[Federal Register Volume 62, Number 48 (Wednesday, March 12, 1997)]
[Notices]
[Pages 11465-11471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6143]


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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) 
announces new interim definitions of three key terms: New product, 
specific product, and significant expansion of an existing product.

ADDRESSES: Federal Prison Industries, Inc., 320 First Street, NW., 
Washington, DC. 20534.

EFFECTIVE DATE: March 12, 1997.

FOR FURTHER INFORMATION CONTACT: Mr. Todd Baldau (202) 305-3582.

SUPPLEMENTARY INFORMATION: Last year, FPI published notices in the 
Federal Register and Commerce Business Daily proposing revisions to the 
definitions of ``specific product,'' ``new product'' and ``significant 
expansion of production'' for use with the FPI expansion guidelines. 
The Federal Register notice was printed on August 7, 1996 (61 FR 
41248). The Commerce Business Daily notice was printed on September 20, 
1996. Each notice asked interested parties to review the revised 
definitions and submit comments on the proposed revisions to FPI. FPI 
received submissions from the following individuals and organizations:

U.S. Representative Mac Collins (Georgia, 3rd District);
The American Defense Preparedness Association;
The Business and Institutional Furniture Manufacturers Association;
Trussbilt, Inc.;
The Coalition for Government Procurement;
The American Apparel Manufacturers Association;
Tennessee Apparel Corporation;
Furniture By Thurston; and
The Quarters Furniture Manufacturers Association.

    FPI wishes to thank each of the respondents for taking the time to 
submit their comments. Many of the submissions included suggestions 
which FPI has incorporated into the revised definitions. Also among the 
submissions were several comments helpful to FPI in understanding 
potential implications of the proposed revised definitions. Some of 
these comments led FPI to adjust its original proposal.
    For the purposes of this notice, FPI has separated all the comments 
we received into one of four groups: (1) Ideas, recommendations or 
suggestions FPI has adopted in the revised definitions; (2) Ideas, 
recommendations or suggestions with which FPI respectfully disagrees 
and has not adopted in the revised definitions; (3) Comments that are 
more relevant to other aspects of FPI's operations, such as issues 
concerning mandatory source; and (4) Comments which are vague, broad or 
general in nature. Such comments do not make a specific point, making 
it difficult for FPI to address. Below is a summary of all comments 
received by FPI. In many instances, similar comments from multiple 
parties have been combined. Also included are some of FPI's responses, 
where appropriate.

(I) Ideas, Recommendations or Suggestions FPI Has Adopted

    The following are ideas, recommendations or suggestions provided by 
commenters which FPI found useful or constructive, and incorporated, in 
whole or in part, into the revised expansion definitions.
    A commenter noted FPI's initial announcement stated ``FPI announces 
revised definitions of two key terms: New product and specific 
product.'' However, ``significant expansion of production'' is also 
revised. FPI acknowledges the oversight, and has reflected this 
correction in the new announcement. This notice refers to all three 
revised definitions.
    Commenters suggested FPI defer issuing the new definitions, raising 
the possibility Congress may require FPI to modify the terms again, 
resulting in another revision in a short period of time. The commenter 
stated a delay in issuing the definitions would permit interested 
parties to take up Rep. McCollum's offer to discuss FPI's operations 
and regulations next year. FPI appreciates the willingness to accept 
Rep. McCollum's invitation. Nonetheless, the current definitions 
present a myriad of problems that need to be addressed. With the 
commenter's suggestion in mind, FPI is publishing the new definitions 
as an ``interim rule.'' This will allow time for experience and 
encourage comments during its implementation.
    A commenter suggested amending the provision dealing with cases of 
extreme public exigency, where FPI would be empowered with the 
authority to increase production without penalty when asked to do so. 
The commenter advised that FPI explicitly state that its production 
levels are temporary, and will not be used as the baseline for future 
calculations of what is deemed a significant expansion of production. 
FPI has incorporated such language into the revised definitions.
    Several commenters objected to the provision allowing FPI to supply 
new items of limited duration or volume. The commenters felt this 
provision did not allow for sufficient private industry input, would be 
detrimental to small businesses who sell to the Federal government and 
did not provide adequate safeguards to prevent FPI from misuse of the 
provision. FPI recognizes the concerns raised by the commenters and has 
withdrawn the provision from the revised definition.
    Commenters suggested the definitions should not eliminate an item's 
predominant material of manufacture as a determinant of whether an item 
is a separate specific product. FPI agrees, and notes the new 
definitions do not make such an elimination. Rather, the predominant 
material ``will not ordinarily'' be a factor in determining whether an 
item is a separate specific product. FPI did not mean to imply the 
predominant material of manufacture is not an important consideration, 
only that in most cases, it would not result in an item being deemed a 
separate specific product. An item's predominant material will always 
be considered, and unless deemed to be significant, will not typically 
result in a distinction for a separate specific product.
    A commenter suggested that FPI state its sales goals in units, not 
dollars. FPI appreciates the suggestion and will attempt to include 
production information on units where feasible, as well as dollars, for 
impact studies. The nature of some of FPI's work makes stating 
production goals in units difficult. It should be noted that in past 
impact studies, FPI has attempted to differentiate between inflation 
and real

[[Page 11466]]

growth in projecting the corporation's future sales and market share.
    Several commenters suggested FPI revise the provision relating to 
announcements in the Commerce Business Daily (CBD). One commenter 
argued it was an undue burden on small business owners to have to check 
the CBD every day. Another suggested the time period in which 
interested parties may submit comments should be lengthened beyond 10 
days. FPI acknowledges there may be difficulties associated with 
checking the CBD, especially for a small business. We appreciate the 
comments, and have amended the revised definitions so that they now 
allow 21 days for interested parties to comment.
    Regarding submissions from interested parties in response to the 
CBD announcements referenced in the prior paragraph, a commenter 
disagreed with the restriction on submissions stating that comments 
related to market share and/or the impact resulting from such a 
production decision would not ordinarily be considered relevant to 
whether an item should be considered a new product. FPI recognizes the 
importance that data relating to a reasonable share of the market has 
to the expansion process. FPI appreciates the comment and agrees to 
modify the provision so that all information will be considered. The 
contested reference in the provision has been deleted.
    A commenter expressed approval of the provision to have FPI make 
CBD announcements for items FPI does not consider to be a new product, 
but which an affected party may reasonably construe to be a new 
product. The commenter noted the purpose of the revision is to give 
private industry an added level of input into such decisions made by 
FPI. The commenter regarded this as ``a very constructive approach and 
again will build a great deal of trust and goodwill between FPI and the 
private sector.'' FPI appreciates the acceptance of this provision.
    A commenter noted the revised definitions will not require FPI to 
initiate the guidelines process when FPI's market share increases as a 
result of factors other than an increase in FPI's production. The 
commenter recognized that ``asking FPI to continually track its market 
share for every product is a burdensome job.'' The commenter suggested 
that industry be encouraged to track market size and be allowed to 
petition FPI's Board of Directors for production relief in the event 
that a significant reduction in the size of the market can be 
demonstrated. FPI appreciates the comment and concludes that the new 
definitions do allow for such action on the part of members of the 
private sector.
    Commenter questioned whether the new significant expansion 
definition would allow FPI to increase production until it captures 25% 
of the market before it triggers the expansion process as long as FPI 
makes only incremental increases. FPI acknowledges that while the 
circumstances described are theoretically possible, we do not believe 
it is very likely. First, such a scenario would only occur over a 
several year period, since any sales increase over 10% would lead to an 
FPI examination of market share, and trigger the guidelines process if 
FPI exceeded the 15% and 20% market share thresholds. As a result of 
the elapsed time, any impact would be minimized. As a potential 
safeguard against such a scenario, FPI has encouraged potentially 
affected industries to petition the Board if they believe the FPI 
growth is having an adverse impact on their particular industry. This 
encourages the industry to monitor FPI growth, via annual sales and 
market share reports published by FPI, in conjunction with their own 
market data, and bring their concerns to the Board's attention, as 
circumstances warrant.
    A commenter suggested changing the provision on cases where FPI's 
sales inadvertently or insubstantially exceed authorized levels. The 
commenter suggested strengthening the language regarding FPI's 
obligation to adjust its sales levels if the corporation exceeds its 
authorized sales level. FPI has amended the language accordingly.

(II) Ideas, Recommendations or Suggestions With Which FPI Respectfully 
Disagrees and Has Not Adopted

    Though the following comments were not incorporated into the 
revised guidelines, FPI wishes to emphasize its appreciation for the 
careful review by all commenters in providing their submissions. In the 
interest of making this process as visible and open to public scrutiny 
as possible, FPI has included its reasons for choosing not to accept 
the following ideas, recommendations or suggestions.
    Most of the comments with which FPI disagrees and has not adopted 
deal with the availability of data under the current definitions or the 
proposed use of 4-digit Federal Supply Class (FSC) codes as the primary 
basis for determining a ``specific product.''
    Commenters questioned whether there really is unavailability of 
data under the current definitions. Commenters suggested the 
procurement data sought by FPI is already collected by GSA's Single 
Item Numbers (SINs). FPI respectfully disagrees with both comments. The 
current definitions make use of the Standard Industrial Classification 
(SIC) system's 7-digit item codes. The government does not collect 
Federal procurement data by 7-digit SIC codes. Rather, Federal 
purchases are categorized by the FSC system. FPI also reiterates the 
limitations of GSA's SIN data. GSA does not have schedules for every 
industry in which FPI operates. Also, through research for past impact 
studies, FPI has found that while information from GSA's schedules 
provide an important piece of the Federal market puzzle, data from the 
schedules do not reflect all Federal buys, and often fail to include 
large segments of the Federal market.
    Regarding the FSC system, commenters felt an FSC code would be too 
broad and encompass too many separate items to be validly considered a 
specific product. Commenters also expressed concern over the revised 
definitions allowing FPI to combine FSC codes where multiple codes 
comprise a single industry. Commenters contended that in such 
instances, FPI's true impact would be severely understated.
    FPI recognizes these concerns and agrees that in some instances, 
FSC categories are too broad to be accurate measure of an item's 
Federal market. However, the revised definitions make provisions for 
such cases. The new definitions state, ``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, borderline cases will be announced in the CBD in 
order to allow for the full public scrutiny.'' The new definitions also 
state, ``In some instances, an item may be considered separate from 
another product in the same 4-digit FSC category, if its function 
differs substantially.''
    Regarding the combination of FSC codes, it is incumbent upon FPI to 
be as accurate as possible in determining its impact on the private 
sector. When an industry's operations encompass multiple FSC codes, FPI 
is obligated to combine the codes in the effort to measure the 
corporation's true impact. Further, FPI's authorizing legislation 
directs FPI to guard against placing an undue burden on any single 
industry, not individual companies.
    FPI believes the industry involvement guidelines process addresses 
concerns

[[Page 11467]]

that the use of FSC codes would allow FPI to expand in a few limited 
items without seeming to have an impact on the industry as a whole. 
Under both the current and new definitions, the guidelines process 
provides ample opportunity for public comment and input, so that FPI's 
Board of Directors can be made aware of particular situations that may 
create undue impact on private industry.
    Beyond the principal objections mentioned above, commenters raised 
other questions regarding the new definitions. One commenter stated 
they lack confidence in a system which, by FPI's admission, does not 
``develop a simple, single principle that can be applied in every 
situation to determine when to delete unrelated items from a 4-digit 
FSC category and when to combine categories.'' FPI recognizes the 
desire for a ``one size fits all'' approach. However, in the absence of 
a viable alternative, we believe the revised guidelines offer a fair, 
reasonable and logical set of standards to examine FPI's growth.
    A commenter questioned the use of 4-digit SIC codes as a secondary 
determinant for a specific product, in those instances where there are 
multiple items within a single FSC code. The commenter felt 4-digit 
SICs do not represent any substantial protection beyond the FSC codes. 
The commenter asserted that specific product distinctions are found at 
the 7-digit SIC level. As mentioned earlier in this section, 
limitations of the SIC system were one of many factors leading to the 
revision of the definitions. FPI's initial notice proposing the revised 
definitions discussed the difficulties FPI has experienced with SIC 
codes, the primary problem being the lack of available data. For this 
reason, the new definitions will not be based upon the SIC system. 
Instead, the 4-digit SIC code will be used as a secondary determinant 
for a specific product. In such cases, cross-referencing the 4-digit 
SIC codes against the FSC codes will allow FPI to more accurately 
separate items that should be considered a separate ``specific 
product.''
    Several comments touched on the provision concerning FPI 
announcements in the CBD regarding the planned production of items that 
may reasonably be considered a new product. One commenter doubted that 
a heightened effort by FPI would provide any meaningful restraint. The 
new definitions have FPI make such announcements when an item may be 
reasonably construed to be a new product. In cases which are 
questionable, FPI will err on the side of announcing in the CBD in 
order to allow for full public scrutiny. In addition, the new rules 
would provide much greater visibility to these decisions and 
determinations than is afforded under the current guidelines.
    A commenter questioned how the new rule helps FPI meet its mission 
of ``diversification so that no single industry shall be forced to bear 
an undue burden of competition?'' FPI believes the new definitions are 
a significant step forward in meeting this objective. Among the primary 
benefits of the revised definitions is that they are aimed toward 
measuring FPI's impact on an industry. The corporation's authorizing 
legislation states that FPI is to operate so that no single industry is 
forced to bear an undue burden of competition. Most private vendors 
competing for Federal business offer an array of different items across 
the industry in which they operate. Most producers of office furniture 
do not limit themselves to just credenzas. They offer tables, desks, 
bookcases, etc. Suppliers of shirts may also produce pants, coveralls, 
etc.
    One commenter stated FPI's commitment to report in the CBD all 
items which could reasonably be construed to be a separate specific 
product will be the determinant of FPI's good faith. The commenter 
stated that if FPI faithfully observes this commitment by announcing 
its intent considerably more liberally than is required and treats 
comments objectively (i.e., acts in favor of both FPI and the private 
sector about 50 % of the time) industry will likely gain confidence in 
the process. FPI appreciates the commenter's trust in our ability to 
faithfully and accurately fulfill the requirements of this provision. 
Yet the fair treatment of comments received from the private sector 
does not automatically translate into a quota system whereby the 
finding will be in the private sector's favor 50% of the time. FPI 
commits that the Board of Directors will decide each case on its own 
merits, regardless of any other such decisions. FPI points out that the 
revised definitions will have FPI ``announce in the CBD its intent to 
produce any item that could reasonably be construed to be a new 
product.'' FPI's commitment to make such announcements considerably 
more often than is required is beyond the letter of the revised 
definitions. However, in seeking to build good faith with the private 
sector, FPI will attempt to fulfill this additional requirement.
    Objections were raised to the provision reading ``Items that are 
essentially the same product, or those that are variations of an 
existing FPI product. * * * would not be subject to announcement of any 
kind.'' Commenters felt FPI is unable to make such definitions without 
industry's assistance. FPI respectfully disagrees with this suggestion. 
FPI has the technical and engineering knowledge to accurately determine 
when items are essentially the same or are variations of an existing 
FPI product. FPI currently makes these determinations under the 
existing expansion guidelines.
    A commenter suggested ``new product'' be defined as a ``specific 
product which FPI has not produced within the last three years.'' FPI 
respectfully disagreed with this suggestion. The nature of some Federal 
purchases is cyclical, so that items bought in large amounts one year, 
may be purchased in very small quantities, if at all, for three or 
fours years thereafter. FPI believes defining a ``new product'' as a 
``specific product FPI has not produced within the past three years'' 
is overly restrictive, and the five year figure is reasonable and more 
consistent with Federal buying patterns.
    Commenters felt the revised ``significant expansion'' definition 
would greatly affect what FPI can do without initiating the guidelines 
process. One commenter expressed opposition to any planned expansion of 
FPI's production without significant industry input. FPI believes a 
primary benefit of the new ``significant expansion'' definition is that 
it clarifies exactly what is ``significant'' by changing the measure 
from capacity to actual sales. Under the old definitions, FPI could 
potentially increase sales by a higher margin without it being 
considered significant if FPI did not expand capacity. FPI opposes the 
suggestion that industry input is necessary before any planned FPI 
expansion. Rather, we defer to the statute, which cites ``significant'' 
expansion. The language does not say FPI can not have any expansion 
without industry input. Both the current and revised definitions allow 
for exactly the type of private industry input suggested. The process 
calls for FPI to notify known Federal vendors and relevant trade 
associations, requesting input and relevant data for use in the 
upcoming impact study. Following FPI's issuing of the preliminary 
study, interested parties may submit comments in reaction to it. 
Comments may also be submitted in response to the revised study, and 
private sector representatives have the opportunity to appear and speak 
before FPI's Board of Directors.
    Commenters objected to the proposed market share levels limiting 
FPI's expansion. Commenters noted that new

[[Page 11468]]

definitions allow FPI to increase a product's market share up to 15% 
without initiating the industry involvement guidelines process. FPI 
believes this is reasonable. To provide some background, in both public 
testimony and private discussions with FPI, several industry 
representatives have stated their idea of what constitutes a 
``reasonable share of the market'' for FPI. Almost uniformly, these 
officials state that a 15%-20% market share is reasonable for FPI. In 
legislation submitted by Rep. Collins, a 20% market share is referenced 
as the market share acceptable for FPI's production. Thus, allowing FPI 
to boost production of an existing product without initiating the 
guidelines process until its market share reaches 15% is not 
unreasonable.
    Commenters objected to allowing FPI to increase its market share up 
to 15% of a specific product, since this may result in FPI providing 
100% of certain items upon which small businesses may be dependent. FPI 
acknowledges that among the goods and services it provides are some 
items bought in relatively low quantities. For FPI to provide these 
items, as would be the case for any business, in a self-sustaining 
manner (as the corporation is mandated to operate), it must achieve 
certain economies of scale. In some instances, this may result in FPI 
supplying much, or even all, of a single Federal contract. There is no 
guarantee of further Federal demand for the exact same item. Thus, 
while buys of the ``specific product'' continue, a small buy for a 
single item may be supplied exclusively by FPI. FPI will monitor the 
potential for such situations as it has in the past.
    A commenter noted the revised significant expansion sliding scale 
allows for a hypothetical situation in which FPI could boost its 
production of an item from $5 million and 10% of the Federal market 
(out of $50 million) to $7.5 million in sales and a 15% share without 
initiating the expansion process. the interpretation of the revised 
market share scale is correct. FPI believes this is a fair and 
reasonable formula. Under this hypothetical scenario, the value of 
Federal buys available to private vendors decreases only slightly from 
$45 million to $42.5 million. It should be noted that, in the scenario 
described, this would be the maximum impact FPI could have for a given 
year under the new rules.
    Commenters objected to having market activities independent of 
FPI's activities irrelevant in determining what is FPI's reasonable 
share of the market. The new definitions do not change the factors used 
by the Board of Directors to determine what is a reasonable share of 
the market. As in the original rules, the proposal does not hold FPI 
responsible for a ``significant expansion'' when the corporation's 
market share increase is due to market dips outside of FPI's control.
    Commenters expressed concern that the definitions have FPI's Board 
of Directors serve as the ultimate authority for decisions on issues 
related to FPI's expansion efforts. It was suggested an independent 
body would be a more appropriate body for such responsibilities. FPI 
notes such concerns, but does not agree. It was Congress' intent to 
have FPI's Presidentially-appointed Board of Directors oversee and 
direct FPI's operations, insuring the credibility of the industry 
involvement guidelines process. By statute, the Board is called upon to 
make such decisions, after balancing the often numerous and complex 
concerns of all parties involved. The Board's job is to review and 
analyze all information presented to them as part of each proposal, 
including data from FPI and private industry. The new definitions make 
no change from the current rules on this issue.
    Several commenters expressed concern that the revised guidelines 
would allow FPI to ignore, nullify or modify previous new product or 
expansion decisions made by FPI's Board of Directors. FPI points out 
the revised definitions specifically state that prior decisions by 
FPI's Board would not be affected. Thus, recent Board decisions 
regarding FPI expansion proposals relating to shipping/storage 
containers, dormitory and quarters furniture, office case goods, etc., 
all still apply.

(III) Comments That Are More Relevant to Other Aspects of FPI's 
Operations

    The following are ideas, recommendations or suggestions provided by 
commenters which, though often insightful and/or constructive, are more 
relevant to other aspects of FPI's operations, and do not directly 
address the merits of the revised expansion definitions. In the 
interest of being open to public scrutiny, FPI has included a brief 
response to each of the comments below.
    A commenter noted that the revised definitions do not alter FPI's 
mandatory source status. FPI recognizes that its status as a mandatory 
source of supply for the Federal government is an important issue for 
many commenters. However, the mandatory source issue is more relevant 
to the discussions (mentioned in the previous section) that are planned 
by Rep. McCollum and other members in the Congress.
    A commenter suggested FPI ought to consider the production of other 
mandatory source operations, such as NIB, NISH and 8A firms, when 
considering the ability of the Federal market to sustain FPI and 
private vendors. FPI appreciates the suggestion, which is more relevant 
to the manner in which the corporation prepares its actual impact 
studies. FPI agrees that data relating to production by sources such as 
NIB and NISH is an important piece of information.
    A commenter argued FPI should not use comparisons of the Federal 
market and total domestic market as justification for production of a 
new product or a significant expansion of production for an existing 
product. FPI recognizes the importance of all factors involved in 
determining what constitutes a reasonable share of the Federal market. 
Under both the existing guidelines and the new definitions, it is up to 
FPI's Board of Directors to determine what is a reasonable share. The 
statute calls for consideration of several factors in the impact 
studies, including the size of the Federal market as well as the size 
of the total domestic market.
    A commenter objected to FPI lumping together Federal purchases from 
civilian agencies and the Department of Defense (DoD). FPI's 
authorizing legislation restricts the corporation to selling its goods 
and services to the Federal government. There is no distinction made 
between DoD and any other Federal department or agency. On this issue, 
the revised definitions make no change from the current guidelines.
    A commenter claimed the option of manufacturing for the commercial 
market has eroded for many products supplied by FPI. The commenter 
stated that when FPI produces an item previously supplied by private 
vendors, private sector jobs are almost certain to be lost. FPI notes 
that the ability of private vendors to find non-Federal markets for 
their goods is one of the factors FPI's Board of Directors assess when 
they consider the level of FPI's impact on the private sector. This 
responsibility is not changed from the existing definitions.
    A commenter contended that much of the machinery used by private 
vendors to produce goods for the Federal government is specialty 
equipment not easily converted to manufacture other products. FPI 
recognizes some vendors buy equipment specifically to compete for 
Federal contracts and in some cases, such equipment is not easily 
converted to other uses. Such decisions are the

[[Page 11469]]

responsibility of each vendor. Removing FPI as a supplier of Federal 
goods would not eliminate all the competition and risk from competing 
for Federal contracts. Both the current and revised definitions are 
designed to help insure that FPI's operations do not place an undue 
burden on any one industry. When assessing FPI's impact, one of the 
many factors FPI's Board of Directors take into account is the ability 
of the affected vendors to produce similar items for non-Federal 
customers or make other items with the same machinery.
    A commenter suggested that a consistent definition of ``reasonable 
share of the market'' must be established. The commenter stated that 
until then, expediting the expansion process would only allow FPI to 
take bigger bites of new or existing markets more quickly. FPI 
acknowledges the inability of interested parties to reach an agreement 
on what constitutes a reasonable share of the market for FPI. This is 
particularly frustrating in light of the fact that FPI has worked 
extensively with various private sector vendors, trade associations and 
public policy groups on this and related prison industry issues for the 
past seven years. This is why the Congress left the final decision of 
what constitutes a reasonable share to the FPI Board of Directors, upon 
weighing the issues and concerns of all parties.

(IV) Comments Which are Vague, Broad or General in Nature

    The following are ideas, recommendations or suggestions provided by 
commenters which are vague, broad or general in nature. The comments do 
not always make a specific point and FPI is not in a position to 
appropriately address each of the comments. Nevertheless, the 
corporation has included a brief response to each comment.
    A commenter suggested that the revised definitions threaten small 
businesses. Though respectfully disagreeing with this statement, FPI 
finds its vague in that it fails to explain how the revised definitions 
have a particular effect on small businesses that is different from how 
the rule would affect any other business.
    Several commenters expressed their belief that FPI proposed the 
revised definition to allow FPI greater freedom to expand into new 
product areas. While disagreeing with this comment, FPI also finds it 
ironic. In the past, most of the vendors and trade associations with 
which FPI has worked have suggested that FPI make a greater effort to 
diversify its operations, so as to alleviate its impact on industries 
in which FPI already operates. This comment suggests these parties have 
changed their position, and do not wish further diversification by FPI.
    One commenter stated that new definitions are especially 
disconcerting in light of FPI's ``public rhetoric about partnering and 
cooperation with industry.'' The commenter suggested the revised 
definitions signify that FPI ``is not truly interested in partnering 
and will continue to expand, absent a high-profile, bluntly adversarial 
campaign.'' It is FPI's belief that the new definitions are a step 
forward in the corporation's efforts toward greater cooperation and 
more partnerships with private industry. The new definitions help 
address the problems related to the availability of data, while also 
providing a number of safeguards for potentially affected industries.
    A commenter stated the revised definitions are more arbitrary and 
less transparent than the current system. Other commenters suggested 
the revised definitions, if implemented, would only make it easier for 
FPI to arrive at the results it desires. While disagreeing with these 
sentiment, FPI finds them to be broad comments. FPI has spelled out the 
problems associated with the existing rules, the corporation's 
rationale for change, and the protections built into the process to 
safeguard the concerns of industry and enhance the opportunity for 
public comment. The revised definitions are a sincere attempt by FPI to 
rectify some of the existing problems, and we believe they will result 
in improvements to the process for all concerned. Since the rule will 
be published for implementation as an interim measure, allowing further 
comment during implementation, we believe FPI has maximized the chances 
for the process to work for all parties as intended.
    As mentioned earlier, FPI is announcing implementation of these 
revised definitions on an interim basis. Until such time that FPI's 
Board of Directors determines that the definition should be made final, 
the corporation reserves the right to make further modifications based 
on input from any of the following sources:
    (1) The ongoing independent audit of FPI's use of and compliance 
with the original expansion guidelines being conducted by the 
accounting firm of Urbach, Kahn and Werlin;
    (2) The examination of FPI's methodology use to calculate the 
Federal market for goods and services supplied by FPI. This analysis is 
currently underway and is being conducted by a panel of independent 
Federal procurement experts;
    (3) Comments relating to the revised definitions and procedures 
received by FPI from private industry or organized labor; and,
    (4) FPI's own experience as the corporation works with the revised 
definitions.
    Any further comments on these definitions may be submitted to FPI 
at the address listed above. Any such comments will be considered and 
noted, but will not necessarily receive a response in the Federal 
Register or Commerce Business Daily.
    FPI now publishes the following definitions of ``specific 
product'', ``new product'', and ``significant expansion of an existing 
product''. These are interim definitions. The decision to further 
modify these definitions, and/or institute the definitions on a 
permanent basis is solely at the discretion of FPI's Board of 
Directors.

Revise 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).
--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. (Material will be considered as part of routine review.)

    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

[[Page 11470]]

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 published 
by FPI in the Commerce Business Daily to seek input from the 
potentially affected industry. In all cases, input received in its 
submission will be forwarded by FPI to the Board of Directors for 
consideration and final determination.
    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.
    ``Good Faith'' CBD Announcements--Items not deemed by FPI to be a 
New Product.
    Under current rules, 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 rules, 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 21 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;
--While the primary purpose of the comment provision will be to 
determine if an item should be defined as a new product, comments 
related to market share and/or the impact that such a production 
decision may have on the firm will also be considered as they are 
relevant;
--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) 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 
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.
    The allowable increase in market share from 15 to 20% in one year, 
should not allow FPI to (assuming its sales increases by more than 10%) 
increase its share again from 20 to 25% in a subsequent year without 
going through the guidelines process.
    Market shares will be calculated on the basis of FSC's for planning 
purposes. If based on initial assessment, it is determined that a 
comprehensive impact study, and Board approval, is likely to be 
required, a detailed in depth analysis of market share will be 
undertaken to fully assess potential impact.
    Situations where FPI production remains constant, but market share

[[Page 11471]]

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 previously achieved annual sales 
levels, adjusted for inflation, without initiating the guidelines 
process.
    In cases where FPI sales inadvertently or insubstantially exceed 
Board authorized levels, FPI will make every effort to adjust its 
production by a corresponding among 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. In such cases, the higher production levels achieved by FPI 
will be temporary, and will not be used as part of FPI's baseline for 
future calculations of significant expansion. Such exceptional events 
will be subject to approval by FPI's Chief Operating Officer, with 
concurrence of FPI's Board of Directors.
    Subject to other provisions noted in this procedure, FPI's sales 
for the current fiscal year will be utilized as the based year for 
future application.
    Prior decisions of FPI's Board of Directors will remain unaffected 
by these changes to the definitions.
    These proposed rules 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 
proposed procedure.\1\
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    \1\ Of course, these officials and these organizations are not 
precluded from making further comment at this time.
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    All comments received in response to this proposed procedure have 
been provided to the FPI Board of Directors, which has approved these 
procedures for publication and implementation on an interim basis.
Robert Grieser,
Manager, Planning, Research and Activation Branch.
[FR Doc. 97-6143 Filed 3-11-97; 8:45 am]
BILLING CODE 4410-05-M