[Federal Register Volume 60, Number 184 (Friday, September 22, 1995)]
[Proposed Rules]
[Pages 49242-49245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23484]



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DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration

50 CFR Part 260

[Docket No. 950915231-5231-01; I.D. 091495E]
RIN 0648-AI45


Privatization of In-plant Seafood Inspections and Related 
Services

AGENCY: National Marine Fisheries Service, National Oceanic and 
Atmospheric Administration (NOAA), Commerce.

ACTION: Notice of inquiry.

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SUMMARY: NOAA announces that it will change the way it delivers in-
plant seafood inspections and related services under the Agricultural 
Marketing Act of 1946 (the Act). Currently, these services are provided 
by NOAA employees on a fee-for-service basis which enables NOAA to 
fully recover the service costs. NOAA is considering that some of these 
services would no longer be provided directly by NOAA employees, but 
rather be offered by private parties. This document outlines the action 
NOAA contemplates to assure that the privatized program conducted under 
Federal oversight will be the full equivalent of the current program. 
NOAA is issuing this notice to inform the public of its ideas on 
restructuring the way it provides services under the Act; to describe 
the method by which it would assure continued availability of the 
benefits of these services through private inspectors certified by 
NOAA; and to invite submission of written recommendations and comments.

DATES: Comments must be received on or before November 21, 1995.

ADDRESSES: Director, Office of Industry Services, 1315 East-West 
Highway, Room 12553, Silver Spring, MD 20910.

FOR FURTHER INFORMATION CONTACT: James W. Brennan, NOAA Deputy General 
Counsel at (202) 482-3044.

SUPPLEMENTARY INFORMATION: Comments should take into account the 
following criteria that will fundamentally affect the viability of a 
privatized inspection program: (i) Fair treatment of Government 
inspectors currently 

[[Page 49243]]
providing the services; (ii) minimum modification of relationships with 
customers subscribing to the current program, and assurance that the 
internal operations of these customers need not be changed to 
accommodate a privatized system; (iii) continued recognition by foreign 
governments of official indicia as indicating safety, wholesomeness and 
acceptability of products to which the indicia are affixed or to which 
they relate; (iv) acceptance of the integrity of the privatized 
inspection program by harvesters, processors, wholesalers, retailers 
and consumers; and (v) likelihood of the continued economic viability 
of the private entity (or entities) providing the services into the 
indefinite future.
    In furtherance of Administration efforts to ``reinvent'' and 
improve the way services are delivered to the public, and to comply 
with the personnel reductions mandated by the Federal Work Force 
Restructuring Act, NOAA is considering privatization of inspections and 
related services for fish and fishery products currently conducted 
under its voluntary fee-for-service program. By the end of FY 1996, 
NOAA would discontinue direct involvement by Federal employees in 
performing these services under authority of the Act (7 U.S.C. 1621 et 
seq.). However, NOAA will retain oversight to maintain public 
confidence in the continued integrity of the program. One or more 
qualified entities in the private sector would be officially recognized 
and authorized by NOAA to provide inspection services. NOAA would no 
longer conduct inspection services to be performed by Federal and 
cross-licensed State employees, but would certify the competence of 
each private entity authorized to provide these services to members of 
the public.
    The current voluntary program has been a notable success. It 
promotes domestic and foreign commerce in American seafood in several 
important ways. It is a tool available to exporters to provide a known, 
reliable assurance that seafood exported from the United States to 
foreign markets conforms to the agreed contract specifications between 
the domestic exporter and the foreign purchaser. It provides a 
governmental assurance of the safety, wholesomeness, and acceptability 
to officials of other nations, thereby speeding customs clearance at 
foreign borders. In those countries that require certification from a 
Federal entity, NMFS certification has routinely satisfied these 
requirements. The program also serves domestic purchasers at the 
import, wholesale, retail or consumer level who desire assurance from a 
disinterested expert that fishery products in the market place meet 
appropriate standards, and fishery products that they have purchased 
meet their requirements. In addition, the official marks (e.g., U.S. 
Grade A, Packed Under Federal Inspection) associated with this program 
are often used in the trade and at retail to market the product to its 
best advantage and allow consumers to choose product of the desired 
quality. During 1994, the NOAA program inspected more than 984 million 
lb (446,000 mt) of fishery products for domestic and foreign use.
    It is important to foreign governments, in particular, that the 
assurances conveyed by the voluntary fee-for-service activities under 
the Act are backed by a disinterested entity of unimpeachable 
integrity. During 1994, NOAA inspected and certified 156.4 million lb 
(70,900 mt) of fishery products for export. While the Federal 
Government may need to retain involvement in providing assurances to 
foreign governments, many of the services that NOAA currently provides 
can be assumed by qualified, knowledgeable and disinterested private 
inspectors, provided that NOAA retains the oversight necessary to 
foster public confidence in the system of private inspection and 
related services.
    Private inspectors would be required to maintain complete records 
of their activities under the Act, which NOAA would review as it audits 
performance under the program. NOAA contemplates that it would charge 
certified entities a fee to cover the oversight, audit and 
certification costs.
    Prior to privatization, NOAA would amend certain inspection and 
certification provisions to expand the fee-for-service activities that 
may be conducted under the Act by persons who are not Federal 
employees.
    The simplest way to privatize these services would be to certify 
each private person who satisfies applicable qualification standards to 
perform services under the Act as a private inspector (subject to 
oversight of NOAA). This approach could result in such a large number 
of geographically dispersed, qualified inspection firms that the 
quality of NOAA's oversight would be impaired, thereby affecting the 
integrity of the system. Furthermore, the size of some firms conducting 
inspections could be so small that it would raise legitimate concerns 
that decisions of these firms could be subject to undue influence by a 
customer who provides a significant portion of their income. Such cases 
would adversely affect the perceived credibility of the private 
inspection program by members of the seafood industry, by consumers and 
by foreign governments. Such a course of action could also seriously 
disrupt ongoing activities of existing customers. For those reasons, 
NOAA has determined that this approach is so unacceptable to customers, 
consumers, and the domestic industry in general that it would be 
unworkable.
    NOAA believes that a better approach would be the establishment of 
a private, employee-owned Corporation (the Corporation) that would 
acquire the program and operate it subject to the oversight of NOAA. 
NOAA employees currently performing these services could become 
employees of the Corporation if they so elected, and would acquire an 
ownership interest therein by means of an Employee Stock Ownership Plan 
(ESOP). Under this alternative, NOAA would terminate its inspection 
services and would eliminate its inspector positions soon after the 
Corporation is established. This option has four important advantages: 
(1) Current employees would be treated fairly, (2) customer relations 
would be fostered, (3) NOAA oversight would be simplified, and (4) the 
integrity of the program would be maintained. Because NOAA inspectors 
would be represented in the process of establishing the ESOP and would 
have a stake in the ownership of the Corporation, the morale and 
productivity of inspectors would likely be high. Furthermore, ongoing 
relationships with current customers would not be disrupted. NOAA would 
deal with one major certified entity, and perhaps a small number of 
reasonably sized competing entities. Oversight would be far less 
burdensome this way compared to dealing with a large number of small 
certified entities. Furthermore, the inspectors employed by the 
employee-owned Corporation, being former NOAA inspectors, would be 
familiar with the procedures that will govern the conduct of 
inspections by private inspectors. These inspectors would also 
understand the overriding importance of maintaining the integrity of 
the inspection process.
    The ESOP proposal would require more preparatory work in legal/
financial areas that are unfamiliar to NOAA, and would perhaps involve 
greater initial costs to the Government. However, once the 
infrastructure is in place, the transition should go smoothly and 
rapidly. The inspectors employed by the Corporation would be highly 
qualified, as noted above, and these former NOAA inspectors would fully 
appreciate the necessity for complete impartiality in performing their 
duties. They would also have a comprehensive knowledge 

[[Page 49244]]
of the inspection manual used by NOAA that would continue as the 
standard reference to ensure consistency by all inspectors throughout 
the program.
    NOAA is in the process of contracting for a study of the 
feasibility of establishing a new Corporation, owned in whole or part 
by an ESOP, to undertake inspection services. The contractor will be 
encouraged to seek the views of affected employees, current customers, 
other members of the seafood industry and consumers.
    At this point, NOAA assumes that the study will conclude that the 
approach contemplated is feasible. However, if the study, discussions 
with affected or interested persons, or comments resulting from this 
notice indicate that the five criteria essential for the success of a 
privatized system are not likely to be met, NOAA will pursue other 
options. Any option likely to be successful will probably require 
legislation, and will therefore have to be pursued as a matter of 
urgency if the deadline of September 30, 1996, is to be met.
    In addition to providing services under the Act, the possibility 
exists that the Corporation could also be authorized to conduct similar 
services on behalf of other Federal or state agencies engaged in 
seafood inspection or in quality inspection of other foods, provided 
suitable arrangements could be made with other interested agencies. 
This raises the following questions: How should the privatized program 
mesh with the mandatory seafood inspection program now being operated 
by the U.S. Food and Drug Administration: Currently, NOAA has memoranda 
of understanding with FDA which include inspection and research. FDA is 
converting its inspection regime to one that is based on the Hazard 
Analysis Critical Control Point (HACCP) principles. Should the 
Corporation conduct inspections that could qualify under FDA's 
mandatory program? If so, how should this work? Should consultative 
services that the Corporation conducts under the NOAA voluntary program 
include training and technical assistance to facilitate compliance with 
the FDA mandatory program, especially by small businesses?
    In certain areas, NOAA utilizes cross-licensed state and Federal 
inspectors from the Department of Agriculture to provide inspection 
services. In order to enhance the success of the Corporation, work that 
is currently performed by these governmental bodies could be directed 
to the new Corporation. The Corporation may wish to continue to utilize 
state or Federal personnel. NOAA would have no objection to this as 
long as these individuals meet the qualification standards that will be 
maintained by NOAA. To facilitate this transition NOAA would recognize 
a cross-licensed state and Federal inspector who has demonstrated 
satisfactory performance during the last year in a specific inspection 
function(s) as a certified entity for such activity(ies) to provide the 
Corporation with the ability to use these individuals. Future 
certification of state and Federal employees would be dependent on 
meeting the previously stated qualification standards.
    NOAA contemplates establishing or authorizing the establishment of 
additional service marks to inform consumers of the official assurances 
provided by certified private inspectors, to provide other information 
useful to consumers, and to encourage foreign governments to rely on 
those logos for the government-backed assurance of safety, 
wholesomeness and quality. For entry into a foreign country where a 
governmental certificate may be required as a condition of acceptance 
by the importing foreign government, NOAA would either countersign the 
certificate of compliance or retain responsibility for certification 
for specific countries. In the latter case, NOAA certification would be 
based upon inspections conducted by the Corporation acting under 
contract with NOAA. The oversight and standard-setting roles of NOAA 
could eventually be assumed by a government Corporation. However, in 
the context of an inspection program conducted by a certified private 
entity, that must be considered a long-range possibility, not a short-
term or medium-term goal.
    The Corporation itself would need to comply with practices and 
standards established by NOAA. Its employees conducting inspections and 
related services would also be required to meet appropriate standards 
of education, training, or experience established by NOAA. The major 
source of qualified employees would be the NOAA employees performing 
fee-for-service activities under the Act. NOAA currently has 168 
inspectors providing inspection services. These inspectors are 
classified in two personnel series: (1) Consumer Safety Officer (GS-
696) series--there are currently 131 NOAA field inspectors in this 
series (this is the same series as Food and Drug Administration 
Consumer Safety Officers); and (2) Consumer Safety Inspector (GS-
1862)--there are currently 40 NOAA field inspectors in this series. The 
basic requirements for the two series are as follows:

(1) Consumer Safety Officer (entry level)

    A. Bachelor's degree that includes at least 30 semester hours in 
one or a combination of the following: Biological sciences, chemistry, 
pharmacy, physical sciences, food technology, nutrition, medical 
science, engineering, epidemiology, veterinary medical science, or 
related scientific fields that provide knowledge directly related to 
consumer safety officer work, or
    B. Combination of education and experience--courses consisting of 
at least 30 semester hours in the fields of study described in A, plus 
appropriate experience or additional education.

(2) Consumer Safety Inspector (lowest entry level)

    A. Successful completion of 2 years of study, which includes at 
least 12 semester hours in any combination of courses such as those in 
the agricultural, biological, or physical sciences, food technology, 
epidemiology, home economics, pharmacy, engineering, or nutrition.

(3) Consumer Safety Inspector (above lowest entry level)

    A. Successful completion of a 4-year course of study leading to a 
bachelor's degree with at least 24 semester hours in any combination of 
courses in subjects as listed under A; or
    B. Specialized experience in work that has provided knowledge of 
the properties and characteristics of the commodities and substances 
regulated in the position to be filled, skill in applying proper 
techniques for collecting samples and performing field tests and 
examinations, skill in reporting both orally and in writing, and skill 
in maintaining effective personal contacts. Such experience may be 
acquired in work such as the following: Food inspector, public health 
inspector, and quality inspection specialist.
    The qualifications of all persons applying for certification would 
be examined to assure that they meet minimal agency standards of 
competence. NOAA anticipates that any person who has successfully 
performed as a Federal Consumer Safety Officer or Consumer Safety 
Inspector for more than 1 year and has successfully completed the 
necessary training courses for the activities for which certification 
is requested would qualify to conduct like services under the program 
as a certified entity or as an employee of such entity. Periodic review 
of the qualifications of all certified inspectors, and attendance at 
approved training courses to keep 

[[Page 49245]]
current with advances in the art will be required in order to maintain 
a current certification.
    Although the Corporation currently contemplated by NOAA is likely 
to meet the criteria needed for authorization to provide privatized 
inspection services, it would not necessarily be the only authorized 
entity. Other entities could apply to the Secretary of Commerce for 
authorization, and if they meet applicable requirements, they would be 
authorized to conduct the services. However, as noted previously, it is 
assumed that authorization of entities employing a small number of 
employees would make the system unworkable. Therefore, NOAA 
contemplates that one of the authorization criteria would be that the 
applicant must employ a minimum number of certified inspectors, perhaps 
in the range of 50 to 60. Comments on the number of certified 
inspectors needed to qualify a firm would be particularly useful. 
Additionally, NOAA probably would require that an entity authorized 
under the program could not receive more than a fixed percentage of its 
annual income from performing these services for any one seafood 
processor or group of related seafood processors. And, of course, a 
certified entity could not inspect its own seafood as a Federally 
certified entity.
    Initially, it is contemplated that the private inspectors conduct 
one or more of the following services under the Act:
     Sampling;
     Determination of essential characteristics;
     Determination of class, quality or condition; and
     Continuous in-plant inspection.
    Under the changes contemplated, inspectors probably would not be 
certified initially to approve HACCP plans. Because of the inherent 
complexity in approving HACCP plans, the variety of the plans 
themselves, and the relative novelty of the application of HACCP to 
seafood quality programs, it is contemplated that approval of HACCP 
plans will not be delegated until the process of privatization has 
matured. Under currently approved HACCP plans, firms have assumed 
significant responsibilities for assuring the safety, wholesomeness and 
quality of their own products, subject to periodic audits by NOAA. This 
will continue whether NOAA or a certified entity is responsible for the 
audit. Monitoring of approved HACCP programs by qualified certified 
private inspectors is being considered. Even if it were decided that 
they would not initially oversee HACCP plans as a certified inspector 
under the Act, certified private inspectors could assist their 
customers in designing HACCP programs as a private consultation service 
in much the same manner as NOAA currently does. Comments on this point 
are particularly desired.
    It is anticipated that functions such as specification and label 
approval, as well as training functions in specialized activities such 
as sensory evaluation, will initially be retained by NOAA. The 
performance of appeal inspections is also considered to be a function 
that must be retained by NOAA to resolve issues of conflict between a 
certified entity and a party that requests an inspection service. NOAA 
will maintain the development of voluntary grade standards, functions 
associated with agency and trade interests in international activities, 
and performance of laboratory analyses to ensure the integrity of the 
NOAA program.
    NOAA's role in providing for-fee services not initially included 
would be reexamined as the program proceeds. Ultimately, it is 
envisioned that NOAA's role could diminish to the point that it would 
issue voluntary standards and audit the performance of private 
inspectors, and, as noted, even those functions may eventually be 
assigned to a government Corporation or even be privatized if the right 
vehicle for doing so could be designed.
    At first glance, it would seem that the possibility of having a 
single private entity authorized to conduct most of the services on 
behalf of NOAA could raise concerns about inflated pricing unless NOAA 
regulated the prices that could be charged. NOAA does not contemplate 
doing that for several reasons. Subscription to the service is not 
mandated by law. Less than 25 percent of the seafood in the domestic 
market place is now covered by the program; that suggests that the 
majority of seafood producers find that the value of the current 
service as a marketing tool does not exceed the cost of participation. 
It is unlikely that the privatized service would be able to charge fees 
that significantly exceed fees for similar services under the current 
program.
    NOAA is considering a variation to ease the transition to the 
privatized system. Under the variation, NOAA would continue existing 
contracts with customers to provide inspection services but would 
negotiate a contract with the Corporation to actually conduct these 
services as a subcontractor to NOAA. (The inspectors employed by the 
Corporation would likely be the very inspectors who provided the 
services as Government employees). NOAA would pay the Corporation for 
services provided and bill and receive payment from the customers. 
Contracts with new customers would be established between the 
Corporation and those customers as the need arises. Over the course of 
the 1-year transition period, the Corporation gradually would assume 
full responsibility for existing NOAA contracts, on a time schedule 
that would be mutually convenient to the customers and the Corporation. 
In addition to offering a phased process, fully transparent to existing 
customers, this approach may provide a contractual vehicle to allow the 
transfer of control to the Corporation of some NOAA property currently 
used by its inspectors. Comments on the desirability of the variation 
would be helpful.

Request for Comments and Views

    Affected employees, domestic and foreign consumers, seafood 
harvesters, processors, traders, retailers, importers and exporters, as 
well as entities interested in qualifying as certified inspection 
entities, are invited to submit comments and suggestions on the points 
discussed above, or any related topic.
    Under NOAA Administrative Order 205-11, 7.01, dated December 17, 
1990, the Under Secretary for Oceans and Atmosphere has delegated 
authority to sign material for publication in the Federal Register to 
the Assistant Administrator for Fisheries, NOAA.
    This notice has been determined to be not significant for purposes 
of E.O. 12866.

    Dated: September 15, 1995.
Gary Matlock,
Program Management Officer, National Marine Fisheries Service.
[FR Doc. 95-23484 Filed 9-21-95; 8:45 am]
BILLING CODE 3510-22-F