[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

UNLOCKING OPPORTUNITIES: RECIDIVISM VERSUS FAIR COMPETITION IN FEDERAL
CONTRACTING

=======================================================================

HEARING

before the

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

of the

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

HEARING HELD
JUNE 28, 2012

__________

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

Small Business Committee Document Number 112-076
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HOUSE COMMITTEE ON SMALL BUSINESS

SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Corolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
ROBERT T. SCHILLING, Illinois
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
JANICE HAHN, California
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts

Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director

C O N T E N T S

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OPENING STATEMENTS

Page
Hon. Mick Mulvaney............................................... 1
Hon. Judy Chu.................................................... 2

WITNESSES

Phil Sibal, Deputy Assistant Director, UNICOR, Federal Prison
Industries, Washington, DC..................................... 4
The Honorable Bill Huizenga (MI-02), U.S. House of
Representatives, Washington, DC................................ 12
Michael Mansh, President, Pennsylvania Apparel, LLC, Fort
Washington, PA................................................. 17
John M. Palatiello, President, Business Coalition for Fair
Competition, Reston, VA........................................ 19
Rebecca Elizabeth Boenigk, CEO, Neutral Posture, Bryan, TX....... 20

APPENDIX

Prepared Statements:
Phil Sibal, Deputy Assistant Director, UNICOR, Federal Prison
Industries, Washington, DC................................. 33
The Honorable Bill Huizenga (MI-02), U.S. House of
Representatives, Washington, DC............................ 38
Michael Mansh, President, Pennsylvania Apparel, LLC, Fort
Washington, PA............................................. 42
John M. Palatiello, President, Business Coalition for Fair
Competition, Reston, VA.................................... 45
Rebecca Elizabeth Boenigk, CEO, Neutral Posture, Bryan, TX... 51
Additional Materials for the Record:
Andrew Linder, President and Owner of Power Connector, Inc.
Statement for the Record................................... 55
Letter for the Record to Chairman Buck McKeon, House Armed
Services Committee......................................... 60
Woolrich Letter for the Record............................... 63
Dale Deshotel Statement for the Record....................... 64
UNICOR Office Furniture Group Products....................... 79

UNLOCKING OPPORTUNITIES: RECIDIVISM VERSUS FAIR COMPETITION IN FEDERAL
CONTRACTING

----------

THURSDAY, JUNE 28, 2012

House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10 a.m., in room
2360, Rayburn House Office Building. Hon. Mick Mulvaney
(chairman of the subcommittee) presiding.
Present: Representatives Mulvaney, and Chu.
Also present: Representative Flores.
Chairman Mulvaney. I call this meeting to order and thank
everybody for coming.
Instead of the ordinary introduction, I am going to tell
you what is going to happen here because it is going to be an
unusual day as you can probably imagine. I think both
Republican and Democrat conferences have emergency meetings at
10:30 to discuss what is happening across the street and what
is getting ready to happen across the street. So what we are
going to try and do is get through the opening statements and
the testimony from the first witness, Mr. Sibal, and then we
are going to adjourn until 2:30 this afternoon. And as
inconvenient as that is, and I know that it is and I apologize
to everybody. There is simply nothing we can do about the
Supreme Court schedule. It was actually easier on everybody to
that then it was to cancel this hearing once again and
reschedule it. So we are going to do our best to sort of slog
through it in two pieces today.
So very briefly, I will read my opening statement and then
turn it over to Ms. Chu. We call this Committee to order on
Unlocking Opportunities: Recidivism versus Fair Competition in
Federal Contracting.
The existence of Prison Labor Industries has been a
contentious issue in the United States for over a hundred
years, particular due to the effect on the private sector. In
today's touch economy, tension surrounding this issue has
intensified as Federal Prison Industries (FPI), or UNICOR,
contracts with the government in industries that face declining
growth and small businesses' fight to survive in this tough
economy.
While the Federal Bureau of Prisons highlights UNICOR's
benefits to society by reducing recidivism rates, small firms
attest to the difficulties in competing on contracts with an
organization that does not need to account for healthcare,
taxes, and minimum wage upon submitting a bid. Further, despite
previous efforts to move UNICOR from being strictly a mandatory
source to an entity that competes for contracts, small
businesses are still concerned that UNICOR is allowed to
compete for set aside contracts. These include contracts set
aside for small businesses, as well as contracts aside for
socially and economically disadvantaged firms, service-disabled
veterans, women, and HUBZones. Additionally, remaining
mandatory source provisions requiring that the government
contact with UNICOR reduces opportunities for small businesses
and growth.
In light of this, it is no surprise that over the past 20
years, Congress has been active in enacting legislation to
reduce unfair competition and mitigate the effects of UNICOR on
small business. Today, this trend is continuing in Congress
with bipartisan support and we are fortunate to have later
today Representative Bill Huizenga from Michigan testifying on
our second panel about H.R. 3634, the Federal Prison Industries
Competition in Contracting Act of 2011.
In addition to Representative Huizenga's testimony, we will
also examine several other small business concerns with the
UNICOR program. The first panel will feature Mr. Phil Sibal,
the deputy assistant director of UNICORN, excuse me, UNICOR,
and the third panel will include small business owners and
representatives from associations affected by Federal Prison
Industries. We are fortunate today to have Representative Bill
Flores later on from Texas, who will join us to introduce Ms.
Boenigk, who hails from his district.
I would like to thank all of our witnesses for being here
and for making the special accommodation given the schedule.
As small firms struggle to overcome the tough economy, this
Subcommittee has been active in ensuring small business
contractors receive equitable contracting opportunities. It is
imperative that the government does not unfairly compete at the
expense of small businesses. While reducing recidivism is
certainly a worthy goal, it must be achieved without negatively
affecting small business. And it is my hope that today's
examination will provide insight into this particular topic.
With that, I will yield to Ms. Chu for her opening
statement.
Ms. Chu. Thank you, Chairman Mulvaney. Thank you for
calling the hearing today on Federal Prison Industries. And I
thank our witnesses for making the time to join us.
As a buyer of a half trillion dollars worth of goods and
services annually, the Federal government is a substantial
economic engine for the country. As we have seen in this
Committee time and time again, Federal government contracting
has been a vital source of business for small firms, often
allowing them to grow and thrive. Since 1934, Federal
government contracting has also been a vehicle for one of the
Federal Bureau of Prisons' most successful and important
programs aimed at reducing inmate recidivism, the Federal
Prison Industries or UNICOR.
All able-bodied inmates in our federal prison system are
required to work, which helps maintain prison security by
reducing inmate idleness. However, FPI's model is unique and
highly affected. It is a federal chartered corporation whose
mandate is to employ and provide job skill training to the
greatest number of inmates in a self-sustaining manner. And FPI
accomplishes this by producing market-priced quality goods and
services that it is authorized to sell to federal government
agencies.
The goal of FPI is not to be a business; it is to
rehabilitate and train inmates for greater success on their re-
entry to the civilian workforce. This mandate has many positive
social benefits in addition to reducing recidivism rates. Since
it does not receive appropriations, it does not cost taxpayers
any money and actually helps save taxpayer dollars by reducing
future criminal justice costs. In fact, every dollar spent on
correctional industry programs saves $6.70.
FPI also increases the safety of our nation's correctional
workers and almost 80 percent of FPI's revenues go back into
the program toward purchases of raw materials from the private
sector, providing opportunities to work with small businesses
through prime contractors, subcontracts, and innovative public-
private partnerships. I have heard from small businesses for
which this has been a critical lifeline.
However, another part of FPI's mandate is to minimize its
negative impact on private business and labor. Therefore, it is
important to make sure that as economic conditions change, FPI
is still fulfilling all parts of its mandate. That is why we
are here today. We must ensure the right balance between the
positive contributions of FPI with the concerns of parts of the
small business community so that both are able to continue
their operations and continue to benefit America.
Given its mission, FPI has some unique advantages over the
private sector. Mandatory sourcing gives FPI first rights to
sell its products to agencies. At the same time, FPI is an
important role in supporting the private sector and spurring
the development and growth of small businesses. In fact, in
2011, it purchased more than $640 million in raw materials,
supplies, equipment, and services with 40 percent of its
purchases made from small businesses.
However, unlike small firms, there is no limit to the
amount of a contracts that FPI can subcontract to other
entities. This means that FPI is often a catalyst for business
development.
Balancing the larger social mission of FPI against the
needs of small businesses is no easy task. Over the last
decade, several measures have been put in place to help
mitigate FPI's negative impact on the private sector.
I look forward to hearing from our witnesses in exploring
what more we can do to work constructively on this issue. Thank
you, and I yield back the balance of my time.
Chairman Mulvaney. Thank you, Ms. Chu.
Our first witness today is Mr. Philip Sibal, the senior
deputy assistant director for the Industries, Education, and
Vocational Training Division of the Federal Bureau of Prisons,
and in this capacity, responsible for each of the seven
business groups within Federal Prison Industries, as well as
overseeing the corporate quality and information system
branches.
Now, ordinarily, for those of you familiar with this
Committee, we let the small businesses go first so they have
the opportunity to ask questions of the administration
witnesses that typically go second. Mr. Sibal has some
important time constraints today so we have agreed in this
circumstance to let him go first. But he has also agreed
afterwards that if a question is raised by the private business
panels, he will answer those questions in writing after the
hearing.
So Mr. Sibal, thank you for making that accommodation. If
you would please go ahead and present your testimony.

STATEMENT OF PHILIP SIBAL, SENIOR DEPUTY ASSISTANT DIRECTOR,
UNICOR, FEDERAL PRISON INDUSTRIES

Mr. Sibal. Good morning, Chairman Mulvaney, Ranking Member
Chu, and members of the Subcommittee. I appreciate the
opportunity to appear before you today. I serve as the Senior
Deputy Assistant Director of Federal Prison Industries, also
known as FPI or UNICOR, a government corporation and a
component of the Department of Justice, Federal Bureau of
Prisons.
Today there are over 200,000 inmates in federal prisons,
housed in 117 institutions and privately-operated facilities
under contract with the Bureau. The mission of the Bureau is to
protect society by confining offenders in facilities that are
safe, secure, and cost efficient, and to provide opportunities
to inmates for self-improvement necessary for a successful re-
entry into society. FPI is one of the Bureau's most important
correctional programs. While it operates like a business, the
real output is inmates who are trained in marketable job skills
so they can return to the community as productive members of
society upon release.
FPI was established by statute and executive order to
provide training and work experience to federal inmates without
the need for Congressional appropriations. The statute also
recognized this training should not place an undue burden on
any specific industry. The year was 1934, when unemployment in
this country was at 22 percent. Nevertheless, Congress
recognized the importance of creating a real-world environment
in which inmates would learn the valuable skills needed to
become productive members of society. The enabling statute
created a procurement preference for FPI, known as the
``mandatory source'' to ensure sufficient work opportunities
would exist for the inmate population. More than 75 years
later, FPI continues to operate without any Congressional
appropriation, although it has become increasingly difficult in
recent years.
The Bureau of Prisons releases approximately 45,000 inmates
per year back to communities around the country. FPI is
critical to the Bureau's efforts to prepare these inmates to
successfully re-enter society. Inmates who work in FPI are 24
percent less likely to reoffend and 14 percent more likely to
be employed upon release than their nonparticipating peers. FPI
provides the greatest benefit to minorities, inmates who are
often at a greater risk for recidivism. FPI is also critical to
the Bureau's efforts to manage safe and orderly prisons.
Inmates who work in FPI are substantially less likely to
violate prison rules as compared to nonparticipating inmates.
This is particularly important in high and medium security
institutions as these institutions are extremely crowded, on
average holding more than 150 percent of the offenders they
were designed to house.
Inmates who work in FPI are required to use half of their
wages to satisfy financial obligations, including assessments,
fines, and restitutions to directly and positively impact crime
victims, the courts, and inmate family members. In fiscal year
2011, inmates who worked in FPI contributed more than $1.6
million of their earnings towards these financial obligations.
The overwhelming majority of FPI's expenses, approximately
78 percent, go to purchases from private vendors with more than
a half a billion dollars spent on raw materials, equipment, and
services from private sector businesses. Year-to-date in fiscal
year 2012, approximately 54 percent of these purchases are from
small businesses, including businesses owned by women,
minorities, and those who are disadvantaged. But the economic
downturn and changes to procurement laws and policies have
significantly challenged FPI's ability to continue to operate
as a self-sustaining inmate program in recent years. We are
actively pursuing new business opportunities consistent with
new legislative authorities regarding products made outside the
United States. Today the FPI program serves less than 13,000
inmates; 7 percent of the inmate population in Bureau
institutions, down from more than 23,000 inmates just five
years ago. Over the same time period, the federal inmate
population has increased by more than 25,000 offenders. The
loss of work opportunities within FPI translates into more than
15,000 inmates who are released back to our communities without
having the benefit of the skills, training, and work experience
that has proven to be effective in reducing recidivism.
Chairman Mulvaney, Ranking Member Chu, and members of the
Subcommittee, I thank you for the opportunity to testify today
about Federal Prison Industries, one of the Bureau's most
important re-entry and recidivism programs, and certainly, a
critical piece of the Bureau's public safety mission. This
concludes my remarks. I would be pleased to answer any
questions you or members of the Subcommittee may have.
Chairman Mulvaney. Thank you, Mr. Sibal.
I recognize Ms. Chu for such time as she may consume.
Ms. Chu. Mr. Sibal, can you explain what would happen to
FPI if it could not get the federal contracts that allows FPI
to sustain itself? Do you have any other avenue besides federal
contracts in order to keep this program whole?
Mr. Sibal. Until December of 2011, FPI was restricted to
selling its products to the federal government. In 2011, in
December, we received authority to bring work back from
overseas by repatriating products for the--selling products to
the commercial market that are currently or would otherwise be
made offshore. We are actively pursuing opportunities to take
advantage of that new authority. Within weeks after receiving
it, we had several pilots approved by our Board of Directors.
However, it is important to recognize that we see that as
an opportunity to replace some of the 10,000 jobs that we have
lost in the last five years, rather than as a replacement for
the 13,000 jobs we have remaining. The reason for that is we
rely on the existing work we have to cover the fixed expenses
of our operations. The challenges with repatriated work is the
wage rates offshore are so low, substantially lower even than
prison wages, that unless we have that foundation of work for
the federal government to cover our fixed costs, like building
depreciation, staff salaries, et cetera, and can treat the
repatriated work as just incremental work to where the only
costs we have to apply to it are the raw materials and what we
call the variable overhead specifically for that product. That
is the only way economically those projects we believe are
going to be viable.
We also faced some significant challenges with those
projects in other avenues. We have had several projects already
where we were going full speed ahead and ran into issues with
corporate policy and corporate perception. There are cases
where corporate executives simply do not want to be associated
with prison industries, and there are cases where corporate
policies specifically prohibit companies from buying from any
vendor that uses prison labor.
So this is not a panacea. We are certainly excited about
the opportunity, grateful to Congress for providing it. We
think it does absolutely provide us the opportunity to increase
work, but it is not without obstacles.
Ms. Chu. We have heard about FPI's benefits to the inmates
and the issue of recidivism, in fact, that it combats against
it. But can you describe FPI's benefits to the taxpayers?
Mr. Sibal. Certainly. You mentioned one of the important
benefits, and that is the fact that more than any other program
in the prison system, Federal Prison Industries has a return of
$6.70 per dollar spent on Prison Industries. So that is a
significant benefit to the taxpayers. Because of the reduced
recidivism, costs for the entire justice system from law
enforcement through prosecution, through incarceration, through
and including the cost to the victims of crime are greatly
reduced by a ratio of $6.70 to 1.
Another important impact that Prison Industries has is the
financial responsibility program, the money that is turned back
from the inmate wages to victims of crime, to the special
assessments, to child care obligations, et cetera. And again,
that was $1.6 million last year. A significant part of the
benefit in addition to providing the inmates with skills that
they need to get a job when they get out is the impact on
operating the prison. I spent most of my career managing prison
industries' operations inside federal institutions. The jobs
that the inmates have in those institutions are very critical
in their adapting to the prison environment and inmates that
work in Prison Industries are known to be much less involved in
violence, in disruptive behavior inside the prison. So it is a
very important tool inside the prison for helping to manage the
population.
Ms. Chu. FPI was created in 1934, during the Great
Depression, when the U.S. was suffering its highest level of
unemployment and economic stagnation. And it grew to be a
successful program that has long enjoyed bipartisan support.
What kind of economic impact do you believe FPI can have during
this recession?
Mr. Sibal. I think our support of small business is a very
strong impact that we can have. As I mentioned in my opening
remarks, 54 percent of the dollars that we have spent year-to-
date on suppliers, services, raw materials, are going to small
business. We work as a partner with small business and open our
doors to them, the opportunities to work with us either as a
supplier or as a partner where the private sector company may
have expertise in one area. We have expertise in another.
Working together we can be competitive sometimes even with
offshore. So I think the partnership and the synergism we can
have with businesses, large and small, can really help the
economy.
Ms. Chu. I would like to ask about your relationship with
the private sector and this mandate to mitigate the negative
impact on them. What steps has FPI taken to accomplish this
requirement and to ensure that the private sector, especially
small businesses, are not hurt by FPI's operations?
Mr. Sibal. We are certainly very sensitive to our impact on
private industry, small business and large. We have a very
stringent new guidelines--new product guidelines process that
requires for every new product that we come out with or even a
significant expansion of existing product. It has to go through
a rigorous process of public vetting where we announce to the
public our interest in entering into a new product area or
expanding an existing product. Companies that are concerned
then have the opportunity to either write to our Board of
Directors or visit the Board in person and express their
concerns. The Board of Directors then has the ultimate decision
as to whether or not we are going to enter into a new product
area.
We also have other restrictions imposed by our Board of
Directors on our market share and recent rules restricting our
market share with contracts for the Department of Defense.
Ms. Chu. And there have been some alternatives proposed
such as increasing the set-asides for small businesses in the
industrial areas in which FPI operates. What are your views on
those alternatives?
Mr. Sibal. I think there is a misperception that FPI--that
it is an either-or. Either Federal Prison Industries or small
business, when in fact we have been working hand-in-hand with
small business and peacefully coexisting since we were first
created. And I think as I mentioned, the opportunities for
subcontracting and for partnering present a lot of
opportunities for small business to grow.
We are a relatively small part of private industry, and
including our impact on small business. I believe one of the
most sensitive areas seems to be the military apparel business
whereby the statistics directly from the Department of
Defense--these are not FPI statistics--we represent on average
just five to seven percent of the pie of the apparel work that
Defense Logistics Agency Troop Support in Philadelphia buys
from the federal government. Small business represents a 45
percent piece of that pie. And again, I would emphasize that
that is the piece of the federal pie to which FPI is restricted
with the exception of the new authority that we are beginning
to explore whereas the private sector companies have access to
commercial markets, global markets, and we are only allowed to
sell to the federal government.
I think there is room for us to coexist. We have shared
these markets ever since we came into being. What is different
now is that these contracts, where before we achieved our
balance with small business through the mandatory source, now
we are bidding on those contracts. So I think that is something
that has changed in recent years.
Ms. Chu. In fact, talking about the mandatory source, you
have the ability to grant waivers to it, to its ``mandatory
source'' clause in order to mitigate the negative impact on
businesses. I have heard from businesses that say that the
waivers are too rare. Under what circumstances and how often
are these waivers requested by agencies and granted by FPI?
Mr. Sibal. In fiscal year 2011, we received requests for
$165 million in waivers. We granted $156 million in waivers. On
average, we have been averaging 95+ percent of the waivers
requested that we grant.
Ms. Chu. And how have the waivers affected FPI's ability to
operate, employ, and train inmates, as well as fulfill your
mandate?
Mr. Sibal. Business waived is inmate jobs that we do not
have. But it speaks to our commitment to business that we are
going to minimize the impact on small business and try to reach
a balance, both with the customers and with private business to
coexist and to allow businesses to participate where the
customer wants a specific product that we do not make or they
want a specific feature that perhaps we do not provide. I think
it just speaks to the balance we have been trying to strike
since we were born.
Ms. Chu. Okay.
Chairman Mulvaney. Thank you, Ms. Chu.
I want to talk about that balance because I struggle with
this as a small businessperson. I see clearly both sides of it.
I have seen small businesses benefit from this because they buy
from you all. I have seen small business suffer from it because
they compete with you all. And it strikes me that the one thing
that is sort of, if anything justifies the program, it is the
recidivism. It is that social cost entailed in teaching folks
jobs; they can get out of jail and stay out of jail.
So let us talk about that for a second. Does it work? And
tell me how you all measure it.
Mr. Sibal. Absolutely.
Chairman Mulvaney. Give me some information on why you
think it is successful in that particular mission.
Mr. Sibal. Certainly. There was a study called a PREP study
which is the Post-Release Employment Project that evaluated
inmates over a number of years, a very rigorous study. And that
study concluded that inmates working in prison industries were
24 percent less likely to come back to prison; 14 percent more
likely to get a job upon release. That study has been
rigorously analyzed by other institutions. One in particular,
the Washington State Institute for Public Policy, who uses only
the most rigorous research, actually used that PREP study as a
basis for their subsequent studies looking at the cost benefits
of the Prison Industries' program.
Chairman Mulvaney. Right. But getting a job upon discharge
from prison is not recidivism. Recidivism is not going or going
back to prison. So tell me specifically about that. I
understand that now they have a skill. They are more likely to
be employed than folks who do not learn a skill in prison. I
understand that. But tell me about the rate at which they go
back to jail.
Mr. Sibal. And that is the recidivism figure that I used at
24 percent. That is not an employment figure; that is the rate,
the lower of the rate at which they come back to prison. And we
define recidivism as being reincarcerated in the BOP within
three years after release.
Chairman Mulvaney. So you are 24 percent less likely to go
back to jail within three years if you go through this program?
Mr. Sibal. That is correct. And right now every inmate
costs us taxpayers $30,000 a year to house. So that is a
significant savings.
Chairman Mulvaney. Now, there are other programs designed
to reduce recidivism rates outside of job training and prison
labor. How does this program compare to those?
Mr. Sibal. In the Washington State Institute for Public
Policy Study, Prison Industries was the most valuable in terms
of the dollar ratio of savings to the program. The Bureau of
Prisons offers a variety of really valuable programs to give
inmates the opportunity to take advantage of their time in
prison. Adult basic education, vocational training, drug abuse
treatment, for example. The one program that was shown to have
a higher impact on reducing recidivism was vocational training.
So it is frequently asked, well, why do we not put inmates
through vocational training which does not impact small
business.
The problem with vocational training alone is two-fold.
One, it costs taxpayer dollars. Vocational training is not
cheap. The second issue is one of timing. Would it really make
sense, for example, to have someone go through automotive
training and get his certification as a certified auto mechanic
10 years before he is going to be released? Vocational training
is really only effective within 18 months to two years of
release. Imagine an inmate that receives training as an auto
mechanic 10, 12 years ago and now he is released into a society
where what is a hybrid and electric car, et cetera, et cetera.
So there is an issue of the skills staying current, because
once an inmate has completed a vocational training program, he
does not get to hang around and continue to hone those skills.
He has completed the program. So those skills would get very
rusty.
Chairman Mulvaney. Could not the same thing be said about
Prison Industries though? I mean, why would you put somebody in
the business of making boxes if they are not going to be out
for 15 or 20 years?
Mr. Sibal. That is a question we often hear, and that
speaks to the question of what we call the soft skills versus
the technical skills. There was a study by the National
Association of Manufacturers back in 2005, I believe, in which
private sector manufacturers were asked about the problems with
retaining and hiring their workforce. The problems they had
with hiring and retaining production workers was not that that
they did not know how to run Microsoft Excel. Not that they did
not know how to run a computer-controlled machine. They lacked
the soft skills as we call them. Show up for work on time. Do
what the boss says. Wear your safety shoes. Get along with the
other guys in the shop. Those are the skills that we teach the
federal inmates, and that is first and foremost what we are
shooting for. By design, we are designed by the--we are by
mandate required to be very labor-intensive. Obviously, we
could employ a lot of robots and unemploy a lot of inmates by
doing that, and thereby, expose them to more marketable skills.
But we focus on teaching them the soft skills. We certainly
have examples where inmates are learning very valuable and very
current skills, whether it be in computer-aided drafting,
working in a call center. We use a system called SAP as far as
our production financial system. That is the global market
share leader in those types of systems. Inmates are on that
system every day. So they are learning valuable skills.
Chairman Mulvaney. Can you quantify for me, Mr. Sibal, if
you believe that Prison Industries were more effective in
preventing recidivism, then vocational training, can you
quantify that for me?
Mr. Sibal. The statistic I would cite, and again,
vocational training program is proven to be more effective in
reducing recidivism but the drawbacks to that are the facts
that it requires appropriations and we have the issues of the
timing of that program versus the timing of the inmate's
sentence.
Chairman Mulvaney. And I appreciate that. I think at the
end of the day it will cost all taxpayers money one way or the
other. Whether or not we do an actual appropriation or we
compete with business and take business away from small
business and they pay less taxes, sooner or later we have got
to pay for it one way or the other but that is a bigger story
for another day.
I want to talk about where you all work. Because one of the
things in doing the research for this hearing, one of the
things I was excited to see was the previous law change from
several years ago that allowed you, encouraged you to go into
the businesses that did not compete with domestic producers,
that had you focus on things that were no longer made here,
have never been made here and go into that industry and compete
with folks who are overseas.
Tell me more about that program. You mentioned a little bit
in your answer to Ms. Chu. Tell me what you are doing with
that. Tell me about the growth rates in there and how you are
focusing on that. And then I want to have some follow-ups as to
why I like that program so much.
Mr. Sibal. Certainly. We are very excited about that
program as well, and again, we are grateful to Congress for
granting that authority. We just received it in December of
2011.
We had a Board Meeting in January, the following month, and
by that time we already had four pilots that we asked for
approval by the Board of Directors. Some of them were apparel,
solar panels, tents, baseball caps, the textile bags that you
take to the grocery store. And energy efficient lighting was
another one. So we are aggressively pursuing those. But as I
mentioned earlier, we have encountered a lot of obstacles in
trying to actually make that happen. We are actually producing
some LED lighting at one of our factories in New Jersey. The
other programs we are still trying to work through the contract
negotiations.
Chairman Mulvaney. And these are all items that are not
made here?
Mr. Sibal. Yes. These are all items that are not made here.
Now, they may be made here to some extent, but one of the
things that we have to evaluate in the information we have to
provide to our Board is what we refer to as the import
penetration ratio. There is probably nothing that is 100
percent made somewhere else in this country. But what we have
to look at is what would--again, what would our impact be on
those businesses that do remain?
Chairman Mulvaney. Mr. Sibal, our time is running short and
I am not going to get a chance to ask my line of questions
about specific industries but I want to make a comment for the
record, which is that you mentioned specifically apparel,
military apparel. I am from a textile area, and it is one of
those places where we have more labor now than we have demand
for that labor. And it strikes me as somewhat against the
purposes to be--having prison labor competing in areas where
folks are having difficulty finding jobs in the private sector,
and to encourage you I am going to ask some follow-up questions
in writing on whether or not your program can instead focus on
areas where there is a shortage of labor. And I am speaking
specifically in my district of agriculture. They cannot find
people to do these jobs. And it strikes me that that might be
an area where you all can grow your base without going into
direct competition with the private sector because we need that
labor. We are not able to get that labor. Immigration is
preventing us from getting particular folks to work that.
Domestic workers do not want to do the job so we have ended up
losing entire industries in my state because they cannot find
the people. And maybe that should be something the federal
prison programs can focus on that would still allow you to
accomplish what you want to accomplish without competing with
folks who are out there trying to make shirts and pants for the
military.
But again, I am going to be respectful of everybody's time.
My phone is blowing up. I do not if anybody else's is. I have
got 15 different answers on what happened across the street. We
are not really sure what the deal is yet so we are going to go
find out. What we will do now is we will adjourn until 2:30. I
thank Mr. Sibal, I thank everybody else for the accommodation,
understanding that it is a very special day. We are going to
adjourn now until 2:30.
[Recess.]
Chairman Mulvaney. On that cheerful note we will call the
meeting back to order. And again, I thank everybody for the
special accommodations today. I cannot apologize enough. I know
how difficult it is to work these things into your schedule to
begin with, but there was really obviously no way around it
today. So thank you for coming back.
Panel number two is Mr. Huizenga, who is going to talk to
us about a bill that he is working on. Where is my
introduction? Good. And I am pleased to welcome you, Mr.
Huizenga. And I have a nice little phonetic spelling of your
last name which is cool.
He represents the Second District of Michigan. He is a
small business owner himself and he understands the issues that
this Committee seeks to address, and his introduction of H.R.
3634, the Federal Prison Industries Competition and Contracting
Act of 2011 is especially relevant to what we are doing today.
So with that, welcome to Mr. Huizenga and I will give you
as much time as you need, Bill.

STATEMENT OF THE HONORABLE BILL HUIZENGA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN

Mr. Huizenga. Mr. Chairman, I appreciate the opportunity to
be in front of you, and Ranking Member Chu, thank you for your
time and your attention. This is something that is very
important and on a very, very busy day I am glad we could get
together and have this conversation because competition with
the private sector by Federal Prison Industries is an issue
that is important not only to those of us on the West Side of
Michigan or in Michigan in particular, but really across the
nation.
When I was district director for Congressman Pete Hoekstra,
my predecessor, we had an interesting experience when the
Social Security Administration opened up a brand new office
building in town. And when they did so, they were--obviously
needed to put new furniture into it. Unfortunately, the
hometown that I am from, two of the world's largest of the
three largest office furniture makers in the world are located
in the Holland area. The third one, Steel Case, is about 20-25
miles away. They were actually not even allowed to compete for
that contract. And what happened is the opening of the office
was delayed because the office furniture was not actually
delivered on time and the irony was we were literally a rifle
shot away from one of those office furniture makers who could
have had that there in literally, if not the same day, by the
next day, and we could have had that office opened. And it was
not because of the mandatory sourcing that UNICOR has and that
the Federal Prison Industries put forward on this.
So the impact of it hits communities all over. Our
colleague, Carolyn Maloney, has been a long-time supporter of
this initiative and worked with Congressman Hoekstra at the
time. I want to make sure I get the name right. It was the
Glamour Glove Company on Long Island that had its existence
threatened by FPI. Many of Ms. Maloney's constituents were
employees of the company, and they lost 80 percent of its glove
business before a compromise was negotiated with FPI.
Ace Electronics of Bel Air, Maryland, and Troy, Michigan,
manufacturers wiring and cable assemblies, fiber optics,
connectors, and other products. Ace will likely lose out to FPI
on a $300 million contract because of the rule that allows FPI
to capture up to five percent of the market share in a
particular area.
General Linen Service of New Hampshire was forced to
compete for a contract against the prison system that they had
previously serviced without incident. The Textile Rental
Services Association member was informed that their service
contract was being terminated and awarded to the prison system
without any reasons given. While the company eventually won the
contract back, the cost of having to recomplete and restructure
the contract was a significant burden on the business.
UNICOR has been sort of argued in some hands and some
quarters as not really being a significant operation. That is
not the case at all. They occupy more than four million square
feet of manufacturing and service space. FPI is far from a
small business. This bureaucratically-run corporation competes
with private business job creators in over 300 individual
products and services. It is comprised of seven divisions
including clothing and textiles, electronics, fleet management,
office furniture, industrial products, recycling, and services,
including call centers and data and document conversion as
well.
Revenues range from $745 to $885 million annually. FPI is
the 36th largest federal contractor when measured by gross
sales to federal agencies. Prisoners working in UNICOR
factories are paid somewhere between 23 cents to $1.15 per
hour. Can you imagine the uproar in the public or in Congress
if we were importing goods manufactured from China and using
prison labor there? It is no wonder American-grown companies
cannot even compete with a Goliath like that that is paying
literally pennies on the dollar where our companies are forced
to pay obviously at least minimum wage.
In addition to low wages, FPI does not have to pay
employees Social Security, nor the employer's share. It does
not pay unemployment compensation, workers' compensation
insurance, Federal, State, and local income taxes, gross
receipts taxes, excise taxes, and sales taxes. It is not
subject to Federal Trade Commission oversight, Securities and
Exchange Commission oversight, or Department of Justice review.
It even has a special statutory allowance for a line of credit
through the Department of Treasury for up to $20 million at
zero percent interest.
On a very bipartisan basis, I introduced H.R. 3634, the
Federal Prison Industries Competition and Contracting Act. It
was a wide range of support, including lead Democratic sponsors
Barney Frank of Massachusetts and Carolyn Maloney of New York,
as well as former Judiciary Committee Chairman Jim
Sensenbrenner of Wisconsin and former Small Business Committee
Chairman Don Manzullo of Illinois. The bill is nearly identical
to previous versions that had passed the House by votes of 350
to 65. That was in 2003. And then again in 2006, when a bill
passed 362-57.
We must pass, I believe, my bill, and work with our Senate
colleagues to pass it in the other body as well. That had been
where the holdup had been previous years. I am pleased to
report that in the coming days, Senator John Thune of South
Dakota and others will be introducing a bipartisan FPI reform
bill there.
My narrowly written bill would establish market-based,
government-wide procurement policies for purchases that are
based on competitive procedures. It establishes competition as
the standard for the Federal agencies when they do their
purchasing.
Currently FPI, not the buying agency, determines if the
product FPI offers and the delivery schedule that it offers
meets the needs. That is pretty much backwards from any other
procurement that happens. Our bill puts the purchasing
decisions in the hands of the buying agencies requiring them to
research which products are available on the market, not just
to flip through an FPI catalogue and know that they have to
take what is being offered. Specifically, our bill requires FPI
to compete for business opportunities by removing the mandatory
source status that UNICOR enjoys. It requires FPI to complete a
probability impact study on private industry before entering
into a brand new market. So at this point they are able to just
basically say, hey, that sounds like a good idea. We will start
expanding into this new area or that other area, and this would
require them to do an impact study. It forces UNICOR to
gradually pay competitive hourly wages for prisoners performing
the work and makes OSHA standards mandatory at prison
factories. And it also prevents UNICOR from selling products in
commercial settings and from entering new interstate or foreign
commerce contracts.
So H.R. 3634 is mindful of idleness of prisoners as well. I
do not think anybody wants to see these guys or these women
sitting around not learning a skill or not being kept active,
and it does actually address recidivism. It creates new
opportunities for prison workers that do not result in unfair
competition with private business, particularly small business,
and the employees in companies that lose out to FPI, but it
allows prisoners within FPI to work for a tax-exempt charity,
religious organization, or even local units of government. And
I know in Michigan, when I served in the state legislature
there, we had kind of a similar situation where there was a bit
of a state version of this. And we went in, changed the law,
and I was aware of it because having prior--immediately prior
to being in the state legislature I had worked as the district
director for Congressman Hoekstra, and so I was aware, very
much aware of our efforts on the federal level with FPI, so I
went into the state legislature looking at if we did anything
like that and discovered that we were. So one of the things
that we did is we said, okay. We worked with Habitat for
Humanity and we now have state prisoners building modules and
components of homes for Habitat for Humanity. And then as those
would then get shipped off to those building sites it was
saving a tremendous amount of time and cost while we were
giving prisoners skills that hopefully they will be able to use
on the outside, but it also authorizes private businesses to
participate in work training and apprenticeship programs for
prisoners as well.
It establishes an Enhanced In-Prison Educational and
Vocational Assessment and Training Program to help people with
release readiness preparation. The Bureau of Prisons' own
studies have shown that vocational training programs have
historically been the most successful in decreasing recidivism.
By giving prisoners the training they need to find and maintain
a job once released, we are providing them, their families, and
our communities, with the greatest of services, I believe.
Taking jobs away from honest, hardworking Americans in the
process though, is not how we accomplish this goal.
So again, I thank you very much for the invitation and the
opportunity to be with you this afternoon. And we are looking
for all the support that we can get for H.R. 3634, and would
love to have your participation as we move forward on that.
Thank you, Mr. Chairman.
Chairman Mulvaney. Thank you, Mr. Huizenga.
Ms. Chu, I recognize you for as much time as you would
consume.
I have just a couple, Bill. Thanks very much.
Oh, I want to recognize Mr. Flores who is here. I will tell
you what, as I was getting ready for this hearing I was not
really aware of the scope of the Federal prison program. I knew
it existed, and I had folks who had used it and competed with
it, both back home, but that number you threw out today, that
stuns me that it is, you know, $750, $800 million a year. That
is a big, big company. Are you telling me, by the way, that
story about Michigan, that we actually bought the furniture for
the Social Security Administration building in your district
from Prison Industries?
Mr. Huizenga. Correct. Yeah. We all make it locally. Yeah.
And all the Aeron chairs that people sit in are literally made
in my district. And I am not saying we necessarily want to have
Social Security Administration flooded with Aeron chairs, but
that is the scope of it. I mean, all of the system's furniture
is centered--the biggest three but also probably out of the top
10 office furniture makers, seven of them are located within
the West Michigan area.
Chairman Mulvaney. I had no idea. As you go forward on the
bill, something came up in the first panel today I would
encourage you to consider, which is--and I think you have in
this impact study that you are requiring them to make as they
go into new industries, you know, I have got industries in my
district that cannot get people. They cannot find labor,
specifically agriculture. And it would make sense, it would
seem to encourage the Prison Industries to go where there is a
shortage of labor, not where there is a surplus of labor, like
in textiles or in your circumstance, furniture. So if that is
contemplated in your bill, I commend you on that. If not, I
would encourage you to consider adding something like that. The
competitive wages, by the way, I thought was interesting as
well.
What is the pushback on the bill? Have you heard anything
yet or not?
Mr. Huizenga. Well, other than UNICOR, they are obviously
not real interested in moving in that direction. They would
like to have as much flexibility and freedom as they possibly
can. I can tell you that when we explain it, especially for a
number of the freshmen that are coming in who have not dealt
with this in the past, you kind of get that same reaction where
it is like, really? I mean, we have got three-quarters of a
billion dollar industry that is getting run through our Federal
prisons.
Chairman Mulvaney. At $1.15 an hour or something like that.
Mr. Huizenga. Yeah. Yeah, 23 cents to $1.15 an hour. And we
ought to maybe take a closer look. So we have gotten very
positive feedback on that. And obviously, by those votes, it is
rare to see 350+ votes for anything, but you know, this was a
culmination of many, many years of work. That 2003 vote,
Congressman Hoekstra had started working on this back in the
mid-90s, about '97, '96. And where it came from frankly, you
know, the office furniture industry is a multi-billion dollar
entity. And the dotcoms were going on. When you had a good idea
but it was all based on Internet, what did you do? You went and
rented some of the most cool office space and bought the most
expensive furniture you could find. Right? And so the office
furniture industry was just going nuts. And when that dot bomb
happened, the dotcom bubble burst, suddenly they were looking
for business. They had ramped up to a tremendous amount of
output, and they were looking for new areas where they could
go.
Well, at that point, UNICOR was doing about $100 to $125
million a year in office furniture. Not insignificant, but when
you are a multi-billion dollar industry, it was kind of like,
okay, we knew it was sort of happening over here and they were
playing some games. They would import parts from certain
manufacturers and then they would assemble them in the prisons
and they would, you know, they would call it Prison Industries
or they would try to come up with some of these partnerships.
But when they started looking around for new areas and new
avenues to expand their business, a $100 million target was
significant. So that was really what prompted Congressman
Hoekstra and Congressman Frank and Ms. Maloney and others to
sort of get engaged. And my understanding, I believe it was
also textile-related when Mr. Frank and Mr. Hoekstra came
together on this. They were sort of coming at it from different
industries but with the same outcome, which was seeing private
sector jobs disappearing because of mandatory sourcing through
UNICOR.
Chairman Mulvaney. I have to ask you one last question I
did not get a chance to ask the previous gentleman who was here
on our first panel, would your bill ban UNICOR from receiving
future stimulus money?
Mr. Huizenga. From future stimulus money? That is one of
the questions that we have, is whether it has or not. And I
need to go back because I am not sure I can answer that
accurately. So if I can double-check on that for you and we
will get back to you, Mr. Chairman.
Chairman Mulvaney. Thanks, Mr. Huizenga. Unless there are
further questions, thank you very much for your testimony
today. And we will go ahead and panel the third group. Thanks.
Mr. Huizenga. Thank you. I appreciate it.
Chairman Mulvaney. All right. Thanks to the final panel
that is making its way up.
In this third group we are going to have Michael Mansh,
president of Pennsylvania Apparel, LLC, a small business based
in Fort Washington, Pennsylvania with factories in Olive Hill,
Kentucky; Macon, Georgia; and Buckhannon, West Virginia. He is
also the chairman of the American Apparel and Footwear
Association's Government Contractors Committee.
Mr. Mansh, are you here, sir?
Mr. Mansh. Yes, sir.
Chairman Mulvaney. Come on up, please.
I would also like to welcome John Palatiello. John is the
president of the Business Coalition for Fair Competition, an
organization comprised of trade associations, businesses, and
organizations dedicated to free enterprise, relief from unfair
government-sponsored competition, and maximum government
reliance on the private sector. They are also the organizer of
the Federal Prison Industries Competition in Contracting Act
Coalition, a group of firms and associations seeking a full and
open competitive procurement market with a level playing field
between the private sector, especially small business and
Prison Industries.
And our third witness is going to be introduced by my good
friend from Texas, Mr. Flores.
Mr. Flores. Thank you, Chairman Mulvaney. I would like to
thank you for the opportunity to join your committee today. And
I would like to take the opportunity to introduce one of my
constituents from College Station, Texas. Rebecca Boenigk
serves as the chairman and CEO of Neutral Posture, Inc. She has
over 23 years of experience in research development, design,
and the manufacturing of ergonomic seating. Ms. Boenigk has
grown Neutral Posture to an international company with numerous
award-winning patented products. Together, Rebecca and her
mother have led Neutral Posture, Inc., from the startup to
becoming a publicly held company of nine years. In 1997,
Neutral Posture, Inc. completed an initial public offering,
becoming the first certified women-owned business to be traded
on the NASDAQ. In 2006, Rebecca was appointed to serve on the
National Women's Business Council, which serves as advisors to
the president, to Congress, and to the U.S. Small Business
Association. Rebecca is the immediate past president of the
Business and Institutional Furniture Manufacturers Association.
She is a past member of the Board of Directors for the Women's
Business Enterprise National Council. She is a national
founding partner for the Women Impacting Public Policy, and she
served on the Board of Directors of the Institute for Economic
Empowerment of Women. And I have known Rebecca personally for a
long time, and I know she will add value and insight to this
conversation today. Thank you, Mr. Chairman.
Chairman Mulvaney. Mr. Flores, thank you for your time.
We will start with Mr. Mansh.

STATEMENTS OF MICHAEL MANSH, PRESIDENT, PENNSYLVANIA APPAREL,
LLC, TESTIFYING ON BEHALF OF THE AMERICAN APPAREL AND FOOTWEAR
ASSOCIATION; JOHN M. PALATIELLO, PRESIDENT, BUSINESS COALITION
FOR FAIR COMPETITION; REBECCA ELIZABETH BOENIGK, CEO, NEUTRAL
POSTURE, TESTIFYING ON BEHALF OF WOMEN IMPACTING PUBLIC POLICY

STATEMENT OF MICHAEL MANSH

Mr. Mansh. Thank you. Thank you, Chairman Mulvaney, Ranking
Member Chu, and members of the Subcommittee for affording me
this opportunity to speak today on the adverse impact that
Federal Prison Industries has had and continues to have on our
business and our industry.
I am Michael Mansh, president of Pennsylvania Apparel, LLC,
a company based in Fort Washington, Pennsylvania, with
factories operating in Olive Hill, Kentucky; Macon, Georgia;
and Buckhannon, West Virginia. I am also a member of the
American Apparel and Footwear Association, where I serve as
chairman of its Government Contracts Committee, which
represents the domestic manufacturing base of clothing,
footwear, and textile producers for the U.S. Military.
In November 2002, I appeared before the House Small
Business Committee and explained the deleterious impact of
Federal Prison Industries on my company and the industry at
large. In the last 10 years, I can tell you that things have
only gotten worse.
Pennsylvania Apparel has been both a prime contractor and a
subcontractor for the Department of Defense for the last 50
years. My company's survival against the unfair and unjust
competition from FPI would not have been made possible if it
were not for the efforts of Senators McConnell and Paul and the
effective representation of our industry by the American
Apparel and Footwear Association.
We are in support of two pieces of legislation that seek to
reform the program--H.R. 3634, the Federal Prison Industries
Competition and Contracting Act introduced by Congressman
Huizenga and H.R. 2312, the DOD Textile and Apparel Procurement
Fairness Act introduced by Congressman Walter Jones. One of the
most important features of both pieces of legislation is the
restriction that they place on FPI from being able to take any
contract specifically reserved for small businesses.
When I last appeared, I testified that my company's main
product was the Utility Jacket for the U.S. Navy, which was
made in Olive Hill from 1987 through 1997. Olive Hill is a
small town of 1,600 people located in a HUBZone with high
unemployment where my factory alone employs more than 10
percent of the eligible workforce. FPI took that product and I
had no ability to fight the decision.
I was able to keep my Olive Hill plant open by securing a
contract for the Air Force Lightweight Windbreaker, an item
worn by each member of the U.S. Air Force. This item is well-
known to many Americans as it is worn by the President of the
United States on Air Force One, as well as the Air Force One
flight crew. My company and its workers have been successfully
and proudly making this jacket for the last 15 years.
In December 2011, I learned that FPI was planning to steal
this jacket away from my company when the contract expires at
the end of 2012. The law does not require FPI to give me any
formal notice of this action or allow me to submit any protest
to FPI's legalized theft of this product from my company and
its workers. Fortunately, my appearance on FOX and Friends
television program allowed me to publicly explain the real and
direct impact the FPI program has on American manufacturing
jobs, which put pressure on FPI to exercise a waiver of its
mandatory source preference the very next day.
While this version of the same story I told 10 years ago
ended positively for my company and its employees this time,
there are Olive Hill, Kentuckys all across this country who
face the threat of FPI every day. Unlike other products
procured by DoD, our industry is predominantly one fueled by
small business interests. These companies are women-owned,
veteran-owned, minority-owned, operate in areas of high
unemployment like Olive Hill, and even employ blind and
disabled workers under the AbilityOne program. None are immune
from FPI's preference.
While we understand the goals of the FPI program, we do not
understand the logic behind a federal policy that requires the
government to take jobs away from law abiding, taxpaying
American citizens as the only way to accomplish the goals of
the FPI program. In 2011, FPI reported $745 million in total
sales of which $238 million was in their clothing and textiles
business segment, accounting for 32 percent of their total
corporate sales. Moreover, these numbers show that FPI is not
following its statutorily mandated responsibility to diversify
its business among its seven segments. If that were so, FPI's
sales in clothing textiles should have only been approximately
$100 million in FY11. Can you imagine how many jobs $138
million could create in the time when unemployment is in excess
of eight percent?
In 2002, I stated in my testimony and I quote, ``The time
for FPI reform is now.'' In 2012, I submit that the time for
FPI reform is long overdue.
In closing, I urge this Committee and this Congress to work
with your colleagues in the House Judiciary Committee and the
Senate to undertake and pass reform legislation to correct the
imbalance that FPI has caused as soon as possible.
I thank you for your invitation to appear before you today
and look forward to answering any questions.
Chairman Mulvaney. Thank you, Mr. Mansh. Mr. Palatiello.

STATEMENT OF JOHN M. PALATIELLO

Mr. Palatiello. Good afternoon. Thank you, Mr. Chairman. I
appreciate the opportunity before you. Ms. Chu, Mr. Flores.
I am John Palatiello, president of the Business Coalition
for Fair Competition. I also have the privilege of being the
executive director of maps, a trade association of private
mapping and geographic information or systems or GIS firms.
Mr. Chairman, you said you have become much more familiar
with FPI. What you probably do not realize is yes, the
prisoners are even in the mapping and GIS business. BCFC
standards behind what we call the Yellow Pages test, and that
is if the government is doing something that you can find
private businesses in the Yellow Pages are doing the same
thing, we really ought to examine whether the government should
be doing that in the first place. This is a classic example of
where the Yellow Pages test is being violated.
Mr. Chairman, let me expand upon some of the comments that
Congressman Huizenga made and put it this way. If Congress were
considering a new procurement system today, does anyone believe
it would approve a system where the provider can preempt all
other competition in providing products? Or it can be a sole
source preferred provider of services, even if services are not
even mentioned in their authorizing statute.
Where the provider and not the procuring agencies gets the
grant waivers to these preferences, where the customer must buy
from the provider, even if the product is inferior in quality,
does not meet the buyer's requirements, is higher priced, and
cannot deliver on time. Would Congress create an entity to sell
services in the commercial market in direct competition with
small business? Would Congress permit a contractor to the
government to pay significantly less than the minimum wage, let
alone the prevailing wage which all other government
contractors must pay? Would Congress permit this organization
to not pay the employee benefits, like Social Security,
unemployment or workers' compensation insurance? Would Congress
exempt this entity from federal and state income taxes, gross
receipt taxes, excise taxes, and state and local sales taxes?
Pay little or nothing for their space, the original
construction of their space or have subsidized utilities? Have
a special statutory line of credit from the Treasury Department
at zero percent interest? Would you exempt them from standards,
inspections, or fines from various federal, state, and local
agencies, such as OSHA? Would you exempt them from the Federal
Trade Commission or anti-trust laws? Be able to pre-empt local
zoning laws? Force contractors to use the entity's products or
service or evaluate one federal contractor's qualifications
based on their experience in specifying this entity's products
and services, such as the way government agencies now require
architects and engineers working for the government to specify
FPI furniture or to evaluate an architect engineer based on
their experience in specifying these products and services?
I do not think Congress would create such a system today,
but that is exactly the system that we have in place. So I join
with my colleague and say that it is time for reform.
Every year FPI continues to expand in the line of products
and services that they provide. Their growth through
noncompetitive contracts is formidable. As Mr. Huizenga
mentioned, their revenues in recent years have ranged between
$745 and $885 million. Their annual sales have grown by over
$100 million in the past decade alone.
When Federal and State prisons naively fail to recognize
that when their work goes to a prison rather than to a profit-
making, taxpaying company, Federal, State, and local government
loses tax revenue, there is an increase in unemployment, and
the market is reduced. FPI's expansion and encroachment on the
private sector, particularly small businesses, forces a
reduction in production lines, lays off employees, and some
firms even have to close for good.
We believe that H.R. 3634 is a balanced and reasonable
solution. We commend you for this hearing and we respectfully
recommend that Congress promptly enact FPI reforms.
Thank you for the opportunity.
Chairman Mulvaney. Thank you, sir.
Ms. Boenigk.

STATEMENT OF REBECCA ELIZABETH BOENIGK

Ms. Boenigk. Good afternoon, Mr. Chairman, members of the
Committee. Thank you for having me. Congressman Flores, thank
you for the very kind introduction. My mother and I started our
company in 1989. We are located in Texas. We have 85 employees
in Bryan, Texas, and six more in Cambridge, Ontario, just
outside of Toronto.
I am here today on behalf of Women Impacting Public Policy.
WIPP is a national nonpartisan public policy organization that
is advocating on behalf of nearly one million women business
owners and representing 61 different business organizations.
Women-owned businesses represent one of the fastest growing
contributors to our national economy with an impact of $1.2
trillion annually, a number that would be much higher without
the impediments like competing with Federal Prison Industries,
also known as UNICOR. I commend the Subcommittee for bringing
light to this issue and looking at what is really happening
with FPI. And the fact that they are allowed to compete for
small business set asides, the Committee has often said that
small businesses getting awards is actually a triple win. For
government, the economy, and the taxpayer.
Approximately 25 percent of my business actually comes from
federal contracting. We have had a GSA contract for 21 years,
and we manufacture ergonomic and multipurpose chairs, which if
you were sitting in them you would be much more comfortable
than what you are sitting in now.
About 50 percent of our income comes from the Neutral
Posture Series, which is the series that was actually our main
line when we first started the company, and that is our highest
end, most task-intensive chairs, provide the most
adjustability. UNICOR's best product is called the ``Freedom
Chair,'' and it does not even come close to competing with our
chair. The UNICOR price on a Freedom chair is $729. Our price
to the GSA government offices is $690. And that is one of my
most expensive chairs. So when you compare our products to the
UNICOR products, almost all of our products come in
substantially less from a dollar standpoint, better quality,
more features, more benefits, and the fact they cost less and
we deliver on time. Our company has to follow all of the issues
that have already been said with the OSHA workers' comp, all
the things that we have to pay for that UNICOR does not have to
pay for.
Mandatory preferences for Federal Prison Industries is not
only limited to federal agencies but it is also applicable in
some of the states. By using our chairs, the state of
Washington actually reduced their injury rate by 60 percent and
their workers' compensation costs by 90 percent. Those are
pretty significant numbers when you look at what the bottom-
line would be to different agencies by using a better, more
ergonomic chair.
There are a lot of really senseless regulations out there,
and what happened to us with the state of Washington is that
the state of Washington decided that they were only going to
buy through the prisons but they wanted us to still have the
contract. So we were required to sell our chairs to the prisons
instead of Washington so that they could then put them
together, mark them up substantially, and sell them to the
state so the state is getting the exact same product but they
are paying about a 25 percent markup for it so that they can
run it through the prisons. And that is just complete
inefficiency and a waste of money to me.
We are eligible for the women-owned small business program.
We were one of the first companies certified through the WSB
program. We worked on that for about 11 years to get it in
place. If you are familiar with the women-owned small business
program, it was actually signed into law under President
Clinton. It went into effect last February.
So it is something we have worked on a long time and the
fact that now there can be a woman-owned set aside and Federal
Prison Industries can actually swoop in and take that away and
it does not have to go Small Business. It does not have to go
woman-owned. It does not have to go HUBZone or minority-owned.
Also, some of the chairs that are on UNICOR's price list
are not even manufactured there. Just like what we do with the
state of Washington, those chairs are actually made in large
manufacturing companies and then they ship them to UNICOR. They
put in a couple of screws and bolts, put the casters in, and
then they say that that is their product. So there is not a lot
of manufacturing that is going on in these facilities.
Another issue that we have just learned recently is that
there are chairs that cannot get on the GSA schedule because
they are made in China. And because they are made in China,
they are not allowed to be on schedule. So the work around for
that is now they ship those chairs in a box from China to the
prison. The prison puts the chair together, and now all of a
sudden it does not have to pass the same rule that I have to
do. I cannot bring that chair in, assemble it in my facility,
and sell it to the government. But the prisons are allowed to
do that.
If the agency wants to buy from us, sometimes they have to
get a waiver. I heard earlier that FPI says that they grant a
lot of waivers. The biggest issue that we have is that most of
the time the agencies do not even know that they can get a
waiver. They just understand that UNICOR is first and that is
who they have to go to. And if UNICOR does not have it they can
look somewhere else, but they get the preference.
Now UNICOR is also trying to compete in the commercial
market. So this is their new brochure that they put out under
the name of Office Furniture Group. So they are not telling
people that these are made in prisons. They are out there, in
my biggest trade show last month with a 30 x 30 booth that they
probably paid over $100,000 for, competing for commercial
business. So now not only am I competing with them for
government business; I am now competing with them in the
commercial market.
We estimate in the last 10 years we have lost about $10
million to FPI. That $10 million would be about--when you think
about what we could have done with that reinvesting in our
company, reinvesting in jobs. We just lost an order last month,
a $250,000 order, that went to UNICOR. I understand that they
say they are trying to train these people to go out and get
jobs but there are not going to be any small furniture
manufacturers left if they continue to grow the way that they
are growing right now.
I understand the Committee has put together and
successfully passed a series of procurement reform bills which
can best be described as small contracting wish lists. WIPP
really applauds your efforts and increase in facilitating
government partnerships with small firms. This is one area that
really needs to be reformed.
On behalf of the Women Impacting Public Policy, Neutral
Posture, and all the small businesses that are impeded by FPI,
I want to thank you for the opportunity to appear today, and I
am happy to take any questions that you may have.
Chairman Mulvaney. Thank you, Ms. Boenigk.
For questions we will start with Ms. Chu.
Ms. Chu. This is for anybody on the panel. One of the FPI
reforms that was implemented by Congress was a private program
to allow private businesses to use prison workers to make
products that could be for sale on the open market. What do you
think about this program? Is this also a problem or is there a
way to improve those types of partnerships?
Mr. Palatiello. I will go first, Ms. Chu. I think there are
two problems with that. First of all, I think commercial market
venturing is a slippery slope. I mean, once you open that door
you have seen what they have done in the federal market and the
way they have been able to grow. You allow them into the
commercial market and I think all bets are off.
Secondly, I think from a management standpoint this may
look like a very attractive solution, but from a labor, from an
employee standpoint, you are still displacing workers. And
particularly in a time of high unemployment, I do not think
that is a route we should be going today. We should be putting
law abiding, taxpaying, hard-working Americans back to work
before we start creating further work programs through
commercial market entry.
Mr. Mansh. I guess the only comment I could make is as a
small domestic manufacturer in the apparel industry, the core
of the DoD marketplace, people like myself that manufacture
clothing and textile products, primarily depend on DoD for
their work. We do not have commercial businesses. Most of us do
not compete in the commercial world. If FPI were allowed to do
that, that would be in my view okay, and I understand John's
concerns. What I do hear though, and I heard them say this this
morning, FPI commented this morning, that their employee levels
have decreased. So any commercial business they have, their
intention is to only grow their sales back to what it was, not
to give the work back to us. So I really do not see an
advantage in what is being offered with that concept, how it is
somehow going to benefit small manufacturers like myself and
the nice lady down at the end of the table that makes
furniture.
Ms. Chu. Well, how about the idea of bringing back
manufacturing jobs for the types of products that have been
lost to overseas competitors? Would that be a better route to
go? What is your opinion on that?
Mr. Mansh. The same for a commercial manufacturing company
like me. I think the goal that I have had certainly for the
last 10 years and the AAFA, American Apparel and Footwear
Association has had all this time is to get the work that we
have all focused on away from FPI and not have them be my
competitor. If they have other ways to keep their workforce
occupied, that would be good. As Congressman Mulvaney said, I
think it is a great idea that they work in agricultural jobs
where the jobs are wanting, rather than take jobs in an
industry that is already in decline and impacted by foreign
competition, particularly from China in terms of apparel
manufacturing.
Mr. Palatiello. Ms. Chu, I have given that question a lot
of thought over the years and I am not terribly comfortable
with it for this reason. As I outlined and my colleagues have
outlined, the process today is that FPI gets to be basically
judge, jury, and prosecutor in deciding what lines of business
they enter into. If you allow them to determine what is
offshore and is to be repatriated and they get to make that
decision, my concern is it is going to further exacerbate
problems here in the United States. If we were to enter any
kind of repatriation program, I would want to see some
independent certification by SBA, by the Commerce Department,
by the Labor Department that indeed no U.S. worker or firm
would be adversely affected. But if you give FPI the carte
blanche authority to repatriate, I think their track record is
that they are not going to be very sympathetic to the impact on
U.S. business.
Finally, I do not see the logic to look at Mr. Mulvaney's
district, for example. We have lost so much of our domestic
textile capability so now we are going to say we are going to
give textile work to prisoners instead of trying to rebuild
that industry in South Carolina? I do not think that makes a
lot of sense either. So the repatriation sounds good. I have
great difficulty on how it would actually work.
Ms. Boenigk. On the part with the products coming in from
China, I mean, this is already happening. So when you say that
you are trying to repatriate the jobs, you are actually putting
more jobs in Asia. The particular chairs that I am talking
about, I mean, I was in the factory in China in March. I
watched them go in a box. I watched them get shipped out the
door. They went supposedly to a Canadian company who then
shipped them to the prisons, which means those dollars did not
touch a U.S. job anywhere. They went from Prison Industries to
a Canadian company that was the pass-through, straight to
China. So this is just going to make it worse that now we are
allowing them to bring in China product. It is going to be even
harder for American companies to compete.
Ms. Chu. You heard this morning about the positive aspects
of the program which is that it prevents recidivism. At what
kind of industries do you think the FPI program could go into
then?
Ms. Boenigk. You know, when you look at the jobs that
cannot get outsourced, the jobs that cannot get outsourced are
jobs like being a plumber or learning how to do HVAC. I
understand that those jobs cost a little bit more to train them
how to do these things, how to work a lathe, how to learn
Microsoft Office so that when you leave you understand how to
go and work a computer. Those are much better ways to train
these people. They are not getting real skills by inserting
some casters and some screws into a chair.
Mr. Palatiello. Ms. Chu, I would remind you of what was
discussed this morning, and I want to commend the Committee
staff for the memo that they prepared for the members on this
hearing. And look at the chart in that memo. This is from FPI's
own study, the prep study. What it showed is there are programs
that have a much better record with reducing recidivism than
FPI. That is where we ought to be focusing our attention
because number one, they are more successful; and number two,
they do not adversely impact the private sector.
So if we have a program that works and has a minimum
adverse impact, that is where we ought to be going. That is
addressed in Mr. Huizenga's bill. Mr. Huizenga's bill is not
just about small business and procurement; it is balanced in
that it does provide other opportunities for training,
rehabilitation, and education of the inmates. So I think it is
cognizant of the societal issues that we have to address but I
think there are better ways to do it than FPI.
Ms. Chu. Thank you. I yield back.
Chairman Mulvaney. Thank you. I now recognize Mr. Flores
from Texas for five minutes.
Mr. Flores. Thank you, Mr. Chairman. And thank each of you
for appearing today. And as Mr. Mulvaney said earlier, this is
something new to me. I am learning more about it and I do not
like what I hear. So.
I have questions for each of you and I will try to get
through it fairly quickly. Each of you, Mr. Palatiello, you are
part of an organization and Ms. Boenigk, you are actually here
representing an organization. Mr. Mansh, you are here to
represent your company. Is that right?
Mr. Mansh. As well as the American Apparel and Footwear----
Mr. Flores. Okay. I am sorry. I missed that earlier. On
behalf of each of your associations I want to ask you, can you
tell me what each of your associations has come up with as far
as the overall potential revenue damage that has happened to
each of your industries or the impact on jobs because of FPI's
growth into each of your business spaces? I can start with
whoever wants to go first.
Mr. Mansh. In my testimony I believe I commented, and I
think it was $238 million in sales that UNICOR had in 2011.
2010. 2011, $238 million. So from our perspective, as the
apparel industry goes, that is $238 million in lost
opportunities.
Clothing and textiles for DoD, at least the part that we
can measure, and again, the core business that we all do is
bought out of DLA, Defense Logistics Agency Troop Support's
location in Philadelphia. They are approximately a $2 billion a
year business. So if they did $238 million, they represented
somewhere in the range of 10 percent of the work. From a job
standpoint, thousands would be what I would say. Thousands.
Mr. Flores. Mr. Palatiello.
Mr. Palatiello. Mr. Flores, I would love to be able to
answer your question with some specific data but unfortunately,
we cannot. And the reason why is Federal Prison Industries,
unlike all other government contracts, their sales by contract
is not reported through the Federal Procurement Data System. So
if I want to go in and say, for example, how much mapping work
has FPI done for the federal government, what agencies, what
kinds of services have they done, I cannot get that
information. It is not public information.
I will give you another example to follow up on a question.
Mr. Flores. Let me interrupt for just a minute. And
remember your example but what I was thinking about, if you
come at it from the other side, do your members have a feel for
what they have lost versus what FPI is doing? Do you have a
feel for that?
Mr. Palatiello. I think they are one in the same.
Mr. Flores. Well, sometimes they are. I mean, anyway, keep
going. You have another example.
Mr. Palatiello. Well, another example of the lack of
transparency. There was a national public radio story a couple
of years ago about, you know, a lot of the big signs that you
saw that said this project was funded by the ARA Stimulus Bill.
NPR did a story about a Corps of Engineers project. That sign
was made by Prison Industries. So Congress passed the bill to
put Americans back to work to stimulate the economy. That work,
we know of some work that went to Prison Industries. We tried
to find out how much. My staff did an inquiry with the recovery
transparency board. What they said was because that is an
agency-to-agency transfer, they did not capture that data. Mr.
Huizenga's staff tried to get that information. They could not
get it either. So those are lost opportunities where the intent
of the money was to put Americans back to work. We know of some
examples where it went to the prisons.
The testimony this morning was that FPI discussed how many
waivers they granted. I need to check. I am on shaky ground
here. I do not believe the waiver process is actually spelled
out in the federal acquisition regulations. I think your
counsel probably knows that better than I. So when Mr. Mansh
mentioned that or Ms. Boenigk mentioned that the agencies that
are buying are not aware of the waiver process, FPI does not
really inform them that they can grant that waiver.
So what we would like to know is, for example, during the
time that the stimulus money was being spent, when an agency
was placing an order with FPI, did FPI stop and say to the
agency, is this contract being funded with stimulus money?
Because if it is, we will grant a waiver because what Congress
really intended for that money to go to the private sector, to
reduce unemployment, and put Americans back to work. I would
venture to say that that disclaimer was not extended and those
waivers were not granted.
Mr. Flores. Ms. Boenigk, on behalf of WIPP, do you have a
feel for what your association's revenue and job loss are?
Ms. Boenigk. I do not, and I just asked and we do not have
that information today. I can tell you that for our industry,
from a furniture standpoint, the last numbers I got, and again,
they are a little bit difficult to get, but put FPI at about
$250 million in their furniture division. So they are ten times
bigger than my company, so I would say that is roughly 1,000
jobs that we do not have in the furniture industry because
those products are being made by prisoners.
Mr. Flores. Okay. What stimulated this is that you said you
felt like the value of lost business to you over the last 10
years was roughly $10 million if I heard correctly. And so I
was just trying to get a macro feel for what this has done.
Another question or another comment that was raised had to
do with the sourcing of products overseas, bringing them to
here, repackaging them as an FPI product. Is that happening in
the services industry or just in the harder industries as far
as you know?
Mr. Palatiello. Well, to the best of my knowledge that is
on the product side and not so much on the service end.
Mr. Flores. I just wanted to make sure they were not
finding a way to do it on the service side. It is bad enough
that it is happening on the product side.
Mr. Mansh. Mr. Flores, let me just, if I may.
Mr. Flores. Sure.
Mr. Mansh. Because I learned something from my colleagues
here today. When Mr. Hoekstra was in Congress, I remember he
and I were together at a meeting of the board of FPI and this
probably goes back 8 or 10 years now. Their board passed a
policy saying that they would no longer do pass-through work.
And so to hear today that it is still going on, then FPI is
violating its own Board of Directors' policy.
Mr. Flores. Which brings me to my next question. Mr. Mansh.
Do you have a feel for what--let me ask it this way. Is some of
your business--let me rephrase that. Is some of RPI's product
line coming from foreign sources in your line of business as
far as you are aware?
Mr. Mansh. That I am aware, because everything I sell goes
to the Department of Defense.
Mr. Flores. Okay. All right. And Ms. Boenigk, what
percentage of FPI's furniture-related products do you think are
coming from foreign sources?
Ms. Boenigk. This one chair in particular or one company
that we know for sure is doing this, we figured last year just
by looking on the usspending.gov website, saw around $11. And
that was one company. So I think it is probably pretty high.
Mr. Flores. Okay. All right. Thanks. Ms. Boenigk, in your
experience, how difficult is it for an agency to get a waiver?
Ms. Boenigk. The few times that agencies have told me that
they tried to get a waiver they were denied. It is something
that I do not have a lot of experience with. Most of the time
when we go in we are just told, oh, FPI won because they had a
mandatory source. We cannot go around that. But the fact that
recently we have seen them come in and take away the small
business set asides, that is what really got me going for this
trip.
Mr. Flores. Okay. In terms of how often it occurs, is it
fairly frequently it sounds like?
Ms. Anderson. It is frequent in that we just lose because
FPI just takes the award. Even if we have a specified product,
they can come in and take it away. They go in and convince the
agency that they do not have a choice; that they have to buy
from them.
Mr. Flores. Okay. And the one last question for each of
you. I think each of you talked about this or at least implied
it in your testimony. You have to comply with sets of federal
and state regulations that FPI does not have to. How does that
affect your bottom line? I mean, you have a cost to comply with
these regulations; FPI does not have to. So you are already at
a competitive disadvantage. You are paying market wages but on
the regulatory side, do you have a feel for how badly that
hurts you vis-a-vis where you would be if you were on the same
playing field with FPI? Again, exclude labor, just talk about
regulations.
Ms. Boenigk. All right. Some of the things that they did
not talk about earlier is health care. I mean, we pay a
tremendous amount for health care. And after today, I am
assuming I am going to pay a tremendous amount more.
Mr. Flores. Not if I can help it.
Ms. Boenigk. So, I mean, that is one of the issues. Also,
all of their printed materials, they have a federal printing
shop that prints all of their marketing markets for them. So
every aspect of how they run their company, industry, is they
get it for pennies on the dollar from what we have to pay. We
have to pay for product liability insurance. They do not pay
any liability insurance. So there is a lot more than just what
was mentioned earlier.
Mr. Flores. Well, I appreciate each of your testimony and I
am going to yield back.
Chairman Mulvaney. And I appreciate, Ms. Chu, for allowing
Mr. Flores to be here. He is always welcome, members, folks on
the Committee. Thanks, Bill.
I have got questions all over the place because this has
been a tremendous learning experience for me so I will go in no
particular order. Mr. Mansh, I do not want to ask you questions
and Ms. Boenigk that are too personal and private to your
company because I assume they are privately held. Right? Both
of them are?
Mr. Mansh. Private.
Ms. Boenigk. Yes. We are all private. We are private now.
Chairman Mulvaney. Ballpark, profit margins? Bottom line.
Mr. Mansh. Gross or net?
Chairman Mulvaney. Gross. Before pre-tax.
Mr. Mansh. I think everybody tries to start at seven to
eight percent.
Chairman Mulvaney. Ms. Boenigk.
Ms. Boenigk. That is a pretty good average.
Chairman Mulvaney. I am sitting here looking----
Ms. Boenigk. We are an S-Corp so all of the profits come
through, you know, flow through to the shareholders. Basically,
me and my mom.
Chairman Mulvaney. You would be surprised how many folks in
Congress do not understand how that works. But we actually do
understand it.
I am looking at UNICOR's from last year and it was roughly
eight or nine percent on a pre-tax basis, which I assume is the
only basis they have because they do not actually pay any
taxes.
Ms. Boenigk, as sort of a back of the envelop analysis in
response to Mr. Flores's question, I will ask you the same
question regarding the impact on jobs. In UNICOR's
participation in the apparel market, how big is your company in
terms of revenue, Mr. Mansh?
Mr. Mansh. Revenue. Currently? $10 million, $11 million.
Chairman Mulvaney. And you employ how many people?
Mr. Mansh. Approximately 250 right this minute.
Chairman Mulvaney. So again, the same type of the back of
the envelope analysis that led Ms. Boenigk to sort of calculate
that maybe in her industry it is costing a thousand jobs. I do
not know if I do the math on that. If you are doing $200
million worth of revenue within the apparel business and that
is 20 times the size of your company, that is 5,000 jobs, I
think.
Mr. Mansh. Five thousand.
Chairman Mulvaney. In Apparel.
Mr. Mansh. That is not a bad estimate.
Chairman Mulvaney. A couple different things. Oh, by the
way, Mr. Palatiello, you mentioned something that staff was
able to help me on about the waiver process, that it is not set
out indeed as you mentioned in the FAR. You actually have to go
to the UNICOR website to find out the process on how to get the
waiver.
And again, I do not want to beat up on UNICOR when they are
not here. I want to make one thing perfectly clear that we
ordinarily do this in the opposite order for exactly this
reason. I do not like to beat up on people when they are not
here, so usually let the private sector go first and then let
the agency come up and defend themselves. I think that is a
helpful back and forth and get some balance in the thing. So I
do not want to be perceived as beating up on somebody who is
not present.
It stunned me, the size of this company. The $750 million
worth of revenue, $62 million in earnings, someplace between
10,000 and 13,000 employees. I am wondering what they are doing
competing with you all. They should be competing with General
Dynamics and Boeing. They should not be competing with Ms.
Boenigk and Mr. Mansh. They are in the GPS business now, Mr.
Palatiello? Tell me about that.
Mr. Palatiello. Both federal and a number of state prisons
are actually doing geographic information systems. They are
doing scanning. They are doing digitizing. They are doing data
conversion, data entry, making maps, building geographic
information systems.
Chairman Mulvaney. Now, you mentioned that it was
difficult, if not impossible, to get a feel for the size within
that particular industry. Why is that? Why is that information
not made public?
Mr. Palatiello. If I have a contract with the Department of
Defense, when that contract is awarded, the contracting officer
fills out a standard form and it goes into a database, into
something called the Federal Procurement Data System. So that
when you and your staff want to look at or I want to look at a
market and say what is going on in federal procurement in this
area, the data is there. That same process does not occur in a
transaction between the Department of Defense and Federal
Prison Industries. It is not reported as a procurement
transaction. So if I want to do market research to find out
what share of the market in mapping or data services FPI has,
that is not publicly available information.
Chairman Mulvaney. You mentioned something, Mr. Palatiello
about commercial market entries. Am I correct in assuming--and
again, I am early in the learning curve on this process--that
FPI UNICOR is not permitted to sell into the private sector
right now? It is only to government contracting or is that not
the case?
Mr. Palatiello. When FPI was created in the `30s, there was
a specific provision in federal law that says that prison-made
products may not go into the commercial market. Now, think
about this. What kind of economy did we have in the 1930s? We
did not have a service-based economy. So during the Clinton
administration, the Justice Department issued an opinion that
said since Congress did not specifically say products and
services, then that means that provision-provided services can
go in the commercial market. This is not a partisan issue. This
opinion was continued during the Bush administration. FPI did
go through a public notice on their intent to enter the
commercial market for services. They got a very adverse public
comment reaction to that. And so they have backed off of that.
But there is a valid Justice Department memorandum in the
record that gives them the authority to enter the commercial
market in services if they should wish to participate.
Chairman Mulvaney. Ms. Boenigk, you had something you
wanted to add to that.
Ms. Boenigk. Yes. They are doing it on the product side,
too. If you go onto UNICOR's website, actually, it asks you if
you are eligible to buy from them. And of course, all
government agencies are eligible to buy from them, federal,
state, local. But now they have a new thing. If you are a
government contractor and you are going to use the product in
the government contract--so in my case, if you are going to
employ people for that contract that need chairs to sit in, you
can buy those chairs from UNICOR.
Chairman Mulvaney. Okay.
Ms. Boenigk. So they are able to sell it to the commercial
market now.
Chairman Mulvaney. That is what struck a chord with me
because my limited experience exposure to this is actually in
the private sector. I know folks in the private sector buying
things from the prisons. And my guess is that is probably
through that loophole.
Is it possible, by the way, that the state prisons allow a
different program? That state prisons allow sales into the
private sector?
Mr. Palatiello. Yes. There are state prisons that actually
have retail stores where you can buy prison-made products from
a state-run retail store. So yes, it is a different body of
law. But again, with Ms. Boenigk's example, there is a nexus
still to government contracts. But again, you talk about a
slippery slope. Between what they are doing in services and
what they are doing now in extending themselves to a government
contractor, it is sort of a camel's nose under the tent--pardon
me for mixing my metaphors--but that is commercial market
entry.
Chairman Mulvaney. And I hate to keep jumping around. Ms.
Boenigk, you mentioned the story about the China chair story,
that somehow because the product came from China, through
Canada, through Prison Industries, it was allowed to be sold,
but if you had done the same thing you would not have been
allowed to sell that to the government. Why is that?
Ms. Boenigk. Because the Made in America Act, I am not
allowed to sell any product to the government that is made in
China. And if I had bought it from Taiwan or somewhere else,
but if you buy it from Taiwan, it is better quality. If you buy
it from China, the quality is not as good. So I cannot bring in
that product and sell it, but somehow or another they are
getting away with this. There is lighting that is coming in,
and because these companies cannot get their lighting on GSA
because it is made in China, they just make a deal with UNICOR
so they can bring it in and sell it through UNICOR.
Chairman Mulvaney. Is UNICOR explicitly, Mr. Palatiello, if
you know, are they explicitly exempt from those Made in America
rules or are they just doing it in violation of that
particular--or allegedly doing it in violation of that
provision?
Mr. Palatiello. I honestly do not know. I would not want to
hazard a guess.
Chairman Mulvaney. You mentioned about the Board of
Directors not enforcing their own rules. Who is the Board of
this company?
Mr. Palatiello. There are officials from the Justice
Department and then there are individuals from the private
sector that are appointed by the president to serve on the
board.
Chairman Mulvaney. I am fighting every urge not to make a
reference to the Justice Department not enforcing the Justice
rules but I will leave that for another day. Yeah, I am not
going to insert that.
Mr. Mansh, very quickly----
Mr. Palatiello. I forgot to mention the attorney general or
health care.
Chairman Mulvaney. That is exactly right because I am
trying to wrap up here because I see that Ms. Pelosi is
speaking, which means we are getting close to voting.
You mentioned 3634. Mr. Huizenga was very nice to come in
and tell us about that. You also mentioned 2312. Briefly, can
you tell me what that does and why you like it?
Mr. Mansh. My staff member is back here and he has more
detail than I do, the specifics of the bill.
Chairman Mulvaney. If you would want to give it to us after
the record, for the record, that would be great.
Also, Ms. Boenigk, you brought something that I would like
to have for the record, which is the printout of the UNICOR, I
guess, brochure.
Ms. Boenigk. Right.
Chairman Mulvaney. And you are telling us that is done on a
government printing program? That the government gives them
that?
Ms. Boenigk. That is my understanding. This is one you can
actually print off their website. So I printed this off their
website. But we did take pictures at NANCOM, which is our
biggest tradeshow. They were there. And if you went into their
booth, at no point did they tell you that they were Federal
Prison Industries.
Mr. Huizenga. Mr. Chairman, FPI has their own printing
capability. That is one of the services that they provide to
federal agencies, so I would imagine it is FPI that is printing
their brochures and their marketing materials.
Chairman Mulvaney. Finally, Mr. Palatiello, you were kind
enough to mention the story that I had heard about as well, one
of the few things I had been exposed to before this hearing was
the story about the transportation signs being built by Prison
Industries as opposed to being purchased from private sector as
part of the Stimulus Program. Are you familiar also, sir, with
the Motech Industries circumstance with the solar cells that
are being purchased from Prison Industries?
Mr. Palatiello. I am not as deeply versed in that but I
understand similarly that there have been difficulties where,
again, stimulus money, green technologies that we seem to have
a national interest in developing and the issue is this.
Whether you are talking about mapping or you are talking about
solar, I have to give FPI credit. They have a very good ear to
the ground on what is going on in the economy. Not to avoid
your question but I will answer it with something I am very
familiar with. The mapping and geospatial profession has been
identified by the Labor Department as one of the 12 or 13
highest growth areas of our economy. As you know, Mr. Chairman,
because we have had other conversations, the mapping profession
suffers from overall government competition, whether it is NOAA
or the Forest Service or Bureau of Land Management, there are
agencies that do their own mapping. My association has worked
hard to try to get that work contracted to the private sector.
When FPI entered the mapping and GIS business, the gentleman,
Mr. Sibal said, well, we are more than willing to receive
public comments, meet with people. We did that. And we met with
the FPI staff and said you are getting into the mapping
business. We are concerned about that. And their answer was,
well, we want to congratulate your association. We see where
you have been able to get a lot more federal work outsourced.
We are going after that market since you guys have opened it
up.
So I give them credit. They are very aggressive marketers.
They do a lot of market research. So whether it is solar or GIS
or furniture or textiles, they are looking at market
opportunities. And I think in a very predatory manner, they
jump in to compete with the private sector.
Chairman Mulvaney. Thank you, everybody, for coming today.
I very much appreciate it. It strikes me that this is something
that we will be doing more on, not less. I want to commend Mr.
Huizenga for, especially for proceeding in as bipartisan a
fashion as possible. It is nice to be able to find--one of the
nice things about this Committee is that we do have the ability
to put together some bipartisan initiatives and reforms and it
seems like this might be an area that screams out for that type
of attention.
Again, no offense intended to the first witness today, but
I had no idea some of this was going on, and I can assure you
that with the permission of the chairman and the ranking member
of the overall committee this will not be the last hearing that
we do on this.
With that, unless anybody has anything else, I will ask
unanimous consent that we have five legislative days to submit
the statements and supporting materials for the record. We may
actually have some follow-up questions for you, and we also may
go ahead and make available to you the written responses to our
questions that we did not get to ask the first gentleman from
UNICOR or from the Department earlier today.
So with that, if nothing further, we are adjourned. And
thank you everybody for coming.
[Whereupon, at 3:39 p.m., the Subcommittee was adjourned.]

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