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108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-415
_______________________________________________________________________

                                     

                                                       Calendar No. 807


 AMENDING THE OFFICE OF FEDERAL PROCUREMENT POLICY ACT TO ESTABLISH A 
GOVERNMENTWIDE POLICY REQUIRING COMPETITION IN CERTAIN EXECUTIVE AGENCY 
                  PROCUREMENTS, AND FOR OTHER PURPOSES

                               __________

                              R E P O R T

                                 of the

         COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE

                              to accompany

                                 S. 346

 AMENDING THE OFFICE OF FEDERAL PROCUREMENT POLICY ACT TO ESTABLISH A 
GOVERNMENTWIDE POLICY REQUIRING COMPETITION IN CERTAIN EXECUTIVE AGENCY 
                  PROCUREMENTS, AND FOR OTHER PURPOSES

                             together with

                             MINORITY VIEWS




               November 18, 2004.--Ordered to be printed
                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
                     Alec D. Rogers, Senior Counsel
  Kendrick MacDowell, Counsel, Financial Management, the Budget, and 
                  International Security Subcommittee
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                    Kevin J. Landy, Minority Counsel
    Peter Levine, Minority Counsel, Senate Armed Services Committee
                      Amy B. Newhouse, Chief Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Summary and Purpose..............................................1
 II. Background.......................................................2
III. Legislative History..............................................7
 IV. Subcommittee Hearing.............................................7
  V. Section-by-Section Analysis......................................9
 VI. Regulatory Impact...............................................10
VII. Cost Impact.....................................................10
VIII.Effect on Current Law...........................................12

 IX. Minority Views..................................................18


                                                       Calendar No. 807
108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-415

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

 
 AMENDING THE OFFICE OF FEDERAL PROCUREMENT POLICY ACT TO ESTABLISH A 
GOVERNMENTWIDE POLICY REQUIRING COMPETITION IN CERTAIN EXECUTIVE AGENCY 
                  PROCUREMENTS, AND FOR OTHER PURPOSES

                                _______
                                

               November 18, 2004.--Ordered to be printed

                                _______
                                

Ms. Collins, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 346]

    The Committee on Governmental Affairs, to whom was referred 
the bill (S. 346) to amend the Office of Federal Procurement 
Policy Act to establish a governmentwide policy requiring 
competition in certain executive agency procurements, and for 
other purposes, having considered the same reports favorably 
thereon with an amendment and recommends that the bill do pass.

                         I. Summary and Purpose

    S. 346 would amend the Office of Federal Procurement Policy 
Act to require federal agencies to use competitive procedures 
in acquiring products offered for sale by Federal Prison 
Industries (FPI). By repealing the ``mandatory source'' 
authority in the 1934 legislation that created FPI, S. 346 
would require FPI to compete for federal agency contracts, 
subject to limited exceptions. Private sector firms would be 
permitted to submit their own bids or proposals for such 
contracts. The contracting agency, rather than FPI, would be 
responsible for determining whether the product offered by FPI 
best meets its needs in terms of price, quality, and time of 
delivery.
    As originally introduced, the bill's third section would 
have expanded the federal statute prohibiting the sale of 
prison-made goods into interstate commerce (18 U.S.C. 
Sec. 1761) to include both goods and services.\1\ However, the 
Committee adopted an amendment striking the third section. S. 
346 thus preserves the status quo with respect to services. The 
amendment also authorizes FPI to sell or donate products or 
services to charitable entities; requires FPI to establish 
enhanced education and vocational training programs to prepare 
inmates for employment upon their release; and authorizes FPI 
to make products for the public sector that would otherwise be 
produced outside the United States.
---------------------------------------------------------------------------
    \1\ Over the past 20 years, several state Attorneys General, and 
more recently, in 1998, the Criminal Division of the Department of 
Justice, have issued opinions that the proscription of 18 U.S.C. 
Sec. 1761 does not extend to services. Thus, state and federal prison 
industry programs evolved in which inmates perform certain services, 
such as call centers, data entry, packaging, and recycling activities 
for private companies. At the direction of its Board of Directors, FPI 
has concentrated its commercial service activity on performing work 
that would otherwise be performed by foreign workers outside the United 
States.
---------------------------------------------------------------------------
    Finally, S. 346 prohibits a contractor from being required 
to use FPI as a subcontractor or supplier of products or 
services under an agency contract. The bill also provides for 
the protection of classified and sensitive information under 
contracts between an executive agency and FPI.

                             II. Background

    Federal Prison Industries, Inc., which operates under the 
trade name UNICOR, is a self-supporting,\2\ wholly-owned 
government corporation that employs federal prison inmates. In 
1934, FPI was established by legislation and Executive Order to 
(1) provide prisoners opportunities to learn work skills that 
would assist them in integrating back into society after their 
release from prison; and (2) facilitate effective prison 
management. Studies indicate that inmates who are employed and 
receive vocational training are more likely to be employed and 
refrain from criminal behavior upon returning to society.
---------------------------------------------------------------------------
    \2\ No funds are appropriated for FPI operations, but it may borrow 
funds from the U.S. Treasury, as long as the total outstanding 
obligations do not exceed 25 percent of the net worth of the 
corporation. See 18 U.S.C. Sec. 4129.
---------------------------------------------------------------------------
    Under current law, all physically able inmates in federal 
prisons who are not a security risk are required to work.\3\ 
Inmates who are not employed by FPI have other labor 
assignments in the prison system, such as food service and 
maintenance. Federal law directs FPI to (provide employment for 
the greatest number of those inmates in the United States penal 
and correctional institutions who are eligible to work as is 
reasonably possible. 18 U.S.C. Sec. 4122(b)(1).
---------------------------------------------------------------------------
    \3\ See Pub. L. 101-647, Title XXIX, ( 2905(a)(1), Nov. 29, 1990, 
104 Stat. 4914 (``It is the policy of the Federal Government that 
convicted inmates confined in Federal prisons, jails, and other 
detention facilities shall work.'').
---------------------------------------------------------------------------
    Inmates working in FPI earn between $0.23 and $1.15 per 
hour. FPI is not required to provide its inmate-employees with 
benefits or retirement accounts. Of approximately 174,000 
inmates held in federal prisons in 2002, approximately 98,998 
were considered eligible for prison employment and of these, 
21,778 were employed by FPI. At the end of FY 2003, there were 
20,274 inmates participating in FPI.
    For several reasons, including the steady increase in the 
number of federal crimes, the federal inmate population has 
increased six-fold in the last two decades. That population is 
expected to reach 215,000 by 2010. The Bureau of Prisons plans 
to activate 17 additional prisons between 2004 and 2008. The 
challenge to manage and employ this burgeoning population grows 
accordingly.
    FPI must ``diversify, so far as practicable, prison 
industrial operations and so operate the prison shops that no 
single private industry shall be forced to bear an undue burden 
of competition from the products of the prison workshops.'' 18 
U.S.C. Sec. 4122(b)(1). FPI has more than 100 factories 
representing eight different industrial operations: clothing 
and textiles; graphics; electronics; fleet management and 
vehicular components; industrial products; office furniture; 
recycling activities; and services (including data entry and 
encoding). FPI produces only those products and services 
authorized by its Board of Directors. The quantity of each 
product is limited to a Board-determined ``reasonable share'' 
of the federal market. 18 U.S.C. Sec. 4122(b)(2).
    While FPI cannot sell its goods into the private sector, 18 
U.S.C. Sec. 1761, it has enjoyed a decisive advantage when 
doing business with the federal government. Specifically, 
``Federal departments and agencies and all other Government 
institutions of the United States shall purchase at not to 
exceed current market prices, such products of [FPI] as meet 
their requirements and may be available.'' 18 U.S.C. 
Sec. 4124(a).
    Where FPI cannot, or declines to, meet the order of a 
federal agency, FPI may grant a waiver, which permits the 
agency to obtain products from the private sector. FPI has sole 
authority to determine whether its own price is reasonable. If 
FPI declines to grant a waiver, private businesses are not 
permitted to submit their own offers for contracts. See 
generally 48 C.F.R. Sec. 8.604 (setting forth FPI's waiver 
authority). FPI's waiver history for the past ten years is 
reproduced below.


    FPI relies on a large network of private-sector suppliers 
to carry out its operations. During FY 2003, FPI purchased $550 
million worth of raw materials, equipment, supplies, and 
services from private vendors. Of this amount, FPI bought more 
than 53 percent from small businesses.
    In Fiscal Year 2003, FPI generated $667 million in sales, 
making it the 32nd largest government contractor. The following 
table illustrates the substantial growth of FPI's sales over 
the past four decades.

                        [In millions of dollars]

        Year                                                   FPI sales
1960..............................................................   $29
1980..............................................................   117
1985..............................................................   240
1990..............................................................   339
1995..............................................................   459
2000..............................................................   546
2003..............................................................   667
    FPI's sales represent a small fraction of the total volume 
of government contracts; however, depending upon the definition 
of ``market,'' these sales comprised a significant share of 
certain markets, such as office furniture, clothing and 
textiles. During the 1990s, FPI experienced a rapid growth in 
its share of the federal market in certain product lines, such 
as systems furniture and office seating.
    Private firms report several instances in which they have 
worked with federal agencies to develop detailed proposals to 
meet agency needs, only to have FPI insist on taking the 
contract for itself.\4\ In some cases, FPI reportedly adopted 
the private firm's detailed proposal and insisted on performing 
the work itself. In other cases, important agency projects were 
delayed because FPI declined to grant waiver requests submitted 
by the agency.\5\ Private firms also report numerous instances 
in which FPI has insisted on selling its products to federal 
agencies at prices far exceeding contractor prices.\6\
---------------------------------------------------------------------------
    \4\ Hearing on S. 346 before the Senate Comm. on Governmental 
Affairs, 108th Cong., 2nd Sess. 44-46 (statement of Kurt Weiss, Senior 
Vice President and General Manger, U.S. Business Interiors).
    \5\ Hearing on S. 346 before the Senate Comm. on Governmental 
Affairs, 108th Cong., 2nd Sess. 73 (statement of Kurt Weiss, Senior 
Vice President and General Manger, U.S. Business Interiors).
    \6\ Hearing on S. 346 before the Senate Comm. on Governmental 
Affairs, 108th Cong., 2nd Sess. 89 (statement of Jack R. Williams, Jr., 
Assistant Regional Administrator, Federal Supply Service, Region 3, 
GSA.).
---------------------------------------------------------------------------
    In 1999, FPI and the Department of Defense completed a 
joint survey of DOD customers for FPI products. The survey 
provided DOD customers five categories in which to rate FPI 
products: excellent, good, average, fair, or poor.
    According to the data reported jointly by DOD and FPI, more 
than a third of the DOD customers surveyed indicated that they 
have had a problem with an FPI product delivered in the 
previous 12 months. Moreover, a majority of DOD customers rated 
FPI as average, fair, or poor in price, delivery, and as an 
overall supplier.
    In August 1998, GAO compared FPI prices for 20 
representative products to private vendors' catalog prices for 
the same or comparable products and found that for 4 of these 
products, FPI's price was higher than the highest price offered 
by any private vendor. For five of the remaining products, 
FPI's price was at the ``high end of the range'' of prices 
offered by private vendors. FPI's price exceeded the prices of 
over 70 percent of the commercial vendors for office furniture 
items reviewed by percentages that ranged from 18 percent to 24 
percent. (Federal Prison Industries: Information on Product 
Pricing--GAO/GGD-98-15).
    Similarly, in July 1998, GAO reviewed the timeliness of FPI 
deliveries and determined that roughly one-quarter of FPI 
products were shipped after the due date. FPI had no way of 
determining how many additional products may have been 
delivered after the due date, because it did not track the time 
of delivery of its products. Moreover, GAO found that more than 
half of FPI's due dates were later than the time of delivery 
originally requested by the customer. (Federal Prison 
Industries: Delivery Performance Improving but Problems 
Remain--GAO/GGD-98-118).
    In 2001, Congress eliminated FPI's mandatory source status 
for Department of Defense contracts. Section 811 of the 
National Defense Authorization Act for FY2002 required DOD 
procurement officials to conduct market research before purchasing a 
product from FPI, and to use competitive procedures for the procurement 
unless the FPI product was comparable to the best private sector 
products in terms of price, quality and time of delivery. This 
provision was reaffirmed and strengthened by section 819 of the 
National Defense Authorization Act for FY 2003.
    Over the two years since Congress eliminated FPI's 
mandatory source status for Department of Defense contracts, 
FPI's sales to the Department dropped by less than one percent, 
from $382 million in FY 2001 to $379 million in FY 2003. FPI 
experienced more dramatic changes in individual product lines. 
From FY 2002 to FY 2003, for example, FPI lost 33 percent of 
its sales in office furniture. These losses were offset by 
sales increases of 15 percent in electronics and 32 percent in 
industrial products, which FPI attributes chiefly to the demand 
spike from the Afghanistan and Iraq military operations. From 
FY 2001 to FY 2003, the number of inmates employed by FPI 
declined from 22,560 to 20,274.\7\
---------------------------------------------------------------------------
    \7\ A provision in the Consolidated Appropriations Act of 2004 
required that federal agencies that purchase ``a product or service 
offered'' by FPI must make a determination ``that such offered product 
or service provides the best value to the buying agency.'' No data is 
yet available to measure the impact of this provision on FPI sales.
---------------------------------------------------------------------------
    During the last several years, FPI has taken significant 
steps to lessen its reliance on its traditional industries 
(such as textiles and office furniture). FPI's growth plans now 
generally focus on those business areas that do not rely on 
mandatory source authority: services, fleet management, and 
recycling. FPI has also waived mandatory source for several of 
the products it manufactures, such as dormitory and quarters 
furniture, filters, fencing, and security doors. FPI's efforts 
in this regard are consistent with the spirit and intent of S. 
346.
    S. 346 is intended to provide increased flexibility to 
federal agencies to acquire the best product at the best price 
for their needs; to increase business opportunities for private 
sector firms seeking to compete in product lines sold by FPI; 
and to provide basic fairness to these firms, which will be 
allowed to bid on contracts that are paid for with their own 
tax dollars. The enactment of S. 346 would be likely to have 
some adverse impact on FPI sales and inmate employment in the 
short term, but FPI's track record since the enactment of 
section 811 indicates that any such adverse impact is likely to 
be manageable.

                        III. Legislative History

    S. 346 was introduced on February 11, 2003 by Senators 
Levin and Thomas. The bill has been cosponsored by Senators 
Shelby, Stabenow, Lugar, Grassley, Burns and Chambliss. Similar 
bills were introduced in previous Congresses, as follows:
          107th Congress: S. 1295, sponsored by Senators Levin, 
        Thomas, Inhofe and Stabenow;
          106th Congress: S. 766, sponsored by Senators Levin, 
        Abraham, Feingold, Helms and Robb;
          105th Congress: S. 339, sponsored by Senators Levin, 
        Abraham, Akaka, Burns, Helms and Robb;
          104th Congress: S. 1797, sponsored by Senators Levin, 
        Abraham, Akaka, Helms, McConnell and Robb.
    S. 346 was referred to the Committee on Governmental 
Affairs, which in turn referred the bill to the Subcommittee on 
Financial Management, the Budget, and International Security.
    The Subcommittee held a hearing on the bill on April 7, 
2004, the content of which is summarized in the next section. 
The bill was polled out of the Subcommittee on June 1, 2004. On 
June 2, 2004, the Committee on Governmental Affairs took up S. 
346.
    The Committee adopted an amendment offered by Senator Levin 
by voice vote. The Levin amendment deleted Section 3 of the 
bill, which would have prohibited the sale of inmate services 
in interstate commerce. The Levin amendment also added new 
sections to the bill that would: create new inmate job 
opportunities by authorizing FPI to sell or donate products or 
services to charitable entities; require FPI to establish 
enhanced educational and vocational training programs to 
prepare inmates for work opportunities as they approach the end 
of their terms; help repatriate jobs to the United States by 
encouraging FPI, to the maximum extent practicable, to produce 
new products or expand the production of existing products that 
would otherwise be produced outside the United States; and 
authorize priority placement in the Bureau of Prisons for any 
FPI employees who may be displaced in the event that FPI loses 
business after enactment of the bill.
    The Committee rejected an amendment in the nature of a 
substitute offered by Senator Lautenberg by a vote of 11-5. The 
Lautenberg amendment, which was substantively identical to S. 
2414, would have struck the text of S. 346 and replaced it with 
a Federal Inmate Work Opportunities Review Commission, which 
would have examined the status of FPI, including its impact on 
recidivism andthe private sector. Within two years, the 
Commission would have been required to report its findings, conclusions 
and recommendations.
    The Committee then favorably reported the bill, as amended, 
to the Senate by voice vote.

                        IV. Subcommittee Hearing

    On April 7, 2004, the Senate Governmental Affairs 
Subcommittee on Financial Management, the Budget, and 
International Security held a hearing on S. 346. At the 
hearing, the Subcommittee heard testimony from Senator Thomas; 
Senator Stabenow; Harley G. Lappin, Director, Federal Bureau of 
Prisons; Jack R. Williams, Jr., Assistant Regional 
Administrator, Federal Supply Service, Region 3, General 
Services Administration; John M. Palatiello, President, 
Management Association for Private Photogrammetric Surveyors, 
on behalf of the U.S. Chamber of Commerce; Kurt Weiss, Senior 
Vice President and General Manager, U.S. Business Interiors, on 
behalf of the Office Furniture Dealers Alliance; Andrew S. 
Linder, President, Power Connector, Inc., on behalf of the 
Correctional Vendors' Association; and Philip W. Glover, 
President, Council of Prison Locals, American Federation of 
Government Employees, AFL-CIO.
    Senators Thomas and Stabenow expressed support for S. 346, 
saying it would end FPI's monopoly on federal contracts. 
Senator Thomas indicated that the bill would inject competition 
into federal procurements, while limiting unfair government 
competition with the private sector. Senator Thomas praised the 
bill for restoring the authority for federal procurement 
preference for FPI. Senator Stabenow said the bill would also 
provide relief for private sector industries that have been 
hurt by FPI.
    Director Lappin expressed neutrality on S. 346 in light of 
the Administration's neutral position on the bill. Director 
Lappin emphasized that FPI is the Bureau of Prisons' most 
important correctional management program. Given the continued 
increase in the federal inmate population, Director Lappin 
stressed the importance of the Attorney General's ability to 
maintain adequate work opportunities in federal prisons to 
reduce recidivism and counter the dangerous effects of inmate 
idleness. Director Lappin expressed willingness to eliminate 
FPI's mandatory source provided FPI has time to transition to a 
non-mandatory operating paradigm, and the Attorney General had 
adequate alternative work programs available to meet the Bureau 
of Prisons' inmate employment needs.
    Mr. Williams expressed neutrality on S. 346, again in 
recognition of the Administration's neutral stance on the bill. 
Mr. Williams expressed his personal support for eliminating 
FPI's mandatory source saying such a move would improve FPI's 
operations in the same way the General Services 
Administration's operations were improved when its mandatory 
use provisions were eliminated.
    Mr. Palatiello expressed support for S. 346 saying the bill 
would infuse competition in the federal procurement process. 
Mr. Palatiello praised the bill for prohibiting FPI from 
providing services to the commercial market.
    Mr. Weiss expressed support for S. 346, citing, what in his 
view, is the flawed current system in which the government must 
buy products from FPI even if the buying agency can purchase a 
better product for less money from a private vendor. Mr. Weiss 
said S. 346 would provide greater procurement authority for 
federal contracting officers and allow private vendors greater 
access to federal business opportunities.
    Mr. Linder expressed opposition to S. 346, saying that the 
bill would cause a reduction in FPI sales. Mr. Linder said such 
a reduction would result in an economic disruption for many of 
FPI's private sector suppliers. Mr. Linder noted that many of 
FPI's suppliers, such as his company, are small businesses and 
would have to eliminate jobs if FPI experienced significant 
sales losses.
    Mr. Glover expressed opposition to S. 346 saying the bill 
would force FPI to eliminate inmate jobs. Mr. Glover said a 
reduction in FPI's inmate employment would result in increased 
inmate idleness within federal correctional facilities--which 
creates a more volatile and dangerous working atmosphere for 
BOP correctional staff.

                     V. Section-by-Section Analysis

    Section 1 would add a new Section 40 to the Office of 
Federal Procurement Act, establishing a government-wide 
procurement policy on purchases from Federal Prison Industries 
(FPI).
    Section 40(a) would establish the basic policy requiring 
FPI to compete for federal agency contracts.
    Section 40(b) would require federal agencies to notify FPI 
of contracting opportunities and give fair consideration to FPI 
offers.
    Section 40(c) would require federal agencies to ensure that 
they purchase FPI products only if they are comparable to those 
offered by the private sector in terms of price, quality and 
time of delivery.
    Section 40(d) would authorize the Attorney General to 
exempt any federal agency contract from competition 
requirements if the award of the contract to FPI is necessary 
to maintain work opportunities and ensure safe and effective 
administration of a penal or correctional facility.
    Section 40(e) would provide that FPI may not require 
contractors under federal agency contracts to use FPI as a 
subcontractor.
    Section 40(f) would prohibit inmate workers from having 
access to classified and sensitive information under FPI 
contracts.
    Section 2 contains conforming amendments. Subsection (a) 
would repeal provisions of current law applicable to Department 
of Defense purchases from FPI. Subsection (b) would repeal 
provisions of current law applicable to purchases from FPI by 
all federal agencies--including 18 U.S.C. Sec. 4124(a), the 
current statutory source for FPI's mandatory source authority. 
Subsection (c) contains technical modifications to other 
statutes.
    Section 3 would add a new section 4130 to title 18, United 
States Code, authorizing FPI to sell or donate products or 
services to charitable entities.
    Section 4130(a) would authorize the sale or donation of 
products or services to charitable entities, and to low-income 
individuals who would otherwise have difficulty purchasing such 
products or services.
    Section 4130(b) would require that the sale or donation of 
products to charitable entities be conducted pursuant to a work 
agreement, but only if: (a) the Attorney General determines in 
consultation with the Secretary of Labor and the Secretary of 
Commerce, that the product or services would not otherwise be 
available to the recipients; and (b) the chief executive 
officer of the charitable organization certifies in writing 
that no jobs or contractor work will be reduced or eliminated 
as a result of the sale or donation of inmate products or 
services.
    Section 4 would add a new section 4049 to title 18, United 
States Code, establishing an Enhanced In-Prison Educational and 
Vocational Assessment and Training Program within the Federal 
Bureau of Prisons.
    Section 5 would help repatriate jobs to the United States 
by encouraging FPI, to the maximum extent practicable, to 
produce new products or expand the production of existing 
products that would otherwise be produced outside the United 
States.
    Section 6 would authorize priority placement in the Bureau 
of Prisons for any FPI employees who may be displaced if FPI 
loses business after enactment of the bill.
    Section 7 contains the effective date for the bill.

                         VI. Regulatory Impact

    Paragraph 11(b)(1) of rule XXVI of the Standing Rules of 
the Senate requires that each report accompanying a bill 
evaluate the regulatory impact that would be incurred in 
carrying out the bill.
    The enactment of this bill would not have any regulatory 
impact on the public because the bill is exclusively directed 
at the conduct of federal agencies.

                            VII. Cost Impact

    Section 11(a) of rule XXVI of the Standing Rules of the 
Senate requires that each report accompanying a bill include an 
estimate of the costs which would be incurred in carrying out 
such bill. The following estimate was provided by the 
Congressional Budget Office:

S. 346--A bill to amend the Office of Federal Procurement Policy Act to 
        establish a governmentwide policy requiring competition in 
        certain executive agency procurements, and for other purposes.

    Summary: S. 346 would authorize the Attorney General to 
establish a Federal Enhanced In-Prison Vocational Assessment 
and Training Program in all federal institutions. Based on 
information from the Federal Bureau of Prisons, CBO estimates 
that implementing this enhanced program would cost nearly $150 
million over the 2005-2009 period to increase the number of 
inmates who participate in vocational training and to expand 
the services provided by the program.
    The bill also would amend the laws governing the operations 
of the Federal Prison Industries (FPI), a government-owned 
corporation that produces goods and services for the federal 
government with prison labor. S. 346 would eliminate a 
requirement that federal agencies purchase products from FPI if 
products are available to meet the agencies' needs and the cost 
would not exceed current market prices. Such products include 
office furniture, textiles, vehicle tags, and fiber optics. CBO 
expects that the FPI's sales to the federal government would 
decrease under the bill and have a negligible effect on net 
spending by FPI because sales proceeds and operating costs of 
the FPI would both be lower under the bill.
    S. 346 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the amendment is shown in the following 
table. The cost of this legislation falls within budget 
function 750 (administration of justice).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2005     2006     2007     2008     2009
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Spending on Enhanced Vocational Assessment and Training:
    Estimated Authorization Level..................................       29       30       30       31       31
    Estimated Outlays..............................................       26       29       30       31       31
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: CBO assumes that the bill will be 
enacted near the beginning of fiscal year 2005 and that the 
necessary amounts will be appropriated for each year. We 
estimate that implementing the Enhanced In-Prison Vocational 
Assessment and Training Program authorized in section 4 of S. 
346 would cost nearly $150 million over the 2005-2009 period. 
Depending on how much the operations of the FPI are reduced 
under the bill, implementing this legislation could increase 
the need for discretionary appropriations for security costs.

Enhanced in-prison vocational assessment and training

    Section 10 would authorize the Attorney General to 
establish a Federal Enhanced In-Prison Vocational Assessment 
and Training Program in all federal institutions. Federal 
institutions currently participate in vocational assessment and 
training programs, and we assume that the program that would be 
authorized by the amendment would be an expanded version of the 
current program. Based on information from the Department of 
Justice (DOJ), CBO estimates that implementing the bill would 
cost about $30 million each year over the 2005-2009 period to 
increase the number of inmates who participate in the training 
and to expand the services provided by the program.

Discretionary security costs and FPI spending

    S. 346 would eliminate the requirement for federal agencies 
to purchase goods and services from FPI. Based on information 
from the DOJ and major federal customers of FPI, we expect that 
FPI's total sales to the federal government would decrease 
under the bill. Because of the reduction in federal sales, CBO 
expects there would be a corresponding reduction in the number 
of inmates employed by FPI.
    Because CBO expects that the demand for FPI goods and 
services would decline under S. 346, FPI would provide security 
for fewer inmates during work hours. The costs of FPI 
operations, including security, are directly financed from the 
sale of its goods and services. No discretionary costs are 
incurred to provide security to prisoners participating in FPI 
programs during work hours. CBO expects that implementing S. 
346 would increase the need for additional officers to provide 
security to inmates no longer working for FPI under the bill. 
The cost of additional security personnel would depend on the 
extent to which agencies no longer procure products and 
services from FPI, the size of the new FPI donation program 
that would be established under the bill, and the number of 
security personnel currently working for FPI that would 
eventually be hired by the Federal Bureau of Prisons. FPI 
estimates that the value of the security service it currently 
provides is about $110 million a year.
    The cost to FPI to produce products for the federal 
government is currently funded entirely by collections from the 
agencies that purchase FPI products. CBO estimates that the 
total amount collected by FPI would decrease over the 5-year 
period under the proposed legislation as agencies procure fewer 
FPI products. But that reduction in collections would be offset 
by a reduction in the cost to produce such products. Therefore, 
CBO estimates that enacting this legislation would result in no 
significant net change in FPI's spending for each year.
    Estimated intergovernmental and private-sector impact: S. 
346 contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of State, 
local, or tribal governments.
    Previous CBO cost estimate: On September 17, 2003, CBO 
transmitted a cost estimate for H.R. 1829, the Federal Prison 
Industries Competition in Contracting Act of 2003, as ordered 
reported by the House Committee on the Judiciary on July 25, 
2003. That legislation would authorize the appropriation of 
specific amounts for an FPI donation program, an Enhanced 
Vocational Assessment and Training Program, and a Cognitive 
Abilities Assessment Demonstration Program. Under H.R. 1829, 
the requirement to purchase products from FPI would be reduced 
over the next several years, and the share of the federal 
market that FPI holds for the products and services it provides 
would be limited to 20 percent and 5 percent, respectively. CBO 
expects that, under H.R. 1829, there would be a corresponding 
reduction in the number of inmates employed by FPI and guarded 
by FPI security officers. CBO estimated that implementing H.R. 
1829 would cost $177 million over the 5-year period for 
salaries and benefits of security officers that would be paid 
from discretionary appropriations.
    Estimated prepared by: Federal Costs: Lanette J. Walker; 
Impact on State, Local and Tribal Governments: Melissa Merrell; 
and Impact on the Private Sector: Paige Piper/Bach
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      VIII. Effect on Current Law

    In compliance with paragraph 12 of the Standing Rules of 
the Senate, changes in existing law made by S. 346, as 
reported, are shown as follows: existing law proposed to be 
omitted is enclosed in black brackets, existing law in which no 
change is proposed is shown in roman:

                         TITLE 10. ARMED FORCES

                    Subtitle A. General Military Law

               PART IV. SERVICE, SUPPLY, AND PROCUREMENT

           CHAPTER 141. MISCELLANEOUS PROCUREMENT PROVISIONS

    1.
    [10 USC Sec. 2410n. Products of Federal Prison Industries: 
procedural requirements (a) Market research. Before purchasing 
a product listed in the latest edition of the Federal Prison 
Industries catalog under section 4124(d) of title 18, the 
Secretary of Defense shall conduct market research to determine 
whether the Federal Prison Industries product is comparable to 
products available from the private sector that best meet the 
Department's needs in terms of price, quality, and time of 
delivery. (b) Competition requirement. If the Secretary 
determines that a Federal Prison Industries product is not 
comparable in price, quality, or time of delivery to products 
available from the private sector that best meet the 
Department's needs in terms of price, quality, and time of 
delivery, the Secretary shall use competitive procedures for 
the procurement of the product or shall make an individual 
purchase under a multiple award contract. In conducting such a 
competition or making such a purchase, the Secretary shall 
consider a timely offer from Federal Prison Industries. (c) 
Implementation by Secretary of Defense. The Secretary of 
Defense shall ensure that--(1) the Department of Defense does 
not purchase a Federal Prison Industries product or service 
unless a contracting officer of the Department determines that 
the product or service is comparable to products or services 
available from the private sector that best meet the 
Department's needs in terms of price, quality, and time of 
delivery; and (2) Federal Prison Industries performs its 
contractual obligations to the same extent as any other 
contractor for the Department of Defense. (d) Market research 
determination not subject to review. A determination by a 
contracting officer regarding whether a product or service 
offered by Federal Prison Industries is comparable to products 
or services available from the private sector that best meet 
the Department's needs in terms of price, quality, and time of 
delivery shall not be subject to review pursuant to section 
4124(b) of title 18. (e) Performance as a subcontractor. (1) A 
contractor or potential contractor of the Department of Defense 
may not be required to use Federal Prison Industries as a 
subcontractor or supplier of products or provider of services 
for the performance of a Department of Defense contract by any 
means, including means such as--(A) a contract solicitation 
provision requiring a contractor to offer to make use of 
products or services of Federal Prison Industries in the 
performance of the contract; (B) a contract specification 
requiring the contractor to use specific products or services 
(or classes of products or services) offered by Federal Prison 
Industries in the performance of the contract; or (C) any 
contract modification directing the use of products or services 
of Federal Prison Industries in the performance of the 
contract. (2) In this subsection, the term ``contractor'', with 
respect to a contract, includes a subcontractor at any tier 
under the contract. (f) Protection of classified and sensitive 
information. The Secretary of Defense may not enter into any 
contract with Federal Prison Industries under which an inmate 
worker would have access to--(1) any data that is classified; 
(2) any geographic data regarding the location of--(A) surface 
and subsurface infrastructure providing communications or water 
or electrical power distribution; (B) pipelines for the 
distribution of natural gas, bulk petroleum products, or other 
commodities; or (C) other utilities; or (3) any personal or 
financial information about any individual private citizen, 
including information relating to such person's real property 
however described, without the prior consent of the individual. 
(g) Definitions. In this section: (1) The term ``competitive 
procedures'' has the meaning given such term in section 2302(2) 
of this title. (2) The term ``market research'' means obtaining 
specific information about the price, quality, and time of 
delivery of products available in the private sector through a 
variety of means, which may include--(A) contacting 
knowledgeable individuals in government and industry; (B) 
interactive communication among industry, acquisition 
personnel, and customers; and (C) interchange meetings or pre-
solicitation conferences with potential offerors.]

           *       *       *       *       *       *       *


      10 U.S.C. CHAPTER 141--MISCELLANEOUS PROCUREMENT PROVISIONS

Sec. 2381. Contracts: regulations for bids
Sec. 2384. Supplies: identification of supplier and sources
Sec. 2384a. Supplies: economic order quantities
Sec. 2385. Arms and ammunition: immunity from taxation
Sec. 2386. Copyrights, patents, designs, etc.; acquisition
Sec. 2387. Procurement of table and kitchen equipment for 
        officers' quarters: limitation on
Sec. 2388. Liquid fuels and natural gas: contracts for storage, 
        handling, or distribution
Sec. 2389. Ensuring safety regarding insensitive munitions
Sec. 2390. Prohibition on the sale of certain defense articles 
        from the stocks of the Department of Defense
Sec. 2391. Military base reuse studies and community planning 
        assistance
Sec. 2392. Prohibition on use of funds to relieve economic 
        dislocations
Sec. 2393. Prohibition against doing business with certain 
        offerors or contractors
Sec. 2394. Contracts for energy or fuel for military 
        installations
Sec. 2394a. Procurement of energy systems using renewable forms 
        of energy
Sec. 2395. Availability of appropriations for procurement of 
        technical military equipment and supplies
Sec. 2396. Advances for payments for compliance with foreign 
        laws, rent in foreign countries, tuition, public 
        utility services, and pay and supplies of armed forces 
        of friendly foreign countries
Sec. 2398. Procurement of gasohol as motor vehicle fuel
Sec. 2399. Operational test and evaluation of defense 
        acquisition programs
Sec. 2400. Low-rate initial production of new systems
Sec. 2401. Requirement for authorization by law of certain 
        contracts relating to vessels and aircraft
Sec. 2401a. Lease of vehicles, equipment, vessels, and aircraft
Sec. 2402. Prohibition of contractors limiting subcontractor 
        sales directly to the United States
Sec. 2404. Acquisition of certain fuel sources: authority to 
        waive contract procedures; acquisition by exchange; 
        sales authority
Sec. 2408. Prohibition on persons convicted of defense-contract 
        related felonies and related criminal penalty on 
        defense contractors
Sec. 2409. Contractor employees: protection from reprisal for 
        disclosure of certain information
Sec. 2410. Requests for equitable adjustment or other relief: 
        certification
Sec. 2410a. Severable service contracts for periods crossing 
        fiscal years
Sec. 2410b. Contractor inventory accounting systems: standards
Sec. 2410c. Preference for energy efficient electric equipment
Sec. 2410d. Subcontracting plans: credit for certain purchases
Sec. 2410f. Debarment of persons convicted of fraudulent use of 
        ``Made in America'' labels
Sec. 2410g. Advance notification of contract performance 
        outside the United States
Sec. 2410i. Prohibition on contracting with entities that 
        comply with the secondary Arab boycott of Israel
Sec. 2410j. Displaced contractor employees: assistance to 
        obtain certification and employment as teachers or 
        employment as teachers' aides
Sec. 2410k. Defense contractors: listing of suitable employment 
        openings with local employment service office
Sec. 2410l. Contracts for advisory and assistance services: 
        cost comparison studies
Sec. 2410m. Retention of amounts collected from contractor 
        during the pendency of contract dispute
[Sec. 2410n. Products of Federal Prison Industries: procedural 
        requirements]
Sec. 2410o. Multiyear procurement authority: purchase of 
        dinitrogen tetroxide, hydrazine, and hydrazine-related 
        products

           *       *       *       *       *       *       *


                      TITLE 15. COMMERCE AND TRADE

                   CHAPTER 14A. AID TO SMALL BUSINESS

    Sec. 657a. HUBZone program (a) In general. There is 
established within the Administration a program to be carried 
out by the Administrator to provide for Federal contracting 
assistance to qualified HUBZone small business concerns in 
accordance with this section. (b) Eligible contracts.

           *       *       *       *       *       *       *

    (4) Relationship to other contracting preferences. A 
procurement may not be made from a source on the basis of a 
preference provided in paragraph (2) or (3), if the procurement 
would otherwise be made from [a different source under section 
4124 or 4125 of title 18, United States Code, or the Javits-
Wagner-O'Day Act (41 U.S.C. 46 et seq.)] a different source 
under the Javits-Wagner-O'Day Act (41 U.S.C. 46 et seq.) or 
Federal Prison Industries under section 40(d) of the Office of 
Federal Procurement Policy Act or section 4125 of title 18, 
United States Code.

                TITLE 18. CRIMES AND CRIMINAL PROCEDURE

                    PART III. PRISONS AND PRISONERS

                        CHAPTER 307. EMPLOYMENT

    Sec. 4124. Purchase of prison-made products by Federal 
departments [(a) The several Federal departments and agencies 
and all other Government institutions of the United States 
shall purchase at not to exceed current market prices, such 
products of the industries authorized by this chapter as meet 
their requirements and may be available. (b) Disputes as to the 
price, quality, character, or suitability of such products 
shall be arbitrated by a board consisting of the Attorney 
General, the Administrator of General Services, and the 
President, or their representatives. Their decision shall be 
final and binding upon all parties.] [(c)](a) Each [Federal 
department, agency, and institution subject to the requirements 
of subsection (a)] Federal department or agency shall 
separately report acquisitions of products and services from 
Federal Prison Industries to the Federal Procurement Data 
System (as referred to in section 6(d)(4) of the Office of 
Federal Procurement Policy Act in the same manner as it reports 
other acquisitions. Each report published by the Federal 
Procurement Data System that contains the information collected 
by the System shall include a statement to accompany the 
information reported by the department, agency, or institution 
under the preceding sentence as follows: ``Under current law, 
sales by Federal Prison Industries are considered 
intragovernmental transfers. The purpose of reporting sales by 
Federal Prison Industries is to provide a complete overview of 
acquisitions by the Federal Government during the reporting 
period.'' [(d)] (b) Within 90 days after the date of the 
enactment of this subsection, Federal Prison Industries shall 
publish a catalog of all products and services which it offers 
for sale. This catalog shall be updated periodically to the 
extent necessary to ensure that the information in the catalog 
is complete and accurate.

           *       *       *       *       *       *       *


                       TITLE 41. PUBLIC CONTRACTS

                     CHAPTER 1. GENERAL PROVISIONS

    Sec. 48. Procurement requirements for the Government; 
nonapplication to prison-made products
    If any entity of the Government intends to procure any 
commodity or service on the procurement list, that entity 
shall, in accordance with rules and regulations of the 
Committee, procure such commodity or service, at the price 
established by the Committee, from a qualified nonprofit agency 
for the blind or such an agency for other severely handicapped 
if the commodity or service is available within the period 
required by that Government entity; except that this section 
shall not apply with respect to the procurement of any 
commodity which is available for procurement from an industry 
established under chapter 307 of title 18, United States Code, 
and [which, under section 4124 of such title is required] which 
is required be law to be procured from such industry.

 IX. MINORITY VIEWS OF SENATORS LAUTENBERG, VOINOVICH, DURBIN, CARPER 
                               AND PRYOR

                            A. INTRODUCTION

    Since 1934, the mandatory source \1\ authority of the U.S. 
Department of Justice's Bureau of Prisons (BOP) has been 
critical to the ability of Federal Prison Industries (FPI) to 
achieve important societal objectives: to manage, train and 
rehabilitate this nation's over 181,000 federal prison inmates, 
and to contribute to the safety and security of federal 
correctional personnel and facilities.
---------------------------------------------------------------------------
    \1\ 18 U.S.C. Sec. 4124 (2000).
---------------------------------------------------------------------------
    As the Committee acknowledged, the federal prison 
population has increased six-fold in the last two decades and 
it is expected to surpass 215,000 by 2010.\2\ Notwithstanding 
this acknowledgment and the recognition that FPI's ``challenge 
to manage and employ this burgeoning population grows 
accordingly,'' the Committee supports the elimination of FPI's 
mandatory source authority--one of FPI's most effective tools 
to help manage the federal prison population.\3\
---------------------------------------------------------------------------
    \2\ As of November 4, 2004, there were 181,063 prisoners in the 
custody of the Federal Bureau of Prisons. Two months earlier, September 
4, 2004, there were 180,310 federal inmates: 167,964 (93.7%) males, 
12,354 and (66.8%) females; 101,955 (56.5%) White, 72,433 (40.2%) 
Black; 2,890 (1.6%) Asian and 3,040 (1.7%) Native American; 57,863 
(32.1%) ethnic Hispanic; and Average Inmate age, 38.
    \3\ Before the Committee on Governmental Affairs, BOP Director 
Harley G. Lappin, testified: ``The Bureau of Prisons is getting 
significantly greater numbers of federal inmates who are serving more 
time in prison, are unskilled, undereducated, criminally sophisticated, 
and physically violent. Virtually all of these inmates will be released 
back into our neighborhoods at some point and will need job skills 
(vocational training), work experience (the FPI program), and secondary 
education if they are to successfully reintegrate into society.''
---------------------------------------------------------------------------
    S. 346 is premised upon the unsubstantiated claim that 
FPI's mandatory source status in the procurement of certain 
products by federal agencies is anti-competitive and places an 
undue burden on certain private business sectors. The record, 
however, shows that FPI's mandatory source authority does not 
confer an unfair competitive advantage; nor does it impose an 
undue burden or demonstrable harm on private businesses. to the 
contrary, the record demonstrates that ``FPI is a true success 
story; a Government program that has exceeded the expectations 
of its creators, cost taxpayers almost nothing, and benefited 
millions of constituents.'' \4\
---------------------------------------------------------------------------
    \4\ Steve Schwalb, Factories with Fences: The History of Federal 
Prison Industries, Foreword, Federal Prison Industries. The Myths, 
Successes, and Challenges of One of America's Most Successful 
Government Programs, pg. 5 (May 1996, published by Federal Prison 
Industries, Inc., Bureau of Prisons, U.S. Department of Justice).
---------------------------------------------------------------------------
     As U.S. Supreme Court Chief Justice Warren Burger remarked 
in 1981, ``[w]hen society places a person behind walls and 
bars, it has an obligation--a moral obligation--to do whatever 
can reasonably be done to change that person before he or she 
goes back into to the stream of society.'' \5\
---------------------------------------------------------------------------
    \5\ Id. at Dedication, Warren Burger's Quest for ``Factories with 
Fences,'' Warren I. Cikins, pg 2.
---------------------------------------------------------------------------
    Accordingly, we oppose S. 346 as reported out of Committee 
because it has the real potential to erode the effectiveness 
and existence of federal correctional industries--the work 
programs in correctional facilities that provide real world 
work experience to inmates, teaching them transferable job 
skills and the work ethic necessary to help them prepare for 
post-release reentry and employment in their communities.

                      B. ARGUMENTS AGAINST S. 346

    FPI's mandatory source authority has well-served this 
nation for the past 70 years because it does not provide FPI an 
unfair competitive advantage that would impose an undue burden 
on private enterprise. To ensure that the authority is 
exercised in a judicious fashion, Congress and the FPI Board 
have imposed a number of constraints that have over the years 
proven to be successful. Mandatory source authority has stood 
the test of time and has changed with the times.
    While S. 346 purports to level the playing field in the 
federal procurement market, there are a host of unintended 
consequences that could potentially undermine any benefit that 
would be created from the enactment of this legislation. 
Indeed, the significant societal benefits derived from FPI's 
mandatory source authority should have compelled the Committee 
to adopt the Lautenberg Substitute Amendment, which would have 
created a Commission to conduct a comprehensive study of the 
costs and benefits associated with the FPI's program. The 
Commission's report would have better positioned this Committee 
to consider and approve legislation that remains committed to 
the important societal objectives of FPI.
1. ``Mandatory source '' status does not provide FPI competitive 
        advantage
    The stated purpose of S. 346 is to repeal FPI's mandatory 
source status and require federal agencies to use amorphous 
``competitive procedures'' in acquiring products offered for 
sale by FPI. This legislation is based on the erroneous belief 
that FPI unfairly benefits from a ``competitive advantage,'' 
which has harmed private businesses.
    In 1999, Steve Schwalb, former Chief Operating Officer of 
FPI, aptly noted:

          It is true that FPI pays its inmates less than a 
        private sector worker would get paid for carrying out 
        similar assignments. Yet any competitive advantage that 
        accrues from this is more than offset by the lower 
        average productivity of inmates and the security 
        inefficiencies associated with employing inmates.
          In addition, due to concerns expressed by both labor 
        and private business at the time FPI was formed, 
        Federal statute provides for significant constraints on 
        FPI's activities, which further diminish any 
        competitive advantage. * * *
          In addition to these constraints, it should be noted 
        that the average Federal inmate has an 8th grade 
        education, is 37 years old, is serving a 10-year 
        sentence for a drug related offense, and has never held 
        a steady job. According to a recent study by an 
        independent firm, the overall productivity rate of an 
        inmate with a background like this is approximately \1/
        4\ that of a civilian worker. Finally, the costs 
        associated with civilian supervision of inmate workers 
        and numerous measures necessary to maintain the 
        security of the prison add substantially to the cost of 
        production. It is hard to see how one could genuinely 
        interpret the cumulative effect of these limitations as 
        a ``competitive advantage.'' \6\
---------------------------------------------------------------------------
    \6\ Id. at Foreword, Federal Prison Industries: The Myths, 
Successes, and Challenges of One of America's Most Successful 
Government Programs, pp. 5-6.
---------------------------------------------------------------------------
2. Constraints on mandatory source authority
    One of the many significant constraints \7\ on FPI's 
mandatory source authority is the law that prohibits FPI from 
selling any products in the commercial market. All FPI products 
must be sold to the federal government. Another constraint is 
that federal agencies desiring to purchase comparable FPI-
products from private vendors are permitted to obtain waivers 
from FPI. In Fiscal Year (FY) 2003, for example, 91.4 percent 
of the total dollar value of waivers requested was granted by 
FPI. With additional reform measures adopted by the FPI Board, 
waivers will continue to be granted in almost all cases.
---------------------------------------------------------------------------
    \7\ Under Title 18 of the United States Code, FPI is specifically 
required by law to: (1) Employ as many inmates as reasonably possible; 
(2) Concentrate on manufacturing products that are labor intensive; (3) 
Provide the maximum opportunity for inmates to acquire marketable 
skills for use upon release; (4) Diversify production as much as 
possible to minimize competition with private industry and labor, and 
to reduce the burden on any one industry; (5) Avoid taking more than a 
reasonable share of the Federal market for any specific product; (6) 
Sell products only to the Federal Government, meeting the quality and 
delivery requirements of the Federal customer, and not exceeding 
current market prices; (7) Comply with Federal procurement regulations; 
and (8) Operate in an economically self-sustaining manner. See id.
---------------------------------------------------------------------------
    Some of the reform measures that have been implemented at 
FPI include:
           FPI's Board eliminating the FPI program's 
        mandatory source for purchases up to $2,500;
           FPI's Board requiring the FPI program to 
        approve requests for waivers in all cases where the 
        private sector provides a lower price for a comparable 
        product that the FPI program does not meet;
           FPI's Board requiring the FPI program to 
        waive mandatory source authority for products where the 
        FPI program's share of the federal market is 20 percent 
        or more;
           FPI's Board directing that any prison-made 
        products sold by the FPI program must have at least 20 
        percent of its value contributed by inmate labor.
    Another severe limitation on FPI's mandatory source status 
is the blanket exemption for Department of Defense (DOD) 
contracts, pursuant to sections 811 and 819 of the National 
Defense Authorization Acts of 2002 and 2003, respectively. 
Section 637 of the consolidated Appropriations Act of 2004 
recently extended Section 811 and Section 819 requirements to 
civilian agencies. The effect of these laws was to enhance 
private sector access to federal procurements and to increase 
the frequency of instances in which FPI must compete for a 
contract.
    According to the Government Accountability Office (GAO), as 
a direct result of these statutory and administrative 
constraints on FPI's mandatory source status, 13 prison 
factories were closed during FY 2003 and 1,683 inmate jobs have 
been eliminated. While an undetermined number of inmates may 
have been reassigned to other work within the prisons, such as 
food service, there has been an undisputed net loss of 1,683 
inmate work opportunities.
    The testimony of BOP Director Lappin confirmed GAO 
findings. Director Lappin testified that ``the FPI program has 
had to close or downsize 13 factories, reduce operating costs, 
and reduce inmate participation by approximately 2,000 inmates, 
as well as FPI staffing by 97 positions.'' He further testified 
that statutory and administrative constraints on FPI's 
mandatory source status have resulted in ``a reduction in the 
percentage of medically able, sentenced inmates in secure 
facilities working in the FPI program from 21 percent in FY 
2002 to 19 percent in FY 2003.''

3. No undue burden to private businesses

    The loss of between 1,683 and 2,000 real inmate work 
opportunities has come at the expense of speculative claims 
that the FPI's mandatory source status has materially harmed 
private industry, specifically office furniture manufacturers.
    In the 1934 Executive Order authorizing the creation of 
FPI, President Roosevelt required FPI to ``diversify prison 
industrial operations that no single private industry shall be 
forced to bear an undue burden of competition with the products 
of the prison workshops.'' While it was well-understood that 
FPI would likely have a marginal impact on the businesses that 
would otherwise sell manufactured products to the federal 
agencies, part of FPI's mission was to diversify and not 
overburden one industry, ``so far as practicable.'' \8\
---------------------------------------------------------------------------
    \8\ Executive Order No. 6917, The White House, December 11, 1934.
---------------------------------------------------------------------------
    In Coalition for Government Procurement v. Federal Prison 
Industries, Inc.,\9\ a coalition representing manufacturers of 
office furniture alleged that from 1991 through 1995, FPI 
repeatedly violated its statute by significantly expanding into 
the ``competitive Federal government Office Furniture market,'' 
without authorization, resulting in private contractors losing 
$450 million in sales.
---------------------------------------------------------------------------
    \9\ 365 F.3d 435 (6th Cir. 2004).
---------------------------------------------------------------------------
    The Sixth Circuit Court of Appeals affirmed the district 
court, finding that the Coalition had failed to establish that 
it lost $450 million in sales as a result of UNICOR's increased 
production. Moreover, the circuit court found that the 
Coalition had failed to show that its interests prevailed over 
the legitimate interests of the federal government in employing 
federal inmates.
    In its ruling, the court said the coalition also failed to 
show that FPI violated laws that assist FPI in determining 
where and by how much FPI could expand its federal market share 
of a certain product segment. The court further said the board 
of directors of FPI conducted lengthy, detailed evaluations of 
FPI's requests to expand and, in some cases, offset production 
increases at some prisons with decreases at others.

4. Unintended consequences of S. 346

    As testimony submitted on behalf of National Correctional 
industries Association reflected, S. 346 would gut the only 
self-supporting reentry program that exists within our federal 
prisons, and have a long-term, direct, negative impact on the 
correctional industry programs in the states and localities as 
well.
    It is important to remember that FPI is not a business; it 
should not be driven by market forces. Rather, FPI is and 
should remain a model correctional program with the central 
mission to manage, train and rehabilitate federal inmates. 
There are many ways in which the FPI program does not and 
should not operate as a business. For instance, FPI sells its 
products only to the federal government and does limited 
advertising and marketing. Moreover, it spreads its operations 
across multiple business areas to lessen its potential impact 
on each of the industries in which it operates. And, most 
significantly and as mentioned earlier, FPI is deliberately 
labor-intensive in order to train the largest possible number 
of inmates.
    Requiring FPI to compete effectively with private business 
for a limited number of federal customers, at a time when FPI 
work opportunities are diminishing and the federal prison 
population is increasing, may lead to a host of unintended 
consequences--the least of which may be poor working conditions 
and questionable cost-cutting measures.
    As BOP Director Harley G. Lappin testified before the 
committee:

         If the FPI program is not able to maintain its 
        viability as a correctional program or is not able to 
        maintain adequate levels of inmate enrollment, there 
        will be a negative ripple effect. First and foremost, 
        if fewer inmates develop the social skills of the 
        workplace, recidivism will likely increase, at 
        substantial future cost to taxpayers and victims of 
        crime. Second, there will be an economic disruption to 
        the small businesses that currently depend on the FPI 
        program for their continued business success. Third, 
        opportunities to provide restitution to victims of 
        crime will decrease. Fourth, the risk of dramatically 
        increased inmate idleness will threaten the safe and 
        orderly operations of our federal correctional 
        institutions. Finally, if the FPI program is no longer 
        available to provide training to inmates, we will need 
        to further develop alternative programs.\10\
---------------------------------------------------------------------------
    \10\ Testimony of Harley G. Lappin, Director, Federal Bureau of 
Prison and CEO, Federal Prison Industries, before Senate Committee on 
Governmental Affairs (April 7, 2004).

    FPI is unique among inmate programs in that, by statute, it 
receives no appropriated funding for its operations. Earnings 
from FPI's industrial program are used for all operating costs 
of the program, including purchase of raw materials and 
equipment, staff salaries and benefits, and compensation to 
inmates performing in industrial work details. In addition, the 
FPI program pays for equipment and other startup costs 
associated with activating new prison factories. Any future 
shortfall will eventually be borne by the American taxpayer.
    Also, it is important to remember that FPI supports local 
economies and many small businesses. In 2003, FPI purchased 
$502 million in goods, services--and raw materials from the 
private sector and $1.5 billion from 1997 though 2001--a figure 
representing 74 percent of FPI's gross sales revenues.
    According to the Correctional Vendors' Association, as of 
September 5, 2003, small businesses in New Jersey that provide 
raw materials and component parts and services to FPI had 
outstanding long and short-term contracts totaling $116 
million. In Pennsylvania, total outstanding contracts as of the 
same date totaled $138 million; in Ohio, $52 million; in 
Illinois, $50 million; and millions of dollars in purchases in 
these and many other states will be jeopardized by S. 346.

5. Societal benefits of FPI mandatory source authority

    Although the FPI program produces products and performs 
services, the real output of the FPI program is inmates who are 
more likely to return to society as lawabiding taxpayers 
because of the job skills training and work experience they 
received in the FPI program.
    Inmates who work in FPI are 24 percent less likely to 
commit crimes and 14 percent more likely to be employed for as 
long as 12 years after release, when compared to similar 
inmates who did not have FPI experience. Thirty-four percent of 
FPI participants belong to minority groups. Minorities are 
often at greater risk for recidivism but have a higher rate of 
improvement from participating in FPI programs than non-
minorities.\11\
---------------------------------------------------------------------------
    \11\ Larry D. Thompson, Federal Prison industries: Fair to 
Business, Vital to Society, Federal times (March 1, 2004).
---------------------------------------------------------------------------
    Seventy-six percent of inmates working in the FPI program 
have been convicted of drug trafficking, weapons, and violent 
offenses. FPI provides a program of constructive industrial 
work, providing sound job skills and positive work habits to 
inmates. Even before they are released from prison, it is 
apparent to prison staff that inmates who work in the FPI 
program have made substantial adjustments in their thinking and 
their behavior. When compared to similar inmates without FPI 
experience, the FPI program inmates are substantially less 
likely to violate prison rules, despite the extensive and 
violent criminal histories that are so common to these 
individuals.
    Another important benefit of the FPI program is its ability 
to provide inmates with wages that can be used to provide 
restitution to victims. The FPI program mandates that 50 
percent of inmate wages be used to pay fines, victim 
restitution, and child support obligations, which helps those 
outside the prison system who were affected by inmates' 
conduct. In FY 2003, inmates working in the FPI program paid 
approximately $3 million towards these obligations, with the 
vast majority going to victim restitution.
    The FPI program also contributes significantly to reducing 
inmate idleness. Inmate idleness is problematic in a number of 
ways--it undermines other rehabilitation programs and increases 
the risk of violence, escapes, and other disruptions. Idle 
inmates require more staff to monitor, which increases the cost 
to taxpayers. Furthermore, as the amount of time inmates are 
idle increases, the rate of these problems does not increase in 
a linear fashion, but geometrically. Rapid growth of the inmate 
population has led to increased systemwide crowding, with the 
most significant crowding at medium and high security 
institutions. FPI data indicate a high correlation between 
increasing inmate-to-staff ratios and higher rates of assaults. 
Thus, the FPI program is particularly important at higher 
security level institutions.

                   C. LAUTENBERG SUBSTITUTE AMENDMENT

    The Lautenberg Substitute Amendment to S. 346 was identical 
to S. 2414, the Federal Inmate Work Opportunities Review 
Commission of 2004, which was introduced on May 12, 2004 by 
Senators Graham (R-SC) and Dorgan (D-ND). The Amendment 
provided for the appointment to the Federal Inmate Work 
Opportunities Review Commission, a total of nine members, by 
the President, Speaker of the House, Minority Leader of the 
House of Representatives, and Majority and Minority Leaders of 
the Senate. The Amendment required those appointed to the 
Commission to be familiar with Prison Industries and to serve 
for the duration of the Commission.
    The work of the Commission would consider the views of 
private industry, labor unions, correctional administrators, 
and others interested in prisoner reentry. The Commission would 
have examined the state of FPI, including its impact on 
recidivism and private and public sector markets. It would have 
examined the FPI in light of the amendments to the 2004 Omnibus 
appropriations requiring competitive bidding.
    Within two years, the Commission would have distributed a 
report with findings and conclusions, and recommended reforms. 
The Substitute Amendment also authorized funds, as necessary, 
to carry out the mission of the Commission.
    During the discussion on this Amendment in the Committee 
Mark-up, Senator Levin indicated that there are enough studies 
that have been done on FPI and thus, there is no need for the 
Review Commission proposed in S. 2414. However, an examination 
of the studies that have been undertaken, primarily by the GAO, 
reveals that none of the studies or reports have accomplished 
that which is proposed by S. 2414.
    Previous studies have not considered the following:
          (1) The current state of Federal Prison Industries, 
        including an examination of its impact on the Federal 
        Bureau of Prison's correctional mission, including the 
        reduction of recidivism and safe prison management, and 
        its impact on both the private sector and private labor 
        markets.
          (2) The market viability and number of inmates 
        employed by Federal Prison Industries, including the 
        potential impact of other legislative proposals pending 
        before Congress.
          (3) Alternatives that can be employed by the 
        Department of Justice to maximize inmate work 
        opportunities while minimizing domestic private sector 
        job displacement, including an examination of State and 
        foreign government inmate work programs.
          (4) Other issues as the Commission may determine 
        necessary to its mission.
    The Commission shall consider the views of all relevant 
parties affected by the future of inmate work programs--another 
key element that has not been comprehensively undertaken by 
previous studies--including:
          (1) Private sector businesses, both those that allege 
        they are harmed by Federal Prison Industries and those 
        who currently supply Federal Prison Industries;
          (2) Labor unions;
          (3) Corrections administrators; and
          (4) Other organizations and persons with an interest 
        in corrections and the reentry of offenders back into 
        the community.
    Without a Commission authorized to examine these issues 
fully, only two things are certain to occur:
    First, there will be a net loss of available prison work 
caused by an abrupt decrease in federal contracts. Since 
Congress began limiting FPI's mandatory source authority on 
Defense Department contracts in 2002, more than 1,700 inmate 
jobs have disappeared.
    Second, federal taxpayers will bear the expense of any 
increased costs. The Congressional Budget Office has estimated 
that legislation similar to S. 346 would cost taxpayers $587 
million over the next 5 years, including $177 million just for 
the new prison guards needed to maintain order and supervise 
the inmates who would no longer be working once FPI is gone.

                             D. CONCLUSION

    We believe that reducing the scope of and participation in 
the FPI program will make it much harder for inmates to acquire 
the work and social skills necessary for reentering society. 
Without such skills, they are more likely to become recidivists 
and harm the people in the communities they are attempting to 
rejoin.
    Federal Prison Industries is unique among inmate programs 
in that, by statute, it receives no appropriated funding for 
its operations. Inmates who participate in FPI work programs 
develop job skills, become model inmates, and contribute to 
victim funds--an important act of contrition and 
rehabilitation.
    Rather than destroy a good government program that has 
served an important role in prison safety for 70 years, the 
Committee should, at a minimum, create a commission to collect 
evidence, hold hearings, hear testimony, listen to all 
stakeholders, and develop a sensible consensus position that 
carefully weighs the costs and benefits of the FPI program.
    There is great value to society in having federal prisoners 
occupy their time constructively, develop a work ethic, and 
acquire job skills that will ease their transition back into 
civil society upon their release. As Chief Justice Burger once 
said, ``My position on this is the most conservative one you 
can imagine. If you can take an individual and train him so he 
can do something a little more useful than stamping license 
plates, he's a little less likely to go back [into prison]. 
This isn't for the benefit of the criminal community. It's for 
the benefit of you and me.'' \12\

    \12\ Warren I. Cikins, Factories with Fences: The History of 
Federal Prison Industries, Dedication, Warren Burger's Quest for 
``Factories with Fences,'' pg. 2.
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                                   Frank R. Lautenberg.
                                   George V. Voinovich.
                                   Dick Durbin.
                                   Tom Carper.
                                   Mark Pryor.