http://www.chicagotribune.com/business/chi-0407180015jul18,1,6752208.story?coll=chi-business-hed

Prison labor is cheap, tough for private companies to beat

By Rob Kaiser
Tribune staff reporter

July 18, 2004

Devastation struck makers of office furniture between 2000 and 2002 as industry sales plunged 28 percent--or $4.1 billion--and domestic furniture companies laid off tens of thousands of workers.

Yet at a firm called Unicor, office-furniture sales jumped nearly 30 percent during the same period because of two distinct advantages:

The company's workforce of prisoners earns between 23 cents and $1.15 per hour. And federal agencies are required to buy from Unicor, which is run by the Federal Bureau of Prisons.

While many furniture, apparel and other companies in industries where Unicor operates howl at the unfairness of having to compete with prison labor, some say they at least want the chance to win some of its exclusive, lucrative federal contracts.

They are particularly upset about losing work to prisoners during the recent economic downturn as more foreign firms creep into their markets

"It's another nail in the coffin," said Burke Quinn, director of national accounts for furniture-maker Bretford Inc. in Franklin Park, which has shed 100 jobs in the past three years. "It's just an unfair situation."

Legislators have taken up the cause, passing a bill in the House of Representatives and bringing one to the Senate that would open up Unicor's lock on government orders.

Competitors and buyers from federal agencies say Unicor often has higher prices and lower quality and service than private firms, and that competition would be good for all parties.

"Our goal is not to put Unicor out of business," said David Nelson, former chairman of furniture-maker Herman Miller Inc., who has lobbied for the legislation.

But officials with the Bureau of Prisons say Unicor needs more work to help rehabilitate prisoners, saying the program has grown in importance along with the soaring prison population.

Since 1990, the number of inmates in federal prisons has more than tripled to 177,000. The population is expected to reach 215,000 by 2010, according to Bureau of Prisons estimates.

Inmates who work are 24 percent less likely to commit crimes and 14 percent more likely to be employed in the 12 years after being released, compared with inmates not in the program, according to prison officials.

This leads not only to less crime, they said, but also results in taxpayer savings by avoiding criminal investigations and at least somewhat limiting the growth of the prison population.

One of the biggest problems for Unicor, also known as Federal Prison Industries Inc., is finding enough jobs for prisoners who want to work.

About 20,000 prisoners currently work in FPI, but at least another 20,000 want to join it.

Just to reach its goal of having 25 percent of eligible inmates in the program, which excludes pre-trial prisoners and those at minimum-security facilities or with chronic medical conditions, FPI would have to add 6,000 to 9,000 jobs in the next five years.

"That's going to be a real challenge," said Steve Schwalb, FPI's chief operating officer. "We need to keep thinking about the fact that more inmates are coming in, more prisons are being built."

Schwalb and private industry competitors disagree about whether the prison system has been responsive to business concerns.

Businesses complain FPI abuses its near-monopoly powers over federal contracts by charging more than market prices and going so far as buying products from private companies, marking them up and reselling them to the government, costing taxpayers money without benefiting prisoners.

"You are basically building in a double [profit] margin," Nelson said.

Buyers for federal agencies also have complained about FPI product delays, quality and prices.

"We've been fighting this for a number of years," said Didier Trinh, executive director of the Federal Managers Association, which represents federal buyers. "We just want FPI to be more competitive."

Schwalb said FPI tries to be responsive to business concerns.

While it is a sizable company with sales last year of $666.8 million and offerings ranging from mattresses to refurbished alternators to operating call centers, Schwalb said FPI is only a minor player in a variety of industries.

He said the prison system will match the prices of comparable products or let agencies buy them from private companies.

Schwalb added that FPI no longer allows pass-through sales of products from private companies.

Before the policy changed in 2002, he said, less than 2 percent of FPI's sales were products made by companies due to special circumstances, such as a prison plant shutting down because of violence.

"It turned out to be more of a hassle than it was worth," Schwalb said.

Moving into service sector

To create jobs, FPI is increasingly moving into service areas such as call centers and data entry, a move that has also rankled business groups.

"We want to make sure what is now a small issue does not become a big issue," said John Palatiello, executive director of the Management Association for Private Photogrammetric Surveyors, which includes mapping and surveying firms.

Palatiello fears FPI could take away both government and private business.

FPI offers services to private companies as well as the government because the original 1930s legislation governing the program said it could only sell "products" to the government, and didn't mention services.

Schwalb said FPI limits its services work to companies that would otherwise send the work abroad.

The legislation in Congress would give federal agencies more control over whether they buy products and services from FPI.

Most people familiar with the legislation don't expect the Senate will approve it this year due to time constraints. Still, as Nelson noted, with groups as different as the U.S. Chamber of Commerce and labor unions supporting the bill, it could quickly pass.

Legislation's impact

A preview of how the legislation may affect FPI has been apparent since the Department of Defense received special permission a couple years ago to buy products outside of FPI.

Schwalb, who declined to comment on the legislation, said FPI's office-furniture sales sank because of the move--from $217.9 million in fiscal year 2002 to $152 million the following year.Business owners like Jim Rodenborn, president of Hawkeye Glove Manufacturing Inc. in Ft. Dodge, Iowa, say lifting the Defense Department's buying restrictions was good for private industry.

Hawkeye won more government contracts after the Defense Department restrictions were eased. As a result, it reopened a Mississippi glove plant that another company had abandoned.

Rodenborn said the prisons should focus on products not made by American companies.

"I just see so many products made in China," he said.

But when asked what prisoners could make without upsetting American competitors, Rodenborn was stumped.

"Let me think about that a second," he said. "You know, nothing pops into my mind right away."

Copyright © 2004, Chicago Tribune