Federal Prison Industries, Inc. Business Information, Profile, and History

Company Perspectives:

It is the mission of the Federal Prison Industries to employ and provide skills training to the greatest practicable number of inmates in federal correctional facilities necessary to ensure the safe and secure operation of such institutions, and in doing so, to produce market priced, quality goods in a self-sustaining manner that minimizes potential impact on private business and labor.

History of Federal Prison Industries, Inc.

Federal Prison Industries, Inc., which is known by the trade name UNICOR, is a federal government-owned corporation that employs federal prisoners to manufacture and provide a variety of products and services, primarily to agencies of the U.S. government. More than 20,000 inmates are employed by UNICOR and work in a network of nearly 100 factories in 64 prisons in 30 states. Among the products made and sold by UNICOR are furniture, including office furniture and furniture for college dormitories; clothing and textiles, such as military uniforms; electronics equipment; and plastic and metal goods, including eyewear and traffic signs. UNICOR also offers services, such as data entry, printing services, and bulk mailing. According to federal law, the U.S. government is required to purchase UNICOR products before turning to the private sector.

Putting Inmates to Work: 1930s-60s

Federal Prison Industries, Inc. (FPI) was formed in 1934 during a period when social reform and economic recovery were priorities in the United States. At the time, federal prisoners were unproductive and inactive, and officials in the Department of Justice were concerned that this idleness was creating an increasingly dangerous federal prison system. To occupy the inmates' time and also to teach them job skills and a work ethic that would prove valuable upon their release, the Department of Justice lobbied for a program that allowed men and women incarcerated in federal prisons to manufacture goods for government use. Because President Franklin D. Roosevelt's New Deal included the creation of a number of new agencies and programs and thus an expansion of the government, the Department of Justice argued that the federal prisoners would be filling a necessary niche.

Congress thus voted for the establishment of FPI, providing it with starting funds of $4 million. This seed money was the first and only appropriation the corporation received from the government, as FPI was set up as a self-supporting entity, functioning as part of the Federal Bureau of Prisons, which operated within the Department of Justice. Under provisions established by Congress, the corporation was guaranteed customers because government agencies were required to order and buy merchandise from FPI if the corporation manufactured the needed items. The corporation then invested any profits generated from the sale of products back into operations.

FPI grew slowly and steadily after its inception. Within its first two years of operation, FPI opened a number of factories, including mattress factories, clothing factories, wooden and metal furniture factories, and broom factories. By World War II FPI had a product line that included more than 70 categories and operated 25 shops and factories. FPI also had increased the number of federal inmates it employed. When FPI first began operating, in 1935, it employed about 2,000 prisoners, or 13 percent of the federal prison population. By 1940, FPI was able to employ about 18 percent of the population, and sales reached almost $5.4 million.

The corporation ramped up production during World War II, and 95 percent of the goods made during these years were for the war effort and included parachutes and weapons. Although FPI continued to employ about 3,500 inmates, production during the war tripled. During the 1950s and 1960s FPI expanded greatly and focused on construction projects. Inmate employees worked on the construction and renovation of buildings at more than half of the 31 federal prisons.

Growth in the 1970s and 1980s

Although little-known FPI continued to function as a self-supporting corporation, it was forced to operate as a relatively unstreamlined and unproductive business because of its mission to employ as many inmates as possible. In addition, the corporation opted for labor-intensive practices, which were less efficient than modern manufacturing processes. Still, FPI maintained growth and worked to modernize operations, and in 1974 regional sales offices were established to better serve its customers. Three years later, in 1977, FPI adopted the trade name UNICOR.

By the mid-1980s the federal prison system had grown to include 47 prisons housing more than 32,000 inmates across the United States, up from a federal prison population of 23,566 in 1975. UNICOR operated 75 factories and employed about 9,000 inmates. Inmates were required to apply for jobs with UNICOR and undergo employment interviews before getting hired. UNICOR focused on four product divisions: textiles and leather goods; data and graphics; electronics; and metals, wood, and plastics. Among the products manufactured by UNICOR were street signs that adorned the streets of the U.S. Capitol Mall, canvas bags for the U.S. Postal Service, executive office furniture for agency leaders, electronic circuit boards for U.S. Air Force guided missiles, and bookcases for the law library in the White House. In 1983 UNICOR reported revenues of $161 million and net income of about $7 million. The following year sales increased 23 percent to reach $210.8 million, and net income grew nearly 163 percent, to $18 million.

With the inmate population increasing rapidly, and with no signs that the trend would reverse, UNICOR adopted a more aggressive growth strategy in the 1980s, including a $50 million expansion program to build and expand UNICOR facilities. George M. Farkas, UNICOR's chief operating officer in 1985, explained the drive behind the expansion program in the Washington Post and said, 'The biggest problem that's facing prisons today is idleness, and idleness breeds management problems, particularly when prisons are overcrowded. One of the best ways we know to reduce idleness is to employ inmates, so that's where prison industries play a significant role.'

In 1983 the corporation contracted with Booz-Allen & Hamilton Inc. to conduct a research study to assess the marketing needs of UNICOR and to help set up a corporate marketing department that would explore untapped markets and seek new products appropriate for UNICOR to manufacture. In particular, the marketing division sought products that were in great demand from agencies and that would be labor intensive to produce. To meet this objective, UNICOR formed the Innovation and Technology Program in 1984. Working with the Department of Energy's Energy-Related Invention Program and the Department of Commerce's Office of Small Business Technology, UNICOR's program was designed to provide inventors with federal funding and the resources to actualize their ideas while providing a means for UNICOR to expand its product lines.

Increasing Competition in the 1990s

In 1990 the population of federal prisons reached 47,331, compared with 24,252 inmates a decade earlier, and the numbers continued to swell. In 1995 the population grew to 89,964 federal inmates. Prison population was predicted to reach about 120,000 by 2004, and 28 additional federal prisons were slated to open by 2000, creating demand for additional UNICOR inmate jobs. UNICOR operations grew as a result, and sales of furniture alone grew dramatically, from $155.9 million in 1992 to $178.1 million in 1995. The only year during which furniture sales to government agencies declined was 1994; revenues were $146.4 million, down from $169.6 million in 1993. UNICOR offered a wide array of products, and in 1995 the corporation reported that it had manufactured and sold products or services that included 32 different types of office furniture and spanned 133 industry classification codes. The corporation's board of directors, which consisted of six volunteers appointed by the President, voted in 1995 to allow for the expansion of UNICOR's systems furniture sales by 81 percent by the year 2000, and plans to increase sales of seating products and case goods were underway as well.

With UNICOR's growth, however, came increasingly vociferous protests and criticisms from the private sector. Private industry had long claimed that UNICOR held an unfair advantage with its preferential status and low labor costs--UNICOR's inmate employees were exempt from minimum wage laws and the Fair Labor Standards Act and made from less than 25 cents per hour to $1.15 hourly in the 1990s--but the complaints grew stronger as UNICOR's expansion inched closer to the businesses of private companies. In the mid-1990s a number of organizations rallied against UNICOR's preferred status as the mandatory vendor of products to the federal government. In 1996 the U.S. Chamber of Commerce, which represented a membership base that included more than 200,000 businesses, 3,000 state and local chambers of commerce, 1,200 professional and trade organizations, and 76 overseas chambers of commerce, jumped on the bandwagon to support a legislative bill that would revoke UNICOR's status. R. Bruce Josten, senior vice-president of the U.S. Chamber of Commerce's Membership Policy Group, explained the organization's stand in a letter to U.S. Representative Jan Meyers, a co-sponsor of the bill: 'We recognize the importance of the productive training and employment of our nation's inmate population; however, we believe that there are other substantial sources of work available to inmates that would not infringe upon the private sector's opportunities to compete for government contracts. Clearly, a balance must be struck between these two competing goals.'

Other organizations and companies that supported the withdrawal of UNICOR's preferred status included the Business & Institutional Furniture Manufacturers Association (BIFMA), based in Grand Rapids, Michigan, a hotbed of office furniture manufacturing. BIFMA represented more than 250 makers of office furniture as well as industry suppliers. The U.S. Small Business Administration, Printing Industries of America, National Association of Manufacturers, American Apparel Manufacturers Association, and Indiana Furniture Industries also publicly decried UNICOR's status and claimed the corporation was taking business away from the private sector. BIFMA said that UNICOR had become the tenth largest manufacturer of office furniture by the mid-1990s.

Despite the outcry, UNICOR steadfastly contended that the criticism was overly exaggerated and that its mandatory treatment was justified. Steve Schwalb, chief operating officer of UNICOR and assistant director of the Federal Bureau of Prisons in the 1990s, stated in his testimony before the House Small Business Committee that UNICOR did not operate as a private business might. Private companies generally offered a limited product line and attempted to streamline operations by keeping overhead and staffing levels as low as possible. UNICOR, in contrast, had a wide-ranging product line and sought to maximize employee levels to provide as many inmates as possible with job training. Another reason UNICOR offered a wide variety of products, Schwalb maintained, was to minimize its impact on private industry. UNICOR's preferred status, therefore, served a purpose. 'In order to overcome the constraints inherent in meeting FPI's statutory mandates as a correctional program,' Schwalb explained in his testimony, 'Congress provided FPI with its designation as a mandatory source of procurement for federal agencies. ... [T]he mandatory source provision is a mechanism that creates sales opportunities for FPI.' In addition, federal agencies were allowed to request waivers to purchase products from private industry vendors; UNICOR stated that it granted 80 to 90 percent of the waivers requested in 1995.

Controversy concerning UNICOR did not end as the corporation passed into the second half of the decade. Private businesses continued their protest of UNICOR's preferred status, with many citing lost governmental contracts. Knoxville Glove Co. noted that what used to be a staff of more than 300 employees in the 1950s had dwindled to a group of 40 staff members. Although the company conceded that much of its business had gone to foreign competitors, Knoxville claimed UNICOR had honed in on its business. Knoxville's Rod Townsend told the News Sentinel that about 30 to 35 percent of its business formerly had originated from glove contracts with the Department of Defense. By the 1990s, however, the business had dwindled down to only occasional 'emergency' contracts. 'We haven't done a major government contract in the last five years,' Townsend said, 'and this can be directly attributed to the FPI invasion of the defense industry market.' Knoxville joined with other glove makers to form the Coalition of Federal Glove Contractors, hired an attorney to look after its interests, and allied itself with the Union of Needletrades, Industrial and Textile Employees (UNITE), another organization fighting against UNICOR.

While UNICOR faced challenges from the private sector, it also battled problems within the federal government. Although UNICOR insisted that quality control was of utmost priority within its factories, many agencies disagreed. A 1993 report that evaluated the quality of electric cable sold by UNICOR to the U.S. Army between 1986 and 1990 indicated that quality problems arose in nearly twice as many UNICOR contracts as private industry contracts. In the mid-1990s further reports and studies found quality problems with UNICOR. John Hagan, Master Chief Petty Officer for the U.S. Navy, testified before the House National Security Committee that UNICOR's 'product is inferior, costs more and takes longer to procure. UNICOR has, in my opinion, exploited their special status instead of making changes which would make them more efficient.' Deputy commissioner George Allen of the Defense Logistics Agency reported that UNICOR's prices were 13 percent higher, on average, than the prices of commercial businesses and that 42 percent of UNICOR orders were delivered delinquently, compared with an industrywide average of six percent. Many government agencies believed that UNICOR's performance would improve if it were allowed to compete with commercial companies.

In response to the allegations of poor operations, UNICOR implemented changes to improve product quality, price, and service. One new policy guaranteed delivery of goods within 30 days. UNICOR's turnaround was quickly apparent to many in the federal government. Deputy Commander Peter Isaacs of the U.S. Army's family and support center said in Government Executive, 'They are as reliable as any vendor, and their prices are comparable or cheaper.'

In 1996 UNICOR launched its product catalog online, with merchandise that covered five primary product groups: clothing and textiles; furniture, which accounted for about 40 percent of UNICOR's sales; electronics, plastics, and remanufacturing; metals; and graphics and services, such as printing, data entry, laundry, recycling, and equipment repair. Sales continued to rise, from $495.5 million in 1996 to $534.3 million in 1998. The question of UNICOR's status remained, however, and in 1997 the Senate authorized a study designed to discover ways to make UNICOR more competitive. UNICOR attempted to counter the criticism by exploring new avenues for expansion, ones that would minimize the impact on U.S. companies as much as possible. One idea was to offer services--UNICOR was allowed to provide services to the private sector but not products--that companies generally parceled out to foreign countries because of low wage requirements. UNICOR thus began to provide data entry and bulk mailing services.

In 1999 two bills were introduced that could change the status and operations of UNICOR considerably. One bill, supported by a number of business organizations and the U.S. Chamber of Commerce, proposed an open bidding process for government contracts, which would force UNICOR to compete against commercial companies and remove its preferential status. The other bill, known as the Prison Industries Reform Act, was introduced by Representative Bill McCollum of Florida, who served as the chair of the House Judiciary Subcommittee on Crime. McCollum, a strong supporter of inmate work programs, proposed that UNICOR should compete openly for government contracts and also be allowed to bid on private contracts. McCollum's legislation also allowed for private companies to propose and establish businesses in federal prisons, proposed phasing out UNICOR's preferred status over seven years, and called for minimum wage pay for inmate employees.

As UNICOR rounded the bend into a new century, it faced many challenges and new frontiers. At the end of 1999 UNICOR operated 99 factories in 64 prisons in 30 states and employed more than 20,000 worker inmates, or 25 percent of eligible prisoners. The corporation had sales of $566.2 million in 1999 and net income of $16.6 million. As legislation that could irreversibly alter UNICOR's course was slated to undergo Congressional consideration, the future of FPI seemed uncertain. What was guaranteed, however, was that the federal prison population would continue to grow and UNICOR would strive to offer productive work opportunities for a good portion of these inmates.

Principal Competitors: Steelcase Inc.; U.S. Office Products Company; SCI Systems, Inc.

Chronology

• Key Dates:

• 1934: Federal Prison Industries is established during the administration of Franklin D. Roosevelt.
• 1974: Corporation sets up regional sales offices.
• 1977: Federal Prison Industries adopts the trade name UNICOR.
• 1996: UNICOR launches an online product catalog.
• 1999: Corporation begins offering services to the private sector.