However, neither FPI’s legislation nor the FAR defines current market price or specifies how such a price is to be established. Responding to this pricing dispute, the Board of Arbitration for Prison Industries issued a decision in February 1931 that prison industries did not have to set its price at the lowest bid price in order to comply with the current market price requirement. In this opinion, Justice found that the mandatory preference granted FPI is an exception to the rules that normally govern the way products are procured by federal agencies, and therefore, procurements from FPI are not covered by the FAR’s standard provisions. Nor did the procedures specify how many prices should be checked to constitute a market or how frequently prices should be checked. In addition, FPI’s policy did not require the product divisions to document the market surveys or other methods they used when setting prices for FPI’s products. We discussed FPI’s pricing policy and procedures with FPI officials and told them that we were concerned that the policy and procedures in effect at the time of our review had not implemented our 1985 recommendations to define current market price and provide pricing methods that the product divisions could use to help ensure that FPI’s products were priced within current market prices. The only limit the law imposes on FPI’s price is that it may not exceed the upper end of the current market price range. Our comparison of FPI’s prices for 20 products with private vendors’ catalogue or actual prices for the same or comparable products showed that for 16 of the products, FPI’s prices were not the highest. Although FPI’s prices for 16 of the products reviewed did not exceed current market prices, prices for 5 of these products were at the high end of the range of prices offered by private vendors. In summary, for the 20 products we reviewed, FPI’s prices for 17 products were not the highest offered to the government, and therefore we concluded that the prices were within the current market price ranges; FPI’s prices for 2 products may have been within the current market ranges; and for 1 product, it was not clear whether FPI’s price was within the current market range. However, FPI generally did not offer federal agencies the lowest prices for products that they purchased. Objectives, Scope, and Methodology

Our objectives were to (1) describe the laws and regulations governing how Federal Prison Industries (FPI) is to price its products, (2) describe the policies and procedures FPI uses to ensure that its products are priced in accordance with applicable laws and regulations, (3) determine whether FPI followed these policies and procedures when it set prices for selected products, and (4) compare FPI’s prices with those charged by private vendors for selected products. We compared the pricing policy and procedures that were in effect when we began our review with the revised policy and procedures that FPI issued in February 1998 to determine what changes had been made. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Federal Prison Industries' (FPI) product pricing, focusing on: (1) the laws and regulations governing how FPI is to price its products; (2) the policies and procedures FPI uses to ensure that its products are priced in accordance with the laws and regulations; (3) whether FPI followed these policies and procedures when it set prices for selected products; and (4) a comparison of FPI's prices with those charged by private vendors for selected products.

What GAO Found

GAO noted that: (1) federal agencies are required by law to purchase FPI products if they are available, meet the agencies' requirements, and do not exceed current market prices; (2) however, neither the law nor the Federal Acquisition Regulation defines current market price or provides guidance on how such a price is to be determined; (3) a 1931 Comptroller General Decision cited a decision by the Board of Arbitration for Prison Industries, which stipulated that FPI is not required to set its prices at the lowest bid price to comply with the current market price requirement; (4) on the basis of these decisions, GAO concluded that the only limitation on FPI's price is that it may not exceed the upper end of the current market price range; (5) a 1993 legal opinion issued by the Department of Justice found that the mandatory preference granted FPI is an exception to the rules that normally govern the way federal agencies procure products; (6) FPI's May 1995 policy and procedures that were in effect when GAO began its review in July 1997 recognized that FPI products were to be sold at prices that did not exceed current market prices; (7) however,the policy and procedures did not specifically define current market price; (8) FPI's procedures did not specify how many prices had to be checked to constitute a market or how frequently prices should be checked; (9) further, FPI policy did not require the product divisions to document the market surveys or other methods that they used when setting prices for FPI's products; (10) however, on February 18, 1998, FPI issued its revised pricing policy and procedures; (11) GAO's analysis of how FPI established prices for 20 selected products showed that for 13 of the products, the divisions followed FPI's pricing policy and procedures that were in effect when GAO began its review; (12) GAO's comparison of FPI's catalogue or actual prices for 20 products with private vendors' prices for the same or comparable products showed that FPI's prices for 16 of the products were not the highest; and (13) however, FPI's prices for 5 of these 16 products were at the higher end of the price range offered by private vendors.