Privatization of In-plant Seafood Inspections and Related Services

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration

50 CFR Part 260

[Docket No. 950915231-5231-01; I.D. 091495E]

RIN 0648-AI45

Privatization of In-plant Seafood Inspections and Related

Services

AGENCY: National Marine Fisheries Service, National Oceanic and

Atmospheric Administration (NOAA), Commerce.

ACTION: Notice of inquiry.

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SUMMARY: NOAA announces that it will change the way it delivers in-

plant seafood inspections and related services under the Agricultural

Marketing Act of 1946 (the Act). Currently, these services are provided

by NOAA employees on a fee-for-service basis which enables NOAA to

fully recover the service costs. NOAA is considering that some of these

services would no longer be provided directly by NOAA employees, but

rather be offered by private parties. This document outlines the action

NOAA contemplates to assure that the privatized program conducted under

Federal oversight will be the full equivalent of the current program.

NOAA is issuing this notice to inform the public of its ideas on

restructuring the way it provides services under the Act; to describe

the method by which it would assure continued availability of the

benefits of these services through private inspectors certified by

NOAA; and to invite submission of written recommendations and comments.

DATES: Comments must be received on or before November 21, 1995.

ADDRESSES: Director, Office of Industry Services, 1315 East-West

Highway, Room 12553, Silver Spring, MD 20910.

FOR FURTHER INFORMATION CONTACT: James W. Brennan, NOAA Deputy General

Counsel at (202) 482-3044.

SUPPLEMENTARY INFORMATION: Comments should take into account the

following criteria that will fundamentally affect the viability of a

privatized inspection program: (i) Fair treatment of Government

inspectors currently

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providing the services; (ii) minimum modification of relationships with

customers subscribing to the current program, and assurance that the

internal operations of these customers need not be changed to

accommodate a privatized system; (iii) continued recognition by foreign

governments of official indicia as indicating safety, wholesomeness and

acceptability of products to which the indicia are affixed or to which

they relate; (iv) acceptance of the integrity of the privatized

inspection program by harvesters, processors, wholesalers, retailers

and consumers; and (v) likelihood of the continued economic viability

of the private entity (or entities) providing the services into the

indefinite future.

In furtherance of Administration efforts to ``reinvent'' and

improve the way services are delivered to the public, and to comply

with the personnel reductions mandated by the Federal Work Force

Restructuring Act, NOAA is considering privatization of inspections and

related services for fish and fishery products currently conducted

under its voluntary fee-for-service program. By the end of FY 1996,

NOAA would discontinue direct involvement by Federal employees in

performing these services under authority of the Act (7 U.S.C. 1621 et

seq.). However, NOAA will retain oversight to maintain public

confidence in the continued integrity of the program. One or more

qualified entities in the private sector would be officially recognized

and authorized by NOAA to provide inspection services. NOAA would no

longer conduct inspection services to be performed by Federal and

cross-licensed State employees, but would certify the competence of

each private entity authorized to provide these services to members of

the public.

The current voluntary program has been a notable success. It

promotes domestic and foreign commerce in American seafood in several

important ways. It is a tool available to exporters to provide a known,

reliable assurance that seafood exported from the United States to

foreign markets conforms to the agreed contract specifications between

the domestic exporter and the foreign purchaser. It provides a

governmental assurance of the safety, wholesomeness, and acceptability

to officials of other nations, thereby speeding customs clearance at

foreign borders. In those countries that require certification from a

Federal entity, NMFS certification has routinely satisfied these

requirements. The program also serves domestic purchasers at the

import, wholesale, retail or consumer level who desire assurance from a

disinterested expert that fishery products in the market place meet

appropriate standards, and fishery products that they have purchased

meet their requirements. In addition, the official marks (e.g., U.S.

Grade A, Packed Under Federal Inspection) associated with this program

are often used in the trade and at retail to market the product to its

best advantage and allow consumers to choose product of the desired

quality. During 1994, the NOAA program inspected more than 984 million

lb (446,000 mt) of fishery products for domestic and foreign use.

It is important to foreign governments, in particular, that the

assurances conveyed by the voluntary fee-for-service activities under

the Act are backed by a disinterested entity of unimpeachable

integrity. During 1994, NOAA inspected and certified 156.4 million lb

(70,900 mt) of fishery products for export. While the Federal

Government may need to retain involvement in providing assurances to

foreign governments, many of the services that NOAA currently provides

can be assumed by qualified, knowledgeable and disinterested private

inspectors, provided that NOAA retains the oversight necessary to

foster public confidence in the system of private inspection and

related services.

Private inspectors would be required to maintain complete records

of their activities under the Act, which NOAA would review as it audits

performance under the program. NOAA contemplates that it would charge

certified entities a fee to cover the oversight, audit and

certification costs.

Prior to privatization, NOAA would amend certain inspection and

certification provisions to expand the fee-for-service activities that

may be conducted under the Act by persons who are not Federal

employees.

The simplest way to privatize these services would be to certify

each private person who satisfies applicable qualification standards to

perform services under the Act as a private inspector (subject to

oversight of NOAA). This approach could result in such a large number

of geographically dispersed, qualified inspection firms that the

quality of NOAA's oversight would be impaired, thereby affecting the

integrity of the system. Furthermore, the size of some firms conducting

inspections could be so small that it would raise legitimate concerns

that decisions of these firms could be subject to undue influence by a

customer who provides a significant portion of their income. Such cases

would adversely affect the perceived credibility of the private

inspection program by members of the seafood industry, by consumers and

by foreign governments. Such a course of action could also seriously

disrupt ongoing activities of existing customers. For those reasons,

NOAA has determined that this approach is so unacceptable to customers,

consumers, and the domestic industry in general that it would be

unworkable.

NOAA believes that a better approach would be the establishment of

a private, employee-owned Corporation (the Corporation) that would

acquire the program and operate it subject to the oversight of NOAA.

NOAA employees currently performing these services could become

employees of the Corporation if they so elected, and would acquire an

ownership interest therein by means of an Employee Stock Ownership Plan

(ESOP). Under this alternative, NOAA would terminate its inspection

services and would eliminate its inspector positions soon after the

Corporation is established. This option has four important advantages:

(1) Current employees would be treated fairly, (2) customer relations

would be fostered, (3) NOAA oversight would be simplified, and (4) the

integrity of the program would be maintained. Because NOAA inspectors

would be represented in the process of establishing the ESOP and would

have a stake in the ownership of the Corporation, the morale and

productivity of inspectors would likely be high. Furthermore, ongoing

relationships with current customers would not be disrupted. NOAA would

deal with one major certified entity, and perhaps a small number of

reasonably sized competing entities. Oversight would be far less

burdensome this way compared to dealing with a large number of small

certified entities. Furthermore, the inspectors employed by the

employee-owned Corporation, being former NOAA inspectors, would be

familiar with the procedures that will govern the conduct of

inspections by private inspectors. These inspectors would also

understand the overriding importance of maintaining the integrity of

the inspection process.

The ESOP proposal would require more preparatory work in legal/

financial areas that are unfamiliar to NOAA, and would perhaps involve

greater initial costs to the Government. However, once the

infrastructure is in place, the transition should go smoothly and

rapidly. The inspectors employed by the Corporation would be highly

qualified, as noted above, and these former NOAA inspectors would fully

appreciate the necessity for complete impartiality in performing their

duties. They would also have a comprehensive knowledge

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of the inspection manual used by NOAA that would continue as the

standard reference to ensure consistency by all inspectors throughout

the program.

NOAA is in the process of contracting for a study of the

feasibility of establishing a new Corporation, owned in whole or part

by an ESOP, to undertake inspection services. The contractor will be

encouraged to seek the views of affected employees, current customers,

other members of the seafood industry and consumers.

At this point, NOAA assumes that the study will conclude that the

approach contemplated is feasible. However, if the study, discussions

with affected or interested persons, or comments resulting from this

notice indicate that the five criteria essential for the success of a

privatized system are not likely to be met, NOAA will pursue other

options. Any option likely to be successful will probably require

legislation, and will therefore have to be pursued as a matter of

urgency if the deadline of September 30, 1996, is to be met.

In addition to providing services under the Act, the possibility

exists that the Corporation could also be authorized to conduct similar

services on behalf of other Federal or state agencies engaged in

seafood inspection or in quality inspection of other foods, provided

suitable arrangements could be made with other interested agencies.

This raises the following questions: How should the privatized program

mesh with the mandatory seafood inspection program now being operated

by the U.S. Food and Drug Administration: Currently, NOAA has memoranda

of understanding with FDA which include inspection and research. FDA is

converting its inspection regime to one that is based on the Hazard

Analysis Critical Control Point (HACCP) principles. Should the

Corporation conduct inspections that could qualify under FDA's

mandatory program? If so, how should this work? Should consultative

services that the Corporation conducts under the NOAA voluntary program

include training and technical assistance to facilitate compliance with

the FDA mandatory program, especially by small businesses?

In certain areas, NOAA utilizes cross-licensed state and Federal

inspectors from the Department of Agriculture to provide inspection

services. In order to enhance the success of the Corporation, work that

is currently performed by these governmental bodies could be directed

to the new Corporation. The Corporation may wish to continue to utilize

state or Federal personnel. NOAA would have no objection to this as

long as these individuals meet the qualification standards that will be

maintained by NOAA. To facilitate this transition NOAA would recognize

a cross-licensed state and Federal inspector who has demonstrated

satisfactory performance during the last year in a specific inspection

function(s) as a certified entity for such activity(ies) to provide the

Corporation with the ability to use these individuals. Future

certification of state and Federal employees would be dependent on

meeting the previously stated qualification standards.

NOAA contemplates establishing or authorizing the establishment of

additional service marks to inform consumers of the official assurances

provided by certified private inspectors, to provide other information

useful to consumers, and to encourage foreign governments to rely on

those logos for the government-backed assurance of safety,

wholesomeness and quality. For entry into a foreign country where a

governmental certificate may be required as a condition of acceptance

by the importing foreign government, NOAA would either countersign the

certificate of compliance or retain responsibility for certification

for specific countries. In the latter case, NOAA certification would be

based upon inspections conducted by the Corporation acting under

contract with NOAA. The oversight and standard-setting roles of NOAA

could eventually be assumed by a government Corporation. However, in

the context of an inspection program conducted by a certified private

entity, that must be considered a long-range possibility, not a short-

term or medium-term goal.

The Corporation itself would need to comply with practices and

standards established by NOAA. Its employees conducting inspections and

related services would also be required to meet appropriate standards

of education, training, or experience established by NOAA. The major

source of qualified employees would be the NOAA employees performing

fee-for-service activities under the Act. NOAA currently has 168

inspectors providing inspection services. These inspectors are

classified in two personnel series: (1) Consumer Safety Officer (GS-

696) series--there are currently 131 NOAA field inspectors in this

series (this is the same series as Food and Drug Administration

Consumer Safety Officers); and (2) Consumer Safety Inspector (GS-

1862)--there are currently 40 NOAA field inspectors in this series. The

basic requirements for the two series are as follows:

(1) Consumer Safety Officer (entry level)

A. Bachelor's degree that includes at least 30 semester hours in

one or a combination of the following: Biological sciences, chemistry,

pharmacy, physical sciences, food technology, nutrition, medical

science, engineering, epidemiology, veterinary medical science, or

related scientific fields that provide knowledge directly related to

consumer safety officer work, or

B. Combination of education and experience--courses consisting of

at least 30 semester hours in the fields of study described in A, plus

appropriate experience or additional education.

(2) Consumer Safety Inspector (lowest entry level)

A. Successful completion of 2 years of study, which includes at

least 12 semester hours in any combination of courses such as those in

the agricultural, biological, or physical sciences, food technology,

epidemiology, home economics, pharmacy, engineering, or nutrition.

(3) Consumer Safety Inspector (above lowest entry level)

A. Successful completion of a 4-year course of study leading to a

bachelor's degree with at least 24 semester hours in any combination of

courses in subjects as listed under A; or

B. Specialized experience in work that has provided knowledge of

the properties and characteristics of the commodities and substances

regulated in the position to be filled, skill in applying proper

techniques for collecting samples and performing field tests and

examinations, skill in reporting both orally and in writing, and skill

in maintaining effective personal contacts. Such experience may be

acquired in work such as the following: Food inspector, public health

inspector, and quality inspection specialist.

The qualifications of all persons applying for certification would

be examined to assure that they meet minimal agency standards of

competence. NOAA anticipates that any person who has successfully

performed as a Federal Consumer Safety Officer or Consumer Safety

Inspector for more than 1 year and has successfully completed the

necessary training courses for the activities for which certification

is requested would qualify to conduct like services under the program

as a certified entity or as an employee of such entity. Periodic review

of the qualifications of all certified inspectors, and attendance at

approved training courses to keep

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current with advances in the art will be required in order to maintain

a current certification.

Although the Corporation currently contemplated by NOAA is likely

to meet the criteria needed for authorization to provide privatized

inspection services, it would not necessarily be the only authorized

entity. Other entities could apply to the Secretary of Commerce for

authorization, and if they meet applicable requirements, they would be

authorized to conduct the services. However, as noted previously, it is

assumed that authorization of entities employing a small number of

employees would make the system unworkable. Therefore, NOAA

contemplates that one of the authorization criteria would be that the

applicant must employ a minimum number of certified inspectors, perhaps

in the range of 50 to 60. Comments on the number of certified

inspectors needed to qualify a firm would be particularly useful.

Additionally, NOAA probably would require that an entity authorized

under the program could not receive more than a fixed percentage of its

annual income from performing these services for any one seafood

processor or group of related seafood processors. And, of course, a

certified entity could not inspect its own seafood as a Federally

certified entity.

Initially, it is contemplated that the private inspectors conduct

one or more of the following services under the Act:

Sampling;

Determination of essential characteristics;

Determination of class, quality or condition; and

Continuous in-plant inspection.

Under the changes contemplated, inspectors probably would not be

certified initially to approve HACCP plans. Because of the inherent

complexity in approving HACCP plans, the variety of the plans

themselves, and the relative novelty of the application of HACCP to

seafood quality programs, it is contemplated that approval of HACCP

plans will not be delegated until the process of privatization has

matured. Under currently approved HACCP plans, firms have assumed

significant responsibilities for assuring the safety, wholesomeness and

quality of their own products, subject to periodic audits by NOAA. This

will continue whether NOAA or a certified entity is responsible for the

audit. Monitoring of approved HACCP programs by qualified certified

private inspectors is being considered. Even if it were decided that

they would not initially oversee HACCP plans as a certified inspector

under the Act, certified private inspectors could assist their

customers in designing HACCP programs as a private consultation service

in much the same manner as NOAA currently does. Comments on this point

are particularly desired.

It is anticipated that functions such as specification and label

approval, as well as training functions in specialized activities such

as sensory evaluation, will initially be retained by NOAA. The

performance of appeal inspections is also considered to be a function

that must be retained by NOAA to resolve issues of conflict between a

certified entity and a party that requests an inspection service. NOAA

will maintain the development of voluntary grade standards, functions

associated with agency and trade interests in international activities,

and performance of laboratory analyses to ensure the integrity of the

NOAA program.

NOAA's role in providing for-fee services not initially included

would be reexamined as the program proceeds. Ultimately, it is

envisioned that NOAA's role could diminish to the point that it would

issue voluntary standards and audit the performance of private

inspectors, and, as noted, even those functions may eventually be

assigned to a government Corporation or even be privatized if the right

vehicle for doing so could be designed.

At first glance, it would seem that the possibility of having a

single private entity authorized to conduct most of the services on

behalf of NOAA could raise concerns about inflated pricing unless NOAA

regulated the prices that could be charged. NOAA does not contemplate

doing that for several reasons. Subscription to the service is not

mandated by law. Less than 25 percent of the seafood in the domestic

market place is now covered by the program; that suggests that the

majority of seafood producers find that the value of the current

service as a marketing tool does not exceed the cost of participation.

It is unlikely that the privatized service would be able to charge fees

that significantly exceed fees for similar services under the current

program.

NOAA is considering a variation to ease the transition to the

privatized system. Under the variation, NOAA would continue existing

contracts with customers to provide inspection services but would

negotiate a contract with the Corporation to actually conduct these

services as a subcontractor to NOAA. (The inspectors employed by the

Corporation would likely be the very inspectors who provided the

services as Government employees). NOAA would pay the Corporation for

services provided and bill and receive payment from the customers.

Contracts with new customers would be established between the

Corporation and those customers as the need arises. Over the course of

the 1-year transition period, the Corporation gradually would assume

full responsibility for existing NOAA contracts, on a time schedule

that would be mutually convenient to the customers and the Corporation.

In addition to offering a phased process, fully transparent to existing

customers, this approach may provide a contractual vehicle to allow the

transfer of control to the Corporation of some NOAA property currently

used by its inspectors. Comments on the desirability of the variation

would be helpful.

Request for Comments and Views

Affected employees, domestic and foreign consumers, seafood

harvesters, processors, traders, retailers, importers and exporters, as

well as entities interested in qualifying as certified inspection

entities, are invited to submit comments and suggestions on the points

discussed above, or any related topic.

Under NOAA Administrative Order 205-11, 7.01, dated December 17,

1990, the Under Secretary for Oceans and Atmosphere has delegated

authority to sign material for publication in the Federal Register to

the Assistant Administrator for Fisheries, NOAA.

This notice has been determined to be not significant for purposes

of E.O. 12866.

Dated: September 15, 1995.

Gary Matlock,

Program Management Officer, National Marine Fisheries Service.

[FR Doc. 95-23484 Filed 9-21-95; 8:45 am]

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