[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Proposed Rules]
[Pages 1082-1089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-135]



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Part III





Department of Justice





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Federal Prison Industries



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28 CFR Part 302



Federal Prison Industries, Inc. (FPI); Standards and Procedures That 
Facilitate FPI's Ability To Accomplish Its Mission; Proposed Rule

  Federal Register / Vol. 64, No. 4 / Thursday, January 7, 1999 / 
Proposed Rules  

[[Page 1082]]



DEPARTMENT OF JUSTICE

Federal Prison Industries, Inc.

28 CFR Part 302

[BOP 1081-P]
RIN 1120-AA84


Federal Prison Industries, Inc. (FPI) Standards and Procedures 
That Facilitate FPI's Ability To Accomplish Its Mission

AGENCY: Federal Prison Industries, Inc., Justice.

ACTION: Proposed rule.

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SUMMARY: This document proposes to codify Federal Prison Industries, 
Inc. (FPI)'s standards and procedures that facilitate FPI's ability to 
accomplish its mission. The publication of these procedures marks the 
culmination of a process that began several years ago in efforts to 
clarify certain provisions of FPI's statute, 18 U.S.C. 4121 et seq. It 
represents a continuing effort to make the use of FPI as a provider of 
goods and services to the Government as simple and efficient as 
possible. The document's provisions include: purpose and scope; 
definitions; a mission statement; roles and responsibilities of FPI's 
Board of Directors, Chief Executive Officer, Chief Operating Officer, 
and the Ombudsman; agency meeting procedures; inmate employment levels; 
provision of products as a mandatory source; provision of products as a 
non-mandatory source; provision of services to the commercial market; 
provision of products and services as a preferential source; waiver and 
appeal procedures; pricing; and new product development or expansion. 
FPI is codifying these procedures in order to clarify its procedures 
and to foster its relationship with its customers and suppliers by 
providing for public review and comment.

DATES: Comments due by March 8, 1999.

ADDRESSES: Rules Unit, Office of General Counsel, Bureau of Prisons, 
HOLC Room 754, 320 First Street, NW., Washington, DC 20534.

FOR FURTHER INFORMATION CONTACT: Marianne S. Cantwell, Corporate 
Counsel, Federal Prison Industries, Inc., phone (202) 305-3501.

SUPPLEMENTARY INFORMATION:

Background

1. Why Is FPI Promulgating This Rule?

    Federal Prison Industries, Inc. (FPI) is proposing to issue this 
rule to codify its standards and procedures that facilitate FPI's 
ability to accomplish its mission. FPI is promulgating this rule as a 
proactive measure in order to clarify its standards and procedures. It 
represents a continuing effort to make the use of FPI as a provider of 
goods and services to the Government as simple and efficient as 
possible. The rules are descriptive of the functions of FPI's Board and 
other managing officials, and are descriptive of existing standards and 
procedures utilized to accomplish FPI's mission.

2. What Is FPI's Mission?

    The United States Congress created FPI in 1934, just four years 
after the creation of the Federal Prison System. The Congress 
immediately recognized the need for constructive work programs in the 
nation's prisons both to occupy inmates' time and train them to be 
productive citizens. FPI's mandate has remained the same since its 
creation: to train and employ the greatest number of inmates possible 
in a self-supporting manner. FPI is the most important correctional 
management program of the Federal Bureau of Prisons to relieve inmate 
idleness and to ensure the orderly operation of Federal prisons. FPI 
provides inmates with valuable training opportunities, teaches a work 
ethic, and prepares inmates for reintegration into the community.
    FPI is statutorily required (see 18 U.S.C. 4122(a)) to: provide 
employment for the greatest number of those inmates in the United 
States penal and correctional institutions who are eligible to work as 
is reasonably possible; diversify, so far as practicable, prison 
industrial operations; operate the prison shops so that no single 
private industry shall be forced to bear an undue burden of competition 
from the products of the prison workshops; and to reduce, to a minimum, 
competition with private industry or free labor.

3. How Does This Rule Affect Previous FPI Guidelines Published in the 
Federal Register?

    In accordance with its statutory authority to announce in a 
publication designed to most effectively provide notice to potentially 
affected private vendors the plans to produce any new product or 
significantly expand production of an existing product, FPI previously 
published notices in the Commerce Business Daily. Revised guidelines 
for new product development were published in the Federal Register on 
August 7, 1996 (61 FR 41248) for notice and comment and were issued in 
a notice document on March 12, 1997 (62 FR 11465). These guidelines are 
now being incorporated into FPI's proposed standards and procedures.

Executive Order 12866

    The rule has been considered to constitute a ``significant 
regulatory action'' under section 3(f) of Executive Order 12866, and, 
accordingly, the Office of Management and Budget has reviewed the 
proposed rule.

Executive Order 12612

    This rule will not have a substantial direct effect on the states, 
on the relationship between the national government and the states, or 
on the distribution of power and responsibilities among the various 
levels of government. Therefore, in accordance with Executive Order 
12612, it has been determined that this rule does not have sufficient 
federalism implications to warrant the preparation of a Federalism 
Assessment.

Regulatory Flexibility Act

    The Chief Executive Officer, FPI, in accordance with the Regulatory 
Flexibility Act (5 U.S.C. 605(b), has reviewed this rule and by 
approving it certifies that this rule will not have a significant 
impact on a substantial number of small entities within the meaning of 
the Act. The principal effect of these rules is that they will improve 
the ability of FPI to serve its customers and will help FPI's Board of 
Directors to comply with its statutory mandate of assuring that no 
single industry is unduly impacted by FPI's operations.

Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by State, local and 
tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 or more in any one year, and it will not significantly or 
uniquely affect small governments. Therefore, no actions were deemed 
necessary under the provisions of the Unfunded Mandates Reform Act of 
1995.

Small Business Regulatory Enforcement Fairness Act of 1996

    This rule is not a major rule as defined by section 804 of the 
Small Business Regulatory Enforcement Fairness Act of 1996. The 
promulgation of this rule will not result in an annual effect on the 
economy of $100,000,000 or more; a major increase in costs or prices; 
or significant adverse effects on competition, employment, investment, 
productivity, innovation or on the ability of United States companies 
to compete with foreign-based companies in domestic and export markets.

[[Page 1083]]

Plain Language Instructions

    We try to write clearly. If you have a suggestion on how to improve 
the clarity of this rule, please call or write: Roy Nanovic, Rules 
Unit, Office of General Counsel, Bureau of Prisons, 320 First Street, 
NW, HOLC Room 754, Washington, DC 20534; phone (202) 514-6655.

Comments on Rule

    Interested persons may participate in this proposed rulemaking by 
submitting data, views, or comments in writing to the Rules Unit, 
Office of General Counsel, Bureau of Prisons, 320 First Street, NW, 
HOLC Room 754, Washington, DC 20534. Comments received during the 
comment period will be considered before final action is taken. 
Comments received after the expiration of the comment period will be 
considered to the extent practicable. All comments received remain on 
file for public inspection at the above address. The proposed rule may 
be changed in light of the comments received. No oral hearings are 
contemplated.

List of Subjects in 28 CFR Part 302

    Prisoners.

    Accordingly, pursuant to the order of FPI's Board of Directors, 
part 302 in chapter III of 28 CFR is proposed to be revised as set 
forth below.
Steve Schwalb,
Acting Chief Executive Officer, Federal Prison Industries, Inc.

PART 302--FEDERAL PRISON INDUSTRIES, INC. (FPI) STANDARDS AND 
PROCEDURES THAT FACILITATE FPI'S ABILITY TO ACCOMPLISH ITS MISSION

Sec.
302.1  Purpose and scope.
302.2  Definitions.
302.3  Board of Directors: roles and responsibilities.
302.4  Chief Executive Officer: roles and responsibilities.
302.5  Chief Operating Officer: roles and responsibilities.
302.6  Ombudsman.
302.7  Meetings.
302.8  Inmate employment levels.
302.9  Mandatory source.
302.10  Provision of products as a non-mandatory source.
302.11  Provision of services to the commercial market.
302.12  Preferential source.
302.13  ``Escape Proof'' guarantee.
302.14  Waiver policy.
302.15  Appeals to waiver denials.
302.16  Pricing.
302.17  Industry involvement guidelines procedures.
302.18  Definitions and application of significant terms in product 
development guidelines process.
302.19  General comments on FPI business operations.

    Authority: 18 U.S.C. 4122 and 4124, and by resolution of the 
Board of Directors of FPI.


Sec. 302.1  Purpose and scope.

    It is the mission of FPI (also referred to as ``the Corporation''), 
a wholly owned government corporation, to employ and provide skills 
training to the greatest practicable number of inmates in Federal 
correctional facilities necessary to ensure the safe and secure 
operation of such institutions, and in doing so, to produce market 
priced, quality goods in a self-sustaining manner that minimizes, to 
the extent feasible, potential impact on private business.


Sec. 302.2  Definitions.

    (a) Assembled refers to the process of uniting or combining 
articles or components, so as to add value by producing a change in 
form or utility.
    (b) Contracting office means any element of an entity of the 
Government that has responsibility for identifying and/or procuring 
Federal Government requirements for commodities or services. It 
includes the contracting officer and members of all offices within the 
definitions of ``contracting activity,'' ``contracting office,'' and 
``contract administration office'' contained in the Federal Acquisition 
Regulation, 48 CFR 2.101.
    (c) Departments or agencies of the United States means any entity 
of the Executive Branch, including military departments, government 
corporations, independent agencies, and appropriated or non-
appropriated fund entities of the United States Government. The terms 
Federal departments and agencies, departments and agencies of the 
United States, Government departments and agencies, departments, and 
agencies are used interchangeably.
    (d) Inmate product refers to products that are manufactured and/or 
assembled in whole or in part by prisoners. Inmate products may include 
component parts of such products, or items ancillary to such products, 
obtained from a commercial source, which are either physically 
attached, or not physically attached, to the end product. In 
determining whether such component parts or ancillary items are inmate 
products that may be supplied to the customer by prison industries, 
consideration will be given to such matters as the following: How 
closely is the item linked by utility to the basic product? Would 
separate purchase of the item by the customer involve significant 
inconvenience, delay, and/or expense to the customer? Would refusal to 
supply the item result in justifiable waiver requests which could cause 
inmate idleness? Are such items routinely provided by commercial 
suppliers in connection with sale of the end product? Is the item 
relatively minor in relation to the end product?
    (e) Manufactured refers to the process of fabricating products from 
raw or prepared materials, so as to impart new forms, qualities, 
properties, and combinations.
    (f) Schedule of Products means the list of commodities and services 
offered by FPI to its customers for which FPI is a mandatory or 
preferred source.
    (g) Services refers to both economic activity that is rendered in 
such a way that it does not culminate in a tangible product (e.g., 
laundry and administrative support services) and economic activity that 
does culminate in tangible products, especially when the services 
aspect of the operation is not ordinarily viewed as involving a 
manufacturing process. If the activity is sufficiently transformative, 
it will be viewed as manufacturing in nature and therefore a product 
rather than service. For example, repair work will ordinarily be 
considered a service, because in most instances, the operation does not 
transform the object into a new object, but involves restoration of the 
object to a prior condition and return to the original owner. For this 
reason, furniture refinishing is also ordinarily considered a service. 
However, when the operation performed is sufficiently transformative so 
as to result in a new item, it is no longer viewed as a service, but a 
product. Assembly, such as packaging of various items in bags or 
cartons, is considered a service. But assembly involving cut and sew 
operations, which produce a radically different end product from 
components through employment of manufacturing techniques, are 
considered products and not services. Examples of services currently 
provided by FPI include: data conversion; optical scanning; engine 
accessories repair and rebuilding; forklift repair and rebuilding; kit 
assembly; radio carrier modification; cable/electrical parts 
refurbishing; vehicular components repair and rebuilding; furniture 
repair; bag repair; equipment assembly; mail distribution; printing and 
data entry.
    (h) The words products, supplies and commodities are used 
interchangeably.
    (I) UNICOR is the trade name for Federal Prison Industries, Inc. 
(FPI). The term UNICOR is used interchangeably with FPI.

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Sec. 302.3  Board of Directors: roles and responsibilities.

    (a) FPI's Board of Directors consists of six directors appointed by 
the President of the United States, pursuant to 18 U.S.C. 4121. The 
Board determines in what manner and to what extent industrial 
operations shall be carried on in Federal correctional institutions, 
consistent with the statutory responsibilities created in Chapter 307 
of title 18 United States Code.
    (b) In addition, the Board has the following general 
responsibilities:
    (1) Amend FPI's bylaws as needed;
    (2) Review and approve general policies and long range corporate 
plans, including the annual operating plan and strategic plans;
    (3) Review and approve capital investments in excess of $500,000;
    (4) Assure that the Corporation remains liquid, that its assets are 
properly valued and maintained, and that adequate reserves are 
established for this purpose;
    (5) Assure that there is a fair and adequate means for review of 
the impact of FPI on the private sector;
    (6) Hold meetings with the independent auditors regarding 
preparation and completion of the annual audit of the Corporation's 
financial performance, at which the Board will review the Corporate 
response to the auditor's Management Letter and provide comments to 
this response to the Department of Justice Inspector General;
    (7) Hold periodic reviews of finances to include sales, earnings, 
and operating cash as measured against expected objectives;
    (8) Meet routinely with the Ombudsman to receive reports of 
concerns or complaints from the public of FPI's impact, and other 
observations and suggestions;
    (9) Establish inmate employment levels, consistent with Bureau of 
Prisons' needs and FPI's mission and mandates.


Sec. 302.4  Chief Executive Officer: roles and responsibilities.

    The Chief Executive Officer of FPI, who is also the Director of the 
Bureau of Prisons (BOP), is responsible for carrying out the duties and 
responsibilities of the Corporation, including but not limited to:
    (a) Making management decisions not delegated to the Chief 
Operating Officer;
    (b) Assuring that orders and resolutions of the Board are 
implemented;
    (c) Assuring that full and accurate accounts of receipts and 
disbursements in books belonging to the Corporation are maintained, as 
well as other transactions of the Corporation, so that the proper and 
correct financial condition of the Corporation can be ascertained at 
any time.


Sec. 302.5  Chief Operating Officer: roles and responsibilities.

    The Chief Operating Officer of FPI, who is also an Assistant 
Director of the BOP, is responsible for the day to day management of 
the affairs of the Corporation, so as to carry out the responsibilities 
of the Corporation, and to perform all duties and make all decisions, 
except where authority has been retained by the Board of Directors or 
the Chief Executive Officer. The Chief Operating Officer may re-
delegate authority as deemed appropriate.


Sec. 302.6  Ombudsman.

    (a) The position of Ombudsman was established by the Board of 
Directors to achieve improved relations with the private sector, to 
provide a mechanism for resolving customer issues, and to provide the 
Board with information in addition to that provided by the normal 
corporate chain of command. The Ombudsman reports directly to both the 
Chief Operating Officer and the Board of Directors. In addition, the 
Ombudsman meets with and provides reports to the Board of Directors.
    (b) In order to assist with dispute resolution prior to any request 
for review pursuant to 18 U.S.C. 4124(b), the Board has established a 
waiver appeal process, and has vested the Ombudsman with independent 
authority to make decisions concerning issues arising in conjunction 
with the mandatory source waiver appeal process, and to make 
recommendations to the Chief Operating Officer concerning vendor and 
other customer issues.


Sec. 302.7  Meetings.

    The Board will hold at least one regularly scheduled meeting each 
year in either Washington, DC, or at a location in proximity to one of 
the Federal prisons, and such additional or special meetings as it 
deems appropriate. Meetings may be held in person or through electronic 
means. Time will be set aside for the Board to meet in executive 
session at each meeting, if the directors so desire. In addition to 
these meetings, the Board may schedule periodic teleconferences to 
review the monthly financial reports and other matters.


Sec. 302.8  Inmate employment levels.

    (a) Inmate employment levels in FPI will be commensurate with the 
needs of the BOP, and the mission and mandates of FPI. Considerations 
shall include the interests of the public, including industry and 
labor. As the nature and size of the inmate population change, the need 
of the BOP for industrial jobs may also change. Thus, an annual 
assessment will be performed of the number and types of jobs necessary 
to fill the BOP's needs in such a way that FPI's mandates are also 
fulfilled. This assessment will take into account the fact that FPI has 
multiple missions, as set forth in its enabling statute and Executive 
Order. Two of the most important missions are the following: inmate 
employment must be maximized to combat idleness, to the extent 
consistent with the need to protect industry and free labor from undue 
impact; and, best efforts should be made so that the jobs that are 
created enhance inmate work habits and skills, so as to increase the 
probability that inmates will be able to succeed in the community upon 
release.
    (b) It is the primary responsibility of both the Chief Executive 
Officer, and the Chief Operating Officer of FPI, working together, to 
determine the optimal mix of BOP and FPI jobs. It is the responsibility 
of the Board to assure that employment levels are consistent with FPI's 
mission and mandates and do not unduly impact the private sector.


Sec. 302.9  Mandatory source.

    (a) By federal law, FPI is the mandatory source of products for all 
Federal departments, agencies, and all other Government institutions of 
the United States, provided that these products are available and meet 
the agency's requirements as set forth in this section. See, however, 
Secs. 302.10 and 302.12(a).
    (b) As a Government agency with a statutory mandate to provide 
employment for the greatest number of those inmates as is reasonably 
possible (18 U.S.C. 4122(b)(1)), FPI operates with a mandatory 
procurement preference granted by Congress (18 U.S.C. 4124(a)). Also, 
purchases from FPI are an exception to the rules that normally govern 
the way goods are procured by the United States because FPI's ``sales'' 
to other Government agencies actually constitute intergovernmental 
transfers of goods, rather than traditional sales. Therefore, purchases 
from FPI are not subject to the Federal Acquisition Regulation (FAR) 
provisions governing procurement from the private sector. See 
Memorandum from Walter Dellinger, Acting Assistant Attorney General, 
Office of Legal Counsel (OLC) (Sept. 13, 1993). Thus, FPI need not 
abide by FAR provisions in its agreements with its customers in order

[[Page 1085]]

to remain a mandatory source for its products. However, in its 
discretion, FPI may include these terms in its agreements at the 
request of its customers.
    (c) FPI is the mandatory source for all products on its Schedule of 
Products (``Schedule''). The Schedule is a general, though not an 
exhaustive, list of all the categories of products and services 
available to departments and agencies from FPI. Since it does not 
contain all permutations of options and features available for each 
product, it may not always be clear whether a particular product 
offered by FPI has the necessary features desired by a Federal 
customer. In case of doubt, the contracting officer or activity should 
contact FPI, and FPI will determine whether a particular product is 
included in the Schedule and whether an agency's requirement can be met 
by FPI. Copies of the Schedule are available from the FPI Customer 
Service Center at Lexington, Kentucky (1-800-827-3168); FPI's 
Washington, DC headquarters; from the customer's sales representative, 
or through the Internet at http://www.unicor.gov.
    (d) A contracting activity should not solicit bids, proposals, 
quotations, or otherwise test the market for the purpose of seeking 
alternative sources to FPI. Thus, proposals should not be sought where 
FPI is the presumptive provider (i.e., where the product is listed in 
FPI's Schedule of Products) and a waiver has not been granted. Both the 
language and the purpose of FPI's statute are inconsistent with the 
idea that FPI, itself a part of the Government, shall enter into 
competition with private manufacturers in bidding for the business of 
other Government establishments. What is contemplated by the statute is 
not a sale, but a transfer of property from one Government 
establishment to another. 18 Comp. Gen. 627, 628 (1939).
    (e) Neither efficiency, administrative convenience, 
interchangeability, compatibility, nor uniformity with non-FPI products 
constitute a basis for using commercial sources, without first 
obtaining a waiver.
    (f) FPI is the mandatory source for products irrespective of 
whether they are deemed to be an integral or structural part of a 
building; FPI is also the mandatory source for products irrespective of 
whether the product is acquired and/or used outside the United States 
or abroad (but see Sec. 302.14(f) regarding waiver policy); FPI is also 
the mandatory source for all products on the Schedule, irrespective of 
whether they are acquired via a consolidated procurement effort. Thus, 
in situations where FPI provides some, although not all, of the 
products which are offered in a packaged solicitation, FPI remains 
mandatory for those products on its Schedule, and a waiver must be 
obtained pursuant to procedures in this subpart before products on 
FPI's schedule can be purchased pursuant to a consolidated procurement.
    (g) FPI's status as a mandatory source extends to contractors when 
they provide products for Government use. The contracting activity 
shall insert in solicitations and contracts a clause which identifies 
the products which must be purchased from FPI as a mandatory source. 
Also, such contractors may use FPI as a supply source for services and 
non-mandatory products.


Sec. 302.10  Provision of products as a non-mandatory source.

    (a) FPI may offer its products on a competitive basis and not as a 
mandatory source. Thus, for example, it may choose to follow 
competitive procedures in responding to a solicitation in the Commerce 
Business Daily (CBD) for a product which it currently does not produce 
(i.e., a ``new product'' as defined infra). In this situation, provided 
that FPI in no way relies on its status as a mandatory source, FPI need 
not seek Board approval pursuant to the guidelines process to produce 
this product. The public will be made aware of FPI's decision to 
competitively bid for a product by the publication of a notice in the 
CBD. Once a new product is produced by FPI competitively, the product 
will remain a competitive product, and will not be added to the 
Schedule as a mandatory source item. Whatever share of the market FPI 
acquires on a competitive basis will be deemed to be a reasonable share 
of the market.
    (b) FPI may also waive its mandatory source status for certain 
products which it currently produces, provided such initiatives are 
announced to the public for comment and approved by the Board. Non-
mandatory products also include products which are provided by FPI as a 
preferential source of supply pursuant to Sec. 302.12, and products 
which are provided to such agencies as the U.S. Postal Service, which 
by statute are not subject to FPI's mandatory source of supply.


Sec. 302.11  Provision of services to the commercial market.

    FPI may offer services to the commercial market, as approved by its 
Board of Directors.


Sec. 302.12  Preferential source.

    (a) Products. FPI is a preferential source of supply where it is 
not a mandatory source. Thus, for example, products which are offered 
to the U.S. Postal Service, which agency by statute is exempted from 
FPI's mandatory source, may be purchased from FPI directly, without the 
contracting activity going through competitive procurement procedures.
    (b) Services. FPI is a preferential, though non-mandatory, source 
of services for all Government departments and agencies. This means 
that services may be purchased from FPI without a contracting activity 
going through competitive procurement procedures.


Sec. 302.13   ``Escape-Proof'' guarantee.

    FPI is committed to the complete and continual satisfaction of its 
customers. If at any time an item or service that FPI has provided does 
not entirely meet the expectations of the customer, FPI will promptly 
repair or replace it, entirely at the expense of FPI. For information 
on this warranty, contact the Customer Service Center at (800) 827-
3168.


Sec. 302.14  Waiver policy.

    (a) When a contracting office or activity believes a product on 
FPI's Schedule does not meet the customer's requirements, but that 
similar products from a commercial source will, and the contracting 
activity wishes to purchase the product from a commercial source, it 
must submit a request for a waiver to FPI and obtain a waiver prior to 
purchasing the product from the commercial source.
    (b) A waiver request should include:
    (1) A description of the product for which the waiver is requested;
    (2) The justification for seeking a waiver, including specifics 
concerning price, quantity, and delivery date where such information is 
relevant to the waiver request;
    (3) The name and title of the appropriate contact person, as well 
as the complete mailing address, phone and fax numbers, and e-mail 
address when available.
    (c) Waivers will not ordinarily be given based on price, where 
FPI's product does not exceed current market price as determined by 
FPI.
    (d) Waivers based on delivery will not ordinarily be granted when 
FPI's delivery schedule is consistent with deliveries for comparable 
products on the Federal Supply Schedule or under standard commercial 
practices. Delivery requirements inconsistent with those referenced on 
the GSA Federal Supply Schedule require written certification from the 
contracting officer. Thus,

[[Page 1086]]

where expedited delivery is needed, a written statement from the 
contracting activity is required, providing the reasons and attesting 
to the fact that the products required are available from an 
alternative source in the time frame required.
    (e) When a waiver is requested based on an assertion that FPI's 
product will not perform to standards or does not represent best value, 
or in some other way does not meet the specifications of the customer, 
the contracting activity must provide, in writing, details describing 
the non-conforming characteristics of the FPI product compared to the 
product from a commercial source.
    (f) Waivers are granted or denied on a case-by-case basis. Class 
waivers are not usually issued, except when the product is not 
available from FPI. However, FPI has granted a class waiver for all 
supplies that are acquired for use outside the United States when these 
supplies are both manufactured by and purchased from sources outside 
the United States.
    (g) Generally, considerations of aesthetics are not an acceptable 
basis for a waiver. However, exceptions may be made, and waivers 
granted, for example, to achieve ``match'' with products that will be 
located in proximity to the required products.
    (h) In order to avoid a situation where FPI exercises its status as 
a mandatory source after a commercial vendor has gone through the 
effort and expense of preparing a bid package, FPI will exercise 
special care with regard to procurements that inadvertently have been 
announced in the Commerce Business Daily (CBD). Although solicitations 
for products manufactured by FPI should not appear in the CBD without 
first obtaining a waiver from FPI, occasionally, through error, such 
solicitations do appear. The FAR (48 CFR 5.203) requires a 15 day 
waiting period between the date of the CBD synopsis and the issuance of 
solicitations. Therefore, FPI will ordinarily exercise its mandatory 
source status by requesting cancellation of the solicitation during 
this 15 day interval.
    (i) Waivers will not be required where public exigency requires 
immediate delivery or performance. However, purchase from commercial 
sources pursuant to this provision must be simultaneously reported to 
FPI, with an explanation of the emergency necessitating the commercial 
procurement. The emergency must not be brought about by poor planning 
nor otherwise due to circumstances that could have been avoided through 
the exercise of reasonable prudence.
    (j) Waiver decisions will ordinarily be issued within seven (7) 
working days from the date of the request, once all information 
necessary to make a decision is provided to FPI. Project level waiver 
requests may require longer to process because of their complex nature. 
Where the requester requires a reply in less than seven (7) working 
days, the requester should explain the reasons.


Sec. 302.15  Appeals to waiver denials.

    If the waiver request is denied, the order must be awarded to FPI 
unless the decision is overturned on appeal. All appeals must be made 
as a matter of first instance to the FPI Ombudsman. The appeal should 
include the 7-digit waiver identification number found on the waiver 
denial letter, together with any supplemental information on why the 
waiver denial should be reversed. Appeals should ordinarily be filed 
within 7 working days of the notification of a waiver denial. Decisions 
of the Ombudsman will ordinarily be issued within 7 working days from 
the date of the appeal. A further appeal may be taken by either party 
under 18 U.S.C. 4124(b).


Sec. 302.16  Pricing.

    (a) By federal law, the prices of FPI's products cannot exceed the 
current market price. The determination of what constitutes the current 
market price, the methodology employed to determine the current market 
price, and the conclusion that a product of FPI does not exceed that 
price is the responsibility of FPI to determine, subject to dispute 
under 18 U.S.C. 4124(b). FPI determines market price one of three ways:
    (1) When a comparable product is available from private sector 
manufacturers, a review of commercial catalog prices will be used to 
establish a ``range'' for current market price;
    (2) Where a comparable product cannot be identified, current market 
price is established through negotiating a price based on cost, 
including applicable overhead, plus a margin for earnings; and
    (3) Where a purchasing activity executes ``concurrent buys'' (i.e., 
where the purchasing activity simultaneously purchases identical 
products from both FPI and a commercial supplier), FPI will provide the 
product at a comparable price, and at terms and conditions comparable 
to those provided by the commercial supplier.
    (b) General Services Administration's Federal Supply Schedule (FSS) 
is relevant to, but not necessarily determinative of, the current 
market price for a product, as it may not duplicate in all features the 
FPI product and FPI's costs. In many cases, there will be no exact 
comparability between FPI's product and a commercial product, and thus 
adjustments will be required to determine the comparable current market 
price. Factors to be considered in determining the price range will 
typically include similarity of materials, methods and costs of 
construction, product durability, presence of ancillary features, 
extent of warranties and nature of the market. Data collected by 
general market surveys do not establish current market price, but may 
be provided to FPI to be factored into its determination of current 
market price. A price established by FPI utilizing one of the 
methodologies identified in this section fulfills the obligations of a 
contracting officer to obtain a fair and reasonable price under FAR 
(e.g. 48 CFR part 15).


Sec. 302.17  Industry involvement guidelines procedures.

    The following steps will be followed whenever FPI is considering 
producing a new product (Sec. 302.18(b)) or significantly expanding 
production of an existing product (Sec. 301.18(d)).
    (a) Parties who are known to have an interest in a potential 
proposal by FPI to produce a new specific product or significantly 
expand in the production of an existing product will be contacted prior 
to the drafting of any market impact study to obtain relevant 
information for purposes of developing a comprehensive and fair study. 
The information sought may include, but is not limited to, how a 
specific product is defined, size of the market, future market trends, 
and dependence of industry providers on the federal market.
    (b) All proposals to produce a new product or to significantly 
expand the production of an existing product shall be announced in the 
CBD, and a copy of the announcement shall be mailed to known interested 
parties.
    (c) The announcement will state that interested parties may obtain 
a copy of the study which analyzes the impact, if any, on the private 
sector resulting from the proposed production initiatives by writing to 
the Manager, Planning, Research, and Activation, Federal Prison 
Industries, 320 First Street, NW, Washington, DC 20534. The 
announcement will further state that comments on the study should be 
submitted in writing to the Manager at the same address. It will 
further state that comments are due no later than 45 days from the date 
of the announcement and that the comments should address the issue of 
what percentage, if any, of

[[Page 1087]]

the government market for the specific product constitutes a reasonable 
share of the market. All comments related to definition of the product, 
determination of the size of the market, impact on the private sector, 
and study methodology must be submitted at this time, to allow time for 
adequate consideration of these comments prior to FPI's dissemination 
of its final study and recommendations. Failure to provide this 
information in a timely manner may result in the information not being 
considered or being given less weight by the Board or not being 
considered at all.
    (d) FPI will contact known trade associations representing 
manufacturers of the relevant product, provide them with a copy of the 
announcement and the market analysis, and request their written and 
oral comments in an attempt to arrive at a mutually agreeable 
percentage figure as to what constitutes a reasonable share of the 
market. FPI will also provide a copy to the appropriate labor 
representatives. The same time frames apply as in paragraph (c) of this 
section.
    (e) Public comments including all attachments should be kept as 
brief as possible and, without Board permission, no public submission 
may exceed twenty-five (25) pages.
    (f) A recommendation will be prepared by FPI to be provided to the 
Board of Directors on what constitutes a reasonable market share for 
the specific product in question. The recommendation will address all 
comments which are timely and relevant.
    (g) A copy of the written comments submitted in response to the 
announcement, FPI's responses to the comments, and FPI's final 
recommendation to the Board of Directors shall be made available to 
commenters who filed a timely submission. The material will be made 
available to the commenters no less than forty-five (45) days before 
the date of the Board meeting at which the proposal for production of 
the specific product at issue will be considered. In addition, all 
commenters will be advised, in an appropriate manner, of the date, 
time, and location of the Board meeting at which the proposal will be 
discussed, and advised of the opportunity to address the Board in 
person.
    (h) A final submission for the sole purpose of commenting on FPI's 
recommended production levels may be provided by commenters to the 
Board for its consideration. The final submission, including any 
attachments, should be as brief as possible and, without Board 
permission, may not exceed ten (10) pages. Comments related to the 
study methodology, i.e., how the specific product is defined, 
determination of the size of the market, and impact of FPI on the 
private sector, should be submitted within the 45 day review period 
after announcement of the study in the CBD (see paragraph (c) of this 
section), and not at this stage of the process, in order to be given 
due consideration by the Board. This final submission should be sent to 
the Manager, Planning, Research and Activation, for transmittal to the 
Board. If a commenter wishes to appear at the Board meeting to make a 
statement, that request should be made on the first page of the final 
submittal, together with the names of the individuals desiring to 
appear before the Board.
    (i) All final submittals, together with any request to appear 
before the Board, must be received by the Manager at least fifteen (15) 
days in advance of the Board meeting.
    (j) The following rules will apply at the in-person presentation:
    (1) In order to accommodate the largest number of commenters, and 
to assure access by the Board to the fullest array of comments and 
opinions concerning expansion proposals by FPI, as a general rule 
hearings will be held in Washington, DC. However, the Board reserves 
the right to determine that a hearing should be held in a location 
other than Washington, DC, provided that sufficient notice is given to 
the public. The presentation to the Board is open to the public. 
However, the hearing may be closed, or other safeguards taken, where 
the Board determines that proprietary information must be safeguarded, 
or for other good and sufficient reason(s).
    (2) A maximum of 30 minutes will be allotted to each commenter for 
presentation to the Board, unless the Board extends the time;
    (3) The record before the Board at the time of the presentation is 
limited to the market study, comments and materials submitted in a 
timely manner in response to the market study, FPI's recommendations, 
and materials submitted by commenters in response to FPI's 
recommendations. No new documentation or arguments from commenters 
should be presented at the presentation that have not been submitted in 
compliance with the rules in this section, unless permitted by the 
Board. The Board reserves the right to exclude from consideration or 
give less weight to information which was not submitted in compliance 
with this section.
    (4) The Chairman of the Board will preside at the hearing and 
impose such further rules as are reasonable to assure a full and 
orderly presentation, covering such matters as who may address the 
Board, the order in which presentations are made, what documents will 
constitute the record, what issues are relevant, and any questions 
concerning how much time is to be allotted to each presentation. The 
Federal Rules of Civil Procedure and formal rules of evidence will not 
be followed.
    (5) The Board members may direct questions to a commenter to elicit 
further information, and may request that additional material be 
provided for the record.
    (6) The proceedings will be recorded and a transcript made 
available at the requestor's expense.
    (k) The Board will determine whether a proposed new product may be 
produced or whether a proposed expansion of an existing product should 
be approved, and what the reasonable market share is with regard to the 
specific product in question. In determining the reasonable market 
share for a specific product, the Board will balance the interests of 
the Corporation with the interests of the affected private sector, 
employing the criteria spelled out in the relevant statutes, 
legislative history, and corporate regulations.
    (l) The decision of the Board will be made by majority vote. In the 
case of a tie, the position of the group which includes the Chairman 
will prevail.
    (m) The decision, together with the reasons for the decision, will 
be published in the CBD within 10 days of the date of the Board's 
decision.
    (n) Any request for exception to the provisions of this section 
shall be made to the Board and shall be considered only in compelling 
circumstances. Requests should be addressed to Chairman, Board of 
Directors, Federal Prison Industries, Inc., 320 First Street, NW, 
Washington, DC 20534.


Sec. 302.18  Definitions and application of significant terms in 
product development guidelines process.

    (a) Specific product. (1) 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. 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.

[[Page 1088]]

    (2) The following standards will be used to determine how ``items'' 
should be treated:
    (i) 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).
    (ii) 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 determination of what constitutes a specific product.
    (iii) In certain instances, with approval of its Board of 
Directors, FPI may combine FSC codes where multiple FSC's comprise a 
particular industry. In requesting the Board to combine FSC's, FPI will 
give careful consideration, and be especially sensitive to, companies 
that manufacture products (such as various items of apparel) in 
multiple FSC codes. Moreover, situations will be avoided where FPI 
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).
    (iv) The rationale for any proposed combining of FSC's will be 
published by FPI in the CBD to seek input from the potentially affected 
industry. Input received in its submission will be forwarded by FPI to 
the Board of Directors for consideration and final determination.
    (v) 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.
    (vi) SIC codes will 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).
    (b) 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.
    (c) ``Good Faith'' CBD announcements.
    (1) 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 CBD. 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 outlined definition.
    (2) The parameters for publishing such internal decisions that are 
made and announced subject to this paragraph (c) 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.
    (3) 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.
    (4) In submitting comments to FPI, the following procedures will 
apply:
    (i) Comments will be due within 21 days of the date of publication;
    (ii) 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;
    (iii) 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 to the degree 
they are relevant;
    (iv) All comments received in response to these announcements will 
be considered by FPI.
    (5) The commenter will be advised whether FPI decides to go through 
the guidelines process.
    (6) As always, any interested party has a right to raise any 
question at any time with the Board of Directors (see Sec. 302.19), 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 in this paragraph (c), unless 
and until the decision is reversed.
    (d) ``Significant expansion of an existing product''.
    (1) 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:
    (i) 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
    (ii) 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.
    (2) 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 (assuming its sales increase by more than 10%) to increase its 
share again from 20 to 25% in a subsequent year without going through 
the guidelines process.

[[Page 1089]]

    (3) 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 comprehensive analysis of market share will be undertaken 
to fully assess whether the guidelines process should be initiated.
    (4) Situations where FPI production remains constant, but market 
share increases as a result of other factors, including market changes, 
will not require FPI to initiate the guidelines process. The fact that 
25% may ``trigger'' the guidelines does not necessarily mean the Board 
of Directors cannot approve an FPI production level resulting in a 
federal market share above 25%. The prior three years' data will be 
used to determine the share of the federal government market, to ensure 
that annual fluctuations are taken into account and normalized. FPI may 
produce at the rate of previously achieved annual sales levels, 
adjusted for inflation, without initiating the guidelines process.
    (5) In cases where FPI sales inadvertently or insubstantially 
exceed Board authorized levels, FPI will make every effort to adjust 
its production by a corresponding amount the following year. If FPI 
plans call for continued growth, it will invoke the guidelines process 
without delay and seek Board approval of future production levels. 
Should the Board decide on a production level lower than that which FPI 
already achieved, FPI will adjust its future plans and, if necessary 
scale back, to comply with the Board's decision.
    (6) In cases of extreme public exigency, such as national disaster 
or national defense emergency, 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.
    (7) Subject to other provisions noted in this paragraph (d), FPI's 
sales for fiscal year 1997 will be utilized as the base year for future 
application.


Sec. 302.19  General comments on FPI business operations.

    (a) Any interested party having any general comment concerning the 
business operations of FPI may write to the Chief Operating Officer, or 
to the Chairman of the Board of Directors, and bring such matters to 
the attention of either or both officials. Where appropriate, a 
response shall promptly be made. The Board shall be kept advised of all 
comments and responses.
    (b) Correspondence should be addressed as follows:
    (1) Chief Operating Officer, Federal Prison Industries, Inc., 320 
First Street, NW, Washington, DC 20534, Attn: General Comments; or
    (2) Board of Directors, Federal Prison Industries, Inc., 320 First 
Street, NW, Washington, DC 20534, Attn: General Comments.
    (c) This section does not apply to inmate complaints which are 
properly raised through the BOP's Administrative Remedy Program (28 CFR 
part 542).

[FR Doc. 99-135 Filed 1-6-99; 8:45 am]
BILLING CODE 4410-05-P