[Federal Register Volume 61, Number 153 (Wednesday, August 7, 1996)]
[Notices]
[Pages 41248-41250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20115]



[[Page 41247]]


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Part V





Department of Justice





_______________________________________________________________________



Federal Prison Industries



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Product Development and Production: Public Involvement Procedures; 
Notice

  Federal Register / Vol. 61, No. 153 / Wednesday, August 7, 1996 / 
Notices  

[[Page 41248]]



DEPARTMENT OF JUSTICE

Federal Prison Industries


Product Development and Production: Public Involvement Procedures

AGENCY: Federal Prison Industries, Inc., Bureau of Prisons, Department 
of Justice.

ACTION: Notice.

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SUMMARY: In this document, Federal Prison Industries, Inc. (FPI) 
requests comment on revised definitions of two key terms: new product 
and specific product.

DATES: Comments must be submitted by October 7, 1996.

ADDRESSES: Comments should be provided to Manager, Planning, Research, 
& Activation, Federal Prison Industries, Inc., 320 First Street, NW., 
Washington, D.C. 20534.

FOR FURTHER INFORMATION CONTACT: Mr. Todd Baldau, (202) 508-8440.

SUPPLEMENTARY INFORMATION: In 1988, Congress enacted legislation, 
codified at 18 U.S.C. 4122(b), requiring that whenever FPI proposed to 
produce a new product, or significantly expand an existing product, it 
was necessary to conduct a market study, seek industry comment, and 
refer the matter to the Board of Directors for a final decision. This 
process has come to be known as the Industry Involvement Guidelines 
process. A lengthy negotiation period ensued in which FPI, labor and 
private industry met to develop definitions of ``new product'', 
``specific product'' and ``significant expansion of an existing 
product,'' the key terms that were necessary to implement the 
legislation.1 These definitions are based primarily on the SIC 
code of the Department of Commerce.
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     1 The final definitions of ``Specific Product'' and ``New 
Product'' were published in the Commerce Business Daily (CBD) for 
December 4, 1989. The final definition of ``Significant Expansion of 
Production of an Existing Product'' was published in the CBD for 
January 2, 1991.
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    FPI has now had six years experience with the definitions of these 
key terms. On the positive side, the market studies using these 
definitions have supplied the Board with more and better information on 
impact of FPI's activities on the private sector than it had before the 
passage of the guidelines process. At the same time, it has become 
apparent that in some ways these definitions are unclear, suffer from 
unavailability of data, and draw upon indicators which are hard to keep 
track of and not always directly relevant. In addition, the government 
is moving away from the collection of data based on the narrowly 
defined SIC categories, which lie at the heart of the current 
definitions of new product and specific product.
    To redress these problems, we propose basing the definitions of 
``new product'' and ``specific product'' on the 4-digit FSC categories, 
rather than the SIC categories, and developing market studies using the 
FSC approach as the basis for these studies.2 Two immediate 
benefits would stem from this change in approach: first, sales 
information by FSC category is readily available; and second, the 
information applies directly to the federal market, which is the 
primary focus of the market impact study. (SIC information pertains to 
the total market, including the private sector market.)
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     2 The legislative history to the guidelines process 
provides that the definitions shall be reviewed periodically by the 
corporation and the board to assure continued relevance.
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    A preliminary discussion paper recommending the use of the FSC 
system, and a new method of determining what constitutes a significant 
expansion of an existing product, was circulated to the members of 
FPI's Implementation Committee.3 The Committee members agreed that 
revisions to the existing definitions were called for, and that the new 
approach described herein looks promising. Yet one comment expressed 
that 4-digit FSC categories are in certain instances too broad.
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     3 This committee was established following the ``Summit 
Process'' in 1992, to address any new or continuing issues.
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    FPI recognizes that in certain instances the 4-digit FSC categories 
may be too broad to serve as a definition for a new product, without 
further refinement. At the same time, we note that a particular 4-digit 
category may also be too narrow, given the fact that related items may 
appear in several categories. Therefore categories may occasionally be 
combined in a market study for purposes of measurement of the market.
    To date we have not been able to develop a simple, single principle 
that can be applied in every situation to determine when to delete 
unrelated items from a 4-digit FSC categories and when to combine 4-
digit FSC categories. Therefore, we propose the following process in 
lieu of an abstract definition.
    FPI will adjust for the fact that in some cases the 4-digit FSC 
categories contain dissimilar items in the following manner: FPI will 
announce in the CBD its intent to produce any item that could 
reasonably be construed to be a new product, regardless of the fact 
that such an item falls in the same 4-digit category as an item that 
FPI is currently making, or has made within the recent past, and is not 
considered by FPI to be sufficiently different from an existing item to 
be considered a new product. Moreover, FPI will commit to ``over-
report.'' That is, borderline cases will be announced in the CBD in 
order to allow for the full public scrutiny.
    Of course, items which are located in 4-digit FSC codes in which 
FPI does not currently produce, will be treated as proposals which go 
through the guidelines process, and a market study will be conducted 
and made available for comment. The market impact study will measure 
the market based on the 4-digit FSC categories. In measuring the size 
of the federal market, we will make best efforts to delete unrelated 
items from the FSC category or categories. Commenters will have input 
into, and may comment on, the size of the market in the market study 
exactly as they do now.
    Also, for reasons explained above, we have developed a new 
definition of ``significant expansion of an existing product'' which we 
believe is an improvement, in that the indicators of expansion which 
are clearer and directly relevant to the determination of impact on 
private industry.
    We now publish the following definitions of ``specific product'', 
``new product'', and ``significant expansion of an existing product'' 
for comment.

Revised Definitions

1. Specific Product

    A specific product refers to the aggregate of items which are 
similar in function (e.g., bags and sacks), or which are frequently 
purchased for use in groupings (e.g., dormitory and quarters furniture) 
to the extent provided by the most current Federal Supply 
Classification (FSC) Code. There are currently 685 federal supply 
classes designated within the Federal Procurement Data System. FPI 
currently produces within 74 of these classes.
    Specific products will equate to the most current 4-digit FSC Code, 
published by the General Services Administration, Federal Procurement 
Data Center (FPDC). As a general rule, products will be deemed to be 
different specific products if they are identified by a distinct 4-
digit FSC code.
    The following means will be used to determine how items should be 
treated:

--Items classified within the same 4-digit FSC code will be presumed to 
comprise a single specific product (unless otherwise determined by FPI, 
or with input from the relevant industry).

[[Page 41249]]

--The predominant material of manufacture (e.g., nylon vs. canvas) will 
not ordinarily be a factor in defining an item as a separate specific 
product.

    In certain instances, with approval of its Board of Directors, FPI 
may combine FSC codes where multiple FSC's comprise a particular 
industry. In requesting the Board to combine FSC's, FPI will give 
careful consideration, and be especially sensitive to, companies that 
manufacture products (such as various items of apparel) in multiple FSC 
codes. Moreover, situations should be avoided by FPI where it would 
have to request Board approval of production and/or expansion in 
several ``specific products'' (e.g., office seating, case goods, and 
systems furniture), each of which often involves many of the same 
companies within a single potentially affected industry (e.g., office 
furniture).
    The rationale for any proposed combining of FSC's will be set forth 
in the market study. In all cases, FPI will seek input from the 
potentially affected industry, early in the stages of industry 
notification, and include all input received in its submission to the 
Board of Directors.
    In some instances, an item may be considered separate from another 
product in the same 4-digit FSC category, if its function differs 
substantially. In such cases, the 4-digit Standard Industrial 
Classification (SIC) code may be used as a back-up measure to more 
accurately define the product.
    SIC codes will continue to be used at the 4-digit level to 
determine the size of the domestic market for a particular product. For 
purposes of product definition in the domestic market, FPI will combine 
4-digit SIC codes when the data suggests the product under examination 
may encompass several different 4-digit SIC codes, with no substantial 
difference in the product (e.g., men's vs. women's apparel).

2. New Product

    A new product is a `specific product' which FPI has not 
manufactured or produced within the past five years. In cases where it 
has been determined that more than one specific product exists within a 
4-digit FSC, the 4-digit SIC code will be used as a secondary indicator 
to determine whether the product is ``new''. In such cases, a new 
product will be defined as a `specific product' in the four-digit SIC 
which FPI has not produced within the past five years.
    In cases where FPI plans to manufacture products of limited 
duration or volume, e.g., with sales of less than $1 million in any 
given year, and where its Federal market share will not exceed 5 
percent, FPI will announce such plans in the Commerce Business Daily 
(CBD), in lieu of undertaking the Industry Involvement Guidelines 
process. Barring any objection, FPI will proceed with its production 
plans. If an objection is raised, FPI will meet with the relevant 
industry in an effort to reach an acceptable position. If an agreeable 
outcome cannot be reached, FPI will proceed to initiate the Industry 
Involvement Guidelines process. Moreover, should FPI's planned sales 
reach or exceed $1 million, or FPI's market share exceed 5 percent, FPI 
will go through the Industry Involvement Guidelines process, as it 
would for any new product.
    ``Good Faith'' CBD Announcements--Items not deemed by FPI to be a 
New Product
    Under current procedures, management decisions as to whether 
production of an item constitutes a new product are made by FPI staff, 
based on the SIC classification system, without public involvement. 
Under the proposed new procedures, there may be circumstances in which 
FPI plans to produce items that FPI does not consider to be a new 
product, but which an affected party may reasonably construe to be a 
new product. In these circumstances, the items will be announced for 
comment in the Commerce Business Daily. The purpose of this provision 
is to give private industry an added level of input into such decisions 
made by FPI, since it is not possible to anticipate every possible 
situation or question that could arise within the proposed definition.
    The parameters for publishing such internal decisions that are made 
and announced subject to this provision will be as follows: items that 
a reasonable person could construe to be a product separate and 
distinct from another item which FPI is making or recently made would 
be subject to announcement even though their function is similar. As an 
example, the production of extreme cold weather trousers would be 
announced, although FPI already produces bullet resistant fragmentation 
vests, and both are items of protective clothing.
    Items that are essentially the same product, or those that are 
variations of an existing FPI product (e.g., a new style of seating) 
would not be subject to announcement of any kind. However, FPI will 
resolve any question as to whether to announce in favor of 
announcement.
    In submitting comments to FPI, the following guidelines will apply:

--Comments will be due within 10 days of the date of publication;
--Relevant comments will focus on and address why the item should be 
considered a new product, separate and distinct from a similar item 
currently being produced by FPI. Comments may include such factors as: 
the manufacture of the item involves substantially different material 
and processes; companies that produce this item specialize in 
manufacturing only that item; the manufacturing processes are unique 
and are not easily adaptable to produce other similar items;
--Comments related to market share and/or the impact that such a 
production decision may have on the firm will not ordinarily be 
considered relevant for purposes of this provision;
--All comments received in response to these announcements will be 
considered by FPI. The commenter will be advised whether FPI decides to 
go through the guidelines process.

    As always, any interested party has a right to raise any question 
at any time with the Board of Directors (see 28 CFR 301.2), and thus 
may appeal to FPI's Board of Directors any issue or decision relating 
to whether a product is a new product. However, pending such review, 
FPI may proceed with its plans in accordance with the decision as 
announced in this process described above, unless and until the 
decision is reversed.

3. Significant Expansion of an Existing Product

    Proposed production increases by FPI which may increase its market 
share will be reviewed during the Corporation's annual planning cycle 
and be deemed a significant product expansion under the following 
circumstances:
    (1) Planned sales (measured in constant dollars) for the specific 
product will increase by more than 10 percent, or $1 million, in any 
given year, whichever is greater; or
    (2) In any case where FPI's market share is greater than 25%, any 
increase in FPI's market share resulting from an increase in FPI 
production would be deemed to be significant for purposes of triggering 
the guidelines process.
    Discussion: When either criterion is met, an analysis of the 
federal government market for the specific product will be conducted 
and an estimate of FPI's current and projected market share will be 
developed. The production increase will be deemed ``significant'' when 
FPI's market share position changes in accordance with the following 
sliding scale. If FPI currently has a 15% or less share of the federal

[[Page 41250]]

market, any increase in market share would be permissible, provided 
that the particular increase does not result in FPI exceeding a 15% 
market share. If FPI has a market share greater than 15%, but less than 
20%, FPI could increase its market share to 20%, before the increase 
would be deemed to be significant. If FPI has a market share of greater 
than 20%, but less than 25%, FPI could increase its market share to 
25%, before the increase would be deemed to be significant.
    Situations where FPI production remains constant, but market share 
increases as a result of other factors, including market changes, will 
not require FPI to initiate the guidelines process. The fact that 25% 
may ``trigger'' the guidelines does not necessarily mean the Board of 
Directors cannot approve an FPI production level resulting in a federal 
market share above 25%.
    The prior three years' data will be used to determine the share of 
the federal government market, to ensure that annual fluctuations are 
taken into account and normalized.
    FPI may produce at the rate of past year sales levels, adjusted for 
inflation, without initiating the guidelines process.
    In cases where FPI sales inadvertently or insubstantially exceed 
authorized levels, FPI will take steps to adjust its production by a 
corresponding amount the following year. If FPI plans call for 
continued growth, it will invoke the guidelines process without delay 
and seek Board approval of future production levels. Should the Board 
decide on a production level lower than that which FPI already 
achieved, FPI will adjust its future plans and, if necessary scale 
back, to comply with the Board's decision.
    In cases of extreme public exigency, such as national disaster or 
national defense emergency, such as during Operation Desert Storm, FPI 
may exceed guidelines thresholds, provided FPI receives specific orders 
or requests from senior Department of Defense and/or Executive Branch 
officials. Increased sales resulting from national exigencies will not 
be considered a violation of guidelines ceilings in the year which they 
occurred. Such exceptional events will be subject to approval by FPI's 
Chief Operating Officer, with concurrence of FPI's Board of Directors.
    Once these definitions are finalized and proposed revisions 
implemented, FPI's sales for the current fiscal year will be utilized 
as the base year for future application.
    Prior decisions of FPI's Board of Directors will remain unaffected 
by these changes to the definitions.
    These proposed procedures have been reviewed by FPI's Growth 
Strategies Implementation Committee. The following officials are 
represented on the Committee:

Executive Vice President, Envelope Manufacturers Association of America
Vice President--Government Affairs, Screen Printing and Graphic Imaging 
Association International
Manager, Break-Out Procurement Center Representative Program, Small 
Business Administration
Former Senior Staff Member, Brookings Institution Head of Office of 
Wages and Industrial Relations, AFL-CIO President, State/Federal 
Correctional Vendors Association

    Their comments and suggestions have been incorporated into this 
request for comment.4
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     4  Of course, these officials and these organizations are not 
precluded from making further comment at this time.
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    We now seek comments to these proposed changes. All comments 
received in response to this request for comment before expiration of 
the comment period will be provided to the FPI Board of Directors for 
consideration prior to the final publication and implementation of the 
procedures.
Robert Grieser,
Manager, Planning, Research and Activation Branch.
[FR Doc. 96-20115 Filed 8-6-96; 8:45 am]
BILLING CODE 4410-05-P