NEW PROCEDURE FOR FEDERAL PRISON INDUSTRIES, INC. (FPI) FOR PRODUCING PRODUCTS ON A COMPETITIVE (NON-MANDATORY) BASIS FPI announces and seeks comments on a new procedure to be followed whenever FPI competes to acquire a contract to produce a new product and offers it for sale on a competitive (non-mandatory) basis. Under this new procedure, FPI will not follow the public involvement guidelines process required for new products which FPI offers as a mandatory source. FPI must follow the statutory process established by 18 U.S.C. 4122(b) whenever it proposes to produce a new product and to sell that product on a mandatory source basis. (It also must follow this process when it intends to significantly expand production of an existing product.) This process is commonly known as the "guidelines" process. It was established by Congress to provide FPI's Board of Directors with an objective basis to make decisions concerning what constitutes a reasonable share of the market, in connection with new product proposals which FPI would supply under the mandatory source. The guidelines process includes the preparation of a market study evaluating the potential impact on the private sector of the proposal to product a new product; an opportunity for the public to comment on that market study; and submission of the study and public comments to the Board of Directors of FPI for a final decision. Thus, the guidelines process is not employed when FPI does not rely on its status as a mandatory source, as with the provision of services (as opposed to products), or to products which are produced by FPI as a subcontractor, to a Government contractor. It has been suggested by several parties that FPI attempt to produce and market products on a competitive basis, rather than through reliance on its status as a mandatory source. This was also recently proposed by FPI's independent auditors to address a situation in which FPI is unable to be responsive to the Federal customer demands because of time constraints imposed by its lengthy and involved guidelines process, which ordinarily takes from six to nine months to complete. Another negative consequence of the need to follow the time-consuming guidelines process is that FPI is hampered in its ability to diversify into new product areas. Diversification, and hence reduction of FPI's impact on any single private industry, will be facilitated by this process. FPI hereby proposes to establish a new procedure under which the guidelines process would not apply where FPI intends to compete to produce a new product in response to a solicitation in the Commerce Business Daily (CBD), and in no way relies on its status as a mandatory source. Thus, this procedure would generally be used in situations where FPI is sought out by the customer, because the customer has had difficulty otherwise identifying a sufficient source(s) of supply to satisfactorily meet their requirements. Further, under this new procedure, the public will be made aware of this decision by the publication of a notice in the CBD that FPI intends to compete to produce this product via a response to a formal solicitation. Moreover, once the product is offered competitively by FPI, it will remain a competitive item and will never be added to FPI's Schedule of Products as a mandatory source item. FPI will not attempt to exercise its mandatory source at some future point in time, nor will it seek Board approval to expand production of said product through invoking the Industry Involvement Guidelines process, at some later date. The Board of Directors of FPI has determined that, as is the case with respect to the services that FPI provides, whatever share of the market FPI acquires on a competitive basis will be deemed to be a reasonable share of the market, within the meaning of 18 U.S.C. 4122(b)(2). Sales of products manufactured under this scenario will be tracked and recorded separately by FPI, as is the case for subcontracting and services, since such sales will not be subject to the market share limitations of the guidelines. This process will enable FPI to further diversify its operations, and the Board of Directors will continueto make every effort to assess and minimize any impact on the private sector. FPI welcomes comments on the new procedure for products offered competitively, apart from mandatory source. Comments should be directed to the above address.

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