FEDERAL PRISON INDUSTRIES, INC. (FPI) INTERIM REVISED DEFINITIONS -- PART II PART II -- CONTINUATION OF FPI INTERIM REVISED DEFINITIONS IV) COMMENTS WHICH ARE VAGUE, BROAD OR GENERAL IN NATURE The following are ideas, recommendations or suggestions provided by commenters which are vague, broad or general in nature. The comments do not always make a specific point and FPI is not in a position to appropriately address each of the comments. Nevertheless, the corporation has included a brief response to each comment. A commenter suggested that the revised definitions threaten small businesses. Though respectfully disagreeing with this statement, FPI finds its vague in that it fails to explain how the revised definitions have a particular effect on small businesses that is different from how the rule would affect any other business. Several commenters expressed their belief that FPI proposed the revised definitions to allow FPI greater freedom to expand into new product areas. While disagreeing with this comment, FPI also finds it ironic. In the past, most of the vendors and trade associations with which FPI has worked have suggested that FPI make a greater effort to diversify its operations, so as to alleviate its impact on industries in which FPI already operates. This comment suggests these parties have changed their position, and do not wish further diversification by FPI. One commenter stated that the new definitions are especially disconcerting in light of FPI's "public rhetoric about partnering and cooperation with industry." The commenter suggested the revised definitions signify that FPI "is not truly interested in partnering and will continue to expand, absent a high-profile, bluntly adversarial campaign." It is FPI's belief that the new definitions are a step forward in the corporation's efforts toward greater cooperation and more partnerships with private industry. The new definitions help address the problems related to the availability of data, while also providing a number of safeguards for potentially affected industries. A commenter stated the revised definitions are more arbitrary and less transparent than the current system. Other commenters suggested the revised definitions, if implemented, would only make it easier for FPI to arrive at the results it desires. While disagreeing with these sentiments, FPI finds them to be broad comments. FPI has spelled out the problems associated with the existing rules, the corporation's rationale for change, and the protections built into the process to safeguard the concerns of industry and enhance the opportunity for public comment. The revised definitions are a sincere attempt by FPI to rectify some of the existing problems, and we believe they will result in improvements to the process for all concerned. Since the rule will be published for implementation as an interim measure, allowing further comment during implementation, we believe FPI has maximized the chances for the process to work for all parties as intended. As mentioned earlier, FPI is announcing implementation of these revised definitions on an interim basis. Until such time that FPI's Board of Directors determines that the definitions should be made final, the corporation reserves the right to make further modifications based on input from any of the following sources: 1) The ongoing independent audit of FPI's use of and compliance with the original expansion guidelines being conducted by the accounting firm of Urbach, Kahn and Werlin; 2) The examination of FPI's methodology used to calculate the Federal market for goods and services supplied by FPI. This analysis is currently underway and is being conducted by a panel of independent Federal procurement experts; 3) Comments relating to the revised definitions and procedures received by FPI from private industry or organized labor; and, 4) FPI's own experiences as the corporation works with the revised definitions. Any further comments on these definitions may be submitted to FPI at the address listed above. Any such comments will be considered and noted, but will not necessarily receive a response in the Federal Register or Commerce Business Daily. FPI now publishes the following definitions of "specific product", "new product", and "significant expansion of an existing product". These are interim definitions. The decision to further modify these definitions, and/or institute the definitions on a permanent basis is solely at the discretion of FPI's Board of Directors. REVISED DEFINITIONS 1. SPECIFIC PRODUCT A specific product refers to the aggregate of items which are similar in function (e.g., bags and sacks), or which are frequently purchased for use in groupings (e.g., dormitory and quarters furniture) to the extent provided by the most current Federal Supply Classification (FSC) Code. There are currently 685 federal supply classes designated within the Federal Procurement Data System. FPI currently produces within 74 of these classes. Specific products will equate to the most current 4-digit FSC Code, published by the General Services Administration, Federal Procurement Data Center (FPDC). As a general rule, products will be deemed to be different specific products if they are identified by a distinct 4-digit FSC code. The following means will be used to determine how items should be treated: -- Items classified within the same 4-digit FSC code will be presumed to comprise a single specific product (unless otherwise determined by FPI, or with input from the relevant industry). -- The predominant material of manufacture (e.g., nylon vs. canvas) will not ordinarily be a factor in defining an item as a separate specific product. (Material will be considered as part of routine review.) In certain instances, with approval of its Board of Directors, FPI may combine FSC codes where multiple FSC's comprise a particular industry. In requesting the Board to combine FSC's, FPI will give careful consideration, and be especially sensitive to, companies that manufacture products (such as various items of apparel) in multiple FSC codes. Moreover, situations should be avoided by FPI where it would have to request Board approval of production and/or expansion in several "specific products" (e.g., office seating, case goods, and systems furniture), each of which often involves many of the same companies within a single potentially affected industry (e.g., office furniture). The rationale for any proposed combining of FSC's will be published by FPI in the Commerce Business Daily to seek input from the potentially affected industry. In all cases, input received in its submission will be forwarded by FPI to the Board of Directors for consideration and final determination. In some instances, an item may be considered separate from another product in the same 4-digit FSC category, if its function differs substantially. In such cases, the 4-digit Standard Industrial Classification (SIC) code may be used as a back-up measure to more accurately define the product. SIC codes will continue to be used at the 4-digit level to determine the size of the domestic market for a particular product. For purposes of product definition in the domestic market, FPI will combine 4-digit SIC codes when the data suggests the product under examination may encompass several different 4-digit SIC codes, with no substantial difference in the product (e.g., men's vs. women's apparel). 2. NEW PRODUCT A new product is a `specific product' which FPI has not manufactured or produced within the past five years. In cases where it has been determined that more than one specific product exists within a 4-digit FSC, the 4-digit SIC code will be used as a secondary indicator to determine whether the product is "new". In such cases, a new product will be defined as a `specific product' in the four-digit SIC which FPI has not produced within the past five years. "Good Faith" CBD Announcements -- Items not deemed by FPI to be a New Product Under current rules, management decisions as to whether production of an item constitutes a new product are made by FPI staff, based on the SIC classification system, without public involvement. Under the proposed new rules, there may be circumstances in which FPI plans to produce items that FPI does not consider to be a new product, but which an affected party may reasonably construe to be a new product. In these circumstances, the items will be announced for comment in the Commerce Business Daily. The purpose of this provision is to give private industry an added level of input into such decisions made by FPI, since it is not possible to anticipate every possible situation or question that could arise within the proposed definition. The parameters for publishing such internal decisions that are made and announced subject to this provision will be as follows: items that a reasonable person could construe to be a product separate and distinct from another item which FPI is making or recently made would be subject to announcement even though their function is similar. As an example, the production of extreme cold weather trousers would be announced, although FPI already produces bullet resistant fragmentation vests, and both are items of protective clothing. Items that are essentially the same product, or those that are variations of an existing FPI product (e.g., a new style of seating) would not be subject to announcement of any kind. However, FPI will resolve any question as to whether to announce in favor of announcement. In submitting comments to FPI, the following guidelines will apply: -- Comments will be due within 21 days of the date of publication; -- Relevant comments will focus on and address why the item should be considered a new product, separate and distinct from a similar item currently being produced by FPI. Comments may include such factors as: the manufacture of the item involves substantially different material and processes; companies that produce this item specialize in manufacturing only that item; the manufacturing processes are unique and are not easily adaptable to produce other similar items; -- While the primary purpose of the comment provision will be to determine if an item should be defined as a new product, comments related to market share and/or the impact that such a production decision may have on the firm will also be considered as they are relevant; -- All comments received in response to these announcements will be considered by FPI. The commenter will be advised whether FPI decides to go through the guidelines process. As always, any interested party has a right to raise any question at any time with the Board of Directors (see 28 CFR 301.2), and thus may appeal to FPI's Board of Directors any issue or decision relating to whether a product is a new product. However, pending such review, FPI may proceed with its plans in accordance with the decision as announced in this process described above, unless and until the decision is reversed. 3. SIGNIFICANT EXPANSION OF AN EXISTING PRODUCT Proposed production increases by FPI which may increase its market share will be reviewed during the Corporation's annual planning cycle and be deemed a significant product expansion under the following circumstances: 1) Sales (measured in constant dollars) for the specific product will increase by more than 10 percent, or $1 million, in any given year, whichever is greater; or 2) In any case where FPI's market share is greater than 25%, any increase in FPI's market share resulting from an increase in FPI production would be deemed to be significant for purposes of triggering the guidelines process. Discussion: When either criterion is met, an analysis of the federal government market for the specific product will be conducted and an estimate of FPI's current and projected market share will be developed. The production increase will be deemed "significant" when FPI's market share position changes in accordance with the following sliding scale. If FPI currently has a 15% or less share of the federal market, any increase in market share would be permissible, provided that the particular increase does not resultin FPI exceeding a 15% market share. If FPI has a market share greater than 15%, but less than 20%, FPI could increase its market share to 20%, before the increase would be deemed to be significant. If FPI has a market share of greater than 20%, but less than 25%, FPI could increase its market share to 25%, before the increase would be deemed to be significant. The allowable increase in market share from 15% to 20% in one year, should not allow FPI to (assuming its sales increases by more than 10%) increase its share again from 20 to 25% in a subsequent year without going through the guidelines process. Market shares will be calculated on the basis of FSC's for planning purposes. If based on initial assessment, it is determined that a comprehensive impact study, and Board approval, is likely to be required, a detailed in depth analysis of market share will be undertaken to fully assess potential impact. Situations where FPI production remains constant, but market share increases as a result of otherfactors, including market changes, will not require FPI to initiate the guidelines process. The fact that 25% may "trigger" the guidelines does not necessarily mean the Board of Directors cannot approve an FPI production level resulting in a federal market share above 25%. The prior three years' data will be used to determine the share of the federal government market, to ensure that annual fluctuations are taken into account and normalized. FPI may produce at the rate of previously achieved annual sales levels, adjusted for inflation, without initiating the guidelines process. In cases where FPI sales inadvertently or insubstantially exceed Board authorized levels, FPI will make every effort to adjust its production by a corresponding amount the following year. If FPI plans call for continued growth, it will invoke the guidelines process without delay and seek Board approval of future production levels. Should the Board decide on a production level lower than that which FPI already achieved, FPI will adjust its future plans and, if necessary scale back, to comply with the Board's decision. In cases of extreme public exigency, such as national disaster or national defense emergency, such as during Operation Desert Storm, FPI may exceed guidelines thresholds, provided FPI receives specific orders or requests from senior Department of Defense and/or Executive Branch officials. Increased sales resulting from national exigencies will not be considered a violation of guidelines ceilings in the year which they occurred. In such cases, the higher production levels achieved by FPI will be temporary, and will not be used as part of FPI's baseline for future calculations of significant expansion. Such exceptional events will be subject to approval by FPI's Chief Operating Officer, with concurrence of FPI's Board of Directors. Subject to other provisions noted in this procedure, FPI's sales for the current fiscal year will be utilized as the base year for future application. Prior decisions of FPI's Board of Directors will remain unaffected by these changes to the definitions. These proposed rules have been reviewed by FPI's Growth Strategies Implementation Committee. The following officials are represented on the Committee: Executive Vice President, Envelope Manufacturers Association of America Vice President -- Government Affairs, Screen Printing and Graphic Imaging Association International Manager, Break-Out Procurement Center Representative Program, Small Business Administration Former Senior Staff Member, Brookings Institution Head of Office of Wages and Industrial Relations, AFL-CIO President, State/Federal Correctional Vendors Association Their comments and suggestions have been incorporated into this proposed procedure.1 All comments received in response to this proposed procedure have been provided to the FPI Board of Directors, which has approved these procedures for publication and implementation on an interim basis. Robert Grieser, Manager Planning, Research and Activation Branch 1) Of course, these officials and these organizations are not precluded from making further comments at this time.

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