Private Prison Contracts and Minimum Occupancy Clauses

By Stephanie Leacock

The private prison industry has become incredibly lucrative, with the two largest for-profit prison companies bringing in a combined $3.3 billion in annual revenue as of 2015.[1]  The federal government and state governments increasingly depend on private prisons to house inmates in the United States, with approximately seven percent of state prisoners and eighteen percent of federal prisoners housed in private prisons.[2]  Some states go so far as to ship their inmates from overcrowded prisons to private prisons in other states.[3]  Furthermore, the federal government reversed its position from foregoing the use of private prisons to contracting with them again as recently as February of this year.[4]

There are a variety of ways that private prisons maintain profits.  One specific clause that many of the contracts between private prisons and federal and state governments include is a minimum occupancy clause.[5]  These clauses state that the government contracting with a prison must maintain a specific percentage of occupancy at that prison.  A version of this clause used by prisons is a per-diem rate clause, which establishes high, fixed per diem rates per person housed in the prison up to a specified percentage of prison occupancy, then a lower, fixed per diem rate for every individual past that threshold percentage.[6]

Minimum occupancy clauses are a prominent feature of private prison contracts because they help guarantee profits and alleviate the risk of revenue fluctuation.[7]  One study found that approximately sixty-five percent of contracts between private prisons and federal or state governments contained a form of minimum occupancy clause.[8]  Private prison companies and federal and state governments have added these clauses through contracts for new facilities and through amendments in renegotiations of contracts.[9]

Many of the minimum occupancy clauses guarantee private prison companies over ninety percent occupancy, or payment for ninety percent occupancy, for their facilities.[10]  A good example of a minimum occupancy clause is the clause from the Bay Correctional Facility in Florida.[11]  The clause reads, “Regardless of the number of inmates incarcerated at the Facility, CONTRACTOR is guaranteed an amount equal to 90% occupancy (887 inmates) times the 90% Per Diem Rate subject to legislative appropriations.”[12]  In this case, Florida pays the company $43,046.11 per day to house inmates.[13]  Likely the highest minimum occupancy clauses exist in Arizona, where the Arizona State Prison – Florence West, Arizona State Prison – Phoenix West, and the Marana Community Correctional Treatment Facility, the first two run by GEO Corp and the latter run by Management and Training Corporation (MTC).[14]  These minimum occupancy clauses all guarantee 100% occupancy payments.[15]  Arizona renewed the Arizona State Prison – Florence West minimum occupancy clause through June 30, 2018 on April 21, 2017.[16]  The renewal also guarantees an additional ninety-five percent occupancy payment for emergency beds.[17]

As a country, we should examine these contracts in detail, specifically the minimum occupancy clauses, because the number of inmates housed in private prisons is only increasing.[18] As prison population increases, our dependency on private corporations could increase as well unless we as a society decide to change how we house our prisoners.  We should determine whether we want shareholders and profit margins directing decision making for our prisons,[19] or if there is a better policy to implement for prisoners and incarceration.

[1] Michael Cohen, How For-Profit Prisons have Become the Biggest Lobby No One is Talking About, Wash. Post, (Apr. 28, 2015), https://www.washingtonpost.com/posteverything/wp/2015/04/28/how-for-profit-prisons-have-become-the-biggest-lobby-no-one-is-talking-about/?utm_term=.bcd7f63e932f (last visited Oct. 26, 2017); see also Chico Harlan, The Private Prison Industry was Crashing – Until Donald Trump’s Victory, Wash. Post, (Nov. 10, 2016), https://www.washingtonpost.com/news/wonk/wp/2016/11/10/the-private-prison-industry-was-crashing-until-donald-trumps-victory/?utm_term=.ac429b2a7e7e (last visited Oct. 26, 2017) (stocks for CoreCivic and Geo Group increased after Donald Trump’s election).

[2] E. Ann Carson & Elizabeth Anderson, Prisoners in 2015 (Monika Potera et al. eds., Bureau of Justice Statistics 2016) https://www.bjs.gov/content/pub/pdf/p15.pdf (last visited Oct. 26, 2017).

[3] Solomon Moore, States Export Their Inmates as Prisons Fill, N.Y. Times (July 31, 2007), http://www.nytimes.com/2007/07/31/us/31prisons.html (last visited Oct. 26, 2017).

[4] Compare Memorandum from Jefferson B. Sessions III, Attorney Gen., Rescission on Memorandum on Use of Private Prisons (Feb. 21, 2017), https://www.bop.gov/resources/news/pdfs/20170224_doj_memo.pdf (directing the acting director of the Federal Bureau of Prisons to continue the federal government’s use of private prisons) (last visited Oct. 26, 2017), with Memorandum from Sally Q. Yates, Deputy Attorney Gen., Reducing our Use of Private Prisons (Aug. 18, 2016), https://www.justice.gov/archives/opa/file/886311/download (enlisting the help of the acting director of the Federal Bureau of Prisons to reduce and subsequently end the federal government’s use of private prisons) (last visited Oct. 26, 2017).

[5] Mike Brickner, Criminal: How Lockup Quotas and “Low-Crime Taxes” Guarantee Profits for Private Prison Corporations, In The Public Interest (Mike Brickner et al. eds., 2013), https://www.inthepublicinterest.org/wp-content/uploads/Criminal-Lockup-Quota-Report.pdf (last visited Oct. 26, 2017) [hereinafter Criminal Lockup Quota Report].

[6] Department of Management Services, Bureau of Private Prison Monitoring & The GEO Group, Inc., Operations and Management Service Contract Bay, Correctional Facility (Jan. 13, 2014), http://www.dms.myflorida.com/content/download/90674/524385/Bay_Contract_-_Executed_Redacted.pdf (last visited Oct. 26, 2017).

[7] Criminal Lockup Quota Report, supra note 5, at 2; Michael G. Anderson, If You’ve Got The Money I’ve Got The Time: The Benefits of Incentive Contracts with Private Prisons, 34 Buff. Pub. Interest L.J. 43, 68-69 (2015).

[8] Criminal Lockup Quota Report, supra note 5, at 2.

[9] Criminal Lockup Quota Report, supra note 5, at 3.

[10] Criminal Lockup Quota Report, supra note 5, at 14-16.

[11] Department of Management Services, Bureau of Private Prison Monitoring & The GEO Group, Inc., Operations and Management Service Contract, Bay Correctional Facility, 62 (Jan. 13, 2014), http://www.dms.myflorida.com/content/download/90674/524385/Bay_Contract_-_Executed_Redacted.pdf (last visited Oct. 26, 2017).

[12] Id.

[13] Id.  at 61-62.

[14] Criminal Lockup Quota Report, supra note 5, at 14-16; State of Arizona Department of Corrections, Solicitation Documents, 102 https://procure.az.gov/bso/external/document/attachments/attachmentFileDetail.sdo?fileNbr=414553&docId=ADOC13-057914&docType=P&releaseNbr=0&parentUrl=/external/purchaseorder/poSummary.sdo&external=true&searchType=contract (last visited Oct. 26, 2017) [hereinafter MTC Solicitation Documents]; State of Arizona Department of Corrections, Offer and Acceptance, https://procure.az.gov/bso/external/document/attachments/attachmentFileDetail.sdo?fileNbr=524637&docId=ADOC13-057914&docType=P&releaseNbr=0&parentUrl=/external/purchaseorder/poSummary.sdo&external=true&searchType=contract (last visited Oct. 26, 2017) [hereinafter Offer and Acceptance].

[15] Criminal Lockup Quota Report, supra note 5, at 14-16; MTC Solicitation Documents, supra note 14, at 102.

[16] Criminal Lockup Quota Report, supra note 5, at 14-16; State of Arizona Department of Corrections, Contract Change Order/Amendment (Apr. 21, 2017) https://procure.az.gov/bso/external/document/attachments/attachmentFileDetail.sdo?fileNbr=1970807&docId=ADOC17-166215&docType=P&releaseNbr=0&parentUrl=/external/purchaseorder/poSummary.sdo&external=true&searchType=contract (last visited Oct. 26, 2017) [hereinafter Contract Change Order].

[17] Contract Change Order, supra note 15.

[18] Meredith Hoffman, Correction: Immigration Detention-Texas story, Associated Press, (updated Apr. 14, 2017), https://apnews.com/b70c0d6c21384140bdd8158215cb2130 (last visited Oct. 26, 2017).

[19] See generally Michael G. Anderson, If You’ve Got The Money I’ve Got The Time: The Benefits of Incentive Contracts with Private Prisons, 34 Buff. Pub. Interest L.J. 43 (2015)(discussing the flawed nature of contracts between the federal and state governments and private prison companies); see also Julia Edwards & Mica Rosenberg, Shareholders in U.S. Private Prison Company Sue Over Phase-Out, Reuters (Aug. 24, 2016), https://www.reuters.com/article/us-usa-prisons-securities/shareholders-in-u-s-private-prison-company-sue-over-phase-out-idUSKCN10Z2JU (last visited Oct. 26, 2017).

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