wage, let 
alone the prevailing wage which all other government 
contractors must pay? Would Congress permit this organization 
to not pay the employee benefits, like Social Security, 
unemployment or workers' compensation insurance? Would Congress 
exempt this entity from federal and state income taxes, gross 
receipt taxes, excise taxes, and state and local sales taxes? 
Pay little or nothing for their space, the original 
construction of their space or have subsidized utilities? Have 
a special statutory line of credit from the Treasury Department 
at zero percent interest? Would you exempt them from standards, 
inspections, or fines from various federal, state, and local 
agencies, such as OSHA? Would you exempt them from the Federal 
Trade Commission or anti-trust laws? Be able to pre-empt local 
zoning laws? Force contractors to use the entity's products or 
service or evaluate one federal contractor's qualifications 
based on their experience in specifying this entity's products 
and services, such as the way government agencies now require 
architects and engineers working for the government to specify 
FPI furniture or to evaluate an architect engineer based on 
their experience in specifying these products and services?
    I do not think Congress would create such a system today, 
but that is exactly the system that we have in place. So I join 
with my colleague and say that it is time for reform.
    Every year FPI continues to expand in the line of products 
and services that they provide. Their growth through 
noncompetitive contracts is formidable. As Mr. Huizenga 
mentioned, their revenues in recent years have ranged between 
$745 and $885 million. Their annual sales have grown by over 
$100 million in the past decade alone.
    When Federal and State prisons naively fail to recognize 
that when their work goes to a prison rather than to a profit-
making, taxpaying company, Federal, State, and local government 
loses tax revenue, there is an increase in unemployment, and 
the market is reduced. FPI's expansion and encroachment on the 
private sector, particularly small businesses, forces a 
reduction in production lines, lays off employees, and some 
firms even have to close for good.
    We believe that H.R. 3634 is a balanced and reasonable 
solution. We commend you for this hearing and we respectfully 
recommend that Congress promptly enact FPI reforms.
    Thank you for the opportunity.
    Chairman Mulvaney. Thank you, sir.
    Ms. Boenigk.

             STATEMENT OF REBECCA ELIZABETH BOENIGK

    Ms. Boenigk. Good afternoon, Mr. Chairman, members of the 
Committee. Thank you for having me. Congressman Flores, thank 
you for the very kind introduction. My mother and I started our 
company in 1989. We are located in Texas. We have 85 employees 
in Bryan, Texas, and six more in Cambridge, Ontario, just 
outside of Toronto.
    I am here today on behalf of Women Impacting Public Policy. 
WIPP is a national nonpartisan public policy organization that 
is advocating on behalf of nearly one million women business 
owners and representing 61 different business organizations.
    Women-owned businesses represent one of the fastest growing 
contributors to our national economy with an impact of $1.2 
trillion annually, a number that would be much higher without 
the impediments like competing with Federal Prison Industries, 
also known as UNICOR. I commend the Subcommittee for bringing 
light to this issue and looking at what is really happening 
with FPI. And the fact that they are allowed to compete for 
small business set asides, the Committee has often said that 
small businesses getting awards is actually a triple win. For 
government, the economy, and the taxpayer.
    Approximately 25 percent of my business actually comes from 
federal contracting. We have had a GSA contract for 21 years, 
and we manufacture ergonomic and multipurpose chairs, which if 
you were sitting in them you would be much more comfortable 
than what you are sitting in now.
    About 50 percent of our income comes from the Neutral 
Posture Series, which is the series that was actually our main 
line when we first started the company, and that is our highest 
end, most task-intensive chairs, provide the most 
adjustability. UNICOR's best product is called the ``Freedom 
Chair,'' and it does not even come close to competing with our 
chair. The UNICOR price on a Freedom chair is $729. Our price 
to the GSA government offices is $690. And that is one of my 
most expensive chairs. So when you compare our products to the 
UNICOR products, almost all of our products come in 
substantially less from a dollar standpoint, better quality, 
more features, more benefits, and the fact they cost less and 
we deliver on time. Our company has to follow all of the issues 
that have already been said with the OSHA workers' comp, all 
the things that we have to pay for that UNICOR does not have to 
pay for.
    Mandatory preferences for Federal Prison Industries is not 
only limited to federal agencies but it is also applicable in 
some of the states. By using our chairs, the state of 
Washington actually reduced their injury rate by 60 percent and 
their workers' compensation costs by 90 percent. Those are 
pretty significant numbers when you look at what the bottom-
line would be to different agencies by using a better, more 
ergonomic chair.
    There are a lot of really senseless regulations out there, 
and what happened to us with the state of Washington is that 
the state of Washington decided that they were only going to 
buy through the prisons but they wanted us to still have the 
contract. So we were required to sell our chairs to the prisons 
instead of Washington so that they could then put them 
together, mark them up substantially, and sell them to the 
state so the state is getting the exact same product but they 
are paying about a 25 percent markup for it so that they can 
run it through the prisons. And that is just complete 
inefficiency and a waste of money to me.
    We are eligible for the women-owned small business program. 
We were one of the first companies certified through the WSB 
program. We worked on that for about 11 years to get it in 
place. If you are familiar with the women-owned small business 
program, it was actually signed into law under President 
Clinton. It went into effect last February.
    So it is something we have worked on a long time and the 
fact that now there can be a woman-owned set aside and Federal 
Prison Industries can actually swoop in and take that away and 
it does not have to go Small Business. It does not have to go 
woman-owned. It does not have to go HUBZone or minority-owned.
    Also, some of the chairs that are on UNICOR's price list 
are not even manufactured there. Just like what we do with the 
state of Washington, those chairs are actually made in large 
manufacturing companies and then they ship them to UNICOR. They 
put in a couple of screws and bolts, put the casters in, and 
then they say that that is their product. So there is not a lot 
of manufacturing that is going on in these facilities.
    Another issue that we have just learned recently is that 
there are chairs that cannot get on the GSA schedule because 
they are made in China. And because they are made in China, 
they are not allowed to be on schedule. So the work around for 
that is now they ship those chairs in a box from China to the 
prison. The prison puts the chair together, and now all of a 
sudden it does not have to pass the same rule that I have to 
do. I cannot bring that chair in, assemble it in my facility, 
and sell it to the government. But the prisons are allowed to 
do that.
    If the agency wants to buy from us, sometimes they have to 
get a waiver. I heard earlier that FPI says that they grant a 
lot of waivers. The biggest issue that we have is that most of 
the time the agencies do not even know that they can get a 
waiver. They just understand that UNICOR is first and that is 
who they have to go to. And if UNICOR does not have it they can 
look somewhere else, but they get the preference.
    Now UNICOR is also trying to compete in the commercial 
market. So this is their new brochure that they put out under 
the name of Office Furniture Group. So they are not telling 
people that these are made in prisons. They are out there, in 
my biggest trade show last month with a 30 x 30 booth that they 
probably paid over $100,000 for, competing for commercial 
business. So now not only am I competing with them for 
government business; I am now competing with them in the 
commercial market.
    We estimate in the last 10 years we have lost about $10 
million to FPI. That $10 million would be about--when you think 
about what we could have done with that reinvesting in our 
company, reinvesting in jobs. We just lost an order last month, 
a $250,000 order, that went to UNICOR. I understand that they 
say they are trying to train these people to go out and get 
jobs but there are not going to be any small furniture 
manufacturers left if they continue to grow the way that they 
are growing right now.
    I understand the Committee has put together and 
successfully passed a series of procurement reform bills which 
can best be described as small contracting wish lists. WIPP 
really applauds your efforts and increase in facilitating 
government partnerships with small firms. This is one area that 
really needs to be reformed.
    On behalf of the Women Impacting Public Policy, Neutral 
Posture, and all the small businesses that are impeded by FPI, 
I want to thank you for the opportunity to appear today, and I 
am happy to take any questions that you may have.
    Chairman Mulvaney. Thank you, Ms. Boenigk.
    For questions we will start with Ms. Chu.
    Ms. Chu. This is for anybody on the panel. One of the FPI 
reforms that was implemented by Congress was a private program 
to allow private businesses to use prison workers to make 
products that could be for sale on the open market. What do you 
think about this program? Is this also a problem or is there a 
way to improve those types of partnerships?
    Mr. Palatiello. I will go first, Ms. Chu. I think there are 
two problems with that. First of all, I think commercial market 
venturing is a slippery slope. I mean, once you open that door 
you have seen what they have done in the federal market and the 
way they have been able to grow. You allow them into the 
commercial market and I think all bets are off.
    Secondly, I think from a management standpoint this may 
look like a very attractive solution, but from a labor, from an 
employee standpoint, you are still displacing workers. And 
particularly in a time of high unemployment, I do not think 
that is a route we should be going today. We should be putting 
law abiding, taxpaying, hard-working Americans back to work 
before we start creating further work programs through 
commercial market entry.
    Mr. Mansh. I guess the only comment I could make is as a 
small domestic manufacturer in the apparel industry, the core 
of the DoD marketplace, people like myself that manufacture 
clothing and textile products, primarily depend on DoD for 
their work. We do not have commercial businesses. Most of us do 
not compete in the commercial world. If FPI were allowed to do 
that, that would be in my view okay, and I understand John's 
concerns. What I do hear though, and I heard them say this this 
morning, FPI commented this morning, that their employee levels 
have decreased. So any commercial business they have, their 
intention is to only grow their sales back to what it was, not 
to give the work back to us. So I really do not see an 
advantage in what is being offered with that concept, how it is 
somehow going to benefit small manufacturers like myself and 
the nice lady down at the end of the table that makes 
furniture.
    Ms. Chu. Well, how about the idea of bringing back 
manufacturing jobs for the types of products that have been 
lost to overseas competitors? Would that be a better route to 
go? What is your opinion on that?
    Mr. Mansh. The same for a commercial manufacturing company 
like me. I think the goal that I have had certainly for the 
last 10 years and the AAFA, American Apparel and Footwear 
Association has had all this time is to get the work that we 
have all focused on away from FPI and not have them be my 
competitor. If they have other ways to keep their workforce 
occupied, that would be good. As Congressman Mulvaney said, I 
think it is a great idea that they work in agricultural jobs 
where the jobs are wanting, rather than take jobs in an 
industry that is already in decline and impacted by foreign 
competition, particularly from China in terms of apparel 
manufacturing.
    Mr. Palatiello. Ms. Chu, I have given that question a lot 
of thought over the years and I am not terribly comfortable 
with it for this reason. As I outlined and my colleagues have 
outlined, the process today is that FPI gets to be basically 
judge, jury, and prosecutor in deciding what lines of business 
they enter into. If you allow them to determine what is 
offshore and is to be repatriated and they get to make that 
decision, my concern is it is going to further exacerbate 
problems here in the United States. If we were to enter any 
kind of repatriation program, I would want to see some 
independent certification by SBA, by the Commerce Department, 
by the Labor Department that indeed no U.S. worker or firm 
would be adversely affected. But if you give FPI the carte 
blanche authority to repatriate, I think their track record is 
that they are not going to be very sympathetic to the impact on 
U.S. business.
    Finally, I do not see the logic to look at Mr. Mulvaney's 
district, for example. We have lost so much of our domestic 
textile capability so now we are going to say we are going to 
give textile work to prisoners instead of trying to rebuild 
that industry in South Carolina? I do not think that makes a 
lot of sense either. So the repatriation sounds good. I have 
great difficulty on how it would actually work.
    Ms. Boenigk. On the part with the products coming in from 
China, I mean, this is already happening. So when you say that 
you are trying to repatriate the jobs, you are actually putting 
more jobs in Asia. The particular chairs that I am talking 
about, I mean, I was in the factory in China in March. I 
watched them go in a box. I watched them get shipped out the 
door. They went supposedly to a Canadian company who then 
shipped them to the prisons, which means those dollars did not 
touch a U.S. job anywhere. They went from Prison Industries to 
a Canadian company that was the pass-through, straight to 
China. So this is just going to make it worse that now we are 
allowing them to bring in China product. It is going to be even 
harder for American companies to compete.
    Ms. Chu. You heard this morning about the positive aspects 
of the program which is that it prevents recidivism. At what 
kind of industries do you think the FPI program could go into 
then?
    Ms. Boenigk. You know, when you look at the jobs that 
cannot get outsourced, the jobs that cannot get outsourced are 
jobs like being a plumber or learning how to do HVAC. I 
understand that those jobs cost a little bit more to train them 
how to do these things, how to work a lathe, how to learn 
Microsoft Office so that when you leave you understand how to 
go and work a computer. Those are much better ways to train 
these people. They are not getting real skills by inserting 
some casters and some screws into a chair.
    Mr. Palatiello. Ms. Chu, I would remind you of what was 
discussed this morning, and I want to commend the Committee 
staff for the memo that they prepared for the members on this 
hearing. And look at the chart in that memo. This is from FPI's 
own study, the prep study. What it showed is there are programs 
that have a much better record with reducing recidivism than 
FPI. That is where we ought to be focusing our attention 
because number one, they are more successful; and number two, 
they do not adversely impact the private sector.
    So if we have a program that works and has a minimum 
adverse impact, that is where we ought to be going. That is 
addressed in Mr. Huizenga's bill. Mr. Huizenga's bill is not 
just about small business and procurement; it is balanced in 
that it does provide other opportunities for training, 
rehabilitation, and education of the inmates. So I think it is 
cognizant of the societal issues that we have to address but I 
think there are better ways to do it than FPI.
    Ms. Chu. Thank you. I yield back.
    Chairman Mulvaney. Thank you. I now recognize Mr. Flores 
from Texas for five minutes.
    Mr. Flores. Thank you, Mr. Chairman. And thank each of you 
for appearing today. And as Mr. Mulvaney said earlier, this is 
something new to me. I am learning more about it and I do not 
like what I hear. So.
    I have questions for each of you and I will try to get 
through it fairly quickly. Each of you, Mr. Palatiello, you are 
part of an organization and Ms. Boenigk, you are actually here 
representing an organization. Mr. Mansh, you are here to 
represent your company. Is that right?
    Mr. Mansh. As well as the American Apparel and Footwear----
    Mr. Flores. Okay. I am sorry. I missed that earlier. On 
behalf of each of your associations I want to ask you, can you 
tell me what each of your associations has come up with as far 
as the overall potential revenue damage that has happened to 
each of your industries or the impact on jobs because of FPI's 
growth into each of your business spaces? I can start with 
whoever wants to go first.
    Mr. Mansh. In my testimony I believe I commented, and I 
think it was $238 million in sales that UNICOR had in 2011. 
2010. 2011, $238 million. So from our perspective, as the 
apparel industry goes, that is $238 million in lost 
opportunities.
    Clothing and textiles for DoD, at least the part that we 
can measure, and again, the core business that we all do is 
bought out of DLA, Defense Logistics Agency Troop Support's 
location in Philadelphia. They are approximately a $2 billion a 
year business. So if they did $238 million, they represented 
somewhere in the range of 10 percent of the work. From a job 
standpoint, thousands would be what I would say. Thousands.
    Mr. Flores. Mr. Palatiello.
    Mr. Palatiello. Mr. Flores, I would love to be able to 
answer your question with some specific data but unfortunately, 
we cannot. And the reason why is Federal Prison Industries, 
unlike all other government contracts, their sales by contract 
is not reported through the Federal Procurement Data System. So 
if I want to go in and say, for example, how much mapping work 
has FPI done for the federal government, what agencies, what 
kinds of services have they done, I cannot get that 
information. It is not public information.
    I will give you another example to follow up on a question.
    Mr. Flores. Let me interrupt for just a minute. And 
remember your example but what I was thinking about, if you 
come at it from the other side, do your members have a feel for 
what they have lost versus what FPI is doing? Do you have a 
feel for that?
    Mr. Palatiello. I think they are one in the same.
    Mr. Flores. Well, sometimes they are. I mean, anyway, keep 
going. You have another example.
    Mr. Palatiello. Well, another example of the lack of 
transparency. There was a national public radio story a couple 
of years ago about, you know, a lot of the big signs that you 
saw that said this project was funded by the ARA Stimulus Bill. 
NPR did a story about a Corps of Engineers project. That sign 
was made by Prison Industries. So Congress passed the bill to 
put Americans back to work to stimulate the economy. That work, 
we know of some work that went to Prison Industries. We tried 
to find out how much. My staff did an inquiry with the recovery 
transparency board. What they said was because that is an 
agency-to-agency transfer, they did not capture that data. Mr. 
Huizenga's staff tried to get that information. They could not 
get it either. So those are lost opportunities where the intent 
of the money was to put Americans back to work. We know of some 
examples where it went to the prisons.
    The testimony this morning was that FPI discussed how many 
waivers they granted. I need to check. I am on shaky ground 
here. I do not believe the waiver process is actually spelled 
out in the federal acquisition regulations. I think your 
counsel probably knows that better than I. So when Mr. Mansh 
mentioned that or Ms. Boenigk mentioned that the agencies that 
are buying are not aware of the waiver process, FPI does not 
really inform them that they can grant that waiver.
    So what we would like to know is, for example, during the 
time that the stimulus money was being spent, when an agency 
was placing an order with FPI, did FPI stop and say to the 
agency, is this contract being funded with stimulus money? 
Because if it is, we will grant a waiver because what Congress 
really intended for that money to go to the private sector, to 
reduce unemployment, and put Americans back to work. I would 
venture to say that that disclaimer was not extended and those 
waivers were not granted.
    Mr. Flores. Ms. Boenigk, on behalf of WIPP, do you have a 
feel for what your association's revenue and job loss are?
    Ms. Boenigk. I do not, and I just asked and we do not have 
that information today. I can tell you that for our industry, 
from a furniture standpoint, the last numbers I got, and again, 
they are a little bit difficult to get, but put FPI at about 
$250 million in their furniture division. So they are ten times 
bigger than my company, so I would say that is roughly 1,000 
jobs that we do not have in the furniture industry because 
those products are being made by prisoners.
    Mr. Flores. Okay. What stimulated this is that you said you 
felt like the value of lost business to you over the last 10 
years was roughly $10 million if I heard correctly. And so I 
was just trying to get a macro feel for what this has done.
    Another question or another comment that was raised had to 
do with the sourcing of products overseas, bringing them to 
here, repackaging them as an FPI product. Is that happening in 
the services industry or just in the harder industries as far 
as you know?
    Mr. Palatiello. Well, to the best of my knowledge that is 
on the product side and not so much on the service end.
    Mr. Flores. I just wanted to make sure they were not 
finding a way to do it on the service side. It is bad enough 
that it is happening on the product side.
    Mr. Mansh. Mr. Flores, let me just, if I may.
    Mr. Flores. Sure.
    Mr. Mansh. Because I learned something from my colleagues 
here today. When Mr. Hoekstra was in Congress, I remember he 
and I were together at a meeting of the board of FPI and this 
probably goes back 8 or 10 years now. Their board passed a 
policy saying that they would no longer do pass-through work. 
And so to hear today that it is still going on, then FPI is 
violating its own Board of Directors' policy.
    Mr. Flores. Which brings me to my next question. Mr. Mansh. 
Do you have a feel for what--let me ask it this way. Is some of 
your business--let me rephrase that. Is some of RPI's product 
line coming from foreign sources in your line of business as 
far as you are aware?
    Mr. Mansh. That I am aware, because everything I sell goes 
to the Department of Defense.
    Mr. Flores. Okay. All right. And Ms. Boenigk, what 
percentage of FPI's furniture-related products do you think are 
coming from foreign sources?
    Ms. Boenigk. This one chair in particular or one company 
that we know for sure is doing this, we figured last year just 
by looking on the usspending.gov website, saw around $11. And 
that was one company. So I think it is probably pretty high.
    Mr. Flores. Okay. All right. Thanks. Ms. Boenigk, in your 
experience, how difficult is it for an agency to get a waiver?
    Ms. Boenigk. The few times that agencies have told me that 
they tried to get a waiver they were denied. It is something 
that I do not have a lot of experience with. Most of the time 
when we go in we are just told, oh, FPI won because they had a 
mandatory source. We cannot go around that. But the fact that 
recently we have seen them come in and take away the small 
business set asides, that is what really got me going for this 
trip.
    Mr. Flores. Okay. In terms of how often it occurs, is it 
fairly frequently it sounds like?
    Ms. Anderson. It is frequent in that we just lose because 
FPI just takes the award. Even if we have a specified product, 
they can come in and take it away. They go in and convince the 
agency that they do not have a choice; that they have to buy 
from them.
    Mr. Flores. Okay. And the one last question for each of 
you. I think each of you talked about this or at least implied 
it in your testimony. You have to comply with sets of federal 
and state regulations that FPI does not have to. How does that 
affect your bottom line? I mean, you have a cost to comply with 
these regulations; FPI does not have to. So you are already at 
a competitive disadvantage. You are paying market wages but on 
the regulatory side, do you have a feel for how badly that 
hurts you vis-a-vis where you would be if you were on the same 
playing field with FPI? Again, exclude labor, just talk about 
regulations.
    Ms. Boenigk. All right. Some of the things that they did 
not talk about earlier is health care. I mean, we pay a 
tremendous amount for health care. And after today, I am 
assuming I am going to pay a tremendous amount more.
    Mr. Flores. Not if I can help it.
    Ms. Boenigk. So, I mean, that is one of the issues. Also, 
all of their printed materials, they have a federal printing 
shop that prints all of their marketing markets for them. So 
every aspect of how they run their company, industry, is they 
get it for pennies on the dollar from what we have to pay. We 
have to pay for product liability insurance. They do not pay 
any liability insurance. So there is a lot more than just what 
was mentioned earlier.
    Mr. Flores. Well, I appreciate each of your testimony and I 
am going to yield back.
    Chairman Mulvaney. And I appreciate, Ms. Chu, for allowing 
Mr. Flores to be here. He is always welcome, members, folks on 
the Committee. Thanks, Bill.
    I have got questions all over the place because this has 
been a tremendous learning experience for me so I will go in no 
particular order. Mr. Mansh, I do not want to ask you questions 
and Ms. Boenigk that are too personal and private to your 
company because I assume they are privately held. Right? Both 
of them are?
    Mr. Mansh. Private.
    Ms. Boenigk. Yes. We are all private. We are private now.
    Chairman Mulvaney. Ballpark, profit margins? Bottom line.
    Mr. Mansh. Gross or net?
    Chairman Mulvaney. Gross. Before pre-tax.
    Mr. Mansh. I think everybody tries to start at seven to 
eight percent.
    Chairman Mulvaney. Ms. Boenigk.
    Ms. Boenigk. That is a pretty good average.
    Chairman Mulvaney. I am sitting here looking----
    Ms. Boenigk. We are an S-Corp so all of the profits come 
through, you know, flow through to the shareholders. Basically, 
me and my mom.
    Chairman Mulvaney. You would be surprised how many folks in 
Congress do not understand how that works. But we actually do 
understand it.
    I am looking at UNICOR's from last year and it was roughly 
eight or nine percent on a pre-tax basis, which I assume is the 
only basis they have because they do not actually pay any 
taxes.
    Ms. Boenigk, as sort of a back of the envelop analysis in 
response to Mr. Flores's question, I will ask you the same 
question regarding the impact on jobs. In UNICOR's 
participation in the apparel market, how big is your company in 
terms of revenue, Mr. Mansh?
    Mr. Mansh. Revenue. Currently? $10 million, $11 million.
    Chairman Mulvaney. And you employ how many people?
    Mr. Mansh. Approximately 250 right this minute.
    Chairman Mulvaney. So again, the same type of the back of 
the envelope analysis that led Ms. Boenigk to sort of calculate 
that maybe in her industry it is costing a thousand jobs. I do 
not know if I do the math on that. If you are doing $200 
million worth of revenue within the apparel business and that 
is 20 times the size of your company, that is 5,000 jobs, I 
think.
    Mr. Mansh. Five thousand.
    Chairman Mulvaney. In Apparel.
    Mr. Mansh. That is not a bad estimate.
    Chairman Mulvaney. A couple different things. Oh, by the 
way, Mr. Palatiello, you mentioned something that staff was 
able to help me on about the waiver process, that it is not set 
out indeed as you mentioned in the FAR. You actually have to go 
to the UNICOR website to find out the process on how to get the 
waiver.
    And again, I do not want to beat up on UNICOR when they are 
not here. I want to make one thing perfectly clear that we 
ordinarily do this in the opposite order for exactly this 
reason. I do not like to beat up on people when they are not 
here, so usually let the private sector go first and then let 
the agency come up and defend themselves. I think that is a 
helpful back and forth and get some balance in the thing. So I 
do not want to be perceived as beating up on somebody who is 
not present.
    It stunned me, the size of this company. The $750 million 
worth of revenue, $62 million in earnings, someplace between 
10,000 and 13,000 employees. I am wondering what they are doing 
competing with you all. They should be competing with General 
Dynamics and Boeing. They should not be competing with Ms. 
Boenigk and Mr. Mansh. They are in the GPS business now, Mr. 
Palatiello? Tell me about that.
    Mr. Palatiello. Both federal and a number of state prisons 
are actually doing geographic information systems. They are 
doing scanning. They are doing digitizing. They are doing data 
conversion, data entry, making maps, building geographic 
information systems.
    Chairman Mulvaney. Now, you mentioned that it was 
difficult, if not impossible, to get a feel for the size within 
that particular industry. Why is that? Why is that information 
not made public?
    Mr. Palatiello. If I have a contract with the Department of 
Defense, when that contract is awarded, the contracting officer 
fills out a standard form and it goes into a database, into 
something called the Federal Procurement Data System. So that 
when you and your staff want to look at or I want to look at a 
market and say what is going on in federal procurement in this 
area, the data is there. That same process does not occur in a 
transaction between the Department of Defense and Federal 
Prison Industries. It is not reported as a procurement 
transaction. So if I want to do market research to find out 
what share of the market in mapping or data services FPI has, 
that is not publicly available information.
    Chairman Mulvaney. You mentioned something, Mr. Palatiello 
about commercial market entries. Am I correct in assuming--and 
again, I am early in the learning curve on this process--that 
FPI UNICOR is not permitted to sell into the private sector 
right now? It is only to government contracting or is that not 
the case?
    Mr. Palatiello. When FPI was created in the `30s, there was 
a specific provision in federal law that says that prison-made 
products may not go into the commercial market. Now, think 
about this. What kind of economy did we have in the 1930s? We 
did not have a service-based economy. So during the Clinton 
administration, the Justice Department issued an opinion that 
said since Congress did not specifically say products and 
services, then that means that provision-provided services can 
go in the commercial market. This is not a partisan issue. This 
opinion was continued during the Bush administration. FPI did 
go through a public notice on their intent to enter the 
commercial market for services. They got a very adverse public 
comment reaction to that. And so they have backed off of that. 
But there is a valid Justice Department memorandum in the 
record that gives them the authority to enter the commercial 
market in services if they should wish to participate.
    Chairman Mulvaney. Ms. Boenigk, you had something you 
wanted to add to that.
    Ms. Boenigk. Yes. They are doing it on the product side, 
too. If you go onto UNICOR's website, actually, it asks you if 
you are eligible to buy from them. And of course, all 
government agencies are eligible to buy from them, federal, 
state, local. But now they have a new thing. If you are a 
government contractor and you are going to use the product in 
the government contract--so in my case, if you are going to 
employ people for that contract that need chairs to sit in, you 
can buy those chairs from UNICOR.
    Chairman Mulvaney. Okay.
    Ms. Boenigk. So they are able to sell it to the commercial 
market now.
    Chairman Mulvaney. That is what struck a chord with me 
because my limited experience exposure to this is actually in 
the private sector. I know folks in the private sector buying 
things from the prisons. And my guess is that is probably 
through that loophole.
    Is it possible, by the way, that the state prisons allow a 
different program? That state prisons allow sales into the 
private sector?
    Mr. Palatiello. Yes. There are state prisons that actually 
have retail stores where you can buy prison-made products from 
a state-run retail store. So yes, it is a different body of 
law. But again, with Ms. Boenigk's example, there is a nexus 
still to government contracts. But again, you talk about a 
slippery slope. Between what they are doing in services and 
what they are doing now in extending themselves to a government 
contractor, it is sort of a camel's nose under the tent--pardon 
me for mixing my metaphors--but that is commercial market 
entry.
    Chairman Mulvaney. And I hate to keep jumping around. Ms. 
Boenigk, you mentioned the story about the China chair story, 
that somehow because the product came from China, through 
Canada, through Prison Industries, it was allowed to be sold, 
but if you had done the same thing you would not have been 
allowed to sell that to the government. Why is that?
    Ms. Boenigk. Because the Made in America Act, I am not 
allowed to sell any product to the government that is made in 
China. And if I had bought it from Taiwan or somewhere else, 
but if you buy it from Taiwan, it is better quality. If you buy 
it from China, the quality is not as good. So I cannot bring in 
that product and sell it, but somehow or another they are 
getting away with this. There is lighting that is coming in, 
and because these companies cannot get their lighting on GSA 
because it is made in China, they just make a deal with UNICOR 
so they can bring it in and sell it through UNICOR.
    Chairman Mulvaney. Is UNICOR explicitly, Mr. Palatiello, if 
you know, are they explicitly exempt from those Made in America 
rules or are they just doing it in violation of that 
particular--or allegedly doing it in violation of that 
provision?
    Mr. Palatiello. I honestly do not know. I would not want to 
hazard a guess.
    Chairman Mulvaney. You mentioned about the Board of 
Directors not enforcing their own rules. Who is the Board of 
this company?
    Mr. Palatiello. There are officials from the Justice 
Department and then there are individuals from the private 
sector that are appointed by the president to serve on the 
board.
    Chairman Mulvaney. I am fighting every urge not to make a 
reference to the Justice Department not enforcing the Justice 
rules but I will leave that for another day. Yeah, I am not 
going to insert that.
    Mr. Mansh, very quickly----
    Mr. Palatiello. I forgot to mention the attorney general or 
health care.
    Chairman Mulvaney. That is exactly right because I am 
trying to wrap up here because I see that Ms. Pelosi is 
speaking, which means we are getting close to voting.
    You mentioned 3634. Mr. Huizenga was very nice to come in 
and tell us about that. You also mentioned 2312. Briefly, can 
you tell me what that does and why you like it?
    Mr. Mansh. My staff member is back here and he has more 
detail than I do, the specifics of the bill.
    Chairman Mulvaney. If you would want to give it to us after 
the record, for the record, that would be great.
    Also, Ms. Boenigk, you brought something that I would like 
to have for the record, which is the printout of the UNICOR, I 
guess, brochure.
    Ms. Boenigk. Right.
    Chairman Mulvaney. And you are telling us that is done on a 
government printing program? That the government gives them 
that?
    Ms. Boenigk. That is my understanding. This is one you can 
actually print off their website. So I printed this off their 
website. But we did take pictures at NANCOM, which is our 
biggest tradeshow. They were there. And if you went into their 
booth, at no point did they tell you that they were Federal 
Prison Industries.
    Mr. Huizenga. Mr. Chairman, FPI has their own printing 
capability. That is one of the services that they provide to 
federal agencies, so I would imagine it is FPI that is printing 
their brochures and their marketing materials.
    Chairman Mulvaney. Finally, Mr. Palatiello, you were kind 
enough to mention the story that I had heard about as well, one 
of the few things I had been exposed to before this hearing was 
the story about the transportation signs being built by Prison 
Industries as opposed to being purchased from private sector as 
part of the Stimulus Program. Are you familiar also, sir, with 
the Motech Industries circumstance with the solar cells that 
are being purchased from Prison Industries?
    Mr. Palatiello. I am not as deeply versed in that but I 
understand similarly that there have been difficulties where, 
again, stimulus money, green technologies that we seem to have 
a national interest in developing and the issue is this. 
Whether you are talking about mapping or you are talking about 
solar, I have to give FPI credit. They have a very good ear to 
the ground on what is going on in the economy. Not to avoid 
your question but I will answer it with something I am very 
familiar with. The mapping and geospatial profession has been 
identified by the Labor Department as one of the 12 or 13 
highest growth areas of our economy. As you know, Mr. Chairman, 
because we have had other conversations, the mapping profession 
suffers from overall government competition, whether it is NOAA 
or the Forest Service or Bureau of Land Management, there are 
agencies that do their own mapping. My association has worked 
hard to try to get that work contracted to the private sector. 
When FPI entered the mapping and GIS business, the gentleman, 
Mr. Sibal said, well, we are more than willing to receive 
public comments, meet with people. We did that. And we met with 
the FPI staff and said you are getting into the mapping 
business. We are concerned about that. And their answer was, 
well, we want to congratulate your association. We see where 
you have been able to get a lot more federal work outsourced. 
We are going after that market since you guys have opened it 
up.
    So I give them credit. They are very aggressive marketers. 
They do a lot of market research. So whether it is solar or GIS 
or furniture or textiles, they are looking at market 
opportunities. And I think in a very predatory manner, they 
jump in to compete with the private sector.
    Chairman Mulvaney. Thank you, everybody, for coming today. 
I very much appreciate it. It strikes me that this is something 
that we will be doing more on, not less. I want to commend Mr. 
Huizenga for, especially for proceeding in as bipartisan a 
fashion as possible. It is nice to be able to find--one of the 
nice things about this Committee is that we do have the ability 
to put together some bipartisan initiatives and reforms and it 
seems like this might be an area that screams out for that type 
of attention.
    Again, no offense intended to the first witness today, but 
I had no idea some of this was going on, and I can assure you 
that with the permission of the chairman and the ranking member 
of the overall committee this will not be the last hearing that 
we do on this.
    With that, unless anybody has anything else, I will ask 
unanimous consent that we have five legislative days to submit 
the statements and supporting materials for the record. We may 
actually have some follow-up questions for you, and we also may 
go ahead and make available to you the written responses to our 
questions that we did not get to ask the first gentleman from 
UNICOR or from the Department earlier today.
    So with that, if nothing further, we are adjourned. And 
thank you everybody for coming.
    [Whereupon, at 3:39 p.m., the Subcommittee was adjourned.]

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