FEDERAL PRISON INDUSTRIES, INC., PART 2 OF 2 POC Federal Prison Industries, Inc., 320 First Street, NW, Washington, DC 20534, Attention: Manager, Planning, Research and Activation. This is the continuation of the decision of the Federal Prison Industries, Inc. (FPI) Board of Directors regarding the proposal for FPI to produce steel doors and frames. The BOP currently has numerous prison facilities under development, many of which are under contract for doors and frames from the private sector. A listing of the facilities, the number of doors/frames, and the completion dates are shown below. PRIVATE CONTRACTS FOR STEEL DOORS: Location: Seatac: #'s: 680: Date: November 96. Location: Yazoo City: #'s: 300: Date: December 96. Location: Forrest City: #'s: 420: Date: December 96. Location: Beaumont (High): #'s: 1,000: Date: January 97. Location: Elkton: #'s: 420: Date: March 97. Location: Brooklyn: #'s: 1,229: Date: April 97. Location: Edgefield: #'s: 1,080: Date: July 97. Location: Butner: #'s: 1,000: Date: January 98. Location: Carswell: #'s: 125: Date: February 98. Location: Devens*: #'s: 1,000: Date: April 98. Location: Beaumont (Med.)*: #'s: 1,200: Date: July 98. TOTAL: 8,454. * The market study states that these steel doors are scheduled to be supplied by FPI. After examining FPI's expected production schedule, and the BOP's required delivery dates, a decision was made to procure these doors from private companies. It should also be noted that FPI has committed to produce only replacement doors until the BOP's need for these items is fulfilled. This is significant because there will likely be some additional new construction contracts awarded in the interim, providing new door contracts to the private sector. The Board provides this information because it feels the private sector should be aware that any new construction doors and frame production by FPI would not affect the private sector for several years. According to the market study, the projected BOP purchases of doors is expected to be roughly one-third of all federal purchases over the next 4-5 years. The percentage is lower if only new construction doors are included. The FPI proposal is to confine production only to Department of Justice (DOJ) components, predominantly the BOP. To be clear, it is FPI's proposal, upon completion of the replacement doors, to produce virtually all the BOP requirements for new construction doors and frames. All remaining federal procurements by agencies such as the Department of Defense and Department of Veterans Affairs would be provided by the private sector. Federal purchases of doors are estimated in the market study to be less than 2 percent of the total domestic market. FPI's projected production would be approximately one-third of that. Thus, it appears that at least 99 percent of the domestic steel door market would still be available to private sector manufacturers. The consensus of the industry representatives who appeared at the Board meeting was that the overall market should continue moderate growth over the next 3-5 years. Although it is not possible to forecast the future with precision, the Board feels that the methodology utilized in the market study to estimate the size of the domestic market over the next 5 years is reasonable. This shows the market growing from $525 million in 1996 to $715 million in 2000. The Board also heard from industry representatives that federal sales for 1996 would represent 10-15 percent of their business. Historically, this number has been 4-7 percent for these companies and the Board believes that some of their projections are based on anticipated replacement door business, which we have addressed above. Taking all these factors into consideration, the Board concludes that FPI's production of new construction steel doors and frames for Department of Justice components will not unduly impact on the private sector. The production of these doors will not begin for several years, will represent a substantial share of the federal market but a negligible share of the domestic market and will be offset by continued growth in the domestic market. We particularly want to emphasize the last factor, because it is so directly relevant to the issue of impact on the private sector. FPI has proposed to grow in annual sales of steel doors and frames from zero in 1996 to $5 million in 2000. The domestic market, as mentioned above, is expected to grow by $190 million ($185 million when FPI's production is subtracted). Thus, while FPI's share of the federal market will be approximately 30-35 percent, the growth in overall sales by the private sector renders FPI's impact virtually negligible. Specifically, while FPI's entrance into the market may preclude higher growth rates among private sector companies, we are firmly convinced that it will not adversely affect current employment levels. The Board, therefore, authorizes FPI to produce replacement steel doors and new construction steel doors and frames exclusively for Department of Justice components. The annual sales level authorized is not more than $2.5 million in fiscal year 1996 and not more than $5 million each year thereafter. Beginning in 2001, the level of authorized production may be determined by increasing the previous years authorized level by a commonly accepted inflation index. In addition to its current semi-annual publication of sales data in the COMMERCE BUSINESS DAILY, FPI will compile its sales in steel doors and frames at the end of each fiscal year and shall 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. Finally, the Board wants to address two related matters for the record. First, in weighing the impact on the private sector, the Board must authorize actions which minimize any undue impact while at the same time considering the increased need for inmate employment driven by the increasing federal prison population. The Board is encouraged that the additional jobs to be created by proposed production will teach work skills and enhance the prospects for employment and successful reintegration upon release. Second, the Board heard concerns by the private sector during the meeting that FPI would not be able to produce doors which meet the quality and customer service requirements in the industry. BOP and FPI have worked together to design a prototype door which is of high quality, is labor intensive in manufacturing techniques, and which meets all the industry testing standards promulgated by the Hollow Metal Manufacturers Association. FPI has also committed to provide the necessary support for installation and on-site services to ensure the complete satisfaction of the BOP. It should be noted that no customer, including the BOP is under any obligation to buy products from FPI which do not meet their requirements. As a component of BOP, FPI is very sensitive to the importance of safety and security in a correctional environment, and the doors will be produced to a quality standard which precludes jeopardizing these paramount considerations. Decided on this 13th day of June 1996. For the Board: Joseph M. Aragon, Chairman.

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