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Federal Prison Industries: The Myths, Successes, and Challenges of One of America’s Most Successful Government Programs
By Steve Schwalb
Published: 06/08/2009

Lathe worker Editors Note: The following is an excerpt taken from "Factories with Fences - The history of Federal Prison Industries"

Federal Prison Industries, Incorporated (FPI) was created over 60 years ago. Throughout our history, we have served Federal Government customers by producing competitively-priced, high-quality goods and services and backing them up with outstanding customer service and quality guarantees. But our immediate customers are only part of the picture: by keeping inmates positively focused and productively occupied, and by teaching them how to read, write, and work, we have also served the public by significantly increasing the security of Federal prisons and providing inmates with opportunities to become productive, law-abiding citizens after release.

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.

As I reflect on my early tenure as Assistant Director for the Industries, Education, and Vocational Training Division and Chief Operating Officer of FPI, I am particularly proud to be associated with two groups: my predecessors as Assistant Director, and the current staff of the Corporation. The former—comprised of such outstanding leaders and visionaries as James Bennett, A. H. Conner, Fred Wilkinson, Preston Smith, Wade Markley, Olin Minton, J. T. Willingham, John “J. J.” Clark, Loy Hayes, Sr., Dave Jelinek, Jerry Farkas, and Rick Seiter—established the culture, standards, and tradition for FPI. The latter—through their continued professionalism and dedication—carry our reputation for excellence into the future.

Although FPI has faced and overcome numerous challenges during its history, it will probably face its greatest challenges in the years to come. Increasing Federal inmate populations,declining Federal budgets, and a rapidly changing Federal marketplace will require FPI to constantly improve operations to maintain its viability.

Numerous myths abound about FPI, perhaps because it is a relatively unknown Federal program. As we enter our 7th decade of operation, I want to address these myths as a way of both correcting misconceptions and sharing with our constituents and critics alike the basis for our immense pride in our accomplishments on behalf of the Nation.

Myth #1: Federal Prison Industries has an unfair competitive advantage over the private sector.

This, the most inaccurate of all FPI myths, apparently is based on a misunderstanding of the restrictions under which FPI operates. 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. Specifically, FPI is required by law to:
  • Employ as many inmates as reasonably possible.
  • Concentrate on manufacturing products that are labor intensive.
  • Provide the maximum opportunity for inmates to acquire marketable skills for use upon release.
  • Diversify production as much as possible to minimize competition with private industry and labor, and to reduce the burden on any one industry.
  • Avoid taking more than a reasonable share of the Federal market for any specific product.
  • Sell products only to the Federal Government, meeting the quality and delivery requirements of the Federal customer, and not exceeding current market prices.
  • Comply with Federal procurement regulations.
  • Operate in an economically self-sustaining manner.

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 l0-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 l/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.” In fact, Robert Q. Millan, a former member of FPI’s Board of Directors, provided the following assessment of FPI’s situation: “As a former banker, I am well aware of the operations of a variety of businesses. In private sector business, it is of primary importance to eliminate all inefficiencies possible in order to maximize profit. I could not recommend to my former bank, or any bank, that it make loans to a business that was controlled by the conflicting mandates and had the inherent inefficiencies that handicap FPI.”

FPI has no competitive advantage. In fact, quite the opposite is true. That it has succeeded in spite of the obstacles it faces is a tribute to the support of our customers and the dedication of our staff.

Myth #2: FPI enjoys a “superpreference” for sale of its goods to Federal agencies.

The term “superpreference” is an inflammatory term coined by FPI critics to engender sympathy from certain quarters. The facts are much less provocative. Federal procurement law requires that Federal agencies purchase products from FPI, provided that FPI can meet the purchaser’s quality, price, and delivery requirements. This “mandatory source” (the proper term) designation merely requires that Federal agencies contact FPI to see if its products will meet their needs. If so, procurement from FPI is required. If not, FPI is obliged to grant a waiver, allowing the Federal customer to purchase the product on the commercial market. The waiver process has worked very effectively: in fiscal year 1995, FPI granted 80 percent of all waivers requested, thereby directing $383 million in Federal Government purchases to the private sector.

FPI’s mandatory source provides a steady flow of work and reduces the requirement for FPI to expend large amounts of money on advertising and marketing. If such expenses had to be incurred, sales levels and market share would have to be expanded, which would have an adverse impact on private sector companies in the same businesses as FPI.

Myth #3: Inmates in FPI are not being taught marketable skills.

FPI teaches inmates the most marketable skill of all: how to work. No matter the job, successful employees must first possess a basic work ethic: dependability, reliability, the ability to work as a member of a team, the willingness to take direction from a supervisor, and pride in a job well done.

In addition, for many FPI jobs, the trade skills learned are directly transferable to the private sector. Examples include welding, soldering, printing, data entry, computer scanning and digitizing, furniture manufacture and refinishing, upholstery, metal fabrication, apparel manufacturing, and vehicle repair. Many of these programs are linked to a State certified vocational or apprenticeship program.

In order to advance beyond the entry level, inmates are also required to complete their GED. This is considered the minimum level of functional literacy required to be successful in today’s society. Requiring such an achievement enhances an inmate’s employment prospects.

A recently completed research study on post release employment of Federal inmates found that inmates who work in FPI are better behaved while in prison, are more likely to be employed—at higher wages—after release, and are significantly less likely to re-offend than inmates who did not participate in FPI.

Thus, FPI benefits both individual inmates and society as a whole by increasing the odds that ex-offenders can become law-abiding, tax-paying citizens. This is one of FPI’s most noteworthy successes.

Myth #4: FPI has an adverse impact on the private sector.

This assertion is based on a narrow, illusory definition of the private sector. There is no dispute that if FPI did not exist, certain private sector companies would sell more products to the Federal Government. There is, however, more to the situation than meets the eye.

An independent market study recently concluded that FPI’s sales represent less than 2 percent of the Federal Government’s annual purchases. Further, when Federal procurements go down, private sector companies can increase the ratio of sales to the commercial market. By law, FPI cannot.

Virtually every FPI sales dollar is returned to the private sector. In fiscal year 1995, FPI had net sales of $459 million. Of this, $257 million was spent on raw material purchases from private sector vendors. Another $87 million was spent on wages and benefits for FPI staff, which in turn were spent in the private sector. Of the pay earned by inmates, 50 percent was paid to the public in the form of fines, restitution, and child support. Even items the inmates bought in the commissary (using their FPI earnings) were initially purchased from the private sector vendors.

These specific dollar illustrations do not take into account the intangible value FPI adds to the local community by contributing to safe, secure management of correctional facilities. More than one mayor has said that the combination of direct FPI expenditures in the local economy and the aforementioned intangible value on property values and community safety result in an overall net gain, even taking into account any direct effect on businesses in the same product line as FPI.

The plain truth is that the overall effect of FPI on private sector businesses is negligible. If FPI did not exist, the increased appropriations required to provide alternative programs for inmates, offset by increases in private sector income, would result in a net increased cost to the taxpayers.

A History of Success

For six decades, FPI has been self-sufficient, funding operations through the sale of its products to the Federal Government, rather than Government appropriations. In fact, over the years, FPI has returned over $80 million to the U.S. Treasury.

During its history, FPI has provided valuable products and services to the Federal Government. Soldiers have had their uniforms, bedding, shoes, dorm furniture, helmets, flak vests, and other items made by FPI. Likewise, FPI has provided veterans hospitals with pajamas, towels, sheets, and mattresses. FPI has also produced missile cables (including those used on the Patriot missiles during the Gulf War), wiring harnesses for jets and tanks, radio mounts, battery boxes, postal bags, weather instrument parachutes, office furniture, and signs. Services provided to the Government include rebuilding vehicles, remanufacturing electric motors, entering data, and printing Government documents (such as this one). . All these products and services have been provided in response to the needs of our Federal Government customers and in service to the Nation. It is a legacy of which we are very proud. And it is the reason why FPI is one of the country’s most successful Government programs.

The Future Challenge

The challenge for FPI is to remain financially self-sufficient while providing enough work for an increasing number of inmates. The Federal inmate population has tripled over the last 10 years, and it is projected to continue growing for the foreseeable future. In order for the Bureau of Prisons to successfully manage the increased number of inmates, FPI will have to create jobs for these additional inmates.

FPI’s influence on the successful management of Federal prisons is no secret; it has been a matter of public policy for over six decades. Policymakers have long recognized that increasing the number of incarcerated individuals means increasing the number of prisons and, in turn, increasing the size of FPI in order to improve both the management of the prisons and an inmate’s chances of success upon release. As we begin the next decade, continued support of Federal Prison Industries will pay important dividends for the country.

Steve Schwalb is the Bureau of Prisons Assistant Director for Industries, Education, and Vocational Training and Chief Operating Officer for Federal Prison Industries, Inc.


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