[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