Mimesis Law
23 June 2017

A Steady Hand at the Helm(ets)

Aug. 19, 2016 (Fault Lines) – In his Satires, the Roman poet Juvenal asked a famous question: Quis custodiet ipsos custodes? Who will watch the watchmen?

Now, that question may have been hard to answer back when the watchmen’s job was keeping rich Romans’ wives from straying. But we live in enlightened times, and if you’re the federal government, the answer’s easy. The federal government will watch the federal government. Good and hard.

So if, for example, part of the federal government’s been paying a private company to pay another part of the federal government to force prisoners to make helmets for the Army and Marine Corps, and it turns out the helmets are garbage and inspectors from the federal government lied and said they were fine, you can rest assured the DoJ, yet another part of the federal government, will untangle all the strands, bring the perpetrators to justice and recover the taxpayer’s money. And if you believe that, I have a bridge to sell you.

On Wednesday, August 17, the DoJ’s Office of the Inspector General released a report summarizing its “findings of fraud and other irregularities” in the helmet snafu. We’ll pick up the story in 2006, when ArmorSource LLC, a private defense contractor in Ohio, became one of four lucky companies to get a DoD contract to make combat helmets for the U.S. Army at between $230 and $240 a pop.

Of course, ArmorSource, which describes itself as a “design, development, testing and manufacturing” company, likes the cerebral part more than getting its hands dirty and actually making the helmets. After all, private-sector manufacturing is expensive. Companies like American Apparel, Inc.*, which makes military uniforms at three sites in Alabama, pay their factory workers an average hourly wage of $9, plus health insurance, 401(k)s and vacation. It’d be great for defense contractors’ bottom lines if there were an alternative to paying free-market rates.

Fortunately for ArmorSource and contractors like it, such an alternative does in fact exist. It’s a lot cheaper, and it comes with the added bonus of letting contractors show their appreciation for the government. I’m talking about the federally-run prison labor company, UNICOR, which subcontracts for manufacturing work like the DoD’s combat-helmet gig.

Like many of America’s most beloved federal entities, UNICOR, formally known as Federal Prison Industries, Inc., was born during the New Deal. FDR created it in December, 1934, in response to two bills authorizing the federal government to put its prisoners to work and set up a company to “insure the more effective diversification” of the fruits of prison labor. If that sounds a little Orwellian, you ain’t seen nothing yet.

If you’re a federal prisoner, Title XXIX, Sec. 2905 of the Crime Control Act of 1990 compels you to work. Every able-bodied prisoner who isn’t considered a security risk has to take part in a work program of some sort. Though the law doesn’t provide a formal penalty for failure to comply, as a practical matter, refusing to do your job will get you thrown in the SHU.

With an alternative like that, it’s unsurprising that nearly all prisoners decide not to opt out. And as recently as 2007, UNICOR was one of the most popular outfits to work for, “employing” about 18% of all work-eligible inmates. These days, the outlook is much less rosy: in 2013, a mere 8% of eligible inmates worked for UNICOR, and even though the prison population continued to grow in the Obama era, it now “employs” fewer prisoners in real terms than ten years ago. Because its statutory raison d’être is putting prisoners to work, it’s failing big time.

Part of the reason may be that the wages suck even worse than under Bush. Just like in ’07, inmates receive between $0.23 and $1.15 an hour, depending on their skill, level of education and experience in the job. And because of 28 CFR § 545.11(b)(2), any inmate in UNICOR with a court-ordered financial obligation has to forfeit 50% of that pay, on pain of pain. Eleven cents an hour don’t buy a lot of commissary, though under the FCC’s new rules, they do get the inmate nearly 40 seconds on the phone.**

Because UNICOR gets no direct funding from the federal government, it has to be self-sustaining. In addition to what we might euphemistically call its labor advantage, it gets a little help on that score from what’s known as the “mandatory source clause.” Under 18 U.S.C. § 4124(a), the Federal Acquisition Regulation, its supplements (such as DFARS) and, in the DoD’s case, 10 U.S.C. § 2410n, federal agencies are forced to buy products from UNICOR unless it grants them a waiver, which it’s only allowed to do if it can’t undercharge the market.

Thanks to its labor advantage, that’s not a problem, which makes UNICOR deeply unpopular with the private-sector competition in any industry it moves into.*** By contrast, federal agencies are only encouraged to purchase services from UNICOR, which is good news for ArmorSource; UNICOR’s been in the helmet R&D business since the 1980s.

UNICOR’s monopoly-like conditions**** give it annual revenue of nearly half a billion dollars, down from nearly a billion in 2009. Still, even in 2009, it was loss-making, and it hasn’t turned a profit for nearly ten years. Of course, the percentage of wages paid to staff keeps going up: in 2015, fully 23% of revenue ($108 million) went to government employees, as opposed to the 3% ($14 million) that went to the prisoners who actually made stuff.

With all these reasons to love UNICOR, it may surprise you to learn that the helmets it makes are crap. From 2006 to 2009, it used federal prisoners in Beaumont, Texas to make 126,000 Army helmets for ArmorSource and another 23,000 helmets for the USMC, at a cost to taxpayers of about $35.4 million. It turned out these things were so substandard – flaky, didn’t fit, falling apart, stuffed with scraps and sawdust instead of Kevlar – that every last shipment was recalled. In its report, the DoJ estimates the “monetary losses and costs to the government” at another $19.4 million.

What’s more, the DoJ found that UNICOR staff and employees at yet another federal outfit, the Defense Contract Management Agency, were working together to sabotage inspections. And during a surprise visit to Beaumont in 2009, the DoJ found a scene of utter chaos: instead of even pretending to produce quality gear, inmates were hitting helmets with improvised hatchets and spikes driven through clubs as staff looked on.

So faced with all this evidence of government misconduct, what did the DoJ do? Sue ArmorSource, the only private link in the chain. In U.S. ex rel. Ponzio v. Rabintex Industries, the government got two UNICOR whistleblowers to claim everything was ArmorSource’s fault. In March, 2016, the company agreed to settle for $3 million, leaving it with a mere $27 million in revenue from the helmet contract. Nobody was prosecuted, and in its report, the DoJ confirms that nobody will be. Instead of getting fired, the UNICOR staff at Beaumont were “reassigned.” Taxpayers are out tens of millions of dollars. And in May, ArmorSource announced it had won a new contract to make 10,000 USMC helmets.

With watchmen like these, who needs enemies?

*Not that one.

**This is actually less than the average wage for unskilled blue-collar work during the Great Depression, before adjusting for inflation. Of course, federal prisoners get room and board.

***Currently, they are Agribusiness, Clothing and Textiles, Electronics, Office Furniture, Recycling and Services.

****Over the years, a number of attempts have been made to reduce UNICOR’s stranglehold on the private sector. The results have been mixed.

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  • Dave L
    24 August 2016 at 3:32 pm - Reply

    As a former USAF Contracting Officer (KO), mandatory sourcing is a massive headache in terms of sacrificing quality, price, and schedule. With no real competition, there is next to no motivation for any small business or UNICOR to actually become efficient.

    Funny story, in the case of small businesses, around ’09 and before KOs used to be required to look to small businesses. This was implemented by allowing the KO to have a choice between a total small business set-aside for some items (that where only a SBA certified small business can bid on a project) or to have an evaluation percentage for small businesses (ie any Large business will have their overall proposal increased by 5%, 10%, or whatever the KO chose, for evaluation purposes only). This was a workable system except that the SBA was annoyed that so many contracts STILL were being awarded to large business as most KO’s would choose an evaluation percentage.

    So they removed the evaluation percentage from their portion of the mandatory regulation. Now a KO must do a total small business set aside for most buys unless they can PROVE that there are going to be less than two US small businesses that can perform the work.