In 2005, office furniture makers will have a better shot at winning federal contracts for the first time in 70 years.
President Bush signed a spending bill Dec. 8 that strips preferential treatment for federal prison manufacturing programs, opening an estimated $150 million to $200 million in office furniture business to private industry. The change, beginning in fiscal 2005, also will apply to other industries served by Federal Prison Industries Inc.
``This bill ends the monopoly for FPI in federal contracts,'' said Brian Walker, chief executive officer of Holland, Mich.-based office furniture maker Herman Miller Inc. ``It will allow office furniture makers to compete.''
Rep. Peter Hoekstra, R-Mich., a former Herman Miller executive, had worked on changing the bidding system for 10 years.
FPI - also called by the trade name Unicor - has had the inside track on federal business since its creation in 1934. The program was intended to provide job training for prisoners.
FPI's manufacturing capabilities include injection molding, composites processing and metal production specialties. It makes everything from polycarbonate safety glass to bulletproof vests, electronic connectors and wood, metal and plastic office furniture.
Critics like Hoekstra said the clause was intended to ensure that FPI had plenty of business but instead drove up costs because FPI did not have to bid on it.
``For years, [we] have simply asked to compete on a level playing field,'' said Jim Hackett, president and CEO of Steelcase Inc. of Grand Rapids, Mich. ``We are now able to compete for an estimated $200 million in additional furniture each year, and we plan to get our fair share.''
Herman Miller executives estimate their firm will tally up another $15 million to $20 million in 2005 business thanks to the FPI reform.
The shift comes as the industry is experiencing a boost in business, recovering from a falloff since 2001. U.S. office furniture production dropped from $13.2 billion in 2000 to $8.5 billion in 2003, said the Business and Institutional Furniture Manufacturer's Association in Grand Rapids.
BIFMA estimates production will hit nearly $9 billion by the time 2004 numbers are counted, and predicts another 8 percent boost by 2005, climbing to an estimated $9.6 billion.
Large corporations are leading the boom, investing in new furniture now that their own economic outlook is improving, Hackett said.
``I have to admit optimism, based on what I am seeing,'' he said.
But tempering the enthusiasm is the rising cost of raw materials. Herman Miller officials said material prices increased $3.9 million for their first quarter of fiscal 2004-05.
``We all have these material price increases, which are drastic, unlike anything we've seen in 25 years,'' Hackett said.
