FEDERAL PRISON INDUSTRIES, INC. PART 1 OF 2 POC Federal Prison Industries, Inc., 320 First Street, NW, Washington, DC 20534 Attention: Manager, Planning, Research and Activation. FEDERAL PRISON INDUSTRIES, INC. (FPI) Pursuant to legislative requirements, 18 U.S.C., Section 4122, FPI announces the official decision of the Board of Directors on the proposed production of steel doors and frames. The Board of Directors for Federal Prison Industries, Inc. (FPI) now issues its decision regarding FPI's proposal to begin production of steel doors and frames. As required by statute, FPI prepared a comprehensive impact study, which analyzed the potential impact, if any, that FPI's production may have on the private sector. FPI announced, in the February 26, 1996, edition of the Commerce Business Daily, its plans to present this proposal to the Board of Directors. FPI described the procedures for obtaining a copy of the competitive impact study and invited public comment on its proposal. Copies of the impact study analyzing the proposal to manufacture steel doors were sent directly to the principal trade associations, various manufacturers, and other interested parties. FPI received written comments on its proposal from several sources, prepared responses to those comments, and submitted all such information to FPI's Board of Directors. Members of the Board reviewed all of the materials and heard in-person comments from industry representatives at an FPI Board of Directors meeting held in Washington, DC on May 22, 1996. The Board of Directors wishes to thank all parties who took the time and made the effort to comment. The industry's written and oral comments were helpful in developing a clearer picture of the industry and its concerns. The Board of Directors is required by statute to determine whether FPI's proposal to manufacture steel doors and frames for Department of Justice customers would result in FPI assuming more than a reasonable share of the federal market or unduly impact private sector companies in this industry. In reaching our decision, we have relied on the entire record, including the impact study, written comments submitted and the oral presentations by three individuals at the Board meeting. On the basis of all the information before us, it is the Board's decision to approve FPI's request to manufacture steel doors and frames. In approving this request, the Board drew conclusions about key issues and established certain conditions, which are outlined below. One of the first issues relates to the proposed combining of six 7-digit Standard Industrial Classification (SIC) codes in the study to form the aggregate specific product definition of steel doors and frames. Industry representatives questioned this combination, noting that steel doors manufactured for prisons use a gauge of metal much heavier than the metal used for commercial, residential and industrial doors, and that the manufacturing process is quite different. It was suggested that steel doors and frames used for prisons should be considered a unique product. The Board notes that there is no 7-digit SIC code solely designated for steel detention, prison, or security doors and that FPI excluded from its definition all residential and garage doors for the same disparate characteristics cited by industry representatives. The SICs included in the definition may reflect somewhat different material or manufacturing processes, but the evidence indicates that some companies produce many products across these SICs and that some of the products may be reported in more than one category. Thus, the Board concludes that the six SICs are sufficiently similar in manufacturing process and materials under the existing guidelines definition as to be reasonably combined as a specific product. The Board, therefore, approves the specific product aggregation of SIC codes as set forth in the impact study. Regarding the determination of impact on the private sector, several issues were raised by industry representatives during the hearing. One of the issues which the Board feels needs to be clarified is the distinction between replacement doors and new construction doors and frames. The request for approval to manufacture steel doors and frames for the Bureau of Prisons (BOP) was based principally on a policy change by the BOP to replace approximately 7,000 wooden doors in certain correctional institutions with steel doors. This policy change was in response to disturbances which occurred in federal prisons across the country in October 1995. As soon as the decision was made to replace wood doors, the BOP consulted with FPI about supplying the replacement doors. Although FPI determined that it was interested in producing these doors and had the capability to do so, since it had not previously produced this product, it was required by statute to announce its intention to do so, and to conduct a market impact study. In December 1995, FPI issued such an announcement to industry representatives and initiated its study. Due to the exigent need to replace damaged doors at the prison in Greenville, Illinois, the BOP procured 600 replacement doors from the private sector for this location. Due to the FPI proposal to produce doors, the BOP deferred ordering the balance of the replacement doors, approximately 6,400 doors, pending a final decision by the FPI Board of Directors. During the hearing, the Board heard from private industry representatives that they were planning on the replacement doors as new business. The Board concludes, however, that these are prospective sales which the industry could not have anticipated before the BOP policy decision in October or November. FPI promptly notified the industry of its proposal to manufacture replacement doors very shortly thereafter. Thus, while the Board appreciates that the prospect of this new business might represent a new strategic business opportunity, it is not persuaded that the replacement doors represent business which, if not secured, adversely affects the private sector. The Board heard concerns from Congressional and industry representatives that production of doors by FPI could have an adverse effect on employment levels in several companies and a related deleterious effect in the companies' host communities. The Board is very sensitive to this issue and gave full consideration to potential for this to occur. As it relates to replacement doors, the Board is persuaded, for reasons articulated above, that there will be no adverse effect on current private sector employment levels if FPI is authorized to produce replacement doors for the BOP. Regarding FPI's proposed production of new construction doors and frames, in order to address its effect on the private sector, the Board believes it is necessary and appropriate to jointly evaluate (1) the timing of such production, (2) the share of the federal market represented by FPI's proposed production of new construction doors and frames for the BOP, (3) the share of the entire domestic market represented by federal procurements, and (4) the prospective growth in the overall domestic door and frame market. End of Part One.

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