Federal Prison Industries: Information on Product Pricing (Letter Report,
08/24/1998, GAO/GGD-98-151).

Federal agencies generally must buy products from Federal Prison
Industries (FPI), which was established by law as a mandatory source
supplier. In response to congressional concerns about FPI's pricing
practices and the possibility that federal agencies may be paying higher
than competitive fair market prices when they buy products from FPI,
this report provides information on FPI's product pricing. GAO (1)
describes the laws and regulations governing how FPI is to price its
products, (2) describes the policies and procedures FPI uses to ensure
that its products are priced in accordance with these laws and
regulations, (3) determines whether FPI followed these policies and
procedures when it set prices for selected products, and (4) compares
FPI's prices with those charged by private vendors for selected
products.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-151
     TITLE:  Federal Prison Industries: Information on Product Pricing
      DATE:  08/24/1998
   SUBJECT:  Prices and pricing
	     Correctional facilities
	     Price regulation
	     Federal procurement
	     Rehabilitation programs
	     Comparative analysis
	     Private sector
IDENTIFIER:  Federal Supply Schedule

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GAO/GGD-98-151

Cover
================================================================ COVER

Report to Congressional Requesters

August 1998

FEDERAL PRISON INDUSTRIES -
INFORMATION ON PRODUCT PRICING

GAO/GGD-98-151

Information on Product Pricing

(240266)

Abbreviations
=============================================================== ABBREV

  BOP - Bureau of Prisons
  DLA - Defense Logistics Agency
  FAR - Federal Acquisition Regulation
  FPI - Federal Prison Industries
  GSA - General Services Administration

Letter
=============================================================== LETTER

B-277995

August 24, 1998

The Honorable Peter Hoekstra
The Honorable Mac Collins
The Honorable Roscoe G.  Bartlett
The Honorable Nathan Deal
House of Representatives

This report responds to your July 8, 1997, request for information on
Federal Prison Industries' (FPI) product pricing.  Specifically, our
objectives were to (1) describe the laws and regulations governing
how FPI is to price its products, (2) describe the policies and
procedures FPI uses to ensure that its products are priced in
accordance with the laws and regulations, (3) determine whether FPI
followed these policies and procedures when it set prices for
selected products, and (4) compare FPI's prices with those charged by
private vendors for selected products.

As you know, federal agencies are generally required to buy FPI
products, but not services, because 18 U.S.C.  4124 established FPI
as a mandatory source supplier for products.  You requested this work
because of concerns with FPI's pricing practices and the possibility
that federal agencies might be paying higher than competitive fair
market prices when they purchase products from FPI.

To meet our objectives, we interviewed officials and performed audit
work at FPI's headquarters located in Washington, D.C.; FPI's Product
Support Center located in the federal correctional institution in
Englewood, CO; and six FPI factories located in federal correctional
institutions in Butner, NC, and Fort Worth, TX.  We also spoke with
officials from the General Services Administration's (GSA) Federal
Supply Service, the Defense Logistics Agency (DLA), and several other
federal agencies that purchase products from FPI and from selected
private vendors.  We reviewed FPI's legislation, the Federal
Acquisition Regulation (FAR), FPI policy and procedures regarding
product pricing that were in effect when we began our work and the
revised policy and procedures that were issued in February 1998, and
legal opinions pertaining to FPI's mandatory source status.

We also determined how FPI established prices for the 20 products
that we selected for price comparisons.  We judgmentally selected
products that generated high dollar sales in fiscal years 1996 and
1997 and that were purchased by federal agencies from both FPI and
private vendors.  We analyzed how FPI established prices for the 20
products and determined whether these prices were established in
accordance with FPI policy and procedures that were in effect when we
began our work.  We then compared FPI's prices for these products
with the prices charged or offered by private vendors for the same or
comparable products.  We were able to compare actual prices paid to
FPI and private vendors for the electronic and textile products
because we identified that DLA had purchased identical products from
both FPI and private vendors in similar quantities.  For the
furniture products, we compared FPI's catalogue prices with the
prices offered by private vendors for comparable products that were
listed on GSA's Federal Supply Schedules.  The results of our price
comparisons are not projectable to the universe of all FPI products.
We did not include services in our price analysis because of the
difficulties associated with identifying comparable service contracts
that federal agencies awarded to both FPI and private vendors.

We did our work between July 1997 and June 1998 in accordance with
generally accepted government auditing standards.  Appendix I
provides more details about our objectives, scope, and methodology.
We requested comments on a draft of this report from the Director,
Bureau of Prisons (BOP).  These comments are discussed near the end
of this letter and are reprinted in appendix II.

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Federal agencies are required by law--18 U.S.C.  4124--to purchase
FPI products if they are available, meet the agencies' requirements,
and do not exceed current market prices.  However, neither the law
nor the FAR defines current market price or provides guidance on how
such a price is to be determined.  A 1931 Comptroller General
Decision\1 cited a decision by the Board of Arbitration for Prison
Industries, which stipulated that FPI is not required to set its
prices at the lowest bid price to comply with the current market
price requirement.  On the basis of these decisions, we concluded
that the only limitation on FPI's price is that it may not exceed the
upper end of the current market price range.

Furthermore, a 1993 legal opinion issued by the Department of Justice
found that the mandatory preference granted FPI is an exception to
the rules that normally govern the way federal agencies procure
products, and therefore, FPI is not covered by the FAR's fair and
reasonable price standards.  Consequently, if FPI does not provide
all verifiable facts supporting its price or does not reduce its
price to what a federal agency considers reasonable, the agency must
still abide by the mandate and buy available products from FPI.
Federal agencies' contracting officials can request that FPI waive
its mandatory status and allow them to purchase products from other
sources.  However, the FAR and FPI policy state that waivers based on
price alone will not ordinarily be issued when FPI's product price
does not exceed current market price.

FPI's May 1995 policy and procedures that were in effect when we
began our review in July 1997 recognized that FPI products were to be
sold at prices that did not exceed current market prices.  However,
the policy and procedures did not specifically define current market
price.  The procedures simply stated that (1) when comparable
products are on GSA's Federal Supply Schedule, the schedule prices
should be used to determine current market prices; (2) when
comparable products are generally available from vendors but are not
on GSA's schedule, a review of private sector prices should be the
basis for establishing a range of current market prices; and (3) if
comparable products cannot be identified, FPI's cost to manufacture
the product plus a reasonable profit to be determined by FPI
management should be used.

FPI's procedures did not specify how many prices had to be checked to
constitute a market or how frequently prices should be checked.
Further, FPI policy did not require the product divisions to document
the market surveys or other methods that they used when setting
prices for FPI's products.  However, on February 18, 1998, FPI issued
its revised pricing policy and procedures.  The new policy (1)
defines current market price as the price that could be obtained from
competitors for the same or a comparable product, (2) prescribes
specific procedures for the product divisions to follow in
establishing prices that do not exceed current market prices, and (3)
requires the product divisions to document the methods used in
setting prices.

Our analysis of how FPI established prices for 20 selected products
showed that for 13 of the products, the divisions followed FPI's
pricing policy and procedures that were in effect when we began our
review.  For the remaining seven products, all furniture products, we
could not determine whether FPI followed its own policy and
procedures in establishing prices for these products because FPI did
not have sufficient documentation showing how prices were
established.

Our comparison of FPI's catalogue or actual prices for 20 products
with private vendors' prices for the same or comparable products
showed that FPI's prices for 16 of the products were not the highest.
However, FPI's prices for 5 of these 16 products were at the higher
end of the price range offered by private vendors.  FPI's prices for
the remaining four products were the highest of all prices we
reviewed.  Further analysis of product pricing information for the 20
products showed that FPI's prices for 17 of the products were not the
highest prices offered to the government, and, therefore, we
concluded that the prices were within the current market price
ranges; FPI's prices for 2 products may have been within the current
market ranges; and for 1 product, FPI and GSA did not agree on
product comparability, so it was not clear whether FPI's price was
within the current market range.

--------------------
\1 11 Comp.  Gen.  75, 77 (1931).

   BACKGROUND
------------------------------------------------------------ Letter :2

FPI is a government corporation that is managed by Justice's BOP.
Congress created FPI to serve as a means for managing, training, and
rehabilitating inmates.  Operating on a nonappropriated-fund basis,
FPI employs federal inmates at its factories, which are located
within federal correctional institutions, to produce goods and
services that are sold for profit to federal agencies.  Under the
trade name UNICOR, FPI markets about 150 types of products and
services that are produced by 5 major product divisions:  (1)
electronics, (2) furniture, (3) graphics and services, (4) metals,
and (5) textiles.  At the end of fiscal year 1997, FPI employed over
18,400 inmates at 96 factories nationwide and had sales totaling $513
million.  FPI retains earnings from its sales to fund inmate
vocational education programs, provide inmate accident compensation,
acquire and maintain plant facilities, and maintain a reserve for
future uses.

Congress recognized that FPI would compete directly with private
sector companies for the federal government's business.  However,
Congress did not intend for FPI's activities to impose a hardship on
private industry, force private vendors out of business, or have a
significant adverse effect on private sector employment.  Aspects of
the law aimed at achieving these ends mandate that FPI can sell only
to federal agencies, and FPI is required, so far as practicable, to
produce a diversified line of products so that no single industry
will face an undue burden of competition.  Also, as a correctional
program, FPI is required to train and employ as many inmates as
feasible using labor-intensive methods of operation.

   FPI PRODUCT PRICES SHOULD NOT
   EXCEED CURRENT MARKET PRICES
------------------------------------------------------------ Letter :3

FPI's enabling statute (18 U.S.C.  4124) requires federal
departments, agencies, and government institutions to purchase
products from FPI, at prices not to exceed current market prices, if
FPI's products meet their requirements and are available.  FPI's
mandatory source status is discussed in FAR Subpart 8.6 relating to
acquisition from FPI, which states that federal agencies shall
purchase required products from FPI at prices not to exceed current
market prices.  However, neither FPI's legislation nor the FAR
defines current market price or specifies how such a price is to be
established.  The FAR also encourages federal agencies to purchase
services from FPI to the maximum extent practicable, but FPI is not a
mandatory source for services.

Over the years, supporters and critics of FPI have debated FPI's
mandatory source status and whether FPI provides products at a fair
and reasonable price.  In fact, even before FPI was established as a
government corporation in 1934, federal agencies were required to buy
products from prison industries, and there were challenges to the
prices charged by prison industries.  For example, our research found
that in December 1930, the War Department challenged the prison
industries' price for brushes because it was considerably higher than
the prices the Department had previously paid private vendors.
Responding to this pricing dispute, the Board of Arbitration for
Prison Industries issued a decision in February 1931 that prison
industries did not have to set its price at the lowest bid price in
order to comply with the current market price requirement.  In our
1985 report,\2 we relied upon the Board's 1931 decision and the
corresponding Comptroller General's Decision (11 Comp.  Gen.  75, 77
(1931)), which cited the Board's decision, in concluding that the law
and regulations governing FPI do not specify where in the market
price range FPI's prices should fall.  The report concluded that the
only limit the law imposes on FPI's price is that it may not exceed
the upper end of the current market price range.

A more sweeping opinion on FPI's status and how it may price products
sold to federal agencies was issued by Justice in September 1993.\3
In this opinion, Justice found that the mandatory preference granted
FPI is an exception to the rules that normally govern the way
products are procured by federal agencies, and therefore,
procurements from FPI are not covered by the FAR's standard
provisions.\4 The opinion specifically concluded that the provisions
of the FAR governing the submission of certified cost or pricing
data;\5 the calculation of a reasonable price, other than market
price; and the general FAR provisions for resolving pricing disputes
do not apply to FPI.

Also, the Justice opinion noted that nothing in FPI's charter, or in
the FAR, suggests that governmental entities may ignore the mandatory
priority simply because FPI will not accede to all requested contract
terms during negotiation.  Thus, if FPI does not provide certified
pricing data or does not reduce its price to what a federal agency
considers a reasonable price, the agency must still abide by the
mandatory priority and buy available products from FPI.  Finally, the
Justice opinion concluded that FPI may use any method that reliably
estimates current market prices, subject to dispute by potential
customers prior to purchase and arbitration under the applicable law.

--------------------
\2 UNICOR Products:  Federal Prison Industries Can Further Ensure
Customer Satisfaction (GAO/GGD-86-6, Nov.  1, 1985).

\3 Application of the Federal Acquisition Regulations to Procurement
From Federal Prison Industries, Department of Justice, Office of
Legal Counsel (Sept.  13, 1993).

\4 Most federal procurement is accomplished through contracts with
private sector companies, and these contracts are subject to the
general terms of the FAR.  With such contracts, the FAR promotes a
number of goals, including full and open competition.

\5 The FAR defines cost or pricing data as all verifiable facts, at
the date of price agreement, that prudent buyers and sellers would
reasonably expect to significantly affect price negotiations.

   FPI'S FORMER PRICING POLICY AND
   PROCEDURES DID NOT ENSURE THAT
   PRICES WERE WITHIN CURRENT
   MARKET PRICE RANGE
------------------------------------------------------------ Letter :4

FPI's overall policy is that its products should be sold at prices
that (1) will keep the corporation financially self-sufficient and
(2) are not in excess of current market prices.  Despite recognizing
the statutory requirement that its product prices should not exceed
current market prices, FPI's May 1995 policy and procedures that were
in effect when we began our review did not adequately define current
market price.  Nor did the procedures specify how many prices should
be checked to constitute a market or how frequently prices should be
checked.  In addition, FPI's policy did not require the product
divisions to document the market surveys or other methods they used
when setting prices for FPI's products.  Consequently, FPI management
was not in a good position to ensure that its products were priced in
accordance with the statutory pricing standard, current market price.

FPI's procedures did provide general guidance for the product
divisions to use when establishing prices for products.  The
procedures instructed the product divisions to determine current
market price in the following ways:

  -- When a comparable product is found on GSA's Federal Supply
     Schedule, the schedule prices should be used to determine the
     current market price.

  -- When a comparable product is not on GSA's schedule but is
     generally available from private vendors, a review of private
     sector prices (market survey) should be the basis for
     establishing a range of current market prices.

  -- When comparable products cannot be identified or FPI has been
     the sole provider, current market price should be determined
     using FPI's cost to manufacture (including applicable overhead
     and administrative costs) plus a reasonable profit, as
     determined by FPI management.

The procedures also stated that when federal agencies request waivers
to purchase products from other sources, a waiver should not
ordinarily be issued when FPI's price does not exceed current market
price.  However, according to FPI senior officials, their management
philosophy is to operate in a more customer-focused fashion, and,
thus, they do not require federal agencies to buy their products
simply because FPI has mandatory source status.  These officials said
that, in practice, when they cannot offer prices comparable to
private vendors' prices, they often grant waivers allowing federal
agencies to purchase products from private vendors.

However, the decision to grant or deny a waiver remains in FPI's
control.  The FAR outlines the circumstances under which waivers are
ordinarily available from FPI and informs federal agencies about
where to request a waiver.  Specifically, FAR Part 8.604(c) states
that when a contracting officer believes that FPI's price exceeds the
market price, the matter may be referred to the appropriate product
division or to FPI's headquarters office in Washington, D.C.  FAR
Part 8.605(b) states that waivers to purchase products from a vendor
other than FPI are not normally authorized simply because the vendor
offers a lower price.  If the FPI product division rejects the
contracting officer's request for a waiver, FPI procedures allow an
appeal of the waiver denial to be made to the FPI Ombudsman in
Washington, D.C.  Disputes regarding price or other matters that
cannot be resolved within FPI are subject to binding arbitration by a
board consisting of the Attorney General, the Administrator of
General Services, and the President or their representatives.  FPI
officials said that they did not believe the Board of Arbitration had
met very often and that they were unaware of any disputes that had
been appealed to the board since the 1960s.  We were unable to
identify any disputes that had been appealed to the board since the
1930s.

We did not assess FPI's waiver process or complete a comprehensive
review of the circumstances under which waivers are requested and
granted or denied because this was beyond the scope of our work.  We
did discuss waivers with FPI officials, including the Ombudsman who
decides federal agencies' appeals of waiver requests that were denied
by FPI's product divisions.  The Ombudsman said that in fiscal year
1997, FPI received 11,895 waiver requests for an unknown number of
products valued at approximately $302 million.  FPI approved waiver
requests for products valued at about $251 million, or 83 percent of
the dollar value of the products for which waivers had been
requested.  The Ombudsman explained that a single waiver request may
include multiple products that federal agencies wish to buy from
sources other than FPI.  She also said that price disputes do not
normally result in a significant number of waiver requests.

We queried an FPI database that contains information on waivers and
determined that FPI granted or denied waivers on 29,387 products in
fiscal year 1997.  Waivers for 982, or 3 percent of these products,
cited FPI's price as the reason for the waiver request.  Our analysis
also showed that FPI approved waivers on 24,304, or about 83 percent,
of the products, and 907 of these resulted because FPI could not meet
the customers' price requirements.  Thus, FPI data showed that it
granted 92 percent of the waivers that were requested based on price.
We did not, however, determine the accuracy of the information in
FPI's database.

We discussed FPI's pricing policy and procedures with FPI officials
and told them that we were concerned that the policy and procedures
in effect at the time of our review had not implemented our 1985
recommendations to define current market price and provide pricing
methods that the product divisions could use to help ensure that
FPI's products were priced within current market prices.  According
to senior FPI officials, FPI's pricing policy and procedures had been
revised since our 1985 recommendations.  In fact, FPI's 1986 policy
statement, which was updated in 1991, defined current market price
and required that the methods used in setting product prices be
documented.  However, this policy was rescinded in March 1995, around
the time that the pricing policy and procedures that were in effect
when we began our review became effective.  FPI officials could not
explain why this rescission occurred, and they agreed that the policy
and procedures that were in effect at the time of our review were
vague and needed to be changed.

On February 18, 1998, FPI issued a more comprehensive pricing policy
and procedures, which included some of the same guidance that was
contained in the 1986 and 1991 policy statements.\6 The revised
policy and procedures define current market price for FPI products as
the price that could be obtained from competitors for the same or
equivalent products or services when a contract is awarded.  Senior
managers in each product division are assigned responsibility for
establishing selling prices for FPI's products and for ensuring that
FPI's prices do not exceed current market prices, as required by
federal statute.  When setting prices for products, FPI officials are
instructed to consider all comparable products except those products
that were priced to undercut normal market conditions.  Also, each
product division is responsible for establishing pricing files that
fully document how prices were established and for reviewing, on a
biannual basis, all major products to ensure that prices are within
current market ranges.  Finally, adherence to FPI's procedures is
subject to regular review by BOP's Program Review Division.  We did
not evaluate the extent to which FPI's product divisions are
following the revised pricing policy and procedures, but it appears
that if fully and effectively implemented, the new policy and
procedures should satisfy our 1985 recommendations.

FPI did not have a different policy or set of procedures for the
product divisions to follow when establishing prices specifically for
services.  However, FPI officials told us that because FPI is not a
mandatory supplier for services, they clearly recognize that to be
awarded contracts to provide services to federal agencies, FPI must
offer prices that are comparable with those offered by private
vendors.  According to FPI officials, the final price for a service
contract is arrived at through negotiations, and the customers
determine who offers the best service at the lowest reasonable cost.
We did not determine whether federal agencies generally award
contracts to FPI to perform services after competition with private
vendors or as the result of noncompetitive negotiations with FPI.
About 8 years ago, FPI believed that its mandatory source status
included services.  However, GSA disagreed and requested a Justice
opinion on whether the same mandatory source priority that FPI has
for products should be applied to services.  In November 1989,
Justice issued an opinion that the mandatory source priority given to
FPI under 18 U.S.C.  4124 does not apply to services.\7

--------------------
\6 U.S.  Department of Justice, Federal Bureau of Prisons Program
Statement Number 8224.01.

\7 Scope of Procurement Priority Accorded to the Federal Prison
Industries under 18 U.S.C.  4124, Office of Legal Counsel (Nov.  8,
1989).

   MANY PRODUCTS WE REVIEWED WERE
   PRICED ACCORDING TO FPI POLICY
   AND PROCEDURES
------------------------------------------------------------ Letter :5

FPI's officials established prices for many of the 20 products we
reviewed in accordance with the May 1995 pricing policy and
procedures that were in effect at the time the product prices were
determined.  Specifically, three of the four product divisions we
reviewed demonstrated that they followed FPI's policy and procedures
when they set prices for 13 of 20 products reviewed.  Our review of
the pricing files for three electronic components, seven textile
products, and three systems furniture workstations showed that the
respective product divisions had sufficiently documented their
pricing methodologies to demonstrate that FPI's pricing policy and
procedures had been followed.  However, for the seven remaining
products--four ergonomic chairs and three pieces of dorm and quarters
furniture--there was insufficient documentation to show that the
fourth product division--furniture--followed FPI's pricing policy and
procedures when it set prices for these products.

We found that in practice, FPI officials sometimes used a combination
of the pricing methods outlined in FPI's procedures.  For example,
both the textiles and electronics divisions established product
prices that were based on a combination of manufacturing cost
analysis and price negotiations with the prospective customers.
Specifically, for the seven textile products and three electronic
products, FPI officials first developed a unit cost estimate, which
they said documented the direct and indirect costs associated with
making each of the products.  In developing the unit cost estimates,
FPI officials reviewed previous contract files and databases to
obtain current prices for the raw materials that were necessary to
manufacture the textile and electronic products.  After FPI's costs
to manufacture the products had been determined, senior managers in
the textiles and electronics divisions added on profit and thereby
established FPI's initial price quotes.

After FPI developed and submitted its price quotes in these cases to
DLA, it generally entered into price negotiations with DLA on the
textile and electronic products.  To illustrate this situation, FPI's
price for one textile product, a fragmentation vest, resulted from
extended negotiations with DLA.  In September 1996, FPI submitted its
initial price quote of $402.30, but DLA rejected this price and
recommended contract negotiations with FPI to establish a fair and
reasonable price.  FPI countered with several offers that DLA also
rejected.  Then, in December 1996, after several rounds of price
negotiations, DLA officials decided that its current market price for
the fragmentation vest was $349.40.  FPI agreed to this price and
entered into a contract with DLA that same month.

The senior manager from the metals division told us that FPI's final
selling price for systems furniture is determined only after a
detailed analysis of the prospective customer's needs has been
completed.  Further, the selling price is sometimes negotiated and
may include a discount from FPI's initially offered price.  For
example, the Social Security Administration, FPI's largest customer
for systems furniture, is currently receiving a 3-percent discount on
all purchases of systems furniture.  FPI's starting point for pricing
systems furniture, such as the three workstations included in our
review, begins with the price it pays the OEI Division of Krueger
International for the component parts necessary to manufacture a
specific workstation.  According to an FPI official, after
determining the cost for parts, FPI adds all direct labor costs and
indirect costs associated with making the finished product plus
profit to determine FPI's price for each systems furniture
workstation.

According to the FPI official, FPI's price for systems furniture will
not exceed the price charged by its vendor for the same product.  The
official also said that this helps ensure that FPI's price is within
the current market price range.  In addition, we reviewed a 1994 FPI
market survey of 14 major private sector vendors that competed with
FPI to sell systems furniture to federal agencies.  This market
survey found that FPI's prices were about halfway between the highest
and lowest prices of the 14 private vendors.

The senior program manager from FPI's furniture division told us that
when establishing prices for furniture products, he first determines
whether comparable products are available on the GSA Federal Supply
Schedule or from private vendors.  When comparable products are
available, he prices FPI's products within the range of prices
charged by private vendors.  For the four ergonomic chairs and three
pieces of dorm and quarters furniture that we reviewed, the FPI
official told us that he and his staff consulted various private
sector catalogues and GSA schedules to ensure that FPI's prices did
not exceed the range of prices charged by private vendors for
comparable products.  However, the officials from FPI's furniture
division did not document the results of these market surveys.
Therefore, we could not independently determine that they followed
FPI's pricing policy and procedures when they established the prices
for these products.

   PRICES FOR MOST PRODUCTS
   REVIEWED WERE WITHIN CURRENT
   MARKET PRICE RANGE
------------------------------------------------------------ Letter :6

As previously discussed, FPI's price for a product does not have to
be the lowest price available or even in the lower range of market
prices to satisfy the statutory requirement that its price not exceed
current market price.  The only limit the law imposes on FPI's price
is that it may not exceed the upper end of the current market price
range.  If FPI's price did not exceed the highest price offered to
the government, we concluded that FPI's price was within the current
market range.  Our comparison of FPI's prices for 20 products with
private vendors' catalogue or actual prices for the same or
comparable products showed that for 16 of the products, FPI's prices
were not the highest.  Therefore, FPI's prices for these products
were within the current market range.

As shown in table 1, FPI's unit price did not exceed the highest
price offered or charged by private vendors for most of the products
included in our analysis.  These products represent, however, only a
small sample of the products sold by FPI in fiscal years 1996 and
1997.  Therefore, the results of our price comparisons are not
necessarily indicative of the overall extent to which FPI's prices
are within the current market price range.

                                Table 1

                 Comparison of Selected FPI and Private
                         Vendor Product Prices

                               FPI product   FPI product     Total FPI
                               prices were   prices were      products
Product type                   not highest       highest       sampled
----------------------------  ------------  ------------  ------------
Dorm and quarters furniture              2             1             3
Systems furniture unit                   3             0             3
Ergonomic chair                          4             0             4
Textile                                  6             1             7
Electronic                               1             2             3
======================================================================
Total                                   16             4            20
----------------------------------------------------------------------
Source:  GAO analysis of FPI's and private vendors' prices for
selected products.

Although FPI's prices for 16 of the products reviewed did not exceed
current market prices, prices for 5 of these products were at the
high end of the range of prices offered by private vendors.  In other
words, federal agencies might have been able to purchase these
products at lower prices, if they were not required to purchase FPI
products that are priced at the high end of the market range.  For
example, we compared three configurations of systems furniture
workstations manufactured by FPI with comparable workstations
manufactured by private vendors listed on GSA's Federal Supply
Schedule.  This comparison showed that FPI's prices were higher than
81 percent of the prices offered by private vendors for comparable
workstations and lower than 19 percent of the prices.

More specifically, our analysis showed that FPI's price of $3,686 for
the smallest of the workstations was higher than the prices offered
by seven private vendors and lower than the prices offered by two
vendors.  For another workstation configuration, FPI's price of
$5,174 was higher than the prices of eight private vendors and lower
than one vendor's price.  FPI's price for the supervisory workstation
was $6,410, which was higher than the prices of seven private vendors
and lower than the prices of two vendors.  Figure 1 shows a
comparison of FPI's price with the prices offered by private vendors
for each of the three workstations we reviewed.

   Figure 1:  FPI's Prices for
   Selected Systems Furniture
   Units Compared With Prices of
   Private Vendors

   (See figure in printed
   edition.)

Source:  GAO analysis of FPI's prices and private vendors' prices for
selected products.

In addition, two of the dorm and quarters furniture pieces that we
reviewed were at the high end of the range of prices offered by
private vendors for comparable products.  FPI's price of $475 for a
wardrobe was higher than the prices offered by seven of the nine
private vendors that sold comparable wardrobes on GSA's Federal
Supply Schedule.  The private vendors' prices ranged from $344 to
$608.  Similarly, FPI's drop-lid desk was priced higher than five of
the nine vendors' comparable products.  FPI's price for the desk was
$520 and the vendors' prices ranged from $396 to $557.  Figure 2
shows a comparison of FPI's prices for the wardrobe and desk with
prices offered for comparable products by private vendors.

   Figure 2:  FPI's Prices for
   Selected Dorm and Quarters
   Furniture Compared With Prices
   of Private Vendors

   (See figure in printed
   edition.)

Source:  GAO analysis of FPI's prices and private ventors' prices for
selected products.

FPI's unit prices for the four remaining products reviewed--two cable
assemblies, a fragmentation vest used by military combat personnel,
and a bunk bed--were higher than the catalogue or actual prices
charged or offered by the private vendors that we reviewed for the
same or comparable products.  However, FPI officials provided various
reasons why its prices were higher for these products.  On the basis
of these reasons, the evidence suggests that FPI's price for one of
the cable assemblies was within the current market price range, and
prices for the other cable assembly and a fragmentation vest may have
been within the current market ranges.  For the bunk bed, however, it
was not clear whether FPI's price was within the current market range
because FPI and GSA disagreed on whether a higher priced bed was
comparable.

DLA purchased two cable assemblies, one in 1996 and the other in
1997, in similar quantities from FPI and private vendors.  The first
cable, which is used on various Department of the Army radios, was
purchased in October 1996 from FPI at a unit price of $77.45.
Approximately 6 months earlier, DLA had purchased this same cable
from a private vendor for $69.90.  We discussed this price variance
with DLA and FPI officials who said that FPI's price was within the
current market range at the time of contract award.  The DLA official
explained that the price for the cable had been escalating due to
increasing material costs; and, by September 1996, DLA estimated its
market price at $76.87.  Therefore, FPI's price quote of $77.45 was
accepted because it was within 1 percent of the estimated market
price; and it was considerably lower than three other quotes of $111,
$285, and $313 that DLA received from private vendors.  When these
quotes are compared with FPI's quote, FPI's price of $77.45 is within
the current market range.

FPI's price for the second cable, which is used on Department of the
Navy aircraft, was $592.96, but approximately 4 months earlier, DLA
had purchased the same cable from a private vendor for $436.  We
discussed this case with DLA and FPI officials to determine why the
price had increased.  The DLA official told us that FPI's price was
well below DLA's estimated market price of $700.60 at the time the
contract was awarded.  This official also said the price for this
cable assembly had increased primarily because of engineering changes
to the product, higher material costs, and an increasing demand for a
limited supply of cables.  FPI officials agreed that increasing
material costs contributed to FPI's higher unit price.  On the basis
of these factors, FPI's price for this product may have been within
the current market range.

The third product, the fragmentation vest, was purchased by DLA in
December 1996.  According to DLA, FPI initially offered a price of
$402.30, but a lower unit price of $349.40 was negotiated for a
minimum order of 49,000 vests and a maximum of 60,000 vests.  Two
months after awarding the contract to FPI, DLA awarded a contract to
a private vendor to supply a smaller quantity (29,635) of
fragmentation vests at a unit price of $332.88.  We discussed this
case with FPI and DLA officials who said that FPI's higher price was
justified, and it was within current market price.  Their opinion was
supported by DLA's price analysis of FPI's quote, which concluded
that a higher unit price was justified primarily because FPI was
supplying more extra-large-sized vests and these vests contained more
of the expensive material, Kevlar.  The officials explained that the
contract with FPI calls for a much larger number and higher
proportion of extra-large fragmentation vests than does the contract
with the private vendor.  Thus, FPI's price for this product may have
been within the current market range.

Finally, FPI's catalogue price of $230 for a single bunk bed was 11
percent more than the highest price and 81 percent more than the
lowest price offered by the private vendors that we reviewed.  We
discussed this price difference with officials from GSA and FPI to
obtain their views.  An official from GSA's National Furniture Center
confirmed that the nine vendors they had originally identified are
the only vendors on GSA's schedule that sell bunk beds comparable to
FPI's bed.  FPI officials disagreed and told us that they had
identified an additional bed on GSA's schedule they believed was
comparable to their own, and that the price for this bed was $274.
GSA officials told us, however, that they did not consider this bed
comparable to FPI's bed because it was constructed with more
expensive materials and thus should cost more than FPI's bed.
Because of the difference of opinion on product comparability, it was
not clear whether FPI's price for the bunk bed was within the current
market range.  Also, FPI officials said that dorm and quarters
furniture is typically sold in sets as opposed to individual pieces
of furniture.  Therefore, they suggested that we compare FPI's total
or package price for the bed, wardrobe, and desk with the package
prices of the private vendors.  We made such a comparison and found
that FPI's package price of $1,225 was, in fact, lower than one
private vendor's price of $1,290.61, but FPI's price was higher than
eight private vendors' prices.

In summary, for the 20 products we reviewed, FPI's prices for 17
products were not the highest offered to the government, and
therefore we concluded that the prices were within the current market
price ranges; FPI's prices for 2 products may have been within the
current market ranges; and for 1 product, it was not clear whether
FPI's price was within the current market range.  Prices for each of
the 20 FPI selected products and the prices charged or offered by
private vendors for the same or comparable products are provided in
appendix III.

   CONCLUSIONS
------------------------------------------------------------ Letter :7

FPI and the private sector produce comparable products that are sold
to the federal government.  By law, FPI has a procurement preference
over the private sector in selling products to federal agencies.
Because FPI is a mandatory source supplier, procurements from FPI are
exempt from the rules that normally govern the way federal agencies
procure products from the private sector, and FPI is exempt from the
FAR's fair and reasonable price standards.  Federal agencies must buy
FPI products, even if less costly comparable products are available
from the private sector, if FPI's prices do not exceed current market
prices.

FPI officials say that despite their mandatory source status, they
are striving to operate in a more customer-focused manner by
negotiating prices with customers and granting waivers when they
cannot price FPI's products within the competitive range offered by
private vendors.  We noted that in some cases FPI was willing to
negotiate prices, and its data showed that it usually granted waivers
requested by agencies when FPI believed its prices were too high.
However, it is important to recognize that FPI's willingness to
negotiate prices is dependent on its management philosophy and that
FPI ultimately controls the waiver approval process.  Furthermore,
the FAR states that waivers to purchase products from a vendor other
than FPI are not normally authorized because the vendor offers a
lower price.

FPI's pricing policy and procedures that were in effect when we began
our review did not adequately define current market price or
prescribe methods by which it could ensure that its product divisions
set prices that do not exceed current market prices.  Therefore, FPI
was not in a good position to ensure that its product prices did not
exceed current market prices.  However, its February 1998 policy
change appears to put FPI in a better position and, if fully and
effectively implemented, should satisfy our recommendations made to
FPI in 1985.

Our analysis of 20 selected products shows that for the most part,
FPI officials followed policy and procedures when they set prices for
these products.  Also, 17 of the 20 FPI products reviewed were priced
within the current market range because prices for these products did
not exceed the upper end of the range; 2 other products may have been
within the current market price range; and it was not clear whether
the 20th product was within the range.  However, FPI generally did
not offer federal agencies the lowest prices for products that they
purchased.  Therefore, if it were not for FPI's mandatory source
status, customer agencies might have decided to purchase comparable
products at less cost.

   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

BOP's written comments dated July 22, 1998, stated that it
appreciated our recognition that FPI's new pricing policy, dated
February 1998, should better enable FPI to ensure that its product
prices do not exceed current market price.  BOP also said that it
understood our methodological reluctance to project this report's
findings to all FPI products, but it expressed the view that 19 out
of 20 products were apparently priced within the current market range
and this is significant evidence that FPI has complied with the
statute.  We do not share BOP's view that this is significant
evidence to conclude whether other FPI product prices are in
compliance with the statute.  As stated in this report, the 20
products that we reviewed represent only a very small sample of the
many products that FPI sells each year.  Therefore, the results of
our price comparisons are not necessarily indicative, which BOP
recognized in its comments, of the overall extent to which FPI has
complied with the statute requiring that its product prices not
exceed current market prices.  Further, this report concludes that
17, not 19, of the 20 products were clearly priced within current
market ranges.

BOP expressed its opinion that the evidence in this report supports a
finding that FPI's prices for the two cable assemblies and the
fragmentation vest were clearly within current market price ranges,
rather than "may have been" within the range as we concluded.  BOP
also objected to our characterization that FPI's prices for these
three products were the highest of the prices we reviewed.  We do not
agree with BOP that the prices FPI charged DLA for all three of these
products were clearly within current market ranges.  As stated in
this report and discussed with FPI officials, we compared the actual
contract prices DLA paid FPI and private vendors for the two cable
assemblies and the fragmentation vest.  To make these price
comparisons, we first had to identify contracts for similar
quantities of the three products that DLA awarded to both FPI and
private vendors during the same relative time frames.  In all three
contracts, FPI's prices were higher than those paid to private
vendors for identical products.  This finding is clearly stated in
this report.

We then made additional inquiries with DLA to determine why FPI's
prices where higher than those charged by private vendors and to
determine whether FPI's prices may have been within current market
price ranges.  For one of the two cable assemblies, DLA officials
provided us with several reasons why FPI's prices were higher and
three price quotes they had received from private vendors before FPI
was awarded the contract for the cable.  Because all of these quotes
were higher than FPI's quote and higher than the actual price paid
for the product, we concluded that FPI's price was within the current
market range.  However, for the other two products--another cable
assembly and the fragmentation vest--we were not provided price
quotes from private vendors.  Instead, DLA officials provided general
explanations as to why FPI's prices for these two products were
higher than those charged by private vendors.  Without price quotes
accompanying these general explanations, we could not conclude that
FPI's prices for these two products were clearly within current
market ranges, but the explanations that they provided were
sufficient to conclude that the prices may have been within the
current market ranges.

BOP also took exception to our price analysis of FPI's bunk bed and
the conclusion that it is unclear whether FPI's price for the bed was
within current market range.  BOP contends that the proper conclusion
is that FPI's price was within the current market range because it
had identified another comparable bed that was sold through GSA's
schedule at a price higher than FPI's price.  According to BOP, the
higher priced bunk bed is comparable to the other beds included in
our analysis because it has the same basic functional features.
Therefore, BOP believes that we should recognize the $274 price for
this bed as being higher than FPI's price of $230 for a comparable
bed.

It is important to note that as discussed in appendix I--the
objective, scope, and methodology section--a part of our methodology
for identifying comparable products was that GSA and FPI officials
had to agree on the comparability of the products before we did our
price analyses.  During the course of doing our work, we provided FPI
officials with the results of our preliminary price comparisons and
specifically discussed the bunk bed with these officials.  At that
time, FPI officials told us they had not identified another
comparable bed that was priced higher than their own.  However, after
reviewing our draft report FPI officials provided us with information
on the additional bed and told us that they believed that this bed
should be included in our analysis.  We presented the additional
information, including the price of the bed, to GSA.  GSA officials
told us that they did not consider this bed to be comparable to FPI's
bed because it was constructed with more expensive materials.
Because of this difference of opinion on the comparability of the
bunk bed, a key variable of our methodology, we believe it is not
clear whether FPI's price for the bed was within current market
range.  We modified the text in appendix I to further clarify the
criteria used in selecting comparable products.

Another BOP issue relates to our conclusion that FPI generally did
not offer federal agencies the lowest prices for the products that
they purchased.  Specifically, BOP said that this conclusion implied
that federal customers were overcharged because FPI's prices were not
always the lowest.  BOP went on to say that both common sense and
sound procurement principles refute such a conclusion because
customers distinguish between products on many features other than
price, such as dependability, past performance, and ease of
procurement.  BOP further said that many of FPI's customers score it
high on many of these features and consider FPI products a best
value.

Our conclusion points out that FPI generally did not offer federal
customers the lowest prices for the products that they purchased;
and, if it were not for FPI's mandatory source status, customer
agencies might have purchased comparable products at less cost.
Although we agree with BOP that agencies would want to obtain the
best value and might consider features other than price, we do not
know whether the agencies that bought the products covered in our
review believe that they did obtain the best values from FPI.  We do
not dispute that some agencies may believe that FPI products provide
the best value.  However, if lower cost comparable products that
provide all the features and quality the customer wants are available
from private vendors, federal agencies would likely save money if
they were allowed to buy from these vendors.  As this report points
out, federal agencies are generally required to buy FPI products
because FPI is a mandatory source supplier.  Thus, federal agencies
do not have a choice of buying comparable commercially available
products at less cost, unless FPI approves a wavier.

Finally, BOP said that our conclusion that FPI's prices for virtually
every product reviewed were within the current market range supports
its contention that FPI's pricing practice remained consistent over
the years despite a pricing policy that was not as detailed as the
current policy.  We believe it is important to reiterate that the 20
products we reviewed represent only a small sample of the products
sold by FPI in the 2 years examined, and the results of our price
comparisons are not necessarily indicative of the overall extent to
which FPI's product prices are within the current market range for
any time frame.  Because the results of our work are not
generalizable, we cannot comment on BOP's assertion that FPI's
pricing practices have been consistent over the years, or that all of
FPI's products are priced within the current market ranges.  In fact,
we concluded that because of FPI's vague May 1995 pricing policy
before it changed the policy in February 1998, FPI was not in a good
position to ensure that its product prices did not exceed current
market prices.

---------------------------------------------------------- Letter :8.1

As agreed with your offices, unless you publicly announce the
contents of this report earlier, we will not distribute it until 30
days from its issue date.  At that time, we will send copies of this
report to the Chairmen and Ranking Minority Members of committees
with jurisdiction over BOP; the Attorney General; the Director of
BOP; the Chief Operating Officer of FPI; the Director of the Office
of Management and Budget; the Administrator for Federal Procurement
Policy; and the heads of the customer agencies we contacted.  We will
also send copies to interested congressional committees and make
copies available to others on request.

Major contributors to this report are listed in appendix IV.  If you
have any questions, please contact me on (202) 512-8387.

Bernard L.  Ungar
Director, Government Business
Operations Issues

OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

Our objectives were to (1) describe the laws and regulations
governing how Federal Prison Industries (FPI) is to price its
products, (2) describe the policies and procedures FPI uses to ensure
that its products are priced in accordance with applicable laws and
regulations, (3) determine whether FPI followed these policies and
procedures when it set prices for selected products, and (4) compare
FPI's prices with those charged by private vendors for selected
products.  In doing our work, we primarily performed audit work at
FPI's headquarters in Washington, D.C.  We also met with officials
and performed audit work at FPI's Product Support Center located in
the federal correctional institution in Englewood, CO, and six FPI
factories located in federal correctional institutions in Butner, NC,
and Fort Worth, TX.

In addition, we interviewed officials and obtained product cost
information from the General Services Administration's (GSA) Federal
Supply Service in Arlington, VA, and Fort Worth; the Defense
Logistics Agency (DLA) headquarters at Fort Belvoir, VA, and three
defense supply centers located in Richmond, VA, Columbus, OH, and
Philadelphia, PA; several other federal agencies, including the
Federal Aviation Administration, Social Security Administration,
United States Postal Service, and Department of Veterans Affairs,
that purchased products from FPI; and numerous private vendors that
sell products to federal agencies, including Knoll, Inc.; Steelcase
Inc.; Haworth, Inc.; Tennessee Apparel Corporation; M.J.  Soffe
Company; D.J.  Manufacturing; Carter Industries; Tennier Industries;
Nationwide Glove; Illinois Glove; Knoxville Glove; Hawkeye Glove;
Golden Manufacturing; Propper International; American Apparel; E.A.
Industries; Caribbean Needle Point; Terry Manufacturing; A.V.
Technology; and Electronic Associates.

To meet the first and second objectives, we first obtained and
reviewed 18 U.S.C.  4124, which requires federal agencies to purchase
FPI products at not to exceed current market prices.  We also
obtained and reviewed applicable sections of the Federal Acquisition
Regulation; our decisions and other legal opinions pertaining to
FPI's pricing of its products and services; and our previous reports.
We then compared FPI's May 1995 pricing policies and procedures that
were in effect when we began our review with the pricing criteria
found in the applicable laws and regulations.  Additionally, we
discussed FPI's pricing policy, procedures, and practices with
various officials, including the senior program managers of FPI's
five product divisions; managers and cost estimators from the Product
Support Center; FPI's General Counsel; and officials from GSA, DLA,
and several other federal agencies.

To meet the third objective, we reviewed FPI's pricing policy and
procedures to determine the extent and adequacy of guidance that had
been given to the product divisions to use when establishing prices
for FPI's products and services.  Specifically, we determined whether
FPI management had defined the term current market price and
prescribed pricing methods for the product divisions to use that
would ensure that FPI's product prices did not exceed current market
prices, as required by law.  We also determined whether the product
divisions are required to document the market survey or other methods
they use in establishing prices for FPI's products and services.  We
then reviewed the sample of 20 products we had selected for the price
comparisons in objective 4 to determine specifically how these
products were priced and whether the product division followed FPI's
policy and procedures when it established prices for these products.
For those products for which FPI officials relied upon cost and
pricing data in establishing product prices, we completed sufficient
analysis to independently validate the age, accuracy, and
appropriateness of using these data.  We did not, however, verify
that FPI considered all direct and indirect costs when it priced
products using the cost plus profit method.  We compared the pricing
policy and procedures that were in effect when we began our review
with the revised policy and procedures that FPI issued in February
1998 to determine what changes had been made.

To meet the fourth objective, we first judgmentally selected a sample
of 20 products, including 3 systems furniture workstations, 3 pieces
of dorm and quarters furniture, 4 ergonomic chairs, 7 clothing and
textile products, and 3 electronic products.  We determined the
prices FPI charged or offered for these products by reviewing FPI's
catalogues and sales reports/data for fiscal years 1996 and 1997.  We
then compared FPI's prices for these products with the prices charged
or offered by private vendors for the same or comparable products.
If FPI's price did not exceed the highest price charged or offered by
private vendors, we determined that FPI's price was within the
current market price range.  We conducted our price comparisons by
reviewing either (1) the federal agency's purchase/contract files to
determine the volume and dollar amount of purchases for specific
items or (2) the appropriate catalogues and supply schedules
maintained by GSA.  We compared the actual prices DLA paid for the
electronic and textile products included in our sample.  Such price
comparisons were possible because we determined that two DLA supply
centers had purchased identical products from both FPI and one or
more private vendors in similar quantities and in the same relative
time frames.  Most of the electronic and textile products were
manufactured according to military specifications and are not
generally available to the public.

For those products that are available on GSA's Federal Supply
Schedule (ergonomic chairs, dorm and quarters furniture, and systems
furniture), we provided GSA officials with a list of our sample
products along with all pertinent details about each product and
requested their assistance in identifying comparable products.  The
list of comparable products identified by GSA was shared and
discussed with FPI officials, and a consensus on comparability of the
products was achieved before we completed our price comparisons.  In
addition to having FPI and GSA agree on what were comparable
products, the product had to provide the same basic functional
features.  We understand that there may be numerous features, some of
which may add value to a product, that distinguish one product from
another.

In making price comparisons for these products, we compared FPI's
catalogue or offered prices with the prices offered by private
vendors for comparable products that were available from GSA's
Federal Supply Schedules during fiscal years 1996 and 1997.  We were
unable to compare actual prices paid by federal agencies for the
furniture products included in our sample because of difficulties in
identifying contracts under which federal agencies had purchased
comparable products from both FPI and private vendors in similar
quantities and during the same relative time frames.  We recognize
that the actual prices paid for some products may be less than FPI's
or GSA's catalogue prices, depending upon the discounts given by the
sellers and the negotiating skills of the procuring officials.

In selecting the 20 products to be reviewed, we strived to maximize
the number of products that (1) generated high dollar sales for FPI
in fiscal years 1996 and 1997 and (2) were purchased by federal
agencies in similar quantities from both FPI and private vendors.
Also, the selected products included items from four of the five
major product divisions within FPI.  Only FPI's Graphics and Services
Division was excluded from our sample.  This exclusion occurred
primarily because we could not identify service contracts that
federal agencies had awarded to both FPI and private vendors that
were similar enough in the types and quantities of services procured
to allow fair price comparisons.  Further, FPI is not a mandatory
source of supply for services; therefore, it must compete with
private vendors for contracts to provide services to federal
agencies.

Most of the products selected for our sample were in the top 50 sales
items for FPI during fiscal years 1996 and 1997.  We selected systems
furniture for review because this product line generated FPI's
highest revenues in both years.  From the systems furniture line, we
reviewed three typically configured workstations, which include
panels, work surfaces, and storage drawers and cabinets.  We included
the ergonomic chairs and dorm and quarters furniture (a bunk bed,
wardrobe, and desk) in our sample because these products were
included on FPI's top 50 sales items in both fiscal years 1996 and
1997.  The textile products reviewed were also selected from the list
of high dollar sales; and, in addition, DLA had purchased each of
these products from both FPI and private vendors.  The textile items
reviewed included a fragmentation vest, cold weather trousers,
leather gloves, physical fitness trunks, battle dress uniform
trousers for the military, and two types of coats for the military.

In selecting electronic parts for review, we first identified the
federal stock classes for two of the highest dollar sales
items--cable assemblies and wiring harnesses--from FPI's Electronics
Division.  We then requested DLA officials at the Defense Supply
Center in Richmond to assist us in identifying electronic products
within these two federal stock classes that the Center had purchased
from both FPI and private vendors during the same time period and in
similar quantities.  We requested this assistance from DLA's Supply
Center in Richmond because it is one of FPI's largest buyers of
electronic products.  With DLA's assistance, we identified three
items--two cable assemblies and one wiring harness--that were
suitable for inclusion in our review.

We did our work between July 1997 and June 1998, in accordance with
generally accepted government auditing standards.  The results of our
price analysis and product price comparisons cannot be projected to
the universe of FPI's products.  Therefore, the price comparisons
cannot be viewed as indicative of the overall extent to which FPI's
prices are within current market prices.  On July 22, 1998, we
received written comments on a draft of this report from the
Director, BOP.  BOP's comments are summarized and discussed at the
end of the letter and are reprinted in appendix II.  FPI officials
also provided oral technical comments, which were considered in
preparing the final report.

(See figure in printed edition.)Appendix II
COMMENTS FROM THE BUREAU OF
PRISONS
=========================================================== Appendix I

(See figure in printed edition.)

(See figure in printed edition.)

COMPARISON OF PRICES FOR SELECTED
FPI PRODUCTS WITH PRICES OF
PRIVATE VENDORS
========================================================= Appendix III

                                   Table III.1

                        FPI and Vendor Prices for Selected
                               Products Sold to DLA

                         Price comparison (in dollars)
--------------------------------------------------------------------------------
             Product name        FPI   Vendor A   Vendor B   Vendor C   Vendor D
Category     ------------  ---------  ---------  ---------  ---------  ---------
Electronic   Electrical       $77.45     $69.90
              cable
              assembly #1
             Electrical       592.96     436.00
              cable
              assembly #2
       Electrical     1,378.54   2,980.41
              wiring
              harness
Textile      Fragmentatio    $349.40    $332.88
              n vest
             Extremely         77.03      87.72     $88.79     $85.24     $85.56
              cold
              weather
              trousers
             Physical           5.78       6.90
              fitness
              uniform
              trunks
             Leather,          17.00      17.79      17.50      17.51      16.80
              light duty
              gloves
             BDU               23.20      23.31      22.90      26.35
              trousers,
              hot weather
             BDU coats,        21.20      21.45      20.72      20.44
              hot weather
       BDU coats,        18.20      18.50
              temperate
--------------------------------------------------------------------------------
Note 1:  The vendor products represented here are identical to the
FPI products, and most were manufactured according to military
specifications.

Note 2:  Vendors A through D do not represent the same vendors from
one product to another.

Note 3:  Blanks indicate there were no additional contracts with DLA
for this product.

Source:  GAO analysis of FPI's prices and private vendors' prices for
selected products.

                                                                      Table III.2

                                                           FPI and Vendor Prices for Selected
                                                        Products Available Through GSA Schedules

                                                             Price comparison (in dollars)
-------------------------------------------------------------------------------------------------------------------------------------------------------

                  Product             Vendor  Vendor  Vendor   Vendor   Vendor   Vendor   Vendor   Vendor   Vendor   Vendor   Vendor   Vendor    Vendor
Category          name           FPI       A       B       C        D        E        F        G        H        I        J        K        L         M
------------  --  ----------  ------  ------  ------  ------  -------  -------  -------  -------  -------  -------  -------  -------  -------  --------
Dorm and          Wardrobe      $475    $409    $420    $608     $435     $443     $344     $511     $427     $470
 quarters
                  Bunk bed       230     188     153     200      207      127      130      155      184      161
            Desk           520     476     475     483      548      557      396      538      457      534
Ergonomic         Chair #1      $373    $280    $268    $274     $322     $342     $433     $477      n/a     $617     $889      n/a      n/a       n/a
 chairs
                  Chair #2       337     n/a     n/a     n/a      322      n/a      477      n/a      n/a      n/a      889      n/a      n/a       n/a
                  Chair #3       314     407     242     240      n/a      n/a      n/a      n/a      n/a      n/a      694     $320     $760       n/a
            Chair #4       270     n/a     n/a     231      n/a      283      n/a      n/a     $398      n/a      n/a      386      n/a      $248
Systems           Unit #1     $3,686  $3,486     n/a  $3,438   $3,611   $3,386   $3,803   $3,291   $4,479   $3,141   $2,987
 furniture
                  Unit #2      5,174   4,536     n/a   4,339    4,492    4,272    4,885    4,489    6,132    4,371    4,144
                  Unit #3      6,410     n/a  $7,265   5,286    5,541    5,039    5,812    5,480    8,281    5,188    4,917
-------------------------------------------------------------------------------------------------------------------------------------------------------
Note 1:  The products represented here are not identical, but they
are functionally comparable products.

Note 2:  Vendors A through M do not represent the same vendors from
one furniture category to another.

Note 3:  "N/A" indicates the vendor does not offer a product on GSA's
Federal Supply Schedule that was comparable to FPI's product.

Note 4:  All figures have been rounded to the nearest dollar.

Source:  GAO analysis of FPI's prices and private vendors' prices for
selected products.

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.

Gerald Stankosky, Assistant Director
William Dowdal, Senior Evaluator

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C.

Alan Belkin, Assistant General Counsel
Susan Michal-Smith, Senior Attorney

DALLAS FIELD OFFICE, DALLAS, TEXAS

James Cooksey, Evaluator-in-Charge
Dorothy Tejada, Senior Evaluator
Hugh Reynolds, Evaluator

*** End of document. ***