BOARD OF DIRECTORS DECISION ON FPI PRODUCTION OF SWEATSHIRTS AND SWEATPANTS FEDERAL PRISON INDUSTRIES BOARD OF DIRECTORS DECISION SWEATSHIRTS AND SWEATPANTS The Board of Directors of Federal Prison Industries, Inc. (FPI) now issues its decision regarding FPI's proposal to initiate production of sweatshirts and sweatpants. As required by statute, FPI prepared a comprehensive impact study, which analyzed the potential impact that FPI's production may have on the private sector. FPI announced, in the October 16, 1996, edition of the Commerce Business Daily, its plans to present this proposal to the Board of Directors; described the procedures for obtaining a copy of the impact study; and invited public comment on its proposal. Copies of the impact study analyzing the proposal to produce sweatshirts and sweatpants were sent directly to the principal trade associations, various manufacturers, and other interested parties. FPI received written comments on its proposal from two sources, prepared responses to those comments, and submitted all such information to FPI's Board ofDirectors, along with its request to produce sweatshirts and sweatpants. No members or representatives from trade associations, manufacturers, or other interested parties requested to make in-person comments to the FPI Board of Directors. Members of the Board reviewed all of the materials. The Board of Directors wishes to thank those parties who took the time and effort to comment. The Board of Directors is called on by statute to make a determination as to whether production in the sweatshirts and sweatpants industry would result in FPI's assuming no more than a reasonable share of the market and not unduly impact the industry. In reaching our decision, we have relied on the market impact study and the comments received from the Small Business Administration and the National Industries for the Blind. BACKGROUND Over the last several years, the National Industries for the Blind (NIB) has been the primary contractor providing sweatshirts and sweatpants to the DOD. Both FPI and NIB are mandatory source providers to the federal government, in accordance with Federal Acquisition Regulation (FAR 8.6.03 (a)). FPI previously explored the possibility of manufacturing sweatshirts and sweatpants. At that time, FPI was not in a position to manufacture the product. Therefore, FPI waived production to NIB, with the understanding that FPI planned to produce sweatshirts and sweatpants in the future, subject to Board of Directors approval. NIB and FPI entered into agreements on May 15, 1992 and January 27, 1995, in which NIB would produce the first 240,000 units per year of the DOD sweatshirts and sweatpants. FPI would produce DOD requirements in excess of the 240,000 units. THE SWEATSHIRT AND SWEATPANTS MARKET In reaching this decision, the Board carefully reviewed all of the information presented regarding the market for sweatshirts and sweatpants. Below is a summary of the Board's analysis and findings. Total federal market A number of federal agencies purchase sweatshirts and sweatpants, such as theDepartment of Defense (DOD), the General Services Administration (GSA), the United States Postal Service, and the Department of Justice, to name a few. The majority if not all of DOD's requirements for sweatshirts and sweatpants have been supplied by NIB. NIB is also a supplier to GSA. GSA has sweatshirts and sweatpants on GSA schedule. There are 11 vendors on the schedule but only two are manufacturers. The total sales for the 11 vendors for sweatshirts and sweatpants during 1995 were only $213,000. The Small Business Administration (SBA) identified 254 small businesses that currently sell or want to sell sweatshirts and sweatpants to the federal government. Of the 254 businesses, FPI identified 14 manufacturers. A cross reference of suppliers to DPSC, GSA, the Postal Service, and FPDC data did not reveal any of these small businesses as federal government contractors for sweatshirts or sweatpants. A review of vendors that supply sweatshirts and sweatpants to the federal government showed that only a small fraction of their sales were from federal procurements. Based upon data obtained through DOD, GSA, and other agencies, the market study estimated the current federal market for sweatshirts and sweatpants at $11 million and projected the market to reach $20 million by 2001. This estimate includes FPI sales to Bureau of Prisons (BOP) institutions for sweatshirts and sweatpants for inmates. FPI did not receive any comments that opposed FPI's estimate of the federal market. In addition, the majority of the federal market is currently supplied by the National Industries for the Blind. As such, FPI's production of sweatshirts and sweatpants would have no discernible impact on private industry. Total domestic market The domestic market for sweatshirts and sweatpants was estimated at $2.9 billion during 1995 and is expected to reach $3.5 billion by 2001. FPI's sales would represent less than 1% of the domestic market for sweatshirts and sweatpants. PRODUCTION LEVELS It is the finding of the Board that sales levels proposed by FPI for sweatshirts and sweatpants represents a reasonable share of the market and that proposed production at these levels will not impose an undue burden of competition on the industry. Therefore, the Board authorizes FPI to produce an estimated 200,000 sweatshirts and 200,000 sweatpants at the following levels. FY 1997 $ 1.4 million FY 1998 6.2 million FY 1999 7.1 million FY 2000 7.3 million FY 2001 7.5 million The Board recognizes that it is difficult to achieve exact levels each year. It is therefore understood that FPI may exceed the annual limits by insubstantial amounts, so long as the aggregate over the five-year period does not exceed the five-year approved total of $29.5 million. While the sales levels equate to projected market share, as reflected in the study, primarily for ease of reference and tracking, it is the decision of the Board to use sales dollars as the measure for expansion. Should the industry believe that circumstances have changed sufficiently that FPI's authorized production is having a substantially greater impact than anticipated in this decision, the industry is invited to provide, at their convenience, such written information to the Board. The Board will carefully review this information and, if warranted, may reconsider the issue. Decided on this 7th day of February, 1997. For the Board: Joseph M. Aragon, Chairman

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