Federal Prison Industries (FPI), a nonprofit corporation operated
by the U.S. Bureau of Prisons that employs inmates as workers, has
a “mandatory-source” advantage over its competitors
that runs counter to congressional best-value contracting initiatives,
according to an unusual coalition of business interests and labor
unions that wants some changes made.
Spokesmen for the coalition—which includes NDIA, the U.S.
Chamber of Commerce and the AFL-CIO—testified at a recent
hearing of the House Small Business Committee, outlining what they
described as the negative impact that FPI’s mandatory-source
advantage has on small businesses. They spoke in favor of H.R. 1577,
“Federal Prison Industries Competition in Contracting Act
of 2001.”
Current U.S. law, they said, requires federal agencies to purchase
products from FPI as long as FPI meets several criteria. FPI already
must manufacture the product, and it must bid a price that is equal
to or below the highest offer. But, in all cases, it is FPI—not
the contracting officer—which determines if FPI meets these
criteria, reformers insisted.
H.R. 1577 would remove the mandatory-source requirement. Testifying
in support of the bill were representatives from the furniture and
mapping industries, the Federal Managers Association and Reps. Peter
Hoekstra, R-Mich., and Carolyn Maloney, D-N.Y.—the legislation’s
original cosponsors.
FPI Board Chairman Joseph Aragon responded that his organization
regularly exceeds congressionally mandated small business and small
disadvantaged business contracting levels. He acknowledged, however,
that FPI does qualify for loans from the U.S. Treasury at lower
interest rates than those available to private business and that
FPI is not required to meet the workplace safety standards set out
by the Occupational Safety and Health Administration.
Many congressmen at the hearing—including the committee chairman,
Rep. Donald Manzullo, R-Ill., and the ranking minority member, Rep.
Nydia Velazquez, D-N.Y.—expressed concern about the negative
impact that FPI has on small-business contracting with the federal
government. Over the past several years, they asserted, FPI’s
expansionary activities have hindered and, in several cases, forced
closure of small businesses.
Very recently, an NDIA-member company was forced to lay off 50
percent of its workforce because of FPI expansion into the electronic
component recycling market, according to company officials. The
company’s workers lost wages averaging $10 per hour. This
small business has been forced to stop all contracted recycling
services for previously used government electronic components until
the Bureau of Prisons determines what percentage of the contract
FPI will fulfill, company officials said.
Contract Bundling
Early in the 107th Congress, Rep. Nydia Velazquez, D-N.Y., introduced
H.R. 1324, the “Small Business Contract Equity Act of 2001.”
This bill would require the head of the Small Business Administration
(SBA) to approve all federal contracts. Proponents in the House
Small Business Committee and the Small Business Legislative Council
said this legislation will provide needed protection against contract
bundling, which they said hampers the ability of small businesses
to get federal contracts.
The bill would require all contract proposals to be reviewed by
the SBA prior to their release for bids. If the SBA determined that
a proposal would result in a bundled contract, the agency would
have to submit an impact study demonstrating the cost savings generated
by bundling. Then, SBA either would approve the contract or have
the requirements modified.
Opponents of the bill, including NDIA, said that the SBA does not
have the human resources to conduct the reviews in a timely manner.
Current trends in government procurement are to streamline the acquisition
process to reduce time and increase value, according to NDIA. H.R.
1324 would complicate the acquisition cycle and stall it further,
the association said.
Senate Reorganization’s Impact
With Democrats now in control of the Senate, outsourcing initiatives
by the administration are likely to face greater scrutiny. Sen.
Carl Levin, D-Mich., now chairman of the Senate Armed Services Committee,
has expressed concerns that cost savings from outsourcing and privatization
are not as large as expected. He has indicated that, for outsourcing
to remain worthwhile, quality and cost of services must be controlled.
Levin also has questioned the administration’s approach to
missile defense. He is a strong proponent of the Anti-Ballistic
Missile (ABM) treaty that has limited the development and production
of interceptor missiles since 1970. Thus, according to insiders,
it is unlikely that the Senate will support any funding increases
for missile-defense programs unless the administration reaches consensus
with its European allies and Russia.
One bill likely to receive more attention under Levin’s leadership
is S. 397, which would authorize two more rounds of base realignment
and closure (BRAC). Levin and Sen. John McCain, R-Ariz., introduced
the bill earlier this session. Republican Senate leaders have not
been as vocal as Levin or McCain in support of the bill, nor has
the House. President Bush, during his campaign, argued that additional
rounds of BRAC are needed to fund military transformation.
Reporting Requirements Update
Last month, we reported that the Department of the Army had required
that all direct and indirect costs accrued by contracted companies
be submitted every quarter as a prerequisite for payment, regardless
of whether payment was due. Learning of this, the Department of
Defense requested that the Army submit a written explanation of
why collection of such information was necessary and should continue.
Deidre Lee, director of defense procurement, in June denied an Army
request to continue the data collection for one year. Lee stated
that such reporting standards should not be used, even on a temporary
basis “until we better understand its projected utility, its
cost and administrative impact on contractors, and other legal,
contractual and implementation issues.” Although the Army’s
request has been denied, the requirements remain in effect until
the standard public comment process is complete and a new rule revokes
the current regulation.