84 -- FPI - Revised Guidelines Ceilings Due to Change in Material for the New Battle Dress Uniforms

On December 7, 2004, Federal Prison Industries' (FPI) Board of Directors (the Board) revised FPI's authorized sales ceilings for work clothing, specifically, Battle Dress Uniforms (BDUs). FPI’s primary customer for this item is the Department of Defense (DOD). Recently, the Army decided to replace the existing Battle Dress Uniforms (BDUs) with a new version that has substantially increased costs primarily due to choice of fabric. The Defense Supply Center, Philadelphia (DSCP), has indicated that FPI will be one of the first suppliers converted to the new BDU design. The increase in material cost of the BDU set, will result in a sales increase of approximately $10 million per year. The resulting sales increase will cause FPI to exceed its Board authorized ceilings for work clothing (which currently includes BDUs). FPI requested that the Board revise the sales ceilings to reflect the units of production previously approved and the costs for the new fabric. The current authorized sales ceiling for work clothing in fiscal year (FY) 2005 is $45.9 million. This level has not increased since 2000, except for a three percent annual increase for inflation, approved by the Board. With similar inflation adjustments for 2006-2007, the authorized sales ceiling vs the sales levels necessary to accommodate the new material costs would compare as follows: $45.9 million to $56 million in FY 2005, $57 million in FY 2006, and $59 million in FY 2007. FPI emphasized in its request to the Board, that the increased cost of fabric is the only reason that the sales will increase over the previous Board-authorized ceilings. This action will not have an adverse impact on the private sector as the number of units produced by FPI does not proposed to change. FPI's market share for this product should not increase as the size of the federal market will increase accordingly based on the increased sales costs associated with the new fabric. Precedent exists for this type of Board decision, as a similar situation occurred when DSCP went to a higher cost material for its Physical Fitness Uniform (PFU) trunks and sweatsuits in August and September of 1999. The change to increase FPI's dollar ceilings commensurate with the new materials was approved by the FPI Board at the time. Interested parties have a right to raise questions at any time with FPI. Any correspondence should be addressed to: Chief Administrative Officer, Research, Activation, and Corporate Support, Federal Prison Industries, Inc., 320 First Street, NW, Washington, D.C. 20534. Attention: RACS Branch.