FEDERAL PRISON INDUSTRIES, BOARD OF DIRECTORS DECISION: SYSTEMS FURNITURE The Board of Directors for Federal Prison Industries, Inc. (FPI) now issues its decision regarding FPI's proposal to significantly expand production of systems and ADP furniture. As required by statute, FPI prepared a comprehensive impact study, which analyzed the competitive impact, if any, that FPI's expansion of production may have on the private sector. FPI announced, in the July 21, 1995 edition of the Commerce Business Daily, its plans to present this proposal to the Board of Directors; described the procedures for obtaining a copy of the impact study; and invited public comment on its proposal. Copies of the impact study analyzing the proposal to expand production of systems and ADP furniture were sent to interested trade associations, various manufacturers and other interested parties. FPI received written comments on its proposal from several sources, prepared responses to those comments and submitted all such information to FPI's Board of Directors, along with its request to expand production of systems and ADP furniture. Members of the Board reviewed the materials and heard in-person comments from Ms. Ann Whitcomb, representing the Business Products Industry Association; Mr. Steve Robinson, representing the Coalition for Government Procurement; and Mr. Don Herringa, representing The Business and Institutional Furniture Manufacturer's Association, at an FPI Board of Directors meeting held in Washington, DC on December 7, 1995. The Board of Directors appreciates all parties who took the time and made the effort to comment, as it helped to develop a clearer picture of the industry and its concerns. FPI has proposed that the corporation increase production of systems and ADP furniture to $150 million annually by FY 2000. After analyzing the material submitted, and reviewing the testimony heard on this matter, it is the finding of the Board of Directors that a somewhat reduced expansion is appropriate and would not result in FPI capturing more than a reasonable share of the market or constitute an undue burden on the systems and ADP furniture industry. It is the Board's decision that sales be as follows: FY 1996: $80 million. FY 1997: 100 million. FY 1998: 110 million. FY 1999: 120 million. FY 2000: 130 million. The Board recognizes that in implementing the production levels outlined above, it will be difficult to achieve exact levels of sales each year. For that reason, it is the decision of the Board of Directors that FPI may exceed the limits authorized above by an insubstantial amount, so long as FPI's aggregate sales of systems and ADP furniture during the five-year period FY 1996 - FY 2000 do not exceed $540 million. The sales volume authorized above would increase FPI's Federal market share for systems and ADP furniture from approximately 15% to nearly 25%. For ease of reference and tracking, it is the decision of the Board of Directors to use sales dollars, rather than market share, as a point of reference in authorizing this expansion of production. It is the judgement of the Board of Directors that the sales levels authorized above will not place an undue burden upon the systems and ADP furniture industry nor free labor. This judgement is based on the record including the following conclusions: Most firms within the industry are not heavily involved in the Federal market for systems and ADP furniture. For the companies listed on the GSA schedules for systems and ADP furniture, less than 4% of their total sales go to the Federal government. The Board heard in-person comments that some firms in the systems and ADP furniture industry are dependent upon the Federal government as their primary customer. However, as compared to the company-specific sales data for each vendor listed on the GSA schedules included in the impact study, the Board found this testimony to be largely anecdotal and nothing therein leads the Board to conclude that the data presented in the market study does not portray a true and accurate picture. The total domestic market for systems and ADP furniture is quite large (over $3 billion annually) and is projected to continue to grow. The Board reviewed correspondence and heard in-person comments that the commercial market for office furniture (of which systems and ADP furniture is a significant component) is projected to grow only moderately above inflation. It is the judgement of the Board of Directors that even under the moderate growth projected by the industry, the impact, if any, resulting from FPI's expansion, will be largely offset. The industry is dominated by a small number of large firms. The largest 3% of the firms within the industry account for almost one-half of all the industry's sales. Board members reviewed comments and heard in-person testimony that the systems and ADP furniture industry includes many small firms as well. However, it is the finding of the Board that none of the written or in-person testimony presented refuted the data included in the impact study from the Census of Manufacturers on which we rely for our finding that the industry is dominated by a small number of large firms. FPI has avoided any significant increases in production for the last three years, all while pursuing efforts to provide inmate employment through a variety of alternative sources beyond its traditional industries. These efforts include subcontracting, recycling, vertical integration and sales to charitable organizations. However, none of these alternative methods of employment have been able to provide the number of jobs required to keep pace with the growing inmate population. FPI has demonstrated the need to expand within its traditional industries. The Board of Directors encourages FPI to pursue partnerships with members of the systems and ADP furniture industry in the effort to lessen FPI's impact on the private sector. Since the Board has determined that an FPI sales level less than that requested is appropriate, it does so with the expectation that resulting partnerships should be substantial, in order to absorb significant FPI inmate employment. The Board was encouraged by the interest expressed by commenters in FPI being a subcontracting partner for private companies who sell their product to the federal government. The Board wishes to provide an incentive to stimulate the development of these partnerships. To that end, the Board has decided that partnership orders provided to FPI by the private sector in minimum increments of $250,000 will serve to offset and reduce finished goods sales approved in this decision, on a ratio of $1.25 reduction in finished goods for each $1.00 of partnership orders. The Board directs that FPI negotiate specific procedures with private industry for implementing this decision. The Board of Directors endorses the continuing efforts of FPI and the systems and ADP furniture industry that seek to provide significant employment for inmates in the custody of the Federal Bureau of Prisons. The Board encourages FPI to work with members of systems and ADP furniture industry to develop job placement programs to aid Federal inmates in their search for job opportunities upon their release from the Federal Bureau of Prisons. Decided this 6th day of February 1996. For the Board: Joseph M. Aragon, Chairman.

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