Other articles are available that discuss how contractors may
oppose proposed additions to the Procurement List,
offer a series of possible reforms that would
fix the major problems of the JWOD Act
at the policy and statutory levels, and
defend the premise that underlies the JWOD Act.
This article explains the general structure of the JWOD program
as we have come to understand it over the years.
DISCLAIMER
This article was written in mid-2003. It is intended to provide background
information for a lay reader and to indicate our familiarity with the general
field. DO NOT USE THIS ARTICLE AS THE BASIS FOR DECIDING ON A COURSE
OF ACTION. The information provided herein amounts to generalities that may or
may not apply to your specific case, has not been updated, and may therefore be
100% wrong at a later date. Consult an attorney before deciding on any specific
action, and keep in mind two old saws that couldn't be more relevant:
"A little knowledge is a dangerous thing,"
and
"The lawyer who handles his own case has a fool for a client." |
INTRODUCTION
THE JWOD STATUTE, HISTORY AND PURPOSE. The history of the Javits-Wagner-O'Day ("JWOD") Act, 41 U.S.C. §§ 46-48c, provides a fascinating example of a federal statute that has spread far beyond anything that was first envisioned, and now mandates the exact type of regulation that its founders meant to avoid.
Throughout the early decades of the 20th century blind people were generally considered unemployable. Huge nonprofit "workshops" were established to take these people in and give them something productive to do. The answer turned out to be brooms, which were made by hand and didn't require a person to see what they were doing. By the late 1930's, workshops for the blind
[FN 1] had cornered the market and were competing against each other for all the choicest contracts, including the huge market of the federal government. Being nonprofit, charitable enterprises, these workshops cared far more about keeping their clients occupied than they did about balanced books and filthy lucre. A bidding war predictably resulted, with the various workshops competing to see who could afford to take the deepest loss in order to "purchase" the federal market.
Congress, at the instigation of Senators Wagner and O'Day of New York, resolved to stop the waste by establishing an agency to set a "fair market price" and to allocate the contracts for "brooms, mops and other suitable commodities" in a fair manner among the competing "community programs employing people who are blind." The Congressional Record contains some fascinating discussion in which the floor sponsors reassured hesitant congressmen that this novel "price-fixing scheme" would neither result in excessive prices nor "in any way injure private industry."
[FN 2] The program continued without change until 1971, when Senator Javits of New York expanded its scope to include the "severely handicapped" make service contracts subject to the law as well.
The modern JWOD Act continues to provide work for blind and severely disabled workers in "qualified" workshops, but has grown into a major player in the market for federal contracts. At the time of this writing the Procurement List controls somewhere in the neighborhood of $1.2 Billion in annual sales, and has grown by as much 20% per year.
[FN 3] The mechanism that accomplishes this begins with a "Procurement List" of commodities and services that are subject to the JWOD super-priority.
[FN 4] An addition to the Procurement List results in a permanent assignment of all future contracts for that commodity or service to a specified workshop; the contract simply disappears from public bidding.
[FN 5] THE COMMITTEE FOR PURCHASE FROM PEOPLE WHO ARE BLIND OR SEVERELY DISABLED (THE "COMMITTEE").[FN 6] The Committee is an independent agency of the federal government that oversees the JWOD Program. From the private sector point of view, the Committee's main function is to decide what gets added to the Procurement List, and its secondary task is to set a "fair market price"
[FN 7] for the monopoly holder to be paid.
The Committee has delegated the vast majority of operational matters to NIB and NISH [see below], which are essentially "brokerages" for the subsidiary workshops. At the time of this writing, the Committee's budget is less than $5 Million per year. By contrast, NIB and NISH receive a 4% commission on every Procurement List contract, or a collective budget that would appear to be slightly more than of $40 Million per year.
The Committee has fourteen members, all appointed by the President of the United States. Nine Committee members represent the various procuring agencies,
[FN 8] and one each represent the Justice Department (on behalf of Federal Prison Industries)
[FN 9] and the Department of Labor. The remaining four members come from the private sector and are supposed to represent blind and handicapped individuals and workshops, respectively. The Committee meets once each month to vote on material presented by the Committee staff. In our experience, the Committee members almost never question the staff's recommendations.
[FN 10] The Committee staff includes approximately a dozen people led by the Executive Director. The staff oversees all of the Committee's activities, including inspecting the workshops, processing additions to the Procurement List, and responding to the concerns and comments filed by contractors.
NIB AND NISH - THE CENTRAL NONPROFIT AGENCIES ("CNAS"). NIB (National Industries for the Blind) and NISH (f/k/a National Industries for the Severely Handicapped) are separate entities created for the sole purpose of coordinating JWOD contracts assigned to handicapped and blind workshops, respectively.
[FN 11] We understand that many retired officers from the military and procuring agencies have moved to executive positions with NISH and NIB. NIB and NISH are not "government entities," however.
[FN 12] Their financial records are not subject to outside review and they fall outside the jurisdiction of the Freedom of Information Act ("FOIA").
Among other things, NIB and NISH typically organize and present the data used by the Committee to determine what should be added to or removed from the Procurement List. As a rule, the private sector will only become involved in the addition process at the very end, when the Committee is preparing to review a NIB/NISH proposal. In recent years the Committee has taken to sending the current contractors a summary letter requesting certain financial data.
THE WORKSHOPS. The workshops vary from the very small to the very large (more than a thousand employees), and from glowing examples of human kindness to those which seem less savory. Workshops must be vetted by NIB/NISH and approved by the Committee before they can receive a JWOD contract. The JWOD Act requires "qualified" workshops, among other things, to employ blind or handicapped persons for 75% or more of their direct labor,
[FN 13] but at least one appeals court has confirmed that this requirement "does not mean, and was not intended to mean, that blind persons must perform 75% of the direct labor on each and every particular product produced by the workshops."
[FN 14] Our experience, however, has been that the Committee strongly favors contracts with a 75% or higher direct labor component.
SOME KEY CONCEPTS.Workshops as Prime Contractors. JWOD workshops are the official "supplier" of all commodities on the Procurement List, notwithstanding the fact that they very often do no more than package a product that was completed somewhere else. Business owners tend to find this topsy-turvy but the structure itself is not that unusual; it's no different in principal than any other middleman arrangement. The problem lies in the fact that JWOD contracts are set aside on a
mandatory basis.
A normal middleman would lose the contract (or the company) if it failed to negotiate the best possible price from its suppliers. Its supplier might also choose to compete directly for the next bid. Workshops do face the same pressures. If a supplier demands a higher price, the workshop can simply pass that increase through to the government. The government's only remedy is to fight the increase, a difficult and bureaucratically hazardous endeavor that puts the contracting officer in the position of "putting a gun to the head of the handicapped."
The Committee requires workshops to obtain at least three bids from prospective subcontractors in order to mitigate this problem. As might be expected, the same concerns that create the problem limit the effect of the would-be solution. The bidding process for subcontractors is basically unsupervised, NIB/NISH have no reason to really care, the workshops can pass costs through (which enhances the desirability of working with a supplier they like rather than one that provides the best deal), workshops have a single location, giving transportation advantages in many cases, and in any event the bidding process is not "public" in the same sense that GSA's is. To my knowledge, no one has ever sued for violation of the subcontracting rule, a sharp contrast to the government.
The 75% Rule. As noted above, the JWOD Act requires qualified workshops to employ blind or handicapped persons for 75% or more of their "direct labor," a guideline that the Committee prefers to see on individual contracts as well. The phrase "direct labor" apparently derives from the idea that workshops exist to keep people busy, so what matters is the percentage of people doing the "productive" work. It comes from the statute, but has obvious flaws when seen from the outside.
Pricing. Pricing is the Achilles heel of the JWOD program. Beginning in 1998, prices are set by negotiation between the CNAs and the procuring agency. The Committee settles any disputes. Prior to 1998 prices were set by an index-based approach that could not have withstood legal challenge.
Wage Rates and Union Issues. Workshops have traditionally been labeled as medical facilities and their workers as "clients" rather than employees. This state of affairs has made the workshops exempt from many of the wage, hour and other employee-supervision statutes, and prevents their workforce from unionizing.
It should be noted that over the past decade the Committee has maintained a stern focus on wage standards. I have no studies to support the claim, but would find it a personal surprise if there were many workshop clients being paid less than the minimum wage. In addition, much of the handicapped workforce (particularly those associated with NISH) receives some sort of welfare benefit that would diminish or end if they begin to earn more than a given level of wages. Given that cap on total earnings, a higher hourly wage would simply force the employees to work fewer hours.
There have been some intimations that contracting officers may use the JWOD Act to "break" a particularly disliked union, but nothing has been confirmed. The story goes that a contracting officer may "invite" NISH to take a particular contract on the grounds that the markup the government will pay to NISH is no more than what the union has been extracting. Motives aside, this need not be the "wrong" result. If there are handicapped people or workshops ready, willing and able to do the work, there's no reason why they shouldn't.
What does appear to be lacking, however, is cooperation between the workshops and the unions to help train and move the workshops' marginally employable clients into the private-sector jobs employing union labor. The two institutions would appear to have overlapping interests that have not been sufficiently explored. At least on the janitorial/custodial side; at one point in time the grounds-maintenance trade associations had been trying to foster a good deal of cooperation with the handicapped community.
[FN 1] The most familiar organizations in existence today are those operated by "Goodwill" agencies and various hospitals.
[FN 2]
Relevant Legislative History of the Javits-Wagner-O'Day Act
Drawn from 83 Cong. Rec. (pt. 8) 9112-9115 (June 13, 1938).MR. CRAWFORD: Is this a correct interpretation . . . that when private industry makes a bid to the Government on mops and brooms, and that bid is compared to the bid made by nonprofit blind organizations, the bid made by the nonprofit organization is so low that private industry is out of the field?
MR. LANZETTA: That is correct.
MR. CRAWFORD: Suppose this price-fixing scheme moves that price above the prices being quoted by that part of private industry which manufactures brooms and mops and which heretofore has been unable to secure any of the Government business? Then what happens to the products of the blind?
MR. LANZETTA: I do not think that will ever occur . . . the proposition of prices getting above the market level is somewhat remote.
MR. CRAWFORD: Do I understand that in the broom and mop industry mechanical devices are not used in bringing together the elements that go to make up a broom or mop?
MR. LANZETTA: So far as the blind are concerned, it is mostly handwork.
MR. CRAWFORD: I know it is by personal experience, but you are bringing into operation here a prize-fixing [sic] scheme, which is governed by humanitarian motives, to the end that the efforts of blind people and their products shall bring a living wage. Suppose when that price is fixed, it goes above the price made by A, who is running a mechanized broom or mop factory. Then will the Government buy blind-made products at a higher price than that bid by private industry?
MR. LANZETTA: Private industry cannot compete now with these blind-made products. If some machinery should come on the market tomorrow, that would make it possible for private industry to manufacture brooms and mops more cheaply than the blind, then some change would have to be made.
* * *MR. LANZETTA: Many of the Members of this House may be worried about whether this bill will give a monopoly to the blind people to the detriment of private industry. I might explain to Members of the House that private industry does not compete in this field. . . . [W]hatever we do under this bill today will not in any way injure private industry.
* * *MR. MCGRANERY: The Members of this House have no need to fear blind-made goods entering into competition with private industry.
* * *MR. DUNN: If a blind representative offered brooms and mops to the Government in such a way that the products of the blind were undermining the products of private business I would be opposed to this bill, but the enactment of this bill will not do that.
* * *MR. LANZETTA: If private industry was in competition with these blind organizations, I might agree with the gentleman that there would be some cause for complaint; but I have been given to understand that private industry is not in competition with these organizations insofar as these articles are concerned.
* * *MR. DUNN: I must say to the gentleman that if I were convinced that this bill would hurt any factory that was really protesting against the bill I would be against it.
[FN 3] Sales increased by 20% in FY 1995 over FY 1994, and 16% in FY 2000 over FY1999. Sales in FY 2001 were $1.19 Billion, an 8% increase over FY 2000. All information drawn from the Committee's Annual Reports, the most recent of which is FY2001 at the time of this writing.
The Annual Report, together with searchable and downloadable versions of the Procurement List, are available on-line at the
Committee's website [FN 4] The text of the JWOD Act and the official regulations may all be found at
www.jwod.gov. It should be noted, however, that the bulk of the Committee's actual approach to the program have been designated as policy "Memoranda" rather than regulations. Several, but not all, of the relevant Memoranda are also available on-line. Parties doing detailed research should write to the Committee directly for a complete set.
[FN 5] JWOD Act, 41 U.S.C. § 48. JWOD additions do not affect existing contracts. They merely prevent the public from bidding on new contracts.
[FN 6] The Committee's name was changed from the "Committee for Purchase from the Blind Or Severely Handicapped" in 1993, but one occasionally sees the acronym CPBOSH floating around.
[FN 7] JWOD Act, 41 U.S.C. § 47(b).
[FN 8] The agencies most affected by the JWOD Act appear to be the General Services Administration ("GSA") and the Department of Defense, particularly the Defense Personnel Support Center ("DPSC"), which procures clothing. The JWOD program has many workshops that focus on the garment industry.
[FN 9] A separate statute establishes the set-aside program for Federal Prison Industries, the entity charged with creating work for inmates in federal penitentiaries. See, 18 U.S.C. § 4121. Under section 48 of the JWOD Act, the FPI program has priority when both the prisons and the workshops seek to become the government's monopoly supplier of the same commodity. See, 41 U.S.C. § 48. It remains to be seen at the time of this writing whether the recent changes to the FPI program will alter that balance.
[FN 10] The sole exceptions we know of involved a 1986 case,
HLI Lordship Indus., Inc. v. Committee for Purchase, 615 F.Supp. 970 (D.C. Va. 1985),
rev'd on other grounds, 791 F.2d 1136 (4th Cir. 1986), and a relatively recent case where NIB and NISH were after a commodity (certain paper cups) that GSA had designated as an "essential business item". The staff favored adding the cups to the Procurement List despite the fact that the workshop in question had never made any cups before. We appealed directly to the head of GSA on behalf of our client, which apparently led to a rebellion against the staff's position. NIB/NISH eventually decided to withdraw the proposal.
Interestingly enough, the Committee soon added a different paper cup (one not currently supplied by our client) to the Procurement List.
See, addition of Paper Cup, 60 Fed. Reg. 17775 (4/7/95). We also understand that NIB and NISH now tend to avoid "essential business items."
[FN 11] JWOD Act § 47(c) and regulations at 41 CFR § 51-3.1.
[FN 12] See, the
HLI Lordship case,
supra.
[FN 13] JWOD Act, 41 U.S.C. § 48b(4). Section 48b(5) Act goes on to define "direct labor" as "all work required for preparation, processing, and packing of a commodity, or work directly relating to the performance of a service, but not supervision, administration, inspection, or shipping."
[FN 14] Ballerina Pen Co. v. Kunzig, 433 F.2d 1204, 1211 (D.C. Cir. 1970),
cert. dismissed, 401 U.S. 950, 91 S. Ct. 1186, 28 L. Ed. 2d 234 (1971);
but c.f., HLI Lordship, supra, (affirming an addition to the Procurement list but addressing whether the workshop met the 75% test for the particular commodities).
Article on How to Oppose a Proposed Addition to the Procurement List
Article on Suggestions for JWOD Reform
Article Defending the JWOD Principal
Introduction