FEDERAL PRISON INDUSTRIES BOARD OF DIRECTORS DECISION: WORK CLOTHING The Board of Directors for Federal Prison Industries, Inc. (FPI) now issues its decision regarding FPI's proposal to significantly expand its production of work clothing. As required by statute, FPI prepared a comprehensive impact study, which analyzed the potential impact that FPI's expansion of production may have on the private sector. FPI announced, in the July 25, 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 competitive impact study; and invited public comment on its proposal. Copies of the impact study analyzing the proposal to expand production of work clothing were sent directly to the principal 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 work clothing. Members of the Board reviewed all of the materials and heard in-person comments from industry representatives at an FPI Board of Directors meeting held in Washington, D.C. on December 8, 1995. The Board of Directors wishes to thank all parties who took the time and made the effort to comment. The industry's written and oral comments were helpful in developing a clearer picture of the industry and its concerns. The Board of Directors is called on by statute to make a determination as to whether expansion in the work clothing industry would result in FPI's assuming no more than a reasonable share of the market and not unduly impacting on the industry. In reaching our decision, we have relied on the market impact study, with the additional insight that the private sector has afforded us. We wish to comment on certain items specifically, as they were emphasized in oral comments: Comments from both industry and a former senior acquisition official with the Defense Logistics Agency expressed concern as to FPI's ability to meet ``surge'' requirements for military apparel (``go-to-war'' items) in times of national emergency. Industry representatives stressed that they are required to have surge capabilities to qualify as a Department of Defense (DOD) vendor and expressed doubts about FPI's ability to meet the DOD's surge requirements. The Board finds that FPI factories have inherent surge capacity advantages, as evidenced over the years in meeting military requirements during previous wars and conflicts. For example, in 1991 FPI was cited by the Commanding General of the Defense Personnel Support Center (DPSC), praising FPI ``for the superb support provided to America's Fighting Forces involved in Operation Desert Shield and Desert Storm''. A related concern posed by private industry is that FPI's proposed expansion would adversely impact the industrial base, either by taking 100% of the requirements for any given item, or by entering into industries that are now operating marginally, effectively driving other suppliers out of the market, so that FPI becomes the sole source for certain items. The representative of the American Apparel Manufacturers Association, stated that there is less concern with FPI's proposed market share than there is with FPI being the sole supplier for any one particular item. FPI acknowledges the importance of these concerns, and is working closely with DPSC so as to assure that its operations are conducted in a way that does not significantly impact the supplier base for DPSC. In a recent letter to DPSC, FPI reiterated its commitment not to become a sole source by accepting 100% of any requirement which could adversely affect preparedness. This will ensure that DPSC continues to have secondary sources of supply for its acquisitions through its secondary sources in the private sector. The Board believes that this policy will address industry concerns and hereby affirms FPI's continued adherence to this policy. Industry representatives referred to FPI's statutory responsibility to provide employment that will give inmates a maximum opportunity to acquire a knowledge and skill that will provide means of earning a living upon release. The Board acknowledges this responsibility. It must balance it with other statutory responsibilities, such as the requirement to diversify, to be labor intensive, and to be self sustaining, all of which are, to some extent, competing interests. A commenter questioned the value of training inmates in a domestic industry which has been and continues to be female dominated. As confirmed by research studies, FPI operations provide basic work skills and work ethics which are applicable to any post-release private sector employment and which enhance successful return to the community. In its competitive impact analysis, FPI projects its impact on the federal work clothing market, based on its production increasing to $42 million in FY 2000. FPI provided information in support of its request that the federal market for work clothing should accommodate its proposed expansion in this market. The primary federal customer for work clothing, the Department of Defense, has basically completed its manpower cutbacks, and procurements of apparel products are expected to stabilize. Taking into account the conflicting testimony of the concerned private sector, which has also argued cogently with regard to the hardship the proposed expansion would place on the smallest manufacturers in the work clothing industry, the Board nevertheless agrees with the conclusion in the market impact study that FPI's production of work clothing would not impose an undue burden on private industry, and that its projected market share is reasonable and consistent with the definition of reasonable share of the market as published in final form in the December 4, 1989 edition of the Commerce Business Daily. After final review of all written materials and the testimony of industry representatives, the Board of Directors of Federal Prison Industries hereby authorizes FPI to increase production of work clothing to the following levels: FY 1996: $24.0 million. FY 1997: $31.3 million. FY 1998: $35.4 million. FY 1999: $38.0 million. FY 2000: $42.0 million. The Board recognizes that it is very difficult to achieve exact levels each year. It is, therefore, understood that FPI may exceed the annual limits by insubstantial amounts, so long as the aggregate over the 5 year period does not exceed $170.7 million. 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 measure of expansion. In addition to its current and semi-annual publication of sales data in the Commerce Business Daily, FPI will compile its sales in work clothing at the end of each fiscal year, and provide a copy of this information to the industry association. Should the industry believe that circumstances such as (but not limited to) the overall industry growth rate or federal government purchases have changed sufficiently that FPI's authorized production is having a substantially greater impact than anticipated in this decision, the industry is invited to provide, at their convenience, such written information to the Board. The Board will carefully review this information and, if warranted, will amend FPI's authorized production levels. The Board believes that the sales level authorized represents a reasonable share of the market and will not impose an undue burden of competition on any single private industry. While the Board did approve the full amount requested by FPI, it did so on a more graduated growth curve, in order to minimize the potential for impact on the industry. As indicated above, it is the Board's intent that FPI not take 100% of any specific work clothing item, unless so requested by the customer. FPI is encouraged to diversify its production of work clothing as much as is practical. (There are occasions where, in order to both bolster the industrial base and improve procurement efficiencies, a federal may prefer that FPI take 100% of a particular product. This is generally offset by FPI waiving its production of a related item, to be produced by alternate vendor.) The Board also requests FPI to work with members of the work clothing industry to explore possibilities for cooperative efforts such as subcontracting in order to lessen FPI's impact on the private sector. The intent is to expand opportunities for private industry; provide better quality products at lower costs to the federal customers; and enhance employability of federal inmates upon their release. To that end, the Board encourages the private sector to work with FPI to explore possibilities for job placement of qualified inmates within the work clothing industry upon release. FPI has actively sought opportunities with private firms that would enable both FPI and the private sector to apply their unique advantages to various contract requirements. For example, FPI's production of one apparel item relies on a primary manufacturer to supply, not just the raw material, but cut component parts which FPI sews into completed final articles. This arrangement provides benefits to all concerned. FPI utilizes its inmate labor to perform the more labor-intensive manufacturing operations and saves on wasted material costs. The private manufacturer gains from the additional revenue and the extra utilization of both its fixed and variable resources while performing the more skilled aspects of the project. Finally, the customer benefits from the timely delivery of a price-competitive, quality product. In essence, FPI adds a minor portion of value to the total value of the contract while, at the same time, enhancing the capabilities of the private supplier and assuring expanded surge capacity for potential emergency requirements. The Board believes there are many such opportunities that may contribute to the long-term viability of the domestic apparel industrial base. We encourage FPI to work with DPSC and private industry to develop a healthy mix of work for all parties. We recognize that mutual support and cooperation from all concerned will be needed to achieve the individual missions of both FPI and its customers. Here as elsewhere, 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 also notes for the record that, while FPI must be self-sufficient, the principal emphasis of increased sales should be the creation of additional inmate jobs, which teach work skills and enhance the prospects for employment and successful reintegration upon release. Decided this 6th day of February, 1996. For the Board: Joseph M. Aragon Chairman.

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