An October, 2004, report issued by Florida's Auditor General (AG) criticizes a contract awarded to Keefe Commissary Services (Keefe) for the operation of the Florida Department of Corrections' (FDOC) 240 prison canteens. The three-year contract that privatized FDOC's prisoner canteen services became effective on October 9, 2003.
To obtain a contract, Keefe, which services 65 percent of the nation's prisoners in jails and prisons, agreed to pay FDOC $.82 per prisoner per day on FDOC's midnight count. Since the contract went into effect, it has been amended three times. Keefe's ability to increase its revenue has been enhanced by FDOC's raising of the amount prisoners can spend each week, an increase in canteens Keefe operates, and Keefe's act of raising canteen prices 40% or more since assuming operations. Despite Keefe's revenue increase, FDOC does not receive more money.
In examining the Keefe/FDOC contract, the AG made five findings for future action by the Legislature or FDOC. First, the AG recommended the Florida Legislature revise statutes to include provisions for the competitive procurement of revenue-generating contracts." Current law for such contracts does not ensure all eligible contractors are notified of the prospective state procurement and are given a reasonable opportunity to compete for the contract. Amendment of current law, the AG concluded, is necessary to ensure that revenue-generating contracts are equitably awarded and provide the greatest amount of revenue for the best available services.
While FDOC maintained it was not required to put the canteen service contract out for bid, the AG noted FDOC contacted three vendors to submit a best and final offer. FDOC provided those vendors a financial analysis that showed FDOC profited $15 million annually or $0.602 per prisoner per day from canteen operations. FDOC received the following bids: Aramark Corp., $0.7408 per prisoner per day; Trinity Services Corp., $0.7500; and Keefe Commissary Network, $0.8200. While the AG found the contract went to the highest bidder, the usefulness of [FDOC's] analysis as a meaningful tool to evaluate potential canteen revenues" due FDOC is limited." The problem is that the analysis included prisoner canteen operator salaries and some materials, supplies, and equipment costs will continue to be paid by" FDOC rather than be borne by Keefe. The AG said all elements of an analysis should be included in the contract.
In its third finding, the AG criticized the FDOC for making three contract amendments that have the potential to increase FDOC's costs for canteen operations" without completing a cost analysis or other written justification for each contract change" prior to execution of each amendment.
The first amendment, executed on February 25, 2004, substantially increased Keefe's revenue potential. That amendment allowed FDOC's 85,000 prisoners to increase their weekly spending from $65 to $90 per week. Another windfall came in November, 2004 when the weekly limit was increased to $100. While prisoners' funding limits increased over 45%, the amount of money paid to the state did not increase.
FDOC officials said they do not know how much Keefe earns on canteen sales, and neither would they nor a Keefe representative say why the spending limit was increased. Sen. Victor Crist, R-Tampa, speculated, They under-estimated their cost of doing business and they needed to have some adjustments in order to continue providing services.
Since the AG's report was issued, FDOC has again increased Keefe's revenue potential. Since 2000, visitors and prisoners were serviced through vending machines in the visiting park, which FDOC received commissions on. Beginning in November 2004, FDOC allowed Keefe to open canteens in the visiting parks. This new source of revenue was not contemplated in the original contract or FDOC analysis.
Another source of increasing revenue is the contract's provision that item prices may be increased by up to 10% every six months until" fair market price is reached. Upon taking control, Keefe raised prices dramatically over items in the canteen, and has imposed 310% across-the-board increases. For Florida prisoners, the issue is what is fair market value? Keefe considers that to be whatever prisoners will pay, regardless of prices for like items in free world stores.
The AG also criticized the May 3, 2004, amendment that reduces the canteen supplies Keefe is required to provide; thereby, increasing FDOC costs. That amendment also required Keefe to install its own canteen operation computers and gave it ownership of the software.
The July 25, 2004, amendment acknowledges that the rights and responsibilities of FDOC's Access Catalog contract, which provides sales of radios, shoes, and clothes to prisoners, was assigned to Keefe. The AG said FDOC's failed to do a cost analysis to assure the increase of $0.007 per prisoner per day was sufficient to maintain FDOC's profits from Access orders.
The AG also lambasted FDOC for failing to assure a transition period existed in the event Keefe discontinues services. With Keefe installing its own computer system and with FDOC's system being outdated, FDOC cannot guarantee continued canteen operations if Keefe pulled out. The AG said the costs of replacing the canteen computer service may negate any cost savings or revenue enhancements realized by FDOC from the current contract.
Finally, the AG noted FDOC could not confirm if or when criminal history background checks were completed on Keefe employees assigned to FDOC prisons as required by the contract.
FDOC defended each of its actions relative to the Keefe contract by arguing FDOC earned $23 million in 2004, which is $7.4 million more than when FDOC operated the canteens. The question FDOC wants to ignore is whether it would have realized that $7.4 million had it raised the spending limits and prices as has occurred since executing the contract.
State legislators are looking into that question. Obviously, it looked like a pretty sweetheart deal to me," said Rep. Susan Bacher, D-Royal Palm Beach.
Sources: Palm Beach Post; The AG's report No. 2005-044 is available at www.prisonlegalnews.org.
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