Order Code RL32380
CRS Report for Congress
Received through the CRS Web
Federal Prison Industries
Updated March 23, 2006
Lisa M. Seghetti
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

---

Federal Prison Industries
Summary
UNICOR, the trade name for Federal Prison Industries, Inc. (FPI), is a
government-owned corporation that employs offenders incarcerated in correctional
facilities under the Federal Bureau of Prisons (BOP). UNICOR manufactures
products and provides services that are sold to executive agencies in the federal
government. FPI was created to serve as a means for managing, training, and
rehabilitating inmates in the federal prison system through employment in one of its
industries. The question of whether UNICOR is unfairly competing with private
businesses, particularly small businesses, in the federal market has been and
continues to be an issue of debate. The debate has been affected by tensions between
competing interests that represent two social goods — the employment and
rehabilitation of offenders and the need to protect jobs of law abiding citizens. At the
core of the debate is UNICOR’s preferential treatment over the private sector.
UNICOR’s enabling legislation and the Federal Acquisition Regulation require
federal agencies, with the exception of the Department of Defense (DOD), to procure
products offered by UNICOR, unless authorized by UNICOR to solicit bids from the
private sector. While federal agencies are not required to procure services provided
by UNICOR they are encouraged to do so. It is this “mandatory source clause” that
has drawn controversy over the years and is the subject of current legislation.
Of the eligible inmates held in federal prisons, 19,720 or 17% are employed by
UNICOR. By statute, UNICOR must be economically self-sustaining, thus it does
not receive funding through congressional appropriations. In FY2005, FPI generated
$765 million in sales. UNICOR uses the revenue it generates to purchase raw
material and equipment; pay wages to inmates and staff; and invest in expansion of
its facilities. Of the revenues generated by FPI’s products and services,
approximately 74% go towards the purchase of raw material and equipment; 20% go
towards staff salaries; and 6% go towards inmate salaries.
In recent years, the Administration has made several efforts to mitigate the
competitive advantage UNICOR has over the private sector. Going beyond the
Administration’s efforts, Congress has taken legislative action to lessen the adverse
impact FPI has caused on small businesses. For example, in 2002, 2003, and 2004,
Congress passed legislation that modified FPI’s mandatory source clause with respect
to procurements made by the Department of Defense and the Central Intelligence
Agency (CIA); in 2004, Congress passed legislation limiting funds appropriated for
FY2004 to be used by federal agencies for the purchase of products or services
manufactured by FPI under certain circumstances. Nonetheless, the 109th Congress
is considering legislation that would, among other provisions, permanently eliminate
the requirement that federal agencies must purchase products from FPI. S. 749 was
introduced on April 11, 2005, and the Federal Prison Industries Competition in
Contracting Act of 2005 (H.R. 2965) was introduced on June 17, 2005. Both bills
have been referred to the relevant committees. On July 1, 2005, the House
Committee on Judiciary, Subcommittee on Crime, Terrorism, and Homeland Security
held a hearing and on July 14, 2005, the House Judiciary Committee held a markup
session. No further congressional action has been taken on the bills. This report will
be updated as warranted.

---

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Impact of UNICOR on the Federal Prison System and Society . . . . . . . . . . . . . . . 4
Characteristics of Federal Inmates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effects of FPI on Recidivism Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Costs and Benefits of FPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Recent Administration Efforts to Reform FPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Anti-Drug Abuse Act of 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The National Defense Authorization Act for FY2002 . . . . . . . . . . . . . 10
The Bob Stump National Defense Authorization Act for FY2003 . . . 10
The Consolidated Appropriations Act of 2004 . . . . . . . . . . . . . . . . . . 11
Intelligence Authorization Act for FY2004 . . . . . . . . . . . . . . . . . . . . . 11
Legislation in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Elimination of the Mandatory Source Clause . . . . . . . . . . . . . . . . . . . . . . . 11
Exceptions to the Elimination of the Mandatory Source Clause . . . . . . . . . 12
Transitional Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
FPI as a Subcontractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FPI’s Mandatory Source Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Customer Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Questions Facing Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Figures
Figure 1. Federal Inmates Employed in FPI for Selected Years . . . . . . . . . . . . . . 4
Figure 2. Federal Prison Population for Selected Years . . . . . . . . . . . . . . . . . . . . 5
Figure 3. Percentage of Federal Inmates By Drug-Related and
Violent Offenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

---

Federal Prison Industries
Most Recent Developments
On April 11, 2005, S. 749 was introduced and on June 17, 2005, the Federal
Prison Industries Competition in Contracting Act of 2005 (H.R. 2965) was
introduced. Both bills would, among other things, phase out over five years the
Federal Prison Industries’ (FPI) mandatory source clause. In essence, the acts would
eliminate the requirement for federal agencies to purchase products from the FPI and
would cease treating FPI as a preferential provider for services. Both bills have been
referred to the relevant committees. On July 1, 2005, the House Committee on
Judiciary, Subcommittee on Crime, Terrorism, and Homeland Security held a hearing
and on July 14, 2005, the House Judiciary Committee held a markup session. No
further congressional action has been taken on the bills.
Introduction
UNICOR,1 the trade name for Federal Prison Industries, Inc. (FPI), is a
government-owned corporation that employs offenders incarcerated in correctional
facilities under the Department of Justice’s (DOJ’s) Federal Bureau of Prisons
(BOP).2 UNICOR manufactures products and provides services that are sold to
executive agencies in the federal government. Although UNICOR industries are
located within various federal prisons, they operate independently from the prison.
FPI was created to serve as a means for managing, training and rehabilitating inmates
in the federal prison system through employment in one of its eight industries.
UNICOR’s enabling legislation3 and the Federal Acquisition Regulation (FAR)4
require federal agencies, with the exception of the Department of Defense (DOD) and
the Central Intelligence Agency (CIA), to procure products offered by UNICOR,
unless authorized by UNICOR to solicit bids from the private sector.5 (See discussion
1 UNICOR and the FPI are used interchangeably throughout this report.
2 This report does not cover industries in state prison, often referred to as the Private Sector/
Prison Industry Enhancement Certification (PIE) program. The PIE program was authorized
by Congress in 1979 in the Justice System Improvement Act (P.L. 96-157).
3 See 18 USC §4121 et seq.
4 FAR was developed in accordance with the requirements of the Office of Federal
Procurement Policy Act of 1974 (P.L. 93-400).
5 Under current law (18 USC §4124(a)) and regulations (48 C.F.R.), federal agencies, with
the exception of the DOD and the CIA, must procure products from FPI, unless granted a
(continued...)

---

CRS-2
below, under the “Legislative History” section.) Such waivers can be granted by
UNICOR to executive agencies if its price exceeds the current market price for
comparable products.6 Federal agencies, however, are not required to procure
services provided by UNICOR but are encouraged to do so pursuant to FAR.7 It is
this “mandatory source clause”8 that has drawn controversy over the years and is the
subject of current legislation.

This report opens with a discussion of FPI’s background and its impact on the
federal prison system as well as society. It then summarizes the statutory history of
FPI and other laws affecting the industry. It also discusses legislative activity in the
109th Congress. The report concludes with an examination of some of the policy
issues surrounding the debate with respect to the elimination of FPI’s mandatory
source clause. This report does not address the related debates on inmate labor,
criminal rehabilitation, or competitive versus non-competitive federal government
contracting.
Background
As the federal prison system was established in the first decade of the 20th
century, factories were constructed within the prisons to manufacture products
needed by the federal government. Labor organizations had been making arguments
against prison industries since the late 1800s due to the poor conditions in which
inmates were working and their perception that the industries were taking jobs away
from law abiding citizens. The Depression of the 1930s and the resulting high levels
of unemployment crystalized the debate. UNICOR was established in 1934 under
an executive order issued by President Franklin Delano Roosevelt.9 The purpose of
UNICOR was to consolidate the operations of all federal prison industries in order
to provide training opportunities for inmates and “diversify the production of prison
shops so that no individual industry would be substantially affected.”10
5 (...continued)
waiver by FPI (48 CFR 8.604), that are listed as being manufactured by UNICOR in the
corporation’s catalog or schedule of products.
6 See Bureau of Prisons Program Statement 8224.02, FPI Pricing Procedures.
7 FAR encourages federal agencies to treat UNICOR as a “preferential source” in the
procurement of services. See 41 CFR §101-26, 107; 48 CFR §302-5, 8.002, 8.602, 8.603,
8.605(f), and 8.704.
8 Also referred to as “superpreference,” “sole source,” or “preferential status.”
9 See Executive Order 6917.
10 Franklin Delano Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt,
vol. 3 (New York: Random House, 1938), p. 497. These principles are reflected in the
current statutory authority for FPI, see 18 USC §4122(b).

---

CRS-3
Authority. FPI is administered by a six-person Board of Directors that is
appointed by the President. Its enabling act11 requires that representatives of
industries, agriculture, labor, and retailers and consumers serve as board members.12
The board’s decision-making regarding products to be manufactured and areas of
expansion are driven by a goal of employing the greatest possible number of
inmates.13
Activities. Of the eligible inmates held in federal prisons, 19,720 or 17% are
employed by UNICOR. UNICOR has 106 factories in federal prisons representing
seven different industrial operations.14 UNICOR’s seven industrial operations are
comprised of roughly 150 different types of products and services. UNICOR’s
industrial operations include the following:
! clothing and textiles;
! electronics;
! fleet management and vehicular components;
! industrial products;
! office furniture;
! recycling activities; and
! services (which includes data entry and encoding).15
UNICOR is economically self-sustaining and does not receive funding through
congressional appropriations. In FY2005, FPI generated $765 million in sales.16
UNICOR uses the revenue it generates to purchase raw material and equipment; pay
wages to inmates and staff; and invest in expansion of its facilities. Of the revenues
generated by FPI’s products and services, approximately 74% go towards the
purchase of raw material and equipment; 20% go towards staff salaries; and 6% go
towards inmate salaries. Inmates earn from $0.23 per hour up to a maximum of
$1.15 per hour, depending on their proficiency and educational level, among other
things. Under BOP’s Inmate Financial Responsibility Program, all inmates who have
court ordered financial obligations must use at least 50% of their FPI income to
11 See 18 USC §4121.
12 In addition to the five board members who must be from the aforementioned groups, the
Attorney General and the Secretary of Defense (or their designee) also serve as board
members.
13 Under 18 USC §4122(b)(1), this goal is explicit, along with other goals to “diversify, so
far as practicable, prison industrial operations,” and to “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, and to reduce to a minimum competition with private
industry or free labor.”
14 There are currently 104 federal prisons in the United States.
15 UNICOR’s 2002 Annual Report at [http://www.unicor.gov].
16 November 14, 2005, e-mail correspondence with BOP congressional liaison office.

---

CRS-4
satisfy those debts, which accounted for $2.7 million in FY2005; the rest may be
retained by the inmate.17
Impact of UNICOR on the Federal
Prison System and Society
Under current law, all physically able inmates who are not a security risk are
required to work.18 Those inmates who are not employed by UNICOR have other
labor assignments in the prison. Until FY2003, UNICOR had seen an increase in the
number of inmates working in its industries, primarily due to the increase in the
federal prison population, as discussed below. For example, in FY1951, UNICOR
employed 3,803 federal inmates, which represented 22% of the total inmate
population. In FY2002, however, the percentage of inmates employed by UNICOR
dropped to 13% and in FY2004 the percentage dropped to 10% (see Figure 1).19
Figure 1. Federal Inmates Employed in FPI for Selected Years
2 5 ,0 0 0
2 1,6 8 8
2 1,778
2 0 ,2 13
19 ,72 0
d
e
2 0 ,0 0 0
oy
pl
m
13 ,3 3 0
E
1 5 ,0 0 0
s
te
ma
In
1 0 ,0 0 0
r of
3 ,8 0 3
mbe
5 ,0 0 0
u
N
0
1 9 5 1
1 9 8 8
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 5
Source: CRS presentation of UNICOR’s Annual Reports (FY1951, FY1988, FY1998,
FY2000, FY2002, and FY2004).
17 Ibid.
18 Title XXIX, §2905 of the Crime Control Act of 1990 (P.L. 101-647) required that all
offenders in federal prisons must work (the act permitted limitations to this rule on security
and health-related grounds).
19 According to BOP Congressional Affairs office, the number of eligible inmates (as
opposed to total inmate population as discussed above) employed in FPI has decreased in
recent years (FY2001 - 22,650 [25%]; FY2002 - 21,778 [22%]; FY2003 - 20,274 [19%];
FY2004 - 19,337 [18%]; and FY2005 - 19,720 [17%]).

---

CRS-5
The increase in federal inmates working at a UNICOR industry can be attributed
in part to the increase in the federal inmate population, which has led to FPI
expanding its industries. As Figure 2 depicts, the federal inmate population has
increased over 100% since 1980, ranging from 24,000 in 1980 to 163,000 in 2002.20
Figure 2. Federal Prison Population for Selected Years
200,000
180,000
s 160,000
te
a 140,000
m 120,000
f In 100,000
o
80,000
er
b
60,000
m
u
40,000
N
20,000
0
1980
1985
1990
1995
2000
2002
2004
Year
Source: CRS presentation of DOJ’s Bureau of Justice Statistics Bulletin, Prisoners in
2004; Census of State and Federal Correctional Facilities, 1995. The figure includes the
total population for all BOP facilities.
Characteristics of Federal Inmates
As Congress began to define and expand crimes eligible for federal penalties in
the late 19th century, such perpetrators were being prosecuted at an increasing rate,
which contributed to the overcrowding in state and local correctional facilities. As
a result, Congress authorized the establishment of the first federal prisons in 1891.
Federal inmates in the 19th and the first part of the 20th centuries tended to be
nonviolent offenders who committed property or public order-related offenses. Such
offenders stand in contrast to federal offenders in the latter part of the 20th century
and currently whose crimes are increasingly more violent and/or are often
incarcerated for drug-related offenses. For example, in 1980, 34% of the federal
prison population consisted of violent offenders and 25% consisted of offenders who
committed drug-related crimes.21 While the number of federal inmates incarcerated
for violent offenses has consistently declined since 1980, the number of federal
20 U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics,
Bulletin, Prisoners in 2002, 1994; and Census of State and Federal Correctional Facilities,
2000, 1995.
21 See Bureau of Justice Statistics, Bulletin, Prisoners in 1994, and U.S. Department of
Justice, Federal Bureau of Prisons, Sourcebook of Criminal Justice Statistics 2002, p. 516.

---

CRS-6
inmates incarcerated for a drug-related offense has consistently risen since 1980 (see
Figure 3). Correctional authorities had to accommodate to a more frequent history
of violence in the inmate population under their jurisdiction.
Figure 3. Percentage of Federal Inmates
By Drug-Related and Violent Offenses
es 80%
mat
n 60%
60%
f I
52%
55%
o
e 40%
g
34%
34%
29%
ta
25%
20%
17%
15%
11%
rcen
e
P
0%
1980 1985 1990 1997 2004*
Source: CRS presentation of DOJ's Bureau of Justice Statistics Bulletin,
Prisoners in 2002.
*FY2004 data of April 28, 2004
Percentage of inmates incarcerated for violent offenses in federal prisons during FY1980, FY1985, FY1990,
FY1997 and FY2004.
Percentage of offenders incarcerated for drug-related offenses in federal prisons during FY1980, FY1985,
FY1990, FY1997 and FY2004.
Effects of FPI on Recidivism Rates
The majority of incarcerated individuals will be released back into society.
According to testimony at a recent Senate hearing, “during the three-year period from
2000 to 2002, the Bureau [Federal Bureau of Prisons] released back to local
communities an average of approximately 40,000 inmates per year....”22 Many
scholars assess the effects of prison on an inmate’s ability to successfully reintegrate
into society. The recidivism rate23 is widely used to measure such effects.
Alhough there have been many studies on the recidivism rate and societal
factors that may contribute to it, there have not been many studies on the impact of
inmates who participate in prison industries work on recidivism. Several studies
22 Testimony of Harley G. Lappin, in U.S. Congress, Senate Committee on Governmental
Affairs, Subcommittee on Financial Management, the Budget, and International Security,
Making Federal Prison Industries Subject to Competitive Bidding, hearing on S. 346, 108th
Cong., 2nd sess., Apr. 7, 2004 (Washington: GPO, 2004).
23 Recidivism is the conviction (due to a new crime being committed) of a person who had
been previously convicted.

---

CRS-7
conducted at the state level found that, on average, 47% of inmates recidivate within
one year of being released from prison.24 Some of the studies also found that the rate
of inmates who recidivate goes up each subsequent year.25 While these studies did
not control for inmates who held a prison industry job, other studies did control for
such a variable and found that inmates who did participate in a prison industry job
were less likely to recidivate than non-participating counterparts, as discussed below.
Those proponents of FPI who contend that prison industries improve public
safety by reducing crime cite studies that have examined the recidivism rate for
inmates who worked in prison industry jobs prior to their release. According to some
scholars, on average, inmates who participate in FPI are 24% less likely to return to
criminal behavior than those who do not, and 14% more likely to be employed
following their release from prison than their nonparticipating peers.26
Opponents contend, however, that prison industries do not have an effect on
whether inmates recidivate. According to some critics, other factors such as the
inmate’s readiness to return to society; the community’s acceptance of the inmate;
the inmate’s participation in rehabilitation programs; the inmate’s educational level;
the inmate’s work experience; and job availability are all critical in determining if an
inmate will successfully reintegrate into society.27
Costs and Benefits of FPI
It is heavily debated whether correctional industries programs (both FPI and
state and local correctional industries programs) are beneficial or costly to society.
For example, proponents contend that it is more costly to run a prison where the
inmates are idle, which could lead to disruptive behavior. They assert that prison
24 Arizona Department of Corrections, ACI’s Impact on Recidivism, see
[http://www.adc.state.az.us/FACTSHEETS/Fact%20Sheet%2003-01.htm]; Criminal Justice
Policy Council Report to Senate Criminal Justice Interim Committee, Recidivism Rates and
Issues Related to TDCJ Substance Abuse Treatment Programs, Mar. 13, 2003; the
Metropolitan Crime Commission, The Project Return Program, Measuring Recidivism in
the Reintegration Program for Ex-Offenders, May 2000; and the Massachusetts Sentencing
Commission, Comprehensive Recidivism Study, June 1, 2002.
25 Ibid.
26 William G. Saylor and Gerald G. Gaes, PREP: Training Inmates Through Industrial Work
Participation, and Vocational and Apprenticeship Instruction, U.S. Federal Bureau of
Prisons, Sept. 24, 1996; Maguire, Kathleen E., Flanagan, Timothy J. and Terrence P.
Thornberry, “Prison Labor and Recidivism,” Journal of Quantitative Criminology, vol. 4,
no. 1 (1998), p. 3; Ohio Department of Rehabilitation and Correction, Office of
Management Information Systems Bureau of Planning and Evaluation, Evaluation of the
Impact of Participation in Ohio Penal Industries on Recidivism, Nov. 1995; and the State
of New York, Department of Correctional Services, Follow-up Study of Industry Training
Program Participants 1993.
27 Maguire, Kathleen E., Flanagan, Timothy J. and Terrence P. Thornberry, “Prison Labor
and Recidivism,” Journal of Quantitative Criminology, vol. 4, no. 1 (1998), p. 3; the
Metropolitan Crime Commission, The Project Return Program: Measuring Recidivism in
the Reintegration Program for Ex-Offenders, May 2000.

---

CRS-8
industries can lower expenditures on day-to-day prison operations and decrease the
likelihood of having to expend resources to thwart disturbances.
With respect to societal benefits, proponents argue that prison labor leads to
increased production of goods and services, which provides an increase in the overall
national economic output. Additionally, some assert that prison industries must
purchase raw materials and equipment from businesses, thus creating and
maintaining jobs in communities (see discussion below).
Opponents, on the other hand, contend that FPI levies extensive costs on society
by taking jobs away from law abiding citizens. They argue that industries such as
furniture and textile continue to lose jobs, which could be attributed, in part, to lost
contracts to FPI.
Opponents also assert that FPI does not reduce the cost to taxpayers of housing
prisoners. It costs, on average, $40 billion annually, to incarcerate prisoners at the
local, state and federal levels; and, at least at the federal level, none of the wages
earned by inmates or FPI’s profits goes towards the actual cost of incarcerating
inmates.28
Recent Administration Efforts to Reform FPI
In recent years, UNICOR has made several efforts to lessen the impact of its
industries on small businesses by leveling the playing field with respect to its
mandatory preference over the private sector. Efforts have also been taken to reduce
FPI’s reliance on its mandatory source preference.29
For example, in May 2003 UNICOR’s Board of Directors adopted a resolution
that raises the threshold for mandatory use of FPI from $25 to $2,500. By raising the
threshold, FPI’s Board of Directors in essence eliminated FPI’s mandatory source
clause for purchases up to $2,500 and is now allowing federal agencies to go directly
to the private sector for any purchase under $2,500. On a related matter, FPI’s Board
of Directors adopted a resolution that now requires that FPI approve requests for
waivers in all cases where the private sector provides a lower cost. Prior to the
board’s decision regarding waivers, FPI, on average, granted 87% of waivers that
were requested.30 Its Board of Directors also directed FPI to waive its mandatory
source status for products where the FPI’s share of the federal market is in excess of
28 With respect to earnings made by federal inmates who work in FPI, opponents contend
that the amount of money they earn is low (anywhere between $.23 and $1.15 per hour) and
that under current UNICOR policy 50% of inmates’ wages must go towards court ordered
obligations.
29 A previous effort to eliminate FPI’s mandatory source clause came during the Clinton
Administration in 1993 when Vice President Al Gore recommended that the mandatory
source provision be eliminated and that UNICOR be exempt from the FAR in order to better
compete with the private sector in terms of delivery schedules and costs.
30 CRS analysis of FPI waiver data from FY1994 to the first six months in FY2004.

---

CRS-9
20%. Finally, the Board of Directors requires prison-made products sold by FPI to
have at least 20% of its value contributed by inmate labor.31
In addition to FPI’s Board of Director’s decisions, federal agencies began to
evaluate FPI’s contract performance. According to testimony at a recent Senate
hearing on FPI, “while this [the evaluation of FPI’s contract performance] did not
change FPI’s mandatory preference status, it was an important first step in helping
FPI better monitor and improve its own performance ... [which would assist] FPI as
they move toward being more competitive in the federal marketplace.”32
Legislative History
While UNICOR was originally authorized in 1934 through P.L. 73-461 and
Executive Order 6917, the current statutory authority for UNICOR was first codified
in the 1948 revision of the “Crimes and Criminal procedure” statutes.33 The only
amendments to the statute were relatively recent provisions added in 1988, 1990,
1992, and 2002.34
The question of whether UNICOR is unfairly competing with private
businesses, particularly small businesses, in the federal market has been and
continues to be an issue of debate. In 1989, Congress considered a proposal that
would have provided the private sector with greater opportunity to compete for DOD
contracts. In 2002, Congress passed legislation that modified FPI’s mandatory source
clause with respect to the DOD,35 see discussion below.
The absence of legislative activity on this issue for over a half century (from
1934 to 1988) is notable. The following developments in recent decades have
increased congressional interest in FPI:
31 Some critics contend that FPI is purchasing products that have already been assembled,
which requires very little labor on the part of inmates.
32 Testimony of Jack R. Williams, Jr., in U.S. Congress, Senate Committee on Governmental
Affairs, Subcommittee on Financial Management, the Budget, and International Security,
Making Federal Prison Industries Subject to Competitive Bidding, hearing on S. 346, 108th
Cong., 2nd sess., Apr. 7, 2004 (Washington: GPO, 2004).
33 P.L. 80-772, codified at 18 USC §4121 et seq.
34 The 1988 Anti-Drug Abuse Act (P.L. 100-690) authorized UNICOR to borrow from and
invest in the U.S. Treasury and added the “reasonable share” language regarding market
capture. The 1990 Crime Control Act (P.L. 101-647) required federal agencies to report
information on the purchase of UNICOR products and services. The Small Business
Research and Development Enhancement Act of 1992 (P.L. 102-564) modified the reporting
requirements so that federal agencies provide separate reports of UNICOR purchases to the
Federal Procurement Data System.
35 See 10 USC §2410n.

---

CRS-10
! the erosion of the nation’s manufacturing sector, which has resulted
in lower levels of employment in that sector;
! the increase in the federal inmate population at the same time the
federal government was downsizing, resulting in a reduction of
UNICOR’s federal market; and
! the need to develop more aggressive inmate management techniques
in federal prisons as the profile of the federal offender population
changed from non-violent offenders to those convicted of violent
crimes.
Only those laws that made substantial changes to the operation of FPI will be
discussed below.
The Anti-Drug Abuse Act of 1988. The Anti-Drug Abuse Act of 1988
(P.L. 100-690) required that UNICOR meet specific requirements to ease the impact
of its activities upon the private sector. Before approving the expansion of an
existing product or the creation of a new product, the act required UNICOR to
! prepare a written analysis of the likely impact of UNICOR’s
expansion on industry and free labor;
! announce in an appropriate publication the plans for expansion and
invite comments on the plan;
! advise affected trade associations;
! provide the UNICOR board of directors with the plans for expansion
prior to the board making a decision on the expansion;
! provide opportunity to affected trade associations or relevant
business representatives to comment to the Board of Director on the
proposal; and
! publish final decisions made by the Board of Directors.
The National Defense Authorization Act for FY2002. The National
Defense Authorization Act for FY2002 (P.L. 107-107) requires the Secretary of
Defense to use competitive procedures for the procurement of the product if it is
determined that the product is not comparable in price, quality and time of delivery
to products available from the private sector. In doing so, the act requires the
Secretary of Defense to conduct research and market analysis with respect to the
price, quality and time of delivery of FPI products prior to purchasing the product
from FPI to determine whether the products are comparable to products from the
private sector.
The Bob Stump National Defense Authorization Act for FY2003.
Similar to P.L. 107-107, the Bob Stump National Defense Authorization Act for
Fiscal Year 2003 (P.L. 107-314) also requires the Secretary of Defense to use
competitive procedures for the procurement of the product if it is determined that the
product is not comparable in price, quality and time of delivery to products available
from the private sector. With respect to the market research determination, the act
makes such determinations final and not subject to review. The act requires that FPI
perform its contractual obligations to the same extent as any other contractor for the

---

CRS-11
DOD. It prohibits a DOD contractor or potential contractor from using FPI as a
subcontractor and it also prohibits the Secretary of Defense from entering into a
contract with FPI under which an inmate worker would have access to sensitive
information.
The Consolidated Appropriations Act of 2004. The Consolidated
Appropriations Act of 2004 (P.L. 108-199) eliminates FPI’s mandatory source clause
during FY2004 by prohibiting funds appropriated by Congress for FY2004 to be used
by any federal executive agency for the purchase of products or services
manufactured by FPI unless the agency making the purchase determines that the
products or services are being provided at the best value, which are in line with
government-wide procurement regulations.
Intelligence Authorization Act for FY2004. The Intelligence
Authorization Act for FY2004 (P.L. 108-177) requires the Director of the Central
Intelligence Agency to only make purchases from FPI if he determines that the
product or service best meets the agency’s needs.
Legislation in the 109th Congress
Two bills have been introduced in the 109th Congress (the Federal Prison
Industries Competition in Contracting Act of 2005, H.R. 2965; and S. 749) that
would, in essence, permanently eliminate FPI’s mandatory source clause. A
discussion of the major similarities and differences between the bills follows.
Elimination of the Mandatory Source Clause
H.R. 2965 and S. 749 would require competitive procedures in the procurement
of products authorized for sale by FPI, unless otherwise determined by the Attorney
General, as discussed below. Both bills would require executive agencies to solicit
an offer from FPI when making a purchase that is authorized for sale by FPI in excess
of $2,500. In making purchase considerations, both bills would require executive
agencies to notify FPI of the procurement at the same time and in the same manner
as other potential offerors. Both bills would also require executive agencies to
consider a timely offer from FPI in the same manner as other potential offerors
without limitation to the amount of the proposed purchase, unless the contract
opportunity has been reserved for competition exclusively among small businesses
pursuant to the Small Business Act. Both bills would require FPI to perform its
contractual obligations to the same extent as any other contractor for the executive
agency.
H.R. 2965 would permit a contract award made to FPI using noncompetitive
procedures by the BOP. The bill would permit such awards if the product or service
would otherwise be done by a contractor performing the work outside of the United
States. S. 749 does not have a similar provision.
H.R. 2965 would permit the chief executive officer of FPI to appeal a
contracting decision to the head of the executive agency wherein FPI was denied a

---

CRS-12
contract; such appellate decisions would be final. S. 749 does not have a similar
provision.
Both bills contain language that would prohibit executive agencies from making
purchases from FPI unless it is determined that the product or service is comparable
to products and services from private businesses with respect to price, quality and
time of delivery.
Exceptions to the Elimination of the
Mandatory Source Clause
Both bills would permit the Attorney General to make an exception to the open
competitive process under certain circumstances, including when
! FPI cannot reasonably expect fair consideration with respect to
procuring a contract on a competiveness basis; and
! the contract is necessary to maintain work opportunities otherwise
unavailable at the penal facility to prevent unrest.
S. 749 would also permit an exception to the open competitive process if the product
or service is only available from FPI or the executive agency determines that the
product would otherwise be produced by prison labor outside the United States.
Both bills would require that competitive process exception determinations
made by executive agencies be
! supported by specific findings by FPI regarding why it does not
expect to win the contract on a competitive basis;
! supported by specific findings by the warden of the correctional
facility that the contract is necessary to maintain work opportunities
otherwise unavailable at the penal facility to prevent unrest; and
! made and reported in the same manner as a determination made
pursuant to 41 U.S.C. 253(c)(7).36
Both bills would require the Attorney General to make a determination with respect
to the aforementioned within 30 days after FPI has been informed of the contracting
opportunity.
Transitional Period
H.R. 2965 would provide a five-year transitional period that would require
federal agencies to first solicit FPI for the procurement of products or services that
are authorized for sale by FPI. During the transition period, the bill would require
the noncompetitive award of a contract to FPI if it is determined
36 41 U.S.C. 253(c)(7) permits heads of executive agencies to use noncompetitve procedures
in the procurement of goods and services if it is determined that “... it is in the public
interest to use procedures other than competitive procedures in the particular procurement
concerned....”

---

CRS-13
! that the product offered by FPI will meet the procurement activity;
! that it can reasonably be expected that FPI will achieve timely
performance; and
! the negotiated price does not exceed a fair and reasonable price.
H.R. 2965 would require FPI and the federal agency making the purchase to negotiate
the terms and conditions of the contract. The bill would prohibit the price negotiated
to exceed a “fair and reasonable price” pursuant to FAR.
During the five-year transitional period, H.R. 2965 would prohibit FPI’s
mandatory source sales from exceeding a certain percentage of FPI’s total sales
during the base year. For example, in FY2007, FPI cannot use its mandatory source
status in more than 90% of sales made during the base year; in not more than 85%
in FY2008; in not more than 70% in FY2009; in not more than 55% in FY2010; and
in not more than 40% in FY2011. The bill would also require the Attorney General
to report to Congress on the effects of this limitation. The bill would set an October
1, 2011 termination date for FPI’s mandatory source status. S. 749 does not contain
a transitional period provision.
With respect to products FPI produces, H.R. 2965 would require a market
research be conducted by the executive agency to determine whether the FPI products
are comparable to products available from the private sector that best meet the needs
of the executive agency with respect to price, quality and time of delivery. The bill
sets forth procedures the agency must follow if it is determined that FPI products are
not comparable to products available from the private sector. S. 749 does not contain
a similar provision.
FPI as a Subcontractor
Both bills would permit federal contractors to voluntarily enter into subcontracts
with FPI but would prohibit the sale of FPI’s products and services directly in the
commercial market. Additionally, both bills contain language that make explicit that
contractors would not be compelled to use FPI as a subcontractor or a supplier.
Other Provisions
S. 749 would prohibit executive agencies from entering into contracts with FPI
wherein inmates would be exposed to classified and sensitive information. H.R.
2965 does not have a similar provision.
Both bills have a provision that would require the Attorney General to provide
rehabilitative, vocational and educational opportunities for federal inmates.
H.R. 2965 has a provision that would make explicit the statutory prohibition on
the sale of services performed in FPI and other correctional facilities (i.e., state and
local correctional facilities) to industries engaged in interstate or foreign commerce.
The bill, however, would exempt state and local correctional facilities that participate

---

CRS-14
in the PIE Program from the provision.37 S. 749 has a similar provision, however,
it would permit the sell in interstate commerce services related to the resale of
disassembled products and scraps to achieve landfill avoidance. Unlike H.R. 2965,
S. 749 would permit for the completion of existing agreements made on or before
October 1, 2005, under certain circumstances.
H.R. 2965 would require public participation in the Board of Directors’
decision-making process in determining whether FPI should add a new product or
service line, or expand an existing product or service line. Moreover, the bill would
also require a market analysis to determine whether the private sector would be
adversely impacted with respect to FPI adding a new product or service line, or
expanding an existing product or service line. H.R. 2965 would also set forth
limitations with respect to FPI’s Board of Directors’ power to authorize a new
product or service line, or expand an existing product or service line. H.R. 2965
would restructure FPI’s Board of Directors from a six-member board to an 11-
member board. S. 749 does not have similar provisions.
H.R. 2965 would require a minimum hourly rate of $2.50 for inmates who are
employed in a FPI and whose term of imprisonment will expire in two years or less.
The bill sets forth criteria the Board of Directors must meet with respect to inmate
wages. S. 749 does not have similar provisions.
H.R. 2965 would create educational and vocational assessment and training
programs within federal prisons to help prevent inmate idleness and prepare inmates
for reentry into society. The bill would require the programs to be created in at least
25% of federal prisons no later than two years after the act is enacted; in at least 50%
of federal prisons no later than four years after the act is enacted; in 75% of federal
prisons of federal prisons no later than six years after the act is enacted; and in all
federal prisons no later than eight years after enactment of the act. In addition to the
educational and vocational assessment and training programs, the act would permit
inmates employed in a FPI to secure work assignments with an eligible entity. S. 749
would create new inmate job opportunities through selling or donating FPI products
to charities and permitting FPI to expand or produce new products that are
manufactured outside of the United States.
Issues for Congress
Over the past decade, congressional awareness of FPI and its unique status has
increased. FPI has maintained that its objective “is to prepare as many inmates as
practical for a successful transition into mainstream society ... without jeopardizing
the job security of the American taxpayer.”38 Critics contend, however, that FPI’s
mandatory source clause has chipped away at the growth of small businesses. While
many view FPI as being necessary in the management and rehabilitation of federal
37 PIE is a federally sponsored grant program that provides funding to states once they have
been certified for work industries in state and local correctional facilities. See fn 2, supra.
38 UNICOR’s 2002 Annual Report, p. 5 at [http://www.unicor.gov].

---

CRS-15
inmates, and its mandatory source clause as paramount to keeping FPI operating,
others view it as having monopoly-like powers that usurp and supplant the bidding
process for federal contracts.
Of equal significance is the contention that the FPI operation is based on a
manufacturing, mass-production, low-skilled labor economy of the 1930s, which is
not efficacious training in today’s market. Inmates employed in FPI are working in
“a labor-intensive manner” where the emphasis is on employing as many inmates as
possible with each inmate producing little output.39 While proponents maintain that
inmates learn critical skills such as good workplace habits, accountability and the
importance of being dependable, some critics contend that some of the industries FPI
inmates work in are shrinking and the chances of them obtaining employment in that
industry once they are released from prison are low.
FPI’s Mandatory Source Clause40
The debate on UNICOR’s impact on the free market has been affected by
tensions between competing interests that represent two social goods — the
employment and rehabilitation of offenders and the need to protect jobs of law
abiding citizens. At the center of the debate is FPI’s mandatory source status, which
many argue has deprived small businesses from competing effectively for
government contracts.
Opponents of FPI’s mandatory source clause assert that it prohibits full and
open competition, preventing federal agencies from purchasing products in a free
enterprise market. They argue that FPI’s mandatory source clause has contributed
to U.S. workers being displaced from their jobs.
Opponents also argue that FPI’s mandatory source clause allows the industry to
set prices for its goods and services (FPI’s mandatory source clause only requires FPI
to deliver products at market price),41 which are often higher than the prices set by
private companies for comparable products and services. They also contend that the
mandatory source clause does not require FPI to compete using the same quality and
delivery standards as private businesses.
Opponents of FPI’s mandatory source clause also argue that, by law, FPI
regulates itself and is not subject to federal laws (and in some cases state laws) that
restrict businesses’ operations with respect to occupational, safety, health and
employment discrimination. On a related issue, opponents contend that through the
39 Statement of BOP Director Kathleen Hawk Sawyer, in U.S. Congress, House Committee
on the Judiciary, Federal Prison Industries, hearings, 106th Cong., 2nd sess., Oct. 5, 2000.
40 FPI mandatory source clause only applies to products it manufactures. In 1999, FPI
announced plans to start selling services and while FPI is not a mandatory source for
services as it is for products, it is a preferential source and federal agencies may purchase
services from FPI without going through a competitive procurement process.
41 FPI’s authorizing statute and FAR require that the price FPI charges cannot exceed the
“current market price.” Critics contend, however, that the statute and FAR do not define
“current market price.”

---

CRS-16
mandatory source clause, FPI has expanded its authority with respect to its product
and service lines without congressional approval.
Proponents for FPI argue that the federal prison population has grown
significantly (see Figure 2), and that FPI is a necessary component in federal
correctional facilities that prevents inmate idleness and contributes to the
management of inmates. They also contend that FPI provides inmates with job skills,
job readiness, responsibility and accountability, which are critical for a successful
reintegration into society. Proponents contend that by eliminating FPI’s mandatory
source clause, inmate idleness would set in, which would undermine the safety and
security of federal prisons.
Proponents also contend that an unintended benefit of FPI is that it keeps work
in the United States that would otherwise go overseas. They argue that in today’s
climate of outsourcing low-skill, low-wage jobs, FPI’s mandatory source clause has
become increasingly more important to keeping jobs in the United States.
Proponents credit FPI with creating jobs for private companies. They argue that on
average, 74% of FPI’s revenues are poured back into the economy through the private
sector with the purchasing of raw material and equipment from the private sector.42
Moreover, they contend that UNICOR’s sales represent less than 2% of federal
government purchases.
Proponents cite a study that was mandated by Congress as further support that
FPI’s impact on the private sector is negligible. Deloitte and Touche, an independent
accounting firm, was commissioned by Congress in 1990 to conduct a market
analysis of UNICOR. The study found that UNICOR’s sales amounted to only two
percent of the federal market for the types of products and services it provided.
While the study found that UNICOR’s operations were concentrated in labor-
intensive industries, it also found that UNICOR’s employees (federal inmates)
accounted for only one-quarter of the output of workers in the private sector. The
study’s finding also found that UNICOR’s mandatory source advantage was offset
by its competitive disadvantages.43
42 According to FPI data, in FY2003 FPI spent 75% of its revenue in purchasing raw
material and equipment from the private sector; in FY2002 the percentage was 74%; in
FY2001, 73%; in FY2000, 72%; and in FY1999, 75%. April 29, 2004 telephone
conversation with the DOJ’s BOP Congressional Affairs Office.
43 Deloitte and Touche, Independent Market Study of UNICOR, Federal Prison Industries,
Inc., Executive Summary, Aug. 7, 1991.

---

CRS-17
Customer Satisfaction
Opponents maintain that studies conducted by the General Accounting Office
(GAO) prove that FPI’s customers are not satisfied with the corporation’s business.
For example, a 1988 GAO study that examined customer satisfaction with respect to
FPI’s delivery performance found that “... customer agency officials showed wide
variation in FPI delivery performance, customer agency officials ... had mixed views
on FPI’s delivery performance....”44

Another study conducted in 1985 by GAO concluded that “overall, UNICOR
customers appeared satisfied with its prices,” quality of the products and services,
and waivers granted by UNICOR. While GAO found UNICOR’s customers
generally satisfied with the corporation, it also found that UNICOR does not
complete required market checks “... to ensure compliance with the law that its prices
not exceed market prices....”45
Opponents, on the other hand, turn to the study that was commissioned by
Congress in 1990 as evidence of their assertion of UNICOR’s poor customer service
record. As discussed above, Deloitte and Touche conducted a market analysis of
UNICOR and found, among other things, that UNICOR’S customer service and
delivery ratings were below average in some of its product lines in comparison with
the private sector. In one particular industry where FPI’s largest customer is DOD
(the apparel industry), FPI had a contract delinquency rate of 21% in the first six
months of 2000; and between 1992 to 1999, FPI had an average delinquency rate of
31%.46 However, Deloitte and Touche did not report comparable data for private
sector contractors.
crsphpgw
Questions Facing Congress
As the debate continues with respect to the proper role of FPI in training and
rehabilitating federal offenders and its role in providing products and services to
federal agencies, Congress is faced with several questions.
! In general, should the mandatory source requirement be maintained,
stricken, or softened?
44 U.S. General Accounting Office, Federal Prison Industries: Delivery Performance Is
Improving But Problems Remain, GAO/GGD-98-118, June 1998.
45 U.S. General Accounting Office, UNICOR Products: Federal Prison Industries Can
Further Ensure Customer Satisfaction, GAO/GGD86-6, Nov. 1, 1985.
46 Statement of George H. Allen, Deputy Commander, Defense Supply Center Philadelphia,
Defense Logistics Agency, in U.S. Congress, House Committee on Education and the
Workforce, Federal Prison Industries: Proposed Military Clothing Production Expansion
— Assessing Existing Protections for Workers, Business, and FPI’s Federal Agency
Customers, hearings, 106th Cong., 2nd sess., Oct. 5, 2000.

---

CRS-18
! How can UNICOR expand product and service lines to keep an
increasing number of inmates productive without adversely affecting
the private sector?
! How can UNICOR expand its product line, which is primarily in old
economy sectors that have seen employment declines, into new
economy sectors without impacting private businesses?
! Do the benefits of rehabilitating offenders and providing them with
useful skills balance with the economic hardship imposed on law
abiding workers who may lose job opportunities because the
employer cannot compete for federal contracts?
Conclusion

Since UNICOR’s establishment in 1934, business and labor interests have
consistently argued that UNICOR undercuts the free enterprise system. Due to the
mandatory source requirement, corporations that wish to do business with the federal
government are restricted in the areas in which they can submit bids. Opponents
contend that citizens who have not committed crimes may lose their jobs due to their
employers not being able to secure federal contracts. Furthermore, FPI opponents
contend that some of the industries in federal prisons such as the domestic apparel
industry are shrinking, thus leaving very little demand for inmates once they are
released from prison. These critics argue that inmates should be trained in a growing
industry that can afford to lose volume and is able to employ inmates upon their
release from prison.
Proponents contend that FPI has taken significant precautions to avoid harm to
the private sector. They argue that the majority of the sales generated from FPI go
towards the purchase of raw materials from small businesses, which generates
business for those companies. Proponents also maintain that FPI’s enabling
legislation and policy is such that it is limited to one market — the federal
government; and within that market, FPI can never sell more than a certain
percentage of merchandise in any product area.47 As further evidence that FPI does
not harm private businesses, proponents assert that UNICOR’s Board of Directors
is constantly assessing its impact on the private sector. For example, on March 10,
2003, the Board of Directors adopted resolutions that require FPI to develop a plan
to end the application of mandatory sourcing with respect to those products where
FPI’s share of the federal market exceeds 20%.48
47 See UNICOR, Factories with Fences, at [http://www.unicor.gov/history_of_success.htm].
48 See [http://www.unicor.gov/about/bodresmansource.htm].

---