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Captive Market

Pea finds it useless to bid against prison industries.
Daniel Kramer

Rockford Business Interiors, a Houston company that designs and installs office cubicles, was the low bidder for a $150,000 job with the Huntsville Police Department.

The company's celebration was short-lived, however. Despite what is set up to be a fair bidding process, one competitor -- known as TCI -- got to resubmit its offer and undercut Rockford's winning bid.

"I just walked away from it," says Angela Peña, who put together Rockford's bid package. "I'm not going to fight them. When I know TCI is involved I usually don't bother."

Alisa Morse tells a similar story. She handles bids and contracts for Morse Wholesale Paper and Chemicals. "It's gotten to where I just hate to bid against TCI," says Morse.

Peña and Morse are among a growing number of businesspeople who say they're getting cheated when they have to compete for government contracts against a few select companies such as TCI -- Texas Correctional Industries. It has a guaranteed workforce -- 5,000 employees who never take vacations or personal days, and are always on time. They are inmates serving somewhere between two years and life in the Texas Department of Criminal Justice.

TCI and other prison industries enjoy the kind of low overhead unheard of in the private sector -- they don't have to pay for insurance, benefits or rent -- and their labor costs average well under $1 an hour.

Companies still have beaten TCI and other prison industries in the bidding wars for government contracts. But that often doesn't matter.

By law, all state agencies are required to buy TCI products unless they can be bought more cheaply elsewhere. Even then, those agencies must get a waiver -- from TCI itself -- which requires more dreaded paperwork. And when TCI doesn't have the low bid on a state job, it is allowed to adjust its figures.

Rockford has won bids on agency contracts, but even then Texas prisoners are often hired to install the cubicles and desks sold by Peña.

"So we lose on the service end, too," she says.

Private companies -- many of them small businesses -- are beginning to crusade against the inequities. As Stephanie Starkey, spokesperson for the United States Chamber of Commerce, explains, reform of prison industries is a top priority. "The government gets worse products at higher costs, and businesses are closing doors."


Texas is hardly unique in laws that guarantee business for TCI, which was started by state legislation 41 years ago. Nationally, most complaints center on UNICOR, the brand name for Federal Prison Industries.

Michigan-based Steelcase, Inc., which makes furniture for Rockford, had the low bid on a $6 million contract with the Federal Aviation Administration last year. UNICOR was allowed to revise its bid for the exact amount as Steelcase's proposal. And ties go to UNICOR.

Only after Michigan Congressman Dennis Hoekstra publicly complained did UNICOR withdraw its bid on the FAA job. That didn't silence the criticism -- Hoekstra co-authored a bill in 2003 that would strip the mandatory purchasing provisions now enjoyed by the federal prison industries. The U.S. Senate has a similar bill to change the practices favoring UNICOR.

One witness at the congressional hearings was Rebecca Boegnik, the CEO of Bryan-based Neutral Posture, which makes ergonomic chairs. Boegnik's chairs cost less than UNICOR's and she says they are of better quality. She told Congress that Neutral Posture had lost an estimated $10 million in business to UNICOR over the last decade.

"We started looking at jobs we weren't getting and found out they had to go to UNICOR."

Not only that, Boegnik says, the chairs aren't really made by UNICOR. It merely assembles pieces that are prefabricated by other companies. And federal prison labor stamps the UNICOR label on the shipping boxes, which virtually guarantees their purchase by the federal government. UNICOR regulations require only that 20 percent of the value of their products be added by prisoners.

Boegnik says agency customers have told her they'd like to buy her chairs but can't without a waiver from UNICOR. She's applied for several but has never been granted one.

Peña has had similar experiences. "I've bid on jobs against UNICOR and have asked for a waiver and they don't ever call back."

Boegnik, who employs about 100 people, says the laws favoring prison industries has cost jobs in the private sector. "If we weren't competing with UNICOR," she says, "I'd guess we'd have about 20 more employees."

One of the few prison industry administrators who oppose mandatory purchasing requirements is John Benestante, who has headed TCI for three years.

"It allows someone to shove a product down someone's throat," he says. "It's very unhealthy." But Benestante defends TCI's competition with businesses by arguing that TCI benefits the public by reducing taxes and convict recidivism.  

"If TCI hadn't manufactured and sold goods to the prison system, then last year they would have had to spend another $30 million," he says.

Under another program, TCI profits also enable inmates to rebuild donated computers and give them to Texas schools. Benestante says that keeping inmates active and productive is a major plus in maintaining order in prisons. Convicts who have worked for TCI for more than six months have a recidivism rate of about 20 percent, compared to the 30 percent rate overall for Texas prisoners.

Few critics oppose job training or the idea of prisoners making goods to be used inside prisons. Half of TCI's sales are to the Texas prison system.

Most prison industries started by making products strictly for prison use, like clothing, bedding and cleaning supplies. But they increasingly have been moving into markets that have little or nothing to do with prisons.

TCI has expanded to include 5,000 inmate workers managed by 600 civilian employees in 41 Texas prison factories. Gross sales last year topped $78 million, for a net profit of nearly $4 million.

Unlike convicts in other work programs in the United States, less than 1 percent of Texas convict workers receive pay for their labor. Texas inmates get two choices: They work when and where they're told to, or face lockup in solitary confinement without any possibility of parole.

About 20,000 federal prisoners work for UNICOR, for hourly wages of between 25 cents and $1.15. About three quarters of their earnings are deducted to offset the cost of incarceration and to pay court fees and victims' compensation.

Last year the federal prison industry had $667 million in sales, with a net profit of nearly $2 million. Officials for TCI and UNICOR say profits are plowed back into upgrading and expanding their factories and product lines.

In the late '90s, TCI began participating in Prison Industry Enhancement (PIE) programs that allow private corporations to partner with prison industries at state-run jails, where the maximum sentence is two years. The programs employ more than 400 inmates, the only Texas convicts who receive pay for their labor. Under federal legislation they get the minimum wage, most of which is deducted.

Benestante says that TCI can implement a PIE program only if it shows that no American jobs would be lost. "Every PIE was fixing to be a maquiladora," he says. He declined to name the manufacturers using Texas prisoners because "their competitors engage in negative advertising."

In one case, a company now named Lockhart Technologies Inc. subcontracted to recycle computer boards for Dell Computers in 1997. LTI shut down its Austin facility, laying off more than 150 people. But operations soon resumed in nearby Lockhart -- inside a private prison run by the Wackenhut Corporation. LTI received a tax abatement from the county, a captive labor force and a real deal on rent: $1 a year.

The prisoners were learning a trade, but they won't be getting a Dell job. The computer giant doesn't hire convicted felons. Dell stopped using inmate workers in 2001 after much bad publicity.

The list of companies that utilize prison labor reads like the Fortune 500. Microsoft, Starbucks, McDonald's, AT&T, Toys "R" Us, Sprint, JC Penney, Nintendo, TWA, Boeing and even Victoria's Secret have -- mostly through subcontractors -- hired convicts. Most of those companies won't hire ex-convicts, either.

That seems cruelly ironic to Boegnik, whose company will employ ex-convicts. "We have no issue with hiring someone who came out of prison, but we've never had one person come out of prison saying they were trained to build chairs."


Attitudes about the programs differ among the inmate workers themselves. In some instances, TCI has been known to "cherry-pick" convicts with specialized skills such as computer knowledge -- negating the argument that they are acquiring new workplace talents.

Programs are also heavy in positions of minimal value on the outside; the most common TCI job is janitor. And, inmates explain, teaching employable skills benefits TCI more than it does workers who are serving long sentences and are unlikely to ever enter the outside job market.

However, some inmates do estimate that about half of the prison workers take their jobs seriously and can acquire usable industry skills such as operating manufacturing equipment or even forklifts.

Critics question the value of prisoners' learning jobs that may not exist anymore beyond the prison walls. For instance, TCI has about 1,000 inmates producing garments and textiles, but few of those jobs exist on the outside.

Benestante explains that "85 percent of people who lose their jobs do so because of soft skills…work ethic, getting along with people, showing up sober and on time."  

Most prison industry administrators argue that learning those "soft skills" -- a key one is learning to work together in a factory environment -- is just as important as specific job training.

Another criticism is that while U.S. law forbids the importation of prison-made goods, TCI and UNICOR both sell products to foreign governments. "If prison goods made in other countries aren't good enough for us," Boegnik says, "why are our prison goods good enough for them?"

Among TCI's biggest customers are school districts, many of them in the Houston area. Colleen Wells, a purchasing agent for Cypress-Fairbanks schools, says her district in the current school year has purchased almost $72,000 worth of TCI products, mostly cleaning supplies and furniture.

"They have excellent pricing and good quality on those products," says Wells. "This is just my personal opinion, but I think it's the right thing to do. We have that labor force available, so why not use it?"

Boegnik says, "If they want to train these people that's one thing, but when you're out there trying to take business away from hardworking Americans…"

But Boegnik's company is also helping to take jobs away from regular workers, albeit unwillingly. Her company sells chairs to several state agencies in Washington. A few years ago she began participating in a PIE program there, to use inmates to assemble and package her chairs.

"We were told that if we wanted to keep the business, we had to partner with them," says Boegnik.

Peña remains unconvinced. "They're learning a trade -- that's good. But they're taking away business from us. It sucks when you don't even have a chance."


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