"It's causing companies to lay off employees and, in some cases, to shut down."

The Chamber's Stefanie Starkey

A group of small-business owners is taking on Federal Prison Industries, the government-run business that sells the fruits of prison labor back to Uncle Sam. A reform bill, which was passed by the House and at presstime awaits a Senate vote, seeks to strip FPI of its ability to lock private companies out of federal contracts. The complaint: FPI runs hundreds of businesses that pay inmates $1.35 or less an hour and are exempt from taxes and basic regulation. "It's causing companies to lay off employees and, in some cases, shut down completely," says Stefanie Starkey, of the U.S. Chamber of Commerce, which supports the measure. Critics also charge that FPI rarely misses a chance to stymie competition. Unless FPI signs a waiver, government agencies are mandated to buy its products and services, ranging from hospital gowns to missile components to tech support. "Every waiver we've ever applied for has been denied," says Rebecca Boenigk, of Neutral Posture, a chair manufacturer based in Bryan, Texas, who estimates she has lost $10 million in government business in the last decade as a result. Boenigk is especially frustrated because FPI's chairs cost $120 more than hers and are of poorer quality, she says. So will this monopoly be toppled? Fans of FPI argue that it reduces prison unrest--and they note that when FPI was forced to vie with private firms on defense contracts, 1,700 inmates lost jobs. But Starkey says that this measure should allay those concerns by granting another $75 million a year for educational and vocational programs.