Defense Department gets earful on prison contracting rule

The Defense Department received almost 40 comments from sources in government and industry since it published an interim rule in the Federal Register in April that would increase competition between Federal Prison Industries and the private sector for the Pentagon's business. The public comment period on the controversial rule ended Tuesday.

The interim rule, which implements Section 811 of the 2002 Defense Authorization Act, requires the Defense Department to do market research on commercial products before buying anything from Federal Prison Industries.

Susan Schneider of the Defense Acquisitions Regulations Council said the large number of comments on the rule made it impossible to say when a final ruling would be made.

"We were amazed at the number of comments coming in," Schneider said. "Usually we get between five and 10 responses from the public." Schneider said the review process would take longer than normal, and that they were trying to give every comment as much attention as possible.

FPI, whose trade name is Unicor, is part of the Justice Department's Bureau of Prisons. The agency employs about 20,000 federal inmates to produce $500 million in furniture, clothing, electronics, and other products for agencies.

Congress passed legislation in December 2001 that stripped FPI of its mandatory source status with the Pentagon, allowing Defense to buy furniture, textiles and other equipment from private sector firms. FPI is still the default provider of certain products to all federal agencies besides Defense.

Some, including Gary Engebretson, president of the Contract Services Association of America, have said federal rules requiring agencies to make purchases from FPI for are unfair to private firms.

"The mandatory source requirement is completely contrary to normally required competitive procurement practices for government contracting, as well as overall government policy, which states that 'in the process of governing, the government should not compete with its citizens,' " wrote Engebretson in a June 24 response to the proposed regulations.

Engebretson praised the implementation of Section 811 for giving small businesses the chance to compete for lucrative Defense contracts, which, he wrote, FPI "had a virtual lock on."

Engebretsen also argued that competition would enhance the training of FPI inmates. "If FPI is to become a vehicle for reducing idleness and preparing inmates for the private sector, it also should prepare those inmates for the reality of the competitive pressures faced by real-life employers and employees."

In its response to the interim rules, FPI said it was confident that it would "continue to provide high-quality, comparable products," but expressed concern that the current wording of Section 811 would lead to misinterpretations by Defense contracting officers, who might unfairly exclude FPI.

"FPI is already finding that Defense contracting officers are not complying with the requirement to obtain an offer from FPI during the competitive process, but rather are inappropriately bypassing FPI altogether after the initial comparability stage," wrote Marianne Cantwell, FPI's general counsel, on June 20. Cantwell also expressed concern that a substantial loss of business to FPI could lead to more violence and discontent in prisons, and a loss of business to small industries that supply FPI.

Engebretsen also questioned FPI's expansion into the commercial market for services. The original legislation creating FPI says that the goods it produces should not be sold to the public or compete with private enterprises, but it does not mention services.

Based on several legal opinions from the Justice Department, FPI has concluded that the mandatory source clause does not apply to services and has begun providing a variety of services such as data entry, laundry, and retrofitting vehicles to the public.

"[Providing services] is something that we have been doing for a while," said Ruth Bracken, executive assistant to Steve Schwalb, chief operating officer of FPI. "It is not a reaction to Section 811…we don't have mandatory source on our services so we are able to do that."

But others do not view the matter as so cut and dried. "What we are saying is that FPI has expanded beyond the original intent of its [legislation]. Particularly in the case of small businesses, when you have a mom-and-pop industry trying to compete with FPI, it just isn't fair," said George Sigalos, spokesman for the Contract Services Association.