Federal Prison Industries

Federal agencies generally must buy products from Federal Prison Industries (FPI), which was established by law as a mandatory source supplier. In response to congressional concerns about FPI's pricing practices and the possibility that federal agencies may be paying higher than competitive fair market prices when they buy products from FPI, this report provides information on FPI's product pricing. GAO (1) describes the laws and regulations governing how FPI is to price its products, (2) describes the policies and procedures FPI uses to ensure that its products are priced in accordance with these laws and regulations, (3) determines whether FPI followed these policies and procedures when it set prices for selected products, and (4) compares FPI's prices with those charged by private vendors for selected products.

GAO noted that: (1) federal agencies are required by law to purchase FPI products if they are available, meet the agencies' requirements, and do not exceed current market prices; (2) however, neither the law nor the Federal Acquisition Regulation defines current market price or provides guidance on how such a price is to be determined; (3) a 1931 Comptroller General Decision cited a decision by the Board of Arbitration for Prison Industries, which stipulated that FPI is not required to set its prices at the lowest bid price to comply with the current market price requirement; (4) on the basis of these decisions, GAO concluded that the only limitation on FPI's price is that it may not exceed the upper end of the current market price range; (5) a 1993 legal opinion issued by the Department of Justice found that the mandatory preference granted FPI is an exception to the rules that normally govern the way federal agencies procure products; (6) FPI's May 1995 policy and procedures that were in effect when GAO began its review in July 1997 recognized that FPI products were to be sold at prices that did not exceed current market prices; (7) however,the policy and procedures did not specifically define current market price; (8) FPI's procedures did not specify how many prices had to be checked to constitute a market or how frequently prices should be checked; (9) further, FPI policy did not require the product divisions to document the market surveys or other methods that they used when setting prices for FPI's products; (10) however, on February 18, 1998, FPI issued its revised pricing policy and procedures; (11) GAO's analysis of how FPI established prices for 20 selected products showed that for 13 of the products, the divisions followed FPI's pricing policy and procedures that were in effect when GAO began its review; (12) GAO's comparison of FPI's catalogue or actual prices for 20 products with private vendors' prices for the same or comparable products showed that FPI's prices for 16 of the products were not the highest; and (13) however, FPI's prices for 5 of these 16 products were at the higher end of the price range offered by private vendors.