Product Development and Production: Public Involvement Procedures

DEPARTMENT OF JUSTICE

Federal Prison Industries

Product Development and Production: Public Involvement Procedures

AGENCY: Federal Prison Industries, Inc., Bureau of Prisons, Department

of Justice.

ACTION: Notice.

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SUMMARY: In this document, Federal Prison Industries, Inc. (FPI)

announces new interim definitions of three key terms: New product,

specific product, and significant expansion of an existing product.

ADDRESSES: Federal Prison Industries, Inc., 320 First Street, NW.,

Washington, DC. 20534.

EFFECTIVE DATE: March 12, 1997.

FOR FURTHER INFORMATION CONTACT: Mr. Todd Baldau (202) 305-3582.

SUPPLEMENTARY INFORMATION: Last year, FPI published notices in the

Federal Register and Commerce Business Daily proposing revisions to the

definitions of ``specific product,'' ``new product'' and ``significant

expansion of production'' for use with the FPI expansion guidelines.

The Federal Register notice was printed on August 7, 1996 (61 FR

41248). The Commerce Business Daily notice was printed on September 20,

1996. Each notice asked interested parties to review the revised

definitions and submit comments on the proposed revisions to FPI. FPI

received submissions from the following individuals and organizations:

U.S. Representative Mac Collins (Georgia, 3rd District);

The American Defense Preparedness Association;

The Business and Institutional Furniture Manufacturers Association;

Trussbilt, Inc.;

The Coalition for Government Procurement;

The American Apparel Manufacturers Association;

Tennessee Apparel Corporation;

Furniture By Thurston; and

The Quarters Furniture Manufacturers Association.

FPI wishes to thank each of the respondents for taking the time to

submit their comments. Many of the submissions included suggestions

which FPI has incorporated into the revised definitions. Also among the

submissions were several comments helpful to FPI in understanding

potential implications of the proposed revised definitions. Some of

these comments led FPI to adjust its original proposal.

For the purposes of this notice, FPI has separated all the comments

we received into one of four groups: (1) Ideas, recommendations or

suggestions FPI has adopted in the revised definitions; (2) Ideas,

recommendations or suggestions with which FPI respectfully disagrees

and has not adopted in the revised definitions; (3) Comments that are

more relevant to other aspects of FPI's operations, such as issues

concerning mandatory source; and (4) Comments which are vague, broad or

general in nature. Such comments do not make a specific point, making

it difficult for FPI to address. Below is a summary of all comments

received by FPI. In many instances, similar comments from multiple

parties have been combined. Also included are some of FPI's responses,

where appropriate.

(I) Ideas, Recommendations or Suggestions FPI Has Adopted

The following are ideas, recommendations or suggestions provided by

commenters which FPI found useful or constructive, and incorporated, in

whole or in part, into the revised expansion definitions.

A commenter noted FPI's initial announcement stated ``FPI announces

revised definitions of two key terms: New product and specific

product.'' However, ``significant expansion of production'' is also

revised. FPI acknowledges the oversight, and has reflected this

correction in the new announcement. This notice refers to all three

revised definitions.

Commenters suggested FPI defer issuing the new definitions, raising

the possibility Congress may require FPI to modify the terms again,

resulting in another revision in a short period of time. The commenter

stated a delay in issuing the definitions would permit interested

parties to take up Rep. McCollum's offer to discuss FPI's operations

and regulations next year. FPI appreciates the willingness to accept

Rep. McCollum's invitation. Nonetheless, the current definitions

present a myriad of problems that need to be addressed. With the

commenter's suggestion in mind, FPI is publishing the new definitions

as an ``interim rule.'' This will allow time for experience and

encourage comments during its implementation.

A commenter suggested amending the provision dealing with cases of

extreme public exigency, where FPI would be empowered with the

authority to increase production without penalty when asked to do so.

The commenter advised that FPI explicitly state that its production

levels are temporary, and will not be used as the baseline for future

calculations of what is deemed a significant expansion of production.

FPI has incorporated such language into the revised definitions.

Several commenters objected to the provision allowing FPI to supply

new items of limited duration or volume. The commenters felt this

provision did not allow for sufficient private industry input, would be

detrimental to small businesses who sell to the Federal government and

did not provide adequate safeguards to prevent FPI from misuse of the

provision. FPI recognizes the concerns raised by the commenters and has

withdrawn the provision from the revised definition.

Commenters suggested the definitions should not eliminate an item's

predominant material of manufacture as a determinant of whether an item

is a separate specific product. FPI agrees, and notes the new

definitions do not make such an elimination. Rather, the predominant

material ``will not ordinarily'' be a factor in determining whether an

item is a separate specific product. FPI did not mean to imply the

predominant material of manufacture is not an important consideration,

only that in most cases, it would not result in an item being deemed a

separate specific product. An item's predominant material will always

be considered, and unless deemed to be significant, will not typically

result in a distinction for a separate specific product.

A commenter suggested that FPI state its sales goals in units, not

dollars. FPI appreciates the suggestion and will attempt to include

production information on units where feasible, as well as dollars, for

impact studies. The nature of some of FPI's work makes stating

production goals in units difficult. It should be noted that in past

impact studies, FPI has attempted to differentiate between inflation

and real

[[Page 11466]]

growth in projecting the corporation's future sales and market share.

Several commenters suggested FPI revise the provision relating to

announcements in the Commerce Business Daily (CBD). One commenter

argued it was an undue burden on small business owners to have to check

the CBD every day. Another suggested the time period in which

interested parties may submit comments should be lengthened beyond 10

days. FPI acknowledges there may be difficulties associated with

checking the CBD, especially for a small business. We appreciate the

comments, and have amended the revised definitions so that they now

allow 21 days for interested parties to comment.

Regarding submissions from interested parties in response to the

CBD announcements referenced in the prior paragraph, a commenter

disagreed with the restriction on submissions stating that comments

related to market share and/or the impact resulting from such a

production decision would not ordinarily be considered relevant to

whether an item should be considered a new product. FPI recognizes the

importance that data relating to a reasonable share of the market has

to the expansion process. FPI appreciates the comment and agrees to

modify the provision so that all information will be considered. The

contested reference in the provision has been deleted.

A commenter expressed approval of the provision to have FPI make

CBD announcements for items FPI does not consider to be a new product,

but which an affected party may reasonably construe to be a new

product. The commenter noted the purpose of the revision is to give

private industry an added level of input into such decisions made by

FPI. The commenter regarded this as ``a very constructive approach and

again will build a great deal of trust and goodwill between FPI and the

private sector.'' FPI appreciates the acceptance of this provision.

A commenter noted the revised definitions will not require FPI to

initiate the guidelines process when FPI's market share increases as a

result of factors other than an increase in FPI's production. The

commenter recognized that ``asking FPI to continually track its market

share for every product is a burdensome job.'' The commenter suggested

that industry be encouraged to track market size and be allowed to

petition FPI's Board of Directors for production relief in the event

that a significant reduction in the size of the market can be

demonstrated. FPI appreciates the comment and concludes that the new

definitions do allow for such action on the part of members of the

private sector.

Commenter questioned whether the new significant expansion

definition would allow FPI to increase production until it captures 25%

of the market before it triggers the expansion process as long as FPI

makes only incremental increases. FPI acknowledges that while the

circumstances described are theoretically possible, we do not believe

it is very likely. First, such a scenario would only occur over a

several year period, since any sales increase over 10% would lead to an

FPI examination of market share, and trigger the guidelines process if

FPI exceeded the 15% and 20% market share thresholds. As a result of

the elapsed time, any impact would be minimized. As a potential

safeguard against such a scenario, FPI has encouraged potentially

affected industries to petition the Board if they believe the FPI

growth is having an adverse impact on their particular industry. This

encourages the industry to monitor FPI growth, via annual sales and

market share reports published by FPI, in conjunction with their own

market data, and bring their concerns to the Board's attention, as

circumstances warrant.

A commenter suggested changing the provision on cases where FPI's

sales inadvertently or insubstantially exceed authorized levels. The

commenter suggested strengthening the language regarding FPI's

obligation to adjust its sales levels if the corporation exceeds its

authorized sales level. FPI has amended the language accordingly.

(II) Ideas, Recommendations or Suggestions With Which FPI Respectfully

Disagrees and Has Not Adopted

Though the following comments were not incorporated into the

revised guidelines, FPI wishes to emphasize its appreciation for the

careful review by all commenters in providing their submissions. In the

interest of making this process as visible and open to public scrutiny

as possible, FPI has included its reasons for choosing not to accept

the following ideas, recommendations or suggestions.

Most of the comments with which FPI disagrees and has not adopted

deal with the availability of data under the current definitions or the

proposed use of 4-digit Federal Supply Class (FSC) codes as the primary

basis for determining a ``specific product.''

Commenters questioned whether there really is unavailability of

data under the current definitions. Commenters suggested the

procurement data sought by FPI is already collected by GSA's Single

Item Numbers (SINs). FPI respectfully disagrees with both comments. The

current definitions make use of the Standard Industrial Classification

(SIC) system's 7-digit item codes. The government does not collect

Federal procurement data by 7-digit SIC codes. Rather, Federal

purchases are categorized by the FSC system. FPI also reiterates the

limitations of GSA's SIN data. GSA does not have schedules for every

industry in which FPI operates. Also, through research for past impact

studies, FPI has found that while information from GSA's schedules

provide an important piece of the Federal market puzzle, data from the

schedules do not reflect all Federal buys, and often fail to include

large segments of the Federal market.

Regarding the FSC system, commenters felt an FSC code would be too

broad and encompass too many separate items to be validly considered a

specific product. Commenters also expressed concern over the revised

definitions allowing FPI to combine FSC codes where multiple codes

comprise a single industry. Commenters contended that in such

instances, FPI's true impact would be severely understated.

FPI recognizes these concerns and agrees that in some instances,

FSC categories are too broad to be accurate measure of an item's

Federal market. However, the revised definitions make provisions for

such cases. The new definitions state, ``FPI will announce in the CBD

its intent to produce any item that could reasonably be construed to be

a new product, regardless of the fact that such an item falls in the

same 4-digit category as an item that FPI is currently making, or has

made within the recent past, and is not considered by FPI to be

sufficiently different from an existing item to be considered a new

product. Moreover, borderline cases will be announced in the CBD in

order to allow for the full public scrutiny.'' The new definitions also

state, ``In some instances, an item may be considered separate from

another product in the same 4-digit FSC category, if its function

differs substantially.''

Regarding the combination of FSC codes, it is incumbent upon FPI to

be as accurate as possible in determining its impact on the private

sector. When an industry's operations encompass multiple FSC codes, FPI

is obligated to combine the codes in the effort to measure the

corporation's true impact. Further, FPI's authorizing legislation

directs FPI to guard against placing an undue burden on any single

industry, not individual companies.

FPI believes the industry involvement guidelines process addresses

concerns

[[Page 11467]]

that the use of FSC codes would allow FPI to expand in a few limited

items without seeming to have an impact on the industry as a whole.

Under both the current and new definitions, the guidelines process

provides ample opportunity for public comment and input, so that FPI's

Board of Directors can be made aware of particular situations that may

create undue impact on private industry.

Beyond the principal objections mentioned above, commenters raised

other questions regarding the new definitions. One commenter stated

they lack confidence in a system which, by FPI's admission, does not

``develop a simple, single principle that can be applied in every

situation to determine when to delete unrelated items from a 4-digit

FSC category and when to combine categories.'' FPI recognizes the

desire for a ``one size fits all'' approach. However, in the absence of

a viable alternative, we believe the revised guidelines offer a fair,

reasonable and logical set of standards to examine FPI's growth.

A commenter questioned the use of 4-digit SIC codes as a secondary

determinant for a specific product, in those instances where there are

multiple items within a single FSC code. The commenter felt 4-digit

SICs do not represent any substantial protection beyond the FSC codes.

The commenter asserted that specific product distinctions are found at

the 7-digit SIC level. As mentioned earlier in this section,

limitations of the SIC system were one of many factors leading to the

revision of the definitions. FPI's initial notice proposing the revised

definitions discussed the difficulties FPI has experienced with SIC

codes, the primary problem being the lack of available data. For this

reason, the new definitions will not be based upon the SIC system.

Instead, the 4-digit SIC code will be used as a secondary determinant

for a specific product. In such cases, cross-referencing the 4-digit

SIC codes against the FSC codes will allow FPI to more accurately

separate items that should be considered a separate ``specific

product.''

Several comments touched on the provision concerning FPI

announcements in the CBD regarding the planned production of items that

may reasonably be considered a new product. One commenter doubted that

a heightened effort by FPI would provide any meaningful restraint. The

new definitions have FPI make such announcements when an item may be

reasonably construed to be a new product. In cases which are

questionable, FPI will err on the side of announcing in the CBD in

order to allow for full public scrutiny. In addition, the new rules

would provide much greater visibility to these decisions and

determinations than is afforded under the current guidelines.

A commenter questioned how the new rule helps FPI meet its mission

of ``diversification so that no single industry shall be forced to bear

an undue burden of competition?'' FPI believes the new definitions are

a significant step forward in meeting this objective. Among the primary

benefits of the revised definitions is that they are aimed toward

measuring FPI's impact on an industry. The corporation's authorizing

legislation states that FPI is to operate so that no single industry is

forced to bear an undue burden of competition. Most private vendors

competing for Federal business offer an array of different items across

the industry in which they operate. Most producers of office furniture

do not limit themselves to just credenzas. They offer tables, desks,

bookcases, etc. Suppliers of shirts may also produce pants, coveralls,

etc.

One commenter stated FPI's commitment to report in the CBD all

items which could reasonably be construed to be a separate specific

product will be the determinant of FPI's good faith. The commenter

stated that if FPI faithfully observes this commitment by announcing

its intent considerably more liberally than is required and treats

comments objectively (i.e., acts in favor of both FPI and the private

sector about 50 % of the time) industry will likely gain confidence in

the process. FPI appreciates the commenter's trust in our ability to

faithfully and accurately fulfill the requirements of this provision.

Yet the fair treatment of comments received from the private sector

does not automatically translate into a quota system whereby the

finding will be in the private sector's favor 50% of the time. FPI

commits that the Board of Directors will decide each case on its own

merits, regardless of any other such decisions. FPI points out that the

revised definitions will have FPI ``announce in the CBD its intent to

produce any item that could reasonably be construed to be a new

product.'' FPI's commitment to make such announcements considerably

more often than is required is beyond the letter of the revised

definitions. However, in seeking to build good faith with the private

sector, FPI will attempt to fulfill this additional requirement.

Objections were raised to the provision reading ``Items that are

essentially the same product, or those that are variations of an

existing FPI product. * * * would not be subject to announcement of any

kind.'' Commenters felt FPI is unable to make such definitions without

industry's assistance. FPI respectfully disagrees with this suggestion.

FPI has the technical and engineering knowledge to accurately determine

when items are essentially the same or are variations of an existing

FPI product. FPI currently makes these determinations under the

existing expansion guidelines.

A commenter suggested ``new product'' be defined as a ``specific

product which FPI has not produced within the last three years.'' FPI

respectfully disagreed with this suggestion. The nature of some Federal

purchases is cyclical, so that items bought in large amounts one year,

may be purchased in very small quantities, if at all, for three or

fours years thereafter. FPI believes defining a ``new product'' as a

``specific product FPI has not produced within the past three years''

is overly restrictive, and the five year figure is reasonable and more

consistent with Federal buying patterns.

Commenters felt the revised ``significant expansion'' definition

would greatly affect what FPI can do without initiating the guidelines

process. One commenter expressed opposition to any planned expansion of

FPI's production without significant industry input. FPI believes a

primary benefit of the new ``significant expansion'' definition is that

it clarifies exactly what is ``significant'' by changing the measure

from capacity to actual sales. Under the old definitions, FPI could

potentially increase sales by a higher margin without it being

considered significant if FPI did not expand capacity. FPI opposes the

suggestion that industry input is necessary before any planned FPI

expansion. Rather, we defer to the statute, which cites ``significant''

expansion. The language does not say FPI can not have any expansion

without industry input. Both the current and revised definitions allow

for exactly the type of private industry input suggested. The process

calls for FPI to notify known Federal vendors and relevant trade

associations, requesting input and relevant data for use in the

upcoming impact study. Following FPI's issuing of the preliminary

study, interested parties may submit comments in reaction to it.

Comments may also be submitted in response to the revised study, and

private sector representatives have the opportunity to appear and speak

before FPI's Board of Directors.

Commenters objected to the proposed market share levels limiting

FPI's expansion. Commenters noted that new

[[Page 11468]]

definitions allow FPI to increase a product's market share up to 15%

without initiating the industry involvement guidelines process. FPI

believes this is reasonable. To provide some background, in both public

testimony and private discussions with FPI, several industry

representatives have stated their idea of what constitutes a

``reasonable share of the market'' for FPI. Almost uniformly, these

officials state that a 15%-20% market share is reasonable for FPI. In

legislation submitted by Rep. Collins, a 20% market share is referenced

as the market share acceptable for FPI's production. Thus, allowing FPI

to boost production of an existing product without initiating the

guidelines process until its market share reaches 15% is not

unreasonable.

Commenters objected to allowing FPI to increase its market share up

to 15% of a specific product, since this may result in FPI providing

100% of certain items upon which small businesses may be dependent. FPI

acknowledges that among the goods and services it provides are some

items bought in relatively low quantities. For FPI to provide these

items, as would be the case for any business, in a self-sustaining

manner (as the corporation is mandated to operate), it must achieve

certain economies of scale. In some instances, this may result in FPI

supplying much, or even all, of a single Federal contract. There is no

guarantee of further Federal demand for the exact same item. Thus,

while buys of the ``specific product'' continue, a small buy for a

single item may be supplied exclusively by FPI. FPI will monitor the

potential for such situations as it has in the past.

A commenter noted the revised significant expansion sliding scale

allows for a hypothetical situation in which FPI could boost its

production of an item from $5 million and 10% of the Federal market

(out of $50 million) to $7.5 million in sales and a 15% share without

initiating the expansion process. the interpretation of the revised

market share scale is correct. FPI believes this is a fair and

reasonable formula. Under this hypothetical scenario, the value of

Federal buys available to private vendors decreases only slightly from

$45 million to $42.5 million. It should be noted that, in the scenario

described, this would be the maximum impact FPI could have for a given

year under the new rules.

Commenters objected to having market activities independent of

FPI's activities irrelevant in determining what is FPI's reasonable

share of the market. The new definitions do not change the factors used

by the Board of Directors to determine what is a reasonable share of

the market. As in the original rules, the proposal does not hold FPI

responsible for a ``significant expansion'' when the corporation's

market share increase is due to market dips outside of FPI's control.

Commenters expressed concern that the definitions have FPI's Board

of Directors serve as the ultimate authority for decisions on issues

related to FPI's expansion efforts. It was suggested an independent

body would be a more appropriate body for such responsibilities. FPI

notes such concerns, but does not agree. It was Congress' intent to

have FPI's Presidentially-appointed Board of Directors oversee and

direct FPI's operations, insuring the credibility of the industry

involvement guidelines process. By statute, the Board is called upon to

make such decisions, after balancing the often numerous and complex

concerns of all parties involved. The Board's job is to review and

analyze all information presented to them as part of each proposal,

including data from FPI and private industry. The new definitions make

no change from the current rules on this issue.

Several commenters expressed concern that the revised guidelines

would allow FPI to ignore, nullify or modify previous new product or

expansion decisions made by FPI's Board of Directors. FPI points out

the revised definitions specifically state that prior decisions by

FPI's Board would not be affected. Thus, recent Board decisions

regarding FPI expansion proposals relating to shipping/storage

containers, dormitory and quarters furniture, office case goods, etc.,

all still apply.

(III) Comments That Are More Relevant to Other Aspects of FPI's

Operations

The following are ideas, recommendations or suggestions provided by

commenters which, though often insightful and/or constructive, are more

relevant to other aspects of FPI's operations, and do not directly

address the merits of the revised expansion definitions. In the

interest of being open to public scrutiny, FPI has included a brief

response to each of the comments below.

A commenter noted that the revised definitions do not alter FPI's

mandatory source status. FPI recognizes that its status as a mandatory

source of supply for the Federal government is an important issue for

many commenters. However, the mandatory source issue is more relevant

to the discussions (mentioned in the previous section) that are planned

by Rep. McCollum and other members in the Congress.

A commenter suggested FPI ought to consider the production of other

mandatory source operations, such as NIB, NISH and 8A firms, when

considering the ability of the Federal market to sustain FPI and

private vendors. FPI appreciates the suggestion, which is more relevant

to the manner in which the corporation prepares its actual impact

studies. FPI agrees that data relating to production by sources such as

NIB and NISH is an important piece of information.

A commenter argued FPI should not use comparisons of the Federal

market and total domestic market as justification for production of a

new product or a significant expansion of production for an existing

product. FPI recognizes the importance of all factors involved in

determining what constitutes a reasonable share of the Federal market.

Under both the existing guidelines and the new definitions, it is up to

FPI's Board of Directors to determine what is a reasonable share. The

statute calls for consideration of several factors in the impact

studies, including the size of the Federal market as well as the size

of the total domestic market.

A commenter objected to FPI lumping together Federal purchases from

civilian agencies and the Department of Defense (DoD). FPI's

authorizing legislation restricts the corporation to selling its goods

and services to the Federal government. There is no distinction made

between DoD and any other Federal department or agency. On this issue,

the revised definitions make no change from the current guidelines.

A commenter claimed the option of manufacturing for the commercial

market has eroded for many products supplied by FPI. The commenter

stated that when FPI produces an item previously supplied by private

vendors, private sector jobs are almost certain to be lost. FPI notes

that the ability of private vendors to find non-Federal markets for

their goods is one of the factors FPI's Board of Directors assess when

they consider the level of FPI's impact on the private sector. This

responsibility is not changed from the existing definitions.

A commenter contended that much of the machinery used by private

vendors to produce goods for the Federal government is specialty

equipment not easily converted to manufacture other products. FPI

recognizes some vendors buy equipment specifically to compete for

Federal contracts and in some cases, such equipment is not easily

converted to other uses. Such decisions are the

[[Page 11469]]

responsibility of each vendor. Removing FPI as a supplier of Federal

goods would not eliminate all the competition and risk from competing

for Federal contracts. Both the current and revised definitions are

designed to help insure that FPI's operations do not place an undue

burden on any one industry. When assessing FPI's impact, one of the

many factors FPI's Board of Directors take into account is the ability

of the affected vendors to produce similar items for non-Federal

customers or make other items with the same machinery.

A commenter suggested that a consistent definition of ``reasonable

share of the market'' must be established. The commenter stated that

until then, expediting the expansion process would only allow FPI to

take bigger bites of new or existing markets more quickly. FPI

acknowledges the inability of interested parties to reach an agreement

on what constitutes a reasonable share of the market for FPI. This is

particularly frustrating in light of the fact that FPI has worked

extensively with various private sector vendors, trade associations and

public policy groups on this and related prison industry issues for the

past seven years. This is why the Congress left the final decision of

what constitutes a reasonable share to the FPI Board of Directors, upon

weighing the issues and concerns of all parties.

(IV) Comments Which are Vague, Broad or General in Nature

The following are ideas, recommendations or suggestions provided by

commenters which are vague, broad or general in nature. The comments do

not always make a specific point and FPI is not in a position to

appropriately address each of the comments. Nevertheless, the

corporation has included a brief response to each comment.

A commenter suggested that the revised definitions threaten small

businesses. Though respectfully disagreeing with this statement, FPI

finds its vague in that it fails to explain how the revised definitions

have a particular effect on small businesses that is different from how

the rule would affect any other business.

Several commenters expressed their belief that FPI proposed the

revised definition to allow FPI greater freedom to expand into new

product areas. While disagreeing with this comment, FPI also finds it

ironic. In the past, most of the vendors and trade associations with

which FPI has worked have suggested that FPI make a greater effort to

diversify its operations, so as to alleviate its impact on industries

in which FPI already operates. This comment suggests these parties have

changed their position, and do not wish further diversification by FPI.

One commenter stated that new definitions are especially

disconcerting in light of FPI's ``public rhetoric about partnering and

cooperation with industry.'' The commenter suggested the revised

definitions signify that FPI ``is not truly interested in partnering

and will continue to expand, absent a high-profile, bluntly adversarial

campaign.'' It is FPI's belief that the new definitions are a step

forward in the corporation's efforts toward greater cooperation and

more partnerships with private industry. The new definitions help

address the problems related to the availability of data, while also

providing a number of safeguards for potentially affected industries.

A commenter stated the revised definitions are more arbitrary and

less transparent than the current system. Other commenters suggested

the revised definitions, if implemented, would only make it easier for

FPI to arrive at the results it desires. While disagreeing with these

sentiment, FPI finds them to be broad comments. FPI has spelled out the

problems associated with the existing rules, the corporation's

rationale for change, and the protections built into the process to

safeguard the concerns of industry and enhance the opportunity for

public comment. The revised definitions are a sincere attempt by FPI to

rectify some of the existing problems, and we believe they will result

in improvements to the process for all concerned. Since the rule will

be published for implementation as an interim measure, allowing further

comment during implementation, we believe FPI has maximized the chances

for the process to work for all parties as intended.

As mentioned earlier, FPI is announcing implementation of these

revised definitions on an interim basis. Until such time that FPI's

Board of Directors determines that the definition should be made final,

the corporation reserves the right to make further modifications based

on input from any of the following sources:

(1) The ongoing independent audit of FPI's use of and compliance

with the original expansion guidelines being conducted by the

accounting firm of Urbach, Kahn and Werlin;

(2) The examination of FPI's methodology use to calculate the

Federal market for goods and services supplied by FPI. This analysis is

currently underway and is being conducted by a panel of independent

Federal procurement experts;

(3) Comments relating to the revised definitions and procedures

received by FPI from private industry or organized labor; and,

(4) FPI's own experience as the corporation works with the revised

definitions.

Any further comments on these definitions may be submitted to FPI

at the address listed above. Any such comments will be considered and

noted, but will not necessarily receive a response in the Federal

Register or Commerce Business Daily.

FPI now publishes the following definitions of ``specific

product'', ``new product'', and ``significant expansion of an existing

product''. These are interim definitions. The decision to further

modify these definitions, and/or institute the definitions on a

permanent basis is solely at the discretion of FPI's Board of

Directors.

Revise Definitions

1. Specific Product

A specific product refers to the aggregate of items which are

similar in function (e.g., bags and sacks), or which are frequently

purchased for use in groupings (e.g., dormitory and quarters furniture)

to the extent provided by the most current Federal Supply

Classification (FSC) Code. There are currently 685 federal supply

classes designated within the Federal Procurement Data System. FPI

currently produces within 74 of these classes.

Specific products will equate to the most current 4-digit FSC Code,

published by the General Services Administration, Federal Procurement

Data Center (FPDC). As a general rule, products will be deemed to be

different specific products if they are identified by a distinct 4-

digit FSC code.

The following means will be used to determine how items should be

treated:

--Items classified within the same 4-digit FSC code will be presumed to

comprise a single specific product (unless otherwise determined by FPI,

or with input from the relevant industry).

--The predominant material of manufacture (e.g., nylon vs. canvas) will

not ordinarily be a factor in defining an item as a separate specific

product. (Material will be considered as part of routine review.)

In certain instances, with approval of its Board of Directors, FPI

may combine FSC codes where multiple FSC's comprise a particular

industry. In requesting the Board to combine FSC's, FPI will give

careful consideration, and

[[Page 11470]]

be especially sensitive to, companies that manufacture products (such

as various items of apparel) in multiple FSC codes. Moreover,

situations should be avoided by FPI where it would have to request

Board approval of production and/or expansion in several ``specific

products'' (e.g., office seating, case goods, and systems furniture),

each of which often involves many of the same companies within a single

potentially affected industry (e.g., office furniture).

The rationale for any proposed combining of FSC's will be published

by FPI in the Commerce Business Daily to seek input from the

potentially affected industry. In all cases, input received in its

submission will be forwarded by FPI to the Board of Directors for

consideration and final determination.

In some instances, an item may be considered separate from another

product in the same 4-digit FSC category, if its function differs

substantially. In such cases, the 4-digit Standard Industrial

Classification (SIC) code may be used as a back-up measure to more

accurately define the product.

SIC codes will continue to be used at the 4-digit level to

determine the size of the domestic market for a particular product. For

purposes of product definition in the domestic market, FPI will combine

4-digit SIC codes when the data suggests the product under examination

may encompass several different 4-digit SIC codes, with no substantial

difference in the product (e.g., men's vs. women's apparel).

2. New Product

A new product is a `specific product' which FPI has not

manufactured or produced within the past five years.

In cases where it has been determined that more than one specific

product exists within a 4-digit FSC, the 4-digit SIC code will be used

as a secondary indicator to determine whether the product is ``new''.

In such cases, a new product will be defined as a `specific product' in

the four-digit SIC which FPI has not produced within the past five

years.

``Good Faith'' CBD Announcements--Items not deemed by FPI to be a

New Product.

Under current rules, management decisions as to whether production

of an item constitutes a new product are made by FPI staff, based on

the SIC classification system, without public involvement. Under the

proposed new rules, there may be circumstances in which FPI plans to

produce items that FPI does not consider to be a new product, but which

an affected party may reasonably construe to be a new product. In these

circumstances, the items will be announced for comment in the Commerce

Business Daily. The purpose of this provision is to give private

industry an added level of input into such decisions made by FPI, since

it is not possible to anticipate every possible situation or question

that could arise within the proposed definition.

The parameters for publishing such internal decisions that are made

and announced subject to this provision will be as follows: items that

a reasonable person could construe to be a product separate and

distinct from another item which FPI is making or recently made would

be subject to announcement even though their function is similar. As an

example, the production of extreme cold weather trousers would be

announced, although FPI already produces bullet resistant fragmentation

vests, and both are items of protective clothing.

Items that are essentially the same product, or those that are

variations of an existing FPI product (e.g., a new style of seating)

would not be subject to announcement of any kind. However, FPI will

resolve any question as to whether to announce in favor of

announcement.

In submitting comments to FPI, the following guidelines will apply:

--Comments will be due within 21 days of the date of publication;

--Relevant comments will focus on and address why the item should be

considered a new product, separate and distinct from a similar item

currently being produced by FPI. Comments may include such factors as:

The manufacture of the item involves substantially different material

and processes; companies that produce this item specialize in

manufacturing only that item; the manufacturing processes are unique

and are not easily adaptable to produce other similar items;

--While the primary purpose of the comment provision will be to

determine if an item should be defined as a new product, comments

related to market share and/or the impact that such a production

decision may have on the firm will also be considered as they are

relevant;

--All comments received in response to these announcements will be

considered by FPI. The commenter will be advised whether FPI decides to

go through the guidelines process.

As always, any interested party has a right to raise any question

at any time with the Board of Directors (see 28 CFR 301.2), and thus

may appeal to FPI's Board of Directors any issue or decision relating

to whether a product is a new product. However, pending such review,

FPI may proceed with its plans in accordance with the decision as

announced in this process described above, unless and until the

decision is reversed.

3. Significant Expansion of an Existing Product

Proposed production increases by FPI which may increase its market

share will be reviewed during the Corporation's annual planning cycle

and be deemed a significant product expansion under the following

circumstances:

(1) Sales (measured in constant dollars) for the specific product

will increase by more than 10 percent, or $1 million, in any given

year, whichever is greater; or

(2) In any case where FPI's market share is greater than 25%, any

increase in FPI's market share resulting from an increase in FPI

production would be deemed to be significant for purposes of triggering

the guidelines process.

Discussion: When either criterion is met, an analysis of the

federal government market for the specific product will be conducted

and an estimate of FPI's current and projected market share will be

developed. The production increase will be deemed ``significant'' when

FPI's market share position changes in accordance with the following

sliding scale. If FPI currently has a 15% or less share of the federal

market, any increase in market share would be permissible, provided

that the particular increase does not result in FPI exceeding a 15%

market share. If FPI has a market share greater than 15%, but less than

20%, FPI could increase its market share to 20%, before the increase

would be deemed to be significant. If FPI has a market share of greater

than 20%, but less than 25%, FPI could increase its market share to

25%, before the increase would be deemed to be significant.

The allowable increase in market share from 15 to 20% in one year,

should not allow FPI to (assuming its sales increases by more than 10%)

increase its share again from 20 to 25% in a subsequent year without

going through the guidelines process.

Market shares will be calculated on the basis of FSC's for planning

purposes. If based on initial assessment, it is determined that a

comprehensive impact study, and Board approval, is likely to be

required, a detailed in depth analysis of market share will be

undertaken to fully assess potential impact.

Situations where FPI production remains constant, but market share

[[Page 11471]]

increases as a result of other factors, including market changes, will

not require FPI to initiate the guidelines process. The fact that 25%

may ``trigger'' the guidelines does not necessarily mean the Board of

Directors cannot approve an FPI production level resulting in a federal

market share above 25%.

The prior three years' data will be used to determine the share of

the federal government market, to ensure that annual fluctuations are

taken into account and normalized.

FPI may produce at the rate of previously achieved annual sales

levels, adjusted for inflation, without initiating the guidelines

process.

In cases where FPI sales inadvertently or insubstantially exceed

Board authorized levels, FPI will make every effort to adjust its

production by a corresponding among the following year. If FPI plans

call for continued growth, it will invoke the guidelines process

without delay and seek Board approval of future production levels.

Should the Board decide on a production level lower than that which FPI

already achieved, FPI will adjust its future plans and, if necessary

scale back, to comply with the Board's decision.

In cases of extreme public exigency, such as national disaster or

national defense emergency, such as during Operation Desert Storm, FPI

may exceed guidelines thresholds, provided FPI receives specific orders

or requests from senior Department of Defense and/or Executive Branch

officials. Increased sales resulting from national exigencies will not

be considered a violation of guidelines ceilings in the year which they

occurred. In such cases, the higher production levels achieved by FPI

will be temporary, and will not be used as part of FPI's baseline for

future calculations of significant expansion. Such exceptional events

will be subject to approval by FPI's Chief Operating Officer, with

concurrence of FPI's Board of Directors.

Subject to other provisions noted in this procedure, FPI's sales

for the current fiscal year will be utilized as the based year for

future application.

Prior decisions of FPI's Board of Directors will remain unaffected

by these changes to the definitions.

These proposed rules have been reviewed by FPI's Growth Strategies

Implementation Committee. The following officials are represented on

the Committee:

Executive Vice President, Envelope Manufacturers Association of America

Vice President--Government Affairs, Screen Printing and Graphic Imaging

Association International

Manager, Break-Out Procurement Center Representative Program, Small

Business Administration

Former Senior Staff Member, Brookings Institution

Head of Office of Wages and Industrial Relations, AFL-CIO

President, State/Federal Correctional Vendors Association

Their comments and suggestions have been incorporated into this

proposed procedure.\1\

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\1\ Of course, these officials and these organizations are not

precluded from making further comment at this time.

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All comments received in response to this proposed procedure have

been provided to the FPI Board of Directors, which has approved these

procedures for publication and implementation on an interim basis.

Robert Grieser,

Manager, Planning, Research and Activation Branch.

[FR Doc. 97-6143 Filed 3-11-97; 8:45 am]

BILLING CODE 4410-05-M