Office furniture makers are moving quickly to take advantage of the new opening they have to bid on federal contracts.
The $388 billion omnibus budget bill that President Bush signed this month included a provision that permanently lifts Federal Prison Industries Inc.’s virtual monopoly to sell goods to federal agencies, breaking open a market in which private-sector vendors have wanted to compete for decades.
The change in the law for FPI, which came quietly after a nearly decade-long battle, has office furniture manufacturers in the region now weighing their strategies for further penetrating the federal market. While representing the potential for only incremental business, the opening is still a highly welcome market opportunity for office furniture makers now recovering from a devastating and deep three-year sales slide.
“We’re ready to pounce,” said Mike Kratt, vice president of government sales at Herman Miller Inc.
The language, inserted deep into the budget bill, eliminated mandatory-source status that required federal agencies to buy from FPI unless granted a waiver — by FPI. The inclusion of the language in the budget bill by Sen. Richard Shelby, R-Alabama, gained reform advocates a major victory.
The provision is similar to a measure Sen. Carl Levin, D-Michigan, got attached to a budget bill two years ago that opened up contracts at the Department of Defense — FPI’s largest customer — to private-sector competition. Levin subsequently was able to extend that to cover the Treasury Department and Transportation Department for one year for the federal government’s 2004 fiscal year that ended Sept. 30.
The permanent change in the law enables all federal agencies to now buy goods based on their overall value.
“It gives us that much more in places to deploy our strategy and tactics and gives us 100 percent of the market to go after,” said Phil Todd, director of customer development for Haworth Inc. “We’re ready to move.”
The victory allows office furniture manufacturers, when they approach procurement officers at all federal agencies, to begin including intangibles such as delivery time, quality, durability and customer service in the equation when they make a sales presentation, Kratt said.
Yet even with the opening, there’s no guarantee that private-sector vendors and office furniture makers will pick up new business with the federal government. FPI has a large base of installed furnishings and there is a cost involved for federal agencies to switch, Kratt said.
That means furniture makers need to prove themselves to federal procurement officers long accustomed to doing most of their business with FPI, he said.
“We still have to compete for the business” with FPI, said Kratt, who considers the agency “a viable competitor” that will likely alter its business plan accordingly.
“I would expect they will do like any competitor, and that is they will refine their strategy, their business plan and their marketing message,” he said.
Herman Miller CEO Brian Walker, in a conference call last week with brokerage analysts, estimated the market opportunity for the company at $15 million to $20 million.
An arm of the U.S. Justice Department’s Federal Bureau of Prisons, FPI employs nearly 21,000 inmates to produce some 300 products, including textiles, electronics, automotive components and office furniture sold under the Unicor brand name. The corporation has 112 factories operating in 71 federal prisons and pays inmates 23 cents to $1.15 an hour.
In the federal government’s 2003 fiscal year, the most recent year for which data is available, FPI sold $151.9 million in office furniture, a steep decline from the $217.9 million in the prior year. The decline was attributed to previous reform efforts that opened the Defense Department contracts to private sector competition.
Across all product categories, FPI’s revenue totaled $666.7 million in FY2003, down slightly from the previous year.
Critics of FPI have argued for years that the federal corporation has misused mandatory-source status and its protections to delve into private markets, and posed unfair competition with the private sector, although they fully endorse the need for a program to teach prisoners job skills for when their confinement ends.
Many say the job now for the office furniture industry is to remain vigilant and help federal procurement officers understand the change. New federal rules promulgating the change in the law will go into effect early next year and industry leaders say companies need to work with potential federal clients to avoid confusion.
“The task now is to make sure the law is implemented in the fashion that Congress intended,” said Tom Reardon, executive director of the industry trade group Business and Institutional Furniture Manufacturers Association, or BIFMA. “It’s a huge step forward and it can get away from you if you don’t keep an eye on it. We need to remain vigilant and see it all the way through.”
And many believe the industry needs to continue to push for broader FPI reform.
U.S. Rep. Peter Hoekstra, a long-time advocate of FPI reform, next year plans to re-introduce a reform bill he pushed through the House this legislative session. A similar measure from Levin passed a Senate committee but never received a vote from the full Senate.
Reform advocates worry that what was done with the budget bill can get undone in a similar manner in subsequent years.
“We still need to change the fundamental law that’s been on the books in order for this to be permanent going forward,” Herman Miller’s Kratt said.