What is a preferential procurement source?

A government employee raised the following topic: All government agencies are required to purchase certain items from designated "preferential procurement sources." These include the Federal Prison Industries Inc., which does business under the trade name UNICOR, and various "sheltered workshops" identified by the Committee for Purchase from People who are Blind and Severely Disabled (CPPBSD). What rules are applicable to the acquisition of goods and services from these organizations?

Congress established Federal Prison Industries in 1934 to provide employment, education and training opportunities to inmates in federal custody. Similar statutes for particular prisons date back at least until 1918. Currently, UNICOR operates almost 100 factories at 50 locations and produces more than 250 different items.

Congress established the predecessor to the CPPBSD in 1938. The statute authorizing this program is called the Javits-Wagner-O'Day (JWOD) Act, which encourages the use of federal procurement dollars to assist nonprofit organizations that employ disabled people. Some of these organizations focus on training employees for jobs in the general commercial sector, while others provide permanent employment opportunities for their clients.

Under the JWOD Act, agencies can buy routine supplies, including office supplies and related commodities. Services procured under the act include such things as document processing, data entry, publications distribution, mail room operations and other administrative and technical tasks as well as more routine functions such as grounds maintenance, shelf-stocking and supply room operation. More than 500 nonprofit agencies receive more than $75 million a year under the program.

Items provided by UNICOR are listed in its schedule of products and services. Items provided by JWOD suppliers are in a separate procurement list maintained by the CPPBSD. By statute, Federal Prison Industries is preferred over JWOD suppliers for goods that both groups can provide. However, for services, JWOD suppliers are preferred. For items properly included on their lists, both sources are entitled to a preference over alternative commercial suppliers.

Sheltered workshops for disabled persons operate under certificates issued by the Labor Department that allow the workshops to pay wages significantly lower than the minimum wage established by the Fair Labor Standards Act. Disabled people often are paid on a piecework basis or on another basis intended to assure that payment is equitable, taking into account any diminished productivity.

Qualified organizations must ensure that disabled people provide at least 75 percent of the direct labor hours used in the production of the items they supply. Furthermore, an item will not be added to the procurement list unless a workshop can satisfy the committee's requirement that it will have the capability to meet the government's quality standards and delivery schedules by the time it assumes responsibility for supplying the item and that it can supply the commodity or service at a fair market price.

The committee's decision that a requirement should be fulfilled by a qualified workshop is not subject to question by the contracting officer, nor is it subject to protest to the General Accounting Office. (See Microform Inc., B-246253, Nov. 13, 1991, 91-2 C.D. : 460, in which it was ruled that the Government Printing Office properly canceled a procurement of microfiche services after the committee included the services on the procurement list.)

However, an agency decision to award a contract to a workshop prior to inclusion of an item on the procurement list may constitute an unjustified sole-source procurement. (See JAFIT Industries Inc., B-266326, Feb. 5, 1996, 96-1 C.D. : 39, in which it was ruled that a Navy procurement of administrative services prior to their listing on the procurement list violated the Competition in Contracting Act.)

An agency may use the procedures established by the Office of Management and Budget Circular A-76 to compare the costs of performing particular services in-house against the cost of purchasing the services from a qualified workshop. In such cases, GAO may review the cost comparison to assure that the established ground rules are followed. [See Rappahannock Rehabilitative Facility Inc., 66 Comp. Gen. 202, 87-1 C.D. : 39 (1987), in which it was found that the Navy's cost estimate for performing services in-house was not improper.]

However, according to the Revised Supplemental Handbook to OMB Circular A-76, a commercial activity that is performed by federal employees may be converted to contract performance without the need for a cost comparison, even if it results in adverse employee actions, if the contract is awarded to a preferential procurement source at a fair market price.

The program established by the JWOD Act is a great example of how government and private entities can cooperate to help people who, through no fault of their own, are disadvantaged. Agency procurement personnel should investigate opportunities to use this special outsourcing program in new and innovative ways to satisfy government needs while doing some real good.

-- Peckinpaugh is a member of the government contracts section of the law firm Winston & Strawn, Washington, D.C. This column addresses legal topics that arise in government acquisition and management of ADP resources. Readers are encouraged to submit topics by e-mail to carl@carl.com.