by DCDave

Industry Complaints

One has to wonder how UNICOR could say that it was adhering to the statutory requirement that it not operate so as to place an "undue burden of competition" upon any private industry and that it "diversify its products so that its sales are distributed among its industries as broadly as possible." The moves that it has made recently seem to have taken it in precisely the opposite direction. As we noted when summarizing the governing law, there is a hearing and review process which is supposed to prevent this sort of thing from happening, but one of the allegations of the representatives of one of the most affected furniture sub-categories, the Quarters Furniture Manufacturing Association, is that FPI illegally ignored the review process. This is from their Congressional testimony:

Let me say at the outset that we have no objection to putting prisoners to work or having prison labor compete with us, despite the immense cost advantage FPI possesses. But we have been hurt because FPI has exploited its mandatory preference and has repeatedly violated a statute that requires only that FPI obtain its own board's approval of any significant FPI expansion. I speak, unfortunately, from personal experience.

QFMA's members, whose very existence is threatened, retained legal counsel when FPI announced its intention to expand its share of the dorm and quarters market from 25% to 35%. Counsel discovered that FPI had increased its sales of D & Q furniture by 138% from 1991 to 1993 illegally--FPI had never studied the impact of its proposed expansions on private industry nor sought board approval as Title 18USC4122 and its own regulations clearly require. 22

As serious as these charges are, charges which have resulted in ongoing litigation, they are not clearly the most serious ones made against UNICOR at the hearing, or even by this particular company president. We continue:

We have been hurt by FPI in other ways as well. For example, it has been FPI's practice to delay granting waivers until the fourth quarter of the year. You can imagine the extreme hardship that creates for a small company like Omni which is committed to keeping our employees working all year. FPI has also used inappropriate strong arm tactics on our military base customers, demanding that they hand over Omni's scale drawings and detailed plans to FPI simply because FPI is the mandatory source. The worst blow for Omni came when FPI actually copied our line and took the $2.5 million that we had anticipated receiving.(emphasis in the original) 23

At this point the reader may be beginning to recognize the fundamental problem our lawmakers created back in 1934 when they listened to the reformist rhetoric of James V. Bennett and granted a legal monopoly to an organization which is owned by the U.S. Department of Justice. They could have learned a thing or two from the Founding Fathers about the dangers inherent in too much concentration of power. The foregoing testimony came from a company in Alabama; the following excerpts are from the representative of a company in Chicago:

ADM is a small business selling interior furnishings to hotels, nursing homes, colleges, the federal government and other commercial establishments. However, I am here today, speaking on behalf of the many citizens who have felt intimidated, bullied, and even threatened by the actions of the Federal Prison Industries. Over the last 15 years, I have watched the FPI ignore and abuse principles that have helped make our country great. If I sound like a patriot--I am--I personally have nothing to gain except the satisfaction of seeing a government sponsored bully being made to follow the laws and rules which the rest of us must adhere to.(emphasis in the original)

The Federal Prison Industries is under the control of the Department of Justice. The definition of justice is the quality of being fair. Fairness and justice is all that I ask.

Is this Justice?

1) Is it justice that federal acquisition regulations have a clause which allows Federal Prison Industries to refuse a potential buyer from considering a purchase from another source even though it quite likely will be of a better quality and less expensive and therefore save the taxpayers some of their hard earned dollars?

2) Is it justice that Federal Prison Representatives would intimidate and even threaten government employees to purchase their products?

3) Is it justice that Federal Prison industries would step on and take business away from a disabled Vietnam veteran who was twice wounded fighting for our country and give that work to criminals who have trampled on honest citizens' rights, therefore effectively destroying and bankrupting that hero's business which the Veterans' Administration suggested he enter. Incidentally, his product was far superior and more environmentally protective than the products being forced into government facilities by Federal Prison Industries.

4) Is it justice that a small business person would spend months or even years assisting a government facility in planning and determining their furnishing needs (these projects include design work, color renderings, and sometimes complete sample rooms--all at a cost of many hours of work and thousands of dollars), and then after all of the work is done, Federal Prison Industries muscles in and steals the job without so much as offering one iota of service or assistance to the customers? Does this sound like a business transaction or a mugging?

5) Is it justice that Federal Prison Industries pays for the cost of bringing government employees to their factories in an effort to influence their buying decisions? In addition, they also pay the expenses of some government employees to attend trade shows in entertainment centers such as San Francisco, Chicago, and other cities. These government employees include military designers, contracting officers, and other decision makers. A private citizen or company doing the very same thing would be prosecuted, fined and possibly sent to prison for violating our federal laws. And guess by who--of course, our Department of Justice.

6) Is it justice that a law-abiding, taxpaying citizen, who may support a wife and several children should be mugged by his government in the guise of Federal Prison Industries? By unilateral decree and without any consideration, FPI takes his job and gives it to a convict. This convict may be in prison because he stole from the government--or you name the crime.

7) Is it justice that Federal Prison Industries grab a multi-million dollar furniture job in the very design stage and refuse to consider waivers for any type of competition; this, in spite of the fact that none of the end users want any part of Federal Prison Industries or their representatives.

8) Is it justice that Federal Prison Industries, who promotes that it manufactures products, in many cases buys manufactured products and resells them to the government, and in at least some instances, these products are purchased from other countries. In some other cases, FPI buys totally manufactured products which are disassembled and only have to be reassembled. 24

Still on the subject of the largest and fastest growing segment of UNICOR's business, furniture, we have testimony from the American Society of Interior Designers (ASID):

It is hard to understand the reverse lack of fairness in competition for the furniture sold to the Federal government. The mandatory source status waiver process for UNICOR is a paperwork nightmare designed to detour all but the bravest of federal workers. The waiver must be completed by one with great expertise on furniture specifications, much defense, and a lot of backbone to go up against FPI. UNICOR is actually the judge and jury in determining who gets a waiver or not, and even in the most successful situations, the process usually ends up being a negotiation on what will be waived and what will not.

For example, "You are allowed to buy the work stations from another manufacturer, but you must buy the chairs and conference tables from FPI" is a typical verdict. Then the reality is that the work stations are installed on time, but the employees are without chairs for months, creating inconvenience and inefficiency resulting in reduced productivity for the agency. These situations have provided an education to some of the employee union groups, who have become very vocal against the purchasing of UNICOR products.

I have come up against FPI's furnishings in almost all of the government agencies. When an agency is forced to use UNICOR, the design process comes to a halt. Typically it takes FPI 12-18 months to fill their orders. 25

Independent verification of claims of persistent lateness in filling orders is made difficult to come by by the lack of any regular survey of UNICOR customer satisfaction, though we understand that the General Accounting Office is currently embarked upon one. It is certainly behavior that is consistent with having a captive customer base. No seller who must compete for repeat business could get by with such customer-unfriendly actions for very long.

Although no current comprehensive UNICOR customer survey is available, Deloitte & Touche in 1990 found 73% of customers dissatisfied with the speed of delivery back in 1990, and we are fortunate to have, once again, precisely such a survey done on California's UNICOR clone by the California State Auditor in 1996.26 Customers were surveyed both as to their satisfaction and the importance to them of the particular seller-customer relationship in question. Question number eleven, answered on the 74 questionnaires returned (120 were sent out), with distribution of responses given was:

...Delivers products/services on time?

1. (Extremely dissatisfied)35%(Not at all important)1%
2. (Dissatisfied)21%(Not very important)1%
3. (Not quite satisfied)33%(Somewhat important)10%
4. (Satisfied)8%(Quite important)15%
5. (Extremely satisfied)3%(Extremely important)73%

One need not even take into account the fact that of the 120 customers who received questionnaires 34 were from the Department of Corrections itself (the biggest customer with 56.5% of total purchases) to appreciate what a serious indictment this is of California's prison industries. These findings also lend great credence to the charges by ASID with respect to UNICOR.

Another indication of the accuracy of the ASID charges is to be found as an attachment to a letter from Director Schwalb to Small Business Committee Chairwoman, Rep. Jan Meyers. FPI's own survey of customer satisfaction with executive office furniture from one factory (with no methodology supplied) revealed 43% of customers answering "no" to the question, "Was your shipment on time?"27 This latter number is remarkably close to the report of the Defense Personnel Support Center (DPSC) in a letter to Congressman Van Hilleary that "FPI is delinquent on 42% of its delivery schedule."28

Slowness in delivery could prove fatal in the case of certain strategic items. That was one of the main points of concern raised at the Small Business Committee hearing by the representative of the American Apparel Manufacturers' Association. Noting that a recent decision by FPI's Board of Directors will result in their supplying 40 percent of military work clothing and 25 percent of protective clothing by the year 2000, the following observation was made:

We are gravely concerned--and it should be noted that DPSC has stated that UNICOR has not had the flexibility to meet surge demands. That's FPI's customers speaking. DPSC also stated that the private sector is much better in surge production when called upon, but in order to be effective, there has to be actual production occurring in which to expand. Remember, Government Agencies are not given a choice when FPI wants to take a product. If FPI wants it, they get it. 29

Other objections raised to UNICOR's expansion of sales in the apparel industry go right to the heart of the argument for Federal Prison Industries. It is said that it doesn't seriously threaten domestic competitors because its market is confined to the federal government. With foreign competition having taken most of the non-governmental market, for many apparel makers supplying the military is all they have left. They are in the same boat as UNICOR and UNICOR, as they see it, is bullying them out.

David Martin

continued in UNICOR III - The Job Trainer

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