Public Contract Law Journal

Information Asymmetry in Private Prison Management: Monitoring and Oversight as the Basis for Private Prison Legitimacy

by Marcos Gonzalez

Marcos Gonzalez ( earned his J.D. from The George Washington University Law School in May 2017. He received an M.A. in philosophy from Georgia State University in 2013. The author would like to thank Christopher McMahon, Christopher Yukins, Collin Swan, Ioana Cristei, Brittany Finder, Jordan Hess, and Rachel Amster for their recommendations throughout writing this Article.

I. Introduction

The most pressing concerns about outsourcing governmental functions can be resolved through more robust and innovative systems to monitor and oversee government contractors. While this argument applies to all governmental functions, the author uses private prisons as a test case. We can articulate the central problem with outsourcing governmental functions by placing greater emphasis on how monitoring and oversight could allow for the legitimacy of delegating a core government function to a private company. To highlight the relationship among legitimacy, monitoring, and oversight, this Article refocuses the legitimacy debate away from moral arguments and toward solutions grounded in agency theory. If we think of a legitimate private prison administrator as one that has overcome agency problems, procurement professionals could then identify clear solutions to problems stemming from outsourcing prison administration. Acquisition planners can draw on these insights as well as those available to them from data science, managerial science, and principles of contract formation. Although this Article refocuses the legitimacy debate away from moral arguments, it preserves a critical feature of any moral argument: its ability to override considerations of comparative efficiency.1 Clearly, current and unaddressed failures in oversight and monitoring provide stronger reasons to not outsource prisons than the possibility that they are less expensive and more efficient.2

The privatization of prison management is a subject of intense moral and political debate3 as well as public scrutiny.4 In reality, private prisons may be a fact of life. The Department of Homeland Security (DHS) and the Justice Department (DoJ) have both announced their intent to continue using privately managed facilities.5 However, less than a year prior, the DoJ announced it would phase out the use of private prisons6 based on its findings that these facilities underperform relative to comparable government-run facilities.7 The decision to use private facilities should not merely depend on the president’s political party, since private prisons involve a central function of state power — administering punishment. This decision must instead be made when stakeholders have adequately considered and mitigated problems stemming from outsourcing these functions.

Basic concepts of agency theory can help explain why evaluating prisons based on behavior-based metrics will fail when monitoring is deficient. Considering this deficiency, the government cannot currently control those facilities and prevent interests unaligned with the public interest from affecting prison policy. A viable solution calls for more sophisticated and real time methods of monitoring and overseeing private prisons, with the goal of ensuring government control over individual facilities as well as prison policy. Effective monitoring allows the government to accurately evaluate contractor performance and implement prison policies. Information asymmetry results from deficient monitoring, and the government will find it difficult to maintain control over facilities. In a situation where the government can collect and analyze performance data with comparative ease, there are fewer concerns related to the use of contractors performing closely associated functions, such as administering prisons. As the tasks given to contractors increase in complexity, so too do the chances of compromising the function’s legitimacy.

II. Historical Background on Private Prisons

History provides uncomfortable examples of how a penal system’s goal of pursuing the public interest becomes less of a focus as prison administrators attempt to meet the demands of the commercial marketplace. Before the federal government began outsourcing prison administration, the commercialization of prison activities took a variety of different forms — particularly among states and regions. For example, after the abolition of slavery and the end of the Civil War, inmates became an inexpensive labor source during Reconstruction in southern states.8 It became popular to finance prison operations and convict care by leasing prison laborers to private companies.9 Christopher Adamson calls this the “threat to resource” model, where states’ use of prison labor fulfilled the economic needs of economies founded on slave labor and racial exploitation.10 Criminal justice policies, such as Mississippi’s “Pig Law,” contributed to an infamous history of states enacting harsh prison sentences to acquire a plentiful and cheap labor pool.11 This form of privatization entailed raising capital by leasing convict labor to private businesses.12 The large quantity of debt held by southern states correlated to the popularity of this model for much of the late nineteenth century.13 This practice began to decline, in part, due to opposition from organized labor and business associations unable to compete with companies who purchased cheap prison labor.14 Today, laws are in place that prevent private businesses from economically exploiting convict laborers.15 For example, since the 1930s, the Ashurst-Sumners Act (ASA) and the Fair Labor Standards Act (FLSA) have prohibited the exploitation of prison labor.16

After states stopped leasing convict labor to cover budget shortfalls, prison overcrowding emerged as the new rationale for contracting with private companies.17 The prison population increased dramatically in the late 1970s.18 In 1975, according to the DoJ, there were approximately 240,000 prisoners nationwide.19 By 2005, the population of persons in jails and prisons reached almost 2.2 million.20 The number of incarcerated people only began to decrease in 2009, although this trend initially was only seen in local jails.21 Between 2009 and 2015, however, the population of people incarcerated in state and federal prisons fell from 1,615,500 to 1,526,800.22 Prison overcrowding and political and ideological conditions favoring privatization created the initial justification for outsourcing prison administration to private management companies.23 Governments embraced private prisons as a method of alleviating budget shortfalls while also meeting the public’s demand for tough-on-crime policies.24 By 2000, there were fourteen private prison corporations operating 150 private prison facilities at the local, state, and federal levels.25

The convict lease system was the product of budget shortfalls in southern states and the availability of cheap, exploitable labor. Many have criticized this system on moral26 and constitutional grounds.27 Critics of private prisons also emphasize the political implications of corrections companies’ expanding political advocacy28 and the inappropriateness of profit motive influencing a public function.29

These arguments are not likely to gain traction within a procurement reform community focused on streamlined and effective acquisition.30 However, these moral arguments show the urgent need to protect the public interest when outsourcing sensitive governmental functions. By leveraging the context of prison commercialization, it may be possible for reform groups — such as the 809 Panel,31 as well as acquisition planners, to address governmental functions by focusing on monitoring and oversight policy. Following recent studies by the DoJ and DHS establishing the need for greater monitoring of private prisons, this Article argues that without a robust system of monitoring, private prisons cannot effectively relay critical information about prison performance to the federal government. Such monitoring failures severely undermine the government’s ability to improve and implement prison policy.32 The result is a breakdown in the federal government’s control over prison policy and the deterioration of the penal system’s legitimacy.

A. History of BOP Contracting

The Bureau of Prisons’ (BOP) use of private prison facilities to house federal prisoners began on a small scale in 1997. These private prison facilities primarily housed criminal alien adult males whose sentences were ninety months or less.33 The first federal contract to operate a prison was awarded to Wackenhut Corrections Corporation (now GEO Group)34 as a ten-year contract to operate the Taft Correctional Institution in Taft, California.35 The contract was a fixed-price service contract to house between 1,946 and 2,355 low- and minimum-security inmates. Since the contracts were fixed price, the contractors were under considerable risk to control costs.36 Additionally, an award fee would be provided in the case of exceptional performance.37 Notwithstanding incentives to control costs, a 2005 study completed by the CNA Corporation showed that the Taft facility’s expected operating costs would eventually exceed those of a BOP-run facility.38

Despite mixed evidence of cost-savings,39 the BOP has cautiously expanded its use of contract prisons. By December 2015, twelve percent of federal prisoners were housed in contract prisons administered by the BOP.40 Of the fourteen contract prisons operated in the United States, six are in Texas, two in Georgia, and the rest are spread out in six other states.41 The largest single private prison is Big Springs Prison, operated by GEO Group, Inc., located in Big Springs, Texas.42 By August 2016, Big Springs housed 3,391 prisoners at its facility.43 The second-largest was in Willacy, Texas, operated by Management and Training Corporation, housing 2,690 prisoners.44

These facilities have experienced several incidents that created concern within the federal government. For example, after a riot at the Willacy facility in February 2015, the BOP terminated that contract.45 That cancellation, and others,46 prompted the DoJ to initiate a study of the comparative performance of private facilities relative to BOP facilities.47 Today, the continued use of private prisons is a subject of serious dispute, creating uncertainty within government and industry.48 For instance, the stock price of prison administration companies tend to fluctuate downward with word of government anxiety over poor performance and upward with statements showing the government’s intent to continue their use.49

B. The Status of Federal Private Prisons: The 2016 Inspector General Report and Its Methodology

In August 2016, the DoJ’s Inspector General (IG) released a report showing that federal contract prisons were underperforming relative to BOPoperated facilities.50 The IG Report studied whether contract prisons met American Correctional Association (ACA) standards.51 In the wake of this report, Deputy Attorney General Sally Yates issued a memorandum in August 2016, entitled “Reducing Our Use of Private Prisons,”52 which stated the government’s goal of “reducing — and ultimately ending — our use of privately operated prisons.”53 Citing the results of the IG Report, as well as a decline in the federal prison population,54 the DoJ concluded that it no longer required the use of contract prisons to house federal inmates.55 The memo also cited collateral policies as grounds for its decision to shift to BOP-operated facilities; these included focusing prosecution on serious cases, sentencing reform, alternatives to incarceration, improved reentry, and increasing available resources for violence prevention.56

The failure of contract prisons to meet ACA standards also casts doubt on proponents’ claims that privatization produces best value.57 When the government evaluates prison performance, it consults ACA standards that have been incorporated into the terms of the contract.58 To ensure facilities are meeting these standards, the government must be able to receive accurate information about how each prison operates. To achieve that objective, contractors must establish quality control and audit programs and report internal inspection results.59 The contractors’ corporate headquarters must also prepare an annual audit for the BOP.60 If a contractor does not meet ACA standards, it must implement a corrective action plan.61 If the deficiencies are serious, the government makes a downward equitable adjustment in monthly contract payment.62 Since the contracts are fixed-price,63 there is a significant risk associated with non-compliance on the part of a contractor.64

The IG Report’s methodology consisted of a comparative evaluation of the fourteen contract prisons against fourteen similar BOP prisons — similarity was based on comparable security level, population size, and location.65 The assessment occurred throughout fiscal years (FY) 2011 to 2014.66 The findings of the IG Report show that private prisons underperformed across the following metrics:

  1. Contraban
  2. Reports of incidents67
  3. Lockdowns
  4. Inmate discipline
  5. Telephone monitoring
  6. Selected grievances

Contract prisons had eight times more phones confiscated than BOP facilities.68 Big Springs and Adams County together accounted for eighty-two percent of occurrences.69 However, even when these facilities were removed from the study, private facilities had twice the number of confiscated cell phones than BOP-administered facilities.70 Likewise, the number of weapon confiscations in contract prisons was approximately double the number of weapon confiscations in BOP prisons (3.2 to 1.8).71

There are several flaws with the IG Report. The Report itself acknowledged that performance variation could be explained in part by variations in “inmate demographics and facility location,” but the report does not explain why the numbers varied across data points.72 First, as the contractors noted in their responses, a large percentage of their inmates are criminal adult aliens who pose a unique security threat.73 Additionally, the Report overlooked the possibility that variation in performance could be attributed to more rigorous reporting requirements in contract prisons than those in BOP facilities.74 Most notably, the Report made an erroneous causal inference from greater contraband confiscation to laxer security standards.75 Just because private prisons discover more cell phones than their counterpart facilities does not permit an inference about the quality of security at these facilities.76 The IG Report itself noted that the increase in confiscated cell phones at Adams Country correlated with increased security — including “new gates, increased security staff coverage, and greater controls over inmate movements.”77 Based on the factors cited in the Report, many of the contractors’ criticisms of the Report appear to have merit.78

The Report shows that the BOP fails to provide sufficient qualitative analysis of the data it collects from private prisons.79 While improved data analysis could better explain the variation in contract compliance between private prisons,80 the Report is evidence of a lack of information transparency between private prisons and the government. As it stands, the government lacks the information systems necessary to communicate essential information from an agent (prisons) to a principal (government). It is only by means of such information systems that a principal can control and direct an agent’s activities.81 When the agent is administering a federal prison, the government, as principal, cannot afford to have inadequate control and direction.

III. The Legitimacy of Private Prisons in Law & Policy

Office of Federal Procurement Policy (OFPP) guidance and related regulations explain the limits of outsourcing governmental functions, including those closely related to inherently governmental function. After providing an overview of the law regarding the limits on outsourcing inherently governmental functions, we turn to agency theory to explain the conditions required to outsource those functions closely associated with inherently governmental functions.

A. Legitimacy in Law

For the past sixty years, the federal government has sought to achieve cost savings and lean operations by outsourcing non-core functions.82 The Federal Activities Inventory Reform Act defines an inherently governmental function as “a function that is so intimately related to the public interest as to require performance by [f]ederal [g]overnment employees.”83 Additionally, a policy document issued by the Office of Management and Budget (OMB), called OMB Circular A-76, expanded upon the definition and provided generic descriptions of the kinds of activities considered inherently governmental.84 The Federal Acquisition Regulation (FAR), the principal procurement regulation for the federal government, mirrors Circular A-76:

“Inherently governmental function” means, as a matter of policy, a function that is so intimately related to the public interest as to mandate performance by [g]overnment employees. This definition is a policy determination, not a legal determination. An inherently governmental function includes activities that require either the exercise of discretion in applying [g]overnment authority, or the making of value judgments in making decisions for the [g]overnment. Governmental functions normally fall into two categories: the act of governing, i.e., the discretionary exercise of [g]overnment authority, and monetary transactions and entitlements….85

The definition clearly encapsulates some functions, such as the government’s law-making authority and the decision to deploy our armed forces to protect the country.86 However, the regulation does not explicitly state what activities qualify as inherently governmental.87 Following a March 2009 White House Memorandum addressing the use of contractors for inappropriate functions,88 section 736 of the 2009 Omnibus Appropriations Act ordered agencies to issue procedures for insourcing inherently governmental functions.89 However, none of the nine agencies charged with developing procedures met the July 9, 2009, deadline.90 The agencies blamed the failure on the lack of a clear OMB guidance and clarification about inherently governmental functions.91 The lack of clarity regarding inherently governmental functions is not a failure of policy,92 since the generality of prior guidance was intended in part to encourage flexibility in how agencies determined which functions to insource.93 To remedy the lack of clarity, the OFPP issued Policy Letter 11-01 on September 12, 2012.94 The letter provided a uniform definition for inherently governmental functions, again mirroring circular A-76,95 and required agencies to be able to perform or manage “critical functions” with federal employees.96

The September 2012 Policy Letter also included commentary on functions “closely associated” with inherently governmental functions and explained that contractors may perform those functions, though under close monitoring.97 In its definition of closely associated functions, the letter included a “[p]rovision of non-law-enforcement security activities that do not directly involve criminal investigations, such as prisoner detention …”98 The letter also provided guidance to agencies on how to treat closely associated functions, noting “the risk that performance may impinge on [f]ederal officials’ performance of an inherently governmental function.”99 For completion of these functions, the letter noted that agencies must give special consideration to using federal employees.100

Prison administration necessarily entails the power to make decisions that affect the liberty of citizens, as well as their constitutional rights.101 Although prisoner detention is a closely associated function,102 agencies continue to fail in their efforts to police the boundaries of a contractor’s legitimate behavior — sometimes with embarrassing consequences. For example, DHS decided to continue using private facilities based on best value, even while incorrectly describing detention as something requiring “inherently and exclusively a governmental authority.”103 Regarding the agency’s use of private facilities to detain immigrants awaiting a hearing or removal, DHS called its power to detain “a weighty exercise of governmental power that must be done with care.”104 However, the panel assembled to review the use of private immigration centers observed that “[f]iscal considerations, combined with the need for realistic capacity to handle sudden increases in detention, indicate that DHS’s use of private for-profit detention will continue.”105

DHS’s decision shows that federal agencies are continually failing to ensure that they can maintain control over private facilities. The agency’s decision to continue using private detention facilities is based on its reliance on private contractors,106 a situation of dependency the OFPP has sought to avoid.107 The OFPP letter stated that contractor performance of “positions within critical functions” is contingent on the ability of an agency to maintain control of its operations.108 DHS’s continued use of contract prisons — due to the entrenched use of contractors and the agency’s inability to operate facilities on its own — is an example of an agency apparently pushed to use private prisons even if they are not determined to be the best option. This situation puts the legitimacy of the DHS’s use of private facilities in serious question. The next section turns to agency theory to develop a position on the conceptual underpinnings of current regulations addressing closely associated and inherently governmental functions.

B. Legitimacy in Policy: The Function of Monitoring and Oversight

Agency theory109 fosters a better understanding of the relationship among monitoring, oversight, and legitimacy.110 The government uses systems of monitoring and oversight, among other things, to ensure that non-governmental agents do not act on interests that diverge from those of the public.111 Without question, the interests of private management can differ significantly from those of the federal government. Monitoring exists because actions that are valuable to the principal are not always valuable to agents.112 Agency theory — used in sound contract planning, formation, and administration — describes how to align these interests in a way that incentivizes good outcomes and disincentivizes bad outcomes. An effective contract considers significant flaws in information awareness and the presence of divergent interests.113

To ensure the government’s interests align with its contractors, it must constantly collect information from them. An absence of information transparency between the agent and principal creates an information asymmetry.114 Information asymmetry allows the agent’s interests to diverge if an agent is required to act in a manner that does not create value for itself and if that act is not readily disclosed to the principal.115 Put conversely, when a principal has complete information, an agent is more likely to act in the principal’s interests due to the inability to deceive the principal.116 Greater information asymmetry creates a greater need to rely on outcome-oriented contracts.117 Among other reasons, this is due to the principal’s inability to adequately monitor the agent or predict the best method of achieving a desired result.118 Generally speaking, an outcome-oriented contract ties a contract incentive or disincentive to producing or avoiding an outcome,119 whereas a behavior-oriented contract attempts to direct discrete behaviors that produce those outcomes.120 In the context of a private prison, a behavior-oriented element of a BOP contract would be a reporting requirement, such as cell searches, that attempts to control the day-to-day operations of a facility.121 An outcome-oriented element of a contract, for example, would be a penalty for an outbreak of a preventable illness at a facility.

Behavior-oriented performance metrics, such as meeting certain quarterly reporting goals, are adequate in circumstances of information transparency.122 However, contracts with predominately behavior-oriented metrics assume that task programmability — e.g., requiring cell searches three times a day — will be a reliable method of producing desired results — e.g., safer prisons. In other words, prison contracts relying on behavior-oriented evaluation metrics, such as those described in the IG Report,123 assume those metrics provide adequate insight into prison performance. This is a deeply mistaken assumption. When a principal does not have direct supervisory control of its agent, it becomes more difficult to reliably identify behavior-oriented metrics that will lead to desired outcomes.124 Furthermore, the difficulty of tying behavior- based metrics to desired outcomes increases along with the organizational complexity of the principal-agent relationship.125 Here, complexity can be measured by the amount of data, its quality, and the analytical sophistication required to interpret it. There is also an increased risk of inappropriate interests being involved in carrying out the principal’s objectives,126 as well as the risk that the government operates blind of the policy implications of current practice.

Policymakers deliberate within a horizon of available information — a situation economists describe as “bounded rationality.”127 More and better information provides for more sound policy.128 However, a government that lacks an effective method of gathering and analyzing information from contractors will be unable to effectively deliberate about policy and influence future outcomes.129 The result is that failures in monitoring and oversight can undermine the government’s ability to effectively deliberate about policies that implicate its sovereign power.130 The IG Report is one example of this failure. Its significance was not that it disclosed a faulty best-value comparison or the inaccuracy of information collected from private prisons; rather, it was significant because it showed that the government lacked the information necessary to make an informed judgment regarding current policy.131 The numbers represented by the vital performance requirements under the contract were meaningless without more detailed information that would substantiate the government’s causal claims. The IG Report shows that even when uniform data is transmitted from agent to principal, the principal still lacks specific details of mistreatment, adverse prison conditions, the presence of contraband, and other information needed to exert appropriate sanctions and control.132 This results in significant problems for initiating an effective system of oversight. To remedy this situation, the data required to communicate performance should be transferred from the agent to the principal without loss. Additionally, there must also be sufficient means to reduce reporting bias133 and outright false reporting to zero.

The pervasive information asymmetry afflicting private prison administration undermines the government’s determination that outsourcing will produce best value. Even proponents of private prisons acknowledge that accounting differences between public and private prisons complicate attempts at cost comparisons — potentially undermining the comparative value argument at its core.134 Proponents of private prisons argue that the current information deficiencies can be improved through increased monitoring and oversight or by drafting different contract requirements.135 Alexander Volokh recommends both, arguing that the potential capture of monitors who are already overstretched could be remedied through monitoring by a public interest group or the local community.136 He also advocates for performance-based contracting in private prisons, where “one varies the contract fee continuously with the level of performance delivered” and the level of performance is measured by achieving desired outcomes.137 As such an example, payment “could vary (positively) with how many inmates find jobs or (negatively) with how many inmates are rearrested within two years.”138 However, Volokh recognizes that attempts to compare quality and cost have proven inadequate and that the current method of oversight makes performance-based metrics unlikely to succeed.139 But his emphasis on performance-based contracts does acknowledge that, when information asymmetries exist, it is best to create contracts that seek desired outcomes.140

C. The Private Prison as Government Agent

The IG Report shows that the BOP currently faces severe information deficiencies as it attempts to oversee private facilities.141 In light of failures of informational awareness, the government cannot know how the agent is performing and whether the agent is acting on interests conflicting with the principal’s. Conflicting interests are those that are not rationally connected to the principal’s desired outcome.142 For example, the possibility that a person may make a decision that is at odds with the interests of a relevant group highlights the importance of overseeing that person’s decision-making to ensure it produces the appropriate outcome. Consider a simple decision about where colleagues should eat lunch. Imagine they task a junior colleague with picking a place to eat and want to be sure she picks a good restaurant. The colleagues may ask for links to relevant data (“Yelp” reviews, for example) comparing quality, costs, and other information to support her decision. They could choose from a number of methods to align their interests. They could create rules restricting her decision-making procedure, for example, by requesting a specific rationale to support her judgment. With this illustration, it is simple to verify the basis for the junior colleague’s decision because the information on which it is based is publicly available and easy to acquire. The likelihood of the junior colleague successfully deceiving her colleagues is relatively small. However, the ease of deception increases with the complexity of the agency context, requiring more complicated information systems.

Critics have targeted private prison companies that make decisions based on interests that apparently are unaligned to the legitimate function of incarceration.143 These critics emphasize private companies’ interests in pursuing a profit for their shareholders.144 Conflicting interests can occur at multiple levels of prison operation — including between individual guards and inmates.145 However, the potential divergent interests between management companies and the government are the proper locus of criticism when considering the legitimacy of private prisons. Criticizing divergent interests at the level of prison guards or an individual employee will result in confused analysis. Consider how the courts have viewed the interests of prison guards at private facilities when determining whether they should bear tort liability. In a decision by the U.S. Court of Appeals for the Sixth Circuit regarding the applicability of qualified immunity to guards at private prisons, the court noted:

[W]hile privately employed correctional officers are serving the public interest by maintaining a correctional facility, they are not principally motivated by a desire to further the interests of the public at large. Rather, as employees of a private corporation seeking to maximize profits, correctional officers act, at least in part, out of a desire to maintain the profitability of the corporation for whom they labor, thereby ensuring their own job security.146

On review at the Supreme Court, Justice Scalia demonstrated the perils of evaluating divergent interests at the level of an individual guard.147 Justice Scalia rightly took issue with the appellate court’s rationale in his dissent — saying it is based on “a theory so implausible that the Court avoids mentioning it, even though it was the primary reason given in the Court of Appeals decision that the Court affirms.”148 He continued, “[The theory] is that officers of private prisons are more likely than officers of state prisons to violate prisoners’ constitutional rights because they work for a profit motive, and hence an added degree of deterrence is needed to keep these officers in line.”149

Following this logic all the way, there is no principled distinction between a prison guard hired by a corporation and one hired by a public agency. After all, a basic corporation structure is a collection of owners, officers, and employees.150 This reducibility argument rests on the idea that state agents are reducible to individuals, and therefore, the problem of divergent interests will remain whether a facility is privately or publicly operated.151 For example, Volokh highlights the role that public employee unions play in lobbying for pro-incarceration policies.152 Public employees make up the majority of prison guards and employees,153 so they have much to gain from prisons remaining open and stocked with prisoners. The reducibility argument assumes that the critic’s evaluation of wrongful interests is the same in the context of individual public employees and management — a general decision-making body.154 But individual guards do not direct prison policy and controlling their behavior is, therefore, a different matter than ensuring effective oversight of prison policy. Additionally, private prison guards do not feel the wealth effects of their behaviors as closely as prison administrators.155 Even if they did, public policy advocacy on the part of legally protected labor unions and private lobbying groups is a political problem that cannot be addressed through improved contracting techniques or enhanced monitoring. For the purposes of evaluating agency issues, prison management and administration is the appropriate locus of analyzing divergent interests since there are well-documented examples of wrongful interests producing bad outcomes.

IV. How Failures in Oversight Implicate Inherently Governmental Functions

When private management companies are given the discretion to segregate prisoners,156 develop security procedures governing prison infractions,157 or use food as a means of punishment,158 they become involved in the concrete application of state power. These decisions are the kinds of discretionary actions that the 2011 OFPP memo suggested should be retained by the government.159

Consider two scenarios. In the first, Prison A maintains cells with comfortable beds and windows and provides nourishing, healthy meals. Prisoners who misbehave are punished by being segregated in a part of the prison without windows, but their meals are not changed, and guards are required to respond to medical issues. In the second, Prison B stores prisoners in cells of two with a twin-sized platform with a small pad for comfort. There are no windows and the prisoners are provided a “nutritional loaf ” when they misbehave. Guards in the segregation unit are not monitored. The variation between the two prisons exists because procedures and management at the two prisons vary. Additionally, such variation is often occurring for reasons outside of government’s direction. Given that these policies are often the focus of federal lawsuits implicating their constitutional validity,160 it is inconsistent to claim they do not fall under the exercise of state power.

The substance of legitimacy arguments against outsourcing prison functions turns on the premise that only the state is justified in administering punishment.161 The DoJ’s IG Report draws on findings showing shortcomings in the administration of prisons to provide evidence that contract prisons do not produce the best value for public money.162 Presumably DoJ’s conclusion would have been different had the prisons performed adequately. However, the argument that punishment is the exclusive purview of the government defeats comparative value arguments. It is possible for privately administered prisons to simultaneously be more cost effective than their public counterparts but still be illegitimate.

V. Conclusion

Claiming that the state has a monopoly on the coercive use of force is not claiming that individuals, or groups of individuals, cannot possibly be authorized to mete out punishment. Guards and the administration in a government-run prison are authorized to administer justice, and several employees, who are not directly involved in the supervision of prisoners, are private employees. However, to address the consequences of lax monitoring and oversight on prison policy, the government should emphasize the centrality of data management to its monitoring of private prisons. Without the ability to directly acquire and process data from private prisons in real time, the data loses its value and cannot be the basis for policymaking. The government, therefore, should pair with data scientists to create a system whereby raw data can be developed into unambiguous causal conclusions. It must also be impossible for contractors to manipulate data that is responsive to reporting requirements. The best solution will likely find agency representatives directly involved in prison administration, because without some direct management by federal employees, agencies face the risk of being unable to adequately oversee and control private prison operations — as is currently the case at private BOP facilities. CoreCivic, Management Training Corp., and GEO Group should also make significant investments in oversight and monitoring and voluntarily disclose their data to the government. Until these companies and the government properly address existing oversight problems and make oversight a top priority, contract prisons will continue to face questions of legitimacy.

  1. As Christine Korsgaard explains, this is the ability of moral concepts to “provide a criterion of normative or justificatory adequacy” that considerations of utility cannot. CHRISTINE M. KORSGAARD, THE SOURCES OF NORMATIVITY 13 (Onora O’Neill ed., 1996).
  2. Sharon Dolovich, State Punishment and Private Prisons, 55 DUKE L.J. 437, 441–48 (2005) (criticizing the exclusive focus on comparative efficiency and endorsing a “liberal legitimacy” approach); BYRON EUGENE PRICE, MERCHANDIZING PRISONERS: WHO REALLY PAYS FOR PRISON PRIVATIZATION? 32–33 (2006) (noting that officials may not only look to comparative efficiency when deciding to outsource).
  3. John J. DiIulio, Jr., The Duty to Govern: A Critical Perspective on the Private Management of Prisons and Jails, in PRIVATE PRISONS AND THE PUBLIC INTEREST 155, 172–77 (Douglas C. McDonald ed., 1990) (emphasizing moral problems with delegating punishment to private companies).
  4. Political commentators have noted the viability of private prisons has recently been tied to the success or failure of the Republican Party. Jeremy C. Owens, Private Prison Stocks Jump After Trump Official Says Feds Will Continue Using Facilities, MARKETWATCH (Feb. 23, 2017, 5:01 PM), []. Although the reasons why the Republican Party has tied its fortunes with those of private prisons are numerous, an increasing prisoner population is correlated with stricter immigration policies, which improve the viability of private facilities. Jeff Sommer, Trump Immigration Crackdown Is Great for Private Prison Stocks; Strategies, N.Y. TIMES (Mar. 10, 2017), stocks.html [].
  5. See Memorandum from Jefferson B. Sessions III, Attorney Gen., to the Acting Director Federal Bureau of Prisons (Feb. 21, 2017); HOMELAND SEC. ADVISORY COUNCIL, REPORT OF THE SUBCOMMITTEE ON PRIVATIZED IMMIGRATION DETENTION FACILITIES 2 (2016) [hereinafter DHS SUBCOMMITTEE REPORT].
  6. Memorandum from Sally Q. Yates, Deputy Attorney Gen., to the Acting Director Federal Bureau of Prisons 2 (Aug. 18, 2016).
  7. Id. at 1; OFFICE OF THE INSPECTOR GEN., U.S. DEP’T OF JUSTICE, REVIEW OF THE FEDERAL BUREAU OF PRISONS’ MONITORING OF CONTRACT PRISONS ii (2016) [hereinafter IG REPORT]. The findings of IG’s report have been criticized on a number of grounds, which are addressed herein. Sasha Volokh, The DOJ’s Misguided Withdrawal from Private Prisons, NAT’L REV. (Aug. 25, 2016, 8:00 AM), [].
  8. Dolovich, supra note 2, at 451.
  9. For example, in 1868, Georgia Governor Thomas Ruger awarded a lease for 100 African American men to the owner of a railroad for work outside of the prison. William Andrew Todd, Convict Lease System, NEW GA. ENCYCLOPEDIA (Dec. 12, 2005), [].
  10. Adamson analyzes the use of prison labor in terms of “threats” and “resources.” Christopher Adamson, Toward a Marxian Penology: Captive Criminal Populations as Economic Threats and Resources, 31 SOC. PROBS. 435, 437, 449 (1984). At the abolishment of slavery, the mass disruption between capital and labor required the use of a “disposable industrial reserve army.” Id. The State pursued cyclical policies of enforcing community norms (to fight threats) through incarceration and exploited the reserve labor force (resources) in prisons: “The extent to which captive criminal populations exploited as a resource for capital accumulation is represented as a direct function of financial strategy of prison reformers, prison administrators, and government officials, and as an indirect function (dotted line) of their crime- and class-control aims.” Id.
  11. Mississippi’s “Pig Law,” enacted in 1876, made the theft of a farm animal or any property valued at ten dollars or more a grand larceny punishable by up to five years in state prison. James M. McPherson, Parchman’s Plantation, N.Y. TIMES (Apr. 28, 1996), [].
  12. One such example was Governor Edmond Davis’s lease of Texas state prisoners in the early 1870s to cover a budget shortfall. Matthew T. King, A History of Private Prisons, in 1 PRI$ON PRIVATIZATION: THEMANY FACETS OF A CONTROVERSIAL INDUSTRY 11, 14–15 (Byron Eugene Price & John Charles Morris eds., 2012).
  13. In 1872, Georgia owed creditors $20 million in debt. Additionally, in 1885, 96% of convict leases were in southern states. MARTHA A. MYERS, RACE, LABOR, AND PUNISHMENT IN THE NEW SOUTH 7–8 (1998).
  14. Id. at 7.
  15. The potential coverage of prisoners under the FLSA is but one legal barrier to the exploitation of prison labor. The Ashurst-Sumners Act, passed in 1935, is another law that prohibits the “[knowing transport] in interstate commerce or from any foreign country into the United States any goods, wares, or merchandise manufactured, produced, or mined, wholly or in part by convicts or prisoners, except convicts or prisoners on parole, supervised release, or probation, or in any penal or reformatory institution.” Matthew J. Lang, The Search for a Workable Standard for When Fair Labor Standards Act Coverage Should Be Extended to Prisoner Workers, 5 U. PA. J. LAB. & EMP. L. 191, 196 n.33 (2002).
  16. Id. at 192, 196.
  17. DOUGLAS MCDONALD ET AL., ABT ASSOCS. INC., PRIVATE PRISONS IN THE UNITED STATES: AN ASSESSMENT OF CURRENT PRACTICE 8 (1998) (“By 1986, all but seven states were operating their prisons in excess of [ninety-five] percent capacity; [thirty-eight] were either full or above capacity; and seven states exceeded capacity by more than [fifty] percent.”).
  18. Steve Gettinger, U.S. Prison Population Hits All-Time High, CORRECTIONS MAG., Mar. 1976, at 3, 9–10.
  21. Id.
  23. For example, Ronald Reagan issued Executive Order 12,369, which appointed a 150-member Executive Committee of the President’s Private Sector Survey on Cost Control in the Federal Government. Exec. Order No. 12,369, 47 Fed. Reg. 28,899 ( June 30, 1982). This commission, known as the Grace Commission, submitted its report in January 1984 with a proposed $424 billion in savings over three years with the implementation of private-sector management practices in government-administered programs and services. CONG. RESEARCH SERV., IP0281G, GRACE COMMISSION 3 (1985). It is outside of the scope of this Article to evaluate the various studies regarding the cost-effectiveness of prison privatization. However, the findings are mixed. For example, a study of the Taft Correctional Facility, operated by GEO Group, showed that there we no significant savings at that facility compared to government- administered facilities. JULIANNE NELSON, COMPETITION IN CORRECTIONS: COMPARING PUBLIC AND PRIVATE SECTOR OPERATIONS 22–23 (2005).
  24. MCDONALD ET AL., supra note 17, at 8.
  25. KING, supra note 12, at 17.
  26. See DiIulio, supra note 3, at 172–77.
  27. See Joseph E. Field, Making Prisons Private: An Improper Delegation of a Governmental Power, 15 HOFSTRA L. REV. 649, 650 (1987) (non-delegation doctrine); see also Ira P. Robbins, The Impact of the Delegation Doctrine on Prison Privatization, 35 UCLA L. REV. 911, 914 (1988) (nondelegation doctrine); Stacey Jacovetti, The Constitutionality of Prison Privatization: An Analysis of Prison Privatization in the United States and Israel, 6 GLOBAL BUS. L. REV. 61, 104 (2016); Lucas Anderson, Kicking the National Habit: The Legal and Policy Arguments for Abolishing Private Prison Contracts, 39 PUB. CONT. L.J. 113, 121–23 (2009).
  28. Id. at 8 (reflecting that in 1998, the private prison industry spent more than $540,000 lobbying state officials). Since this report was written, political expenditures increased substantially. For example, while CoreCivic Inc. (formerly the Corrections Corporation of America) spent only $140,000 on annual lobbying in 1998, at the height of lobbying expenditures in 2005, the company spent $3,380,000. CoreCivic Inc., OPEN SECRETS, [] (last visited Mar. 4, 2018); see also Emma Baccellieri, Spotlight on Private Prisons, OPEN SECRETS (Aug. 23, 2016), [].
  29. Dolovich, supra note 2, at 476.
  30. See National Defense Authorization Act for Fiscal Year 2018, H.R. 2810, 115th Cong. § 809 (2017) (where section 809 initiatives have repeatedly been unsuccessful).
  31. Id.; National Defense Authorization Act for Fiscal Year 2016, Pub. L. No. 114-92, § 809, 129 Stat. 726, 889 (2015).
  32. IG REPORT, supra note 7, at iii.
  33. Id. at i.
  34. Wackenhut Corr. Corp., Current Report (Form 8-K) 2 (Oct. 21, 2003) (describing the name change to GEO Group).
  36. FAR 16.202-1 (“[A fixed-price] contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.”).
  37. Id. (noting possible use of award fee); DOUGLAS C. MCDONALD & KENNETH CARLSON, CONTRACTING FOR IMPRISONMENT IN THE FEDERAL PRISON SYSTEM: COST AND PERFORMANCE OF THE PRIVATELY OPERATED TAFT CORRECTIONAL INSTITUTION 14, 66–67 (2005). According to a performance evaluation conducted by Abt Associates, Inc., the criteria for assessing an award fee were (1) quality of work, (2) contractor responsiveness, and (3) the management of the contractor’s quality control program. MCDONALD & CARLSON, supra note 37, at 67.
  38. NELSON, supra note 35, at 22–23 (“The expected facility-level cost per inmate-day is higher with contractor management than with in-house management given an inmate population of 1,946 and given the BOP’s proposed staffing plan.”). In 2007, a new contract was awarded to Management Training Corporation to manage Taft. Edison v. United States, 822 F.3d 510, 514 (9th Cir. 2016).
  39. Sasha Volokh, Don’t End Federal Private Prisons, WASH. POST (Aug. 19, 2016), [].
  40. IG REPORT, supra note 7, at i.
  41. Id. at 5. The other states are California, New Mexico, Mississippi, North Carolina, Pennsylvania, and Ohio. Id.
  42. Id. (Reeves Correction Institution and Reeves Detention Center house a combined population of 3,689).
  43. Id.
  44. Id.
  45. Id. at 4 n.12.
  46. The BOP canceled a contract with Cibola County Correctional Center, which was operated by Corrections Corporation of America, in Milan, New Mexico, in the fall of 2016. Seth Freed Wessler, The Feds Will Shut Down the Troubled Private Prison in a ‘Nation’ Investigation, NATION (Aug. 15, 2016), []. However, shortly after, DHS planned to reopen the facility as an immigration detention facility. Seth Freed Wessler, ICE Plans to Reopen the Very Same Private Prisons the Feds Just Closed, NATION (Oct. 27, 2016), the-very-same-private-prison-the-fedsjust-closed/ []. State-owned and privately run prisons have closed under similar conditions. The Walnut Grove Correctional Facility (MTC) in Leake County, Mississippi, was closed by the State of Mississippi on September 16, 2016, following reports of substandard prison conditions. Timothy Williams, Privately Run Mississippi Prison, Called a Scene of Horror, Is Shut Down, N.Y. TIMES (Sept. 15, 2016), [].
  47. IG REPORT, supra note 7, at 3.
  48. See infra note 52.
  49. For example, on August 18, 2016 (the day the DoJ indicated a future moratorium on issuing or renewing BOP prison contracts), see Memorandum from Sally Q. Yates to the Acting Director Federal Bureau of Prisons, supra note 6, at 1, CCA stock fell 35.45%. Corecivic Inc. (NYSE:CXW), Google Finance, The value of the stock increased by 41.13% after President Trump won the presidential election. Corecivic Inc. (NYSE:CXW), GOOGLE FINANCE, []. It saw an additional increase after the DoJ signaled that BOP will continue to solicit and renew prison contracts. Owens, supra note 4.
  50. IG REPORT, supra note 7, at ii.
  51. Id.
  52. Memorandum from Sally Q. Yates to the Acting Director Federal Bureau of Prisons, supra note 6, at 1.
  53. Id. at 2.
  54. Id. at 1.
  55. Id. at 2.
  56. Id. (discussing the Smart on Crime Initiative). For more information about the Smart on Crime Initiative, see U.S. DEP’T OF JUSTICE, SMART ON CRIME: REFORMING THE CRIMINAL JUSTICE SYSTEM FOR THE 21ST CENTURY (2013).
  57. See, e.g., Matt Zapotosky, Private Prison Industry Fights Justice Department Directive to End the Use of Contract Facilities, WASH. POST (Oct. 14, 2016), [].
  58. IG REPORT, supra note 7, at 6. These are also standards of accreditation.
  59. Id. at 7.
  60. Id.
  61. Id.
  62. Id.
  63. Id. at 11.
  64. See FAR 16.202-1 (“[A firm-fixed-price] contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.”); IG REPORT, supra note 7, at 11.
  65. IG REPORT, supra note 7, at 48.
  66. Id. at 49.
  67. Reported incidents included: (1) assaults by inmates on inmates, (2) assaults by inmates on staff, (3) sexual assaults by inmates on staff, (4) inmate deaths, (5) inmate fights, (6) cell fires, (7) inmate suicide attempts and self-mutilation (combined), (8) inmate suicides, (9) disruptive behavior by inmates, and (10) staff use of force on inmates. Id. at 18.
  68. IG Report, supra note 7, at 15. Using confiscation as a metric to determine quality is problematic. For example, the increase in the confiscation of contraband cell phones at Adams County correlated with increased security after a May 2012 riot. Id. at 17. The IG report made no attempt to control for variations in security procedures at contract prisons and BOP facilities.
  69. Id. at 16.
  70. Id. at 17.
  71. Id. This number reflects “[a]verage [m]onthly [f]inds [p]er [c]apita for [w]eapons, [t]obacco, and [d]rugs at [c]ontract [p]risons and BOP [i]nstitutions.” Id.
  72. Id. at 14 n.29.
  73. CCA’s response, for example, stated: “Our experience has been that the criminal alien population housed in contract prisons has a higher rate of Security Threat Group (STG) members and associates (including border, Mexican, and Central American gangs) and groups of inmates that strongly define their identity by geographical areas, such as the Mexican state they are from, than U.S. citizen populations of the comparable security level housed in most BOP facilities.” Id. at 70. GEO Group provided further analysis of the criminal adult alien requirement: “The group leaders can control or direct a large majority of the population in a much larger fashion than in facilities with a mixed U.S. citizenry. Traditional populations do not follow recognized inmate leaders in a ‘one for all and all for one’ mentality.” Id. at 73.
  74. GEO Group notes this in its response to the Report. Id. at 74.
  75. MTC made this objection in its response to the report, noting that “[c]onfiscations of more cell phones, or more contraband, doesn’t necessarily mean that there is more contraband coming into the facility. It can also mean that the prison has a more effective system of detecting and removing contraband.” Id. at 77.
  76. Id.
  77. Id. at 17.
  78. See Volokh, supra note 39.
  79. IG REPORT, supra note 7, at iii.
  80. See Volokh, supra note 39 (recommending a “Mend it, don’t end it” approach).
  81. See generally Fred R. Kaen, Allen Kaufman & Larry Zacharias, American Political Values and Agency Theory: A Perspective, 7 J. BUS. ETHICS 805, 805–20 (1988).
  82. See Federal Activities Inventory Reform (FAIR) Act of 1998, Pub. L. No. 105-270, § 2(d)-(e), 112 Stat. 2382, 2383. The legislative history of FAIR notes that the prohibition of outsourcing inherently governmental functions dates back to the first Bureau of the Budget Bulletin in 1955, 1957, and 1960. S. REP. NO. 105-269, at 4 (1998); OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR NO. A-76, PERFORMANCE OF COMMERCIAL ACTIVITIES (1999); OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR NO. A-76, POLICIES FOR ACQUIRING COMMERCIAL OR INDUSTRIAL PRODUCTS AND SERVICES FOR GOVERNMENT USE 1 (1966); Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,230 (Sept. 12, 2011); OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB BULL. NO. 55-4, COMMERCIALINDUSTRIAL ACTIVITIES OF THE GOVERNMENT PROVIDING PRODUCTS OR SERVICES FOR GOVERNMENTAL USE (1955).
  83. Federal Activities Inventory Reform (FAIR) Act of 1998 § 5(2)(A), 112 Stat. at 2384.
  85. FAR 2.101 (defining “inherently governmental function”).
  86. A more exhaustive list of functions that the government categorizes as inherently governmental and not inherently governmental can be found in FAR 7.5. FAR 7.503.
  87. FAR 2.101.
  88. Memorandum on Government Contracting, 74 Fed. Reg. 9755, 9755–56 (Mar. 4, 2009).
  89. Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, § 736, 123 Stat. 524, 689–690.
  91. Id. at 2.
  92. Cf. at 2, 7.
  93. In the GAO memorandum on insourcing guidelines, the Director of Acquisition and Sourcing Management notes that “officials we spoke with were not always in agreement regarding the need for and level of specificity for some terms, as some officials preferred having greater flexibility in interpreting and applying the terms.” GAO-10-58R, supra note 90, at 7.
  94. Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,227 (Sept. 12, 2011).
  95. Compare id. at 56,236 with OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR NO. A-76 (1999).
  96. Id. at 56,237.
  97. Id. at 56,236.
  98. Id. at 56,241.
  99. Id. at 56,238.
  100. Id. The letter notes that this requirement is derived from section 736 of Division D of the Omnibus Appropriations Act, 2009. Omnibus Appropriations Act, 2009, Pub. L. No. 111–8, § 736, 123 Stat. 524, 689–690.
  101. Both state and federal prison employees and contractors may be found liable for violations of constitutional rights under 42 U.S.C. § 1983 (2012), which grants civil action for deprivation of rights. For example, the Sixth Circuit has applied a two-pronged test that includes (1) the deprivation of a constitutional or federal law right (2) caused by a person acting under color of state law. Street v. Corr. Corp. of America, 102 F.3d 810, 814 (6th Cir. 1996). To address the second prong, the court applied the “public function test,” which determines whether the “private entity [has exercised] powers which are traditionally exclusively reserved to the state.” Id. (quoting Ellison v. Garbarino, 48 F.3d 192, 195 (6th Cir.1995)). Federal private prison guards cannot be held individually liable for constitutional violations if there is an adequate remedy in state tort law. Minneci v. Pollard, 565 U.S. 118, 120 (2012). However, Minneci did not hold the Constitution does not apply to private prisoners. It merely held that state tort law will provide an adequate remedy. Id. at 127.
  102. FAR 7.503(d).
  103. DHS SUBCOMMITTEE REPORT, supra note 5, at 5 (“Because legitimate restriction on physical liberty is inherently and exclusively a governmental authority, much could be said for a fully government-owned and government operated detention model, if one were starting a new detention system from scratch. But of course we are not starting anew. Over many decades, immigration detention has evolved into a mixed public-private system where only [ten] percent of detainees are now in ICE-owned facilities.”).
  104. Id.
  105. Id. at 2.
  106. Id. at 11 n.14 (views of subcommittee member Marshall Fitz recognized the “historical reliance on private prisons” as a factor affecting continuing reliance).
  107. Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,238 (Sept. 12, 2011).
  108. The OFPP letter defines “Critical function” as “a function that is necessary to the agency being able to effectively perform and maintain control of its mission and operations.” Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,236 (Sept. 12, 2011). This “control” element has been a significant factor in state cases determining that private prisons do not violate the non-delegation doctrine. Hertz v. State, 22 P.3d 895, 904 (Alaska Ct. App. 2001) (noting that the delegation of authority to detain inmates owed to the “supervision, direction, and control” of the agent over its subordinates).
  109. Agency theory began as a theory of the corporate firm to explain how divergent interests can be aligned through good management structures. Kaen, Kaufman & Zacharias, supra note 81, at 805. For a concise review of agency theory, see Kathleen M. Eisenhardt, Agency Theory: An Assessment and Review, 14 ACAD. MGMT. REV. 57, 58 (1989). See generally Christopher R. Yukins, A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model, 40 PUB. CONT. L.J. 63, 63–64 (2010) (applying agency theory as a possible framework to understand basic issues in procurement law).
  110. This is not the first attempt to evaluate agency issues involved in the outsourcing of public functions. See Robin Gauld, Principal-Agent Theory and Organisational Change: Lessons from New Zealand Health Information Management, 28 POL’Y STUD. 17, 17 (2007); see also Francis Amagoh, Information Asymmetry and the Contracting Out Process, 14 INNOVATION J.: PUB. SECTOR INNOVATION J., no. 2, 2009, at 1, 6–8. The large proportion of the agency theory literature relates to theories of the corporate firm. See generally Eisenhardt, supra note 109, at 60 (providing a list of relevant research of agency theory as applied to accounting, economics, finance, political science, organizational behavior, and sociology). Agency theory has been used as a theory of the corporate firm to explain how divergent interests can be aligned through good management structures. Kaen, Kaufman & Zacharias, supra note 81, at 805. For a concise review of agency theory, see Eisenhardt, supra note 113, at 61. See generally Yukins, supra note 109, at 63–64 (applying agency theory as a possible framework to understand basic issues in procurement law).
  111. See Yukins, supra note 109, at 81–82.
  112. See Susan P. Shapiro, Agency Theory, 31 ANN. REV. SOC. 263, 264–65 (2005).
  113. Id.
  114. In the microeconomics literature, information asymmetry plays a prominent part in modeling strategic behavior. See Paul Milgrom & John Roberts, Information Asymmetries, Strategic Behavior, and Industrial Organization, 77 AM. ECON. REV. 184, 185 (1987) (noting that asymmetries can induce bluffing, signaling, and reputation building in the agent). Likewise, economists see information asymmetries and diverging incentives as partly to blame for issues that arise in corporate law. See generally Hayne Leland & David H. Pyle, Information Asymmetries, Financial Structure, and Financial Intermediation 32 J. FIN. 371, 371 (1977); see also Stephen A. Ross, The Economic Theory of Agency: The Principal’s Problem, 63 AM. ECON. REV. 134, 138 (1973).
  115. See Eisenhardt, supra note 109, at 60.
  116. Id.
  117. Id. at 61.
  118. Id. at 58.
  119. Id. at 61.
  120. Id.
  121. When the government provides specifications, it will be responsible for problems associated with those design specifications. See Martin Constr., Inc. v. United States, 102 Fed. Cl. 562, 575–76 (2011). However, a contractor will generally be held liable for breach when errors are attributable to it. Id. This method of managing risk is intuitive. When a contractor merely carries out the government’s specifications, it is acting as the government’s instrument. When a contractor is provided leeway to design its own solution, the government acknowledges and embraces the information held by the contractor that is not available to the government.
  122. See Eisenhardt, supra note 109, at 61.
  123. IG REPORT, supra note 7, at 14.
  124. Eisenhardt, supra note 109, at 61.
  125. Id. at 62.
  126. See generally id. at 59.
  127. See generally Reinhard Selten, Bounded Rationality, 146 J. INSTITUTIONAL & THEORETICAL ECON. 649, 649–51 (explaining bounded rationality in the context of subjective decision making and rational economic behavior).
  128. Transparency is a fundamental value of the procurement system. See Steven L. Schooner, Desiderata: Objectives for a System of Government Contract Law, 11 PUB. PROCUREMENT L. REV. 103, 105 (2002). The government publishes how contractors will be evaluated when bidding, executive agencies make federal award data publicly accessible via the Federal Procurement Data System (FAR 4.603), and agencies articulate the grounds on which a bid or proposal was rejected (through clear debriefings after awards). See Schooner, supra note 128, at 105–06.
  129. IG REPORT, supra note 7, at 13.
  130. Id. at 45.
  131. Id.
  132. Id. at 44 (“Neither we nor the BOP know the extent to which demographic factors play a role in these differences; but, in order to ensure that federal inmates are housed in safe and secure facilities, the BOP should evaluate why contract prisons had more safety and security incidents in these categories and identify possible approaches for corrective action.”).
  133. Used perhaps most frequently in epidemiology, the concept of reporting bias describes how people selectively reveal information. See Reporting Bias, A DICTIONARY OF EPIDEMIOLOGY 247 (Miquel Porta ed., 6th ed. 2014).
  134. Volokh, supra note 39 (“Costs are hard to compare between the public and private sectors, because the two sectors do their accounting differently.”); Alexander Volokh, Prison Accountability and Performance Measures, 63 EMORY L.J. 339, 348 (2013).
  135. The BOP has not provided award fees for exemplary performance since June 2010. IG REPORT, supra note 7, at 6 n.17.
  136. Volokh, supra note 134, at 413.
  137. Id. at 345.
  138. Id. at 375.
  139. See Id. at 353–57.
  140. Eisenhardt, supra note 109, at 61.
  141. IG REPORT, supra note 7, at 45.
  142. The FAR defines an organizational conflict of interest as one that “because of other activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the [g]overnment, or the person’s objectivity in performing the contract work is or might be otherwise impaired, or a person has an unfair competitive advantage.” FAR 2.101. The author uses “rational” in the sense of practical reason, the rational deliberative process that results in desired outcomes. If we apply variables such as those discussed to a particular agent, we can treat the agent’s beliefs and desires as rationally demanding an outcome. For example, if one has two beliefs: {it is raining outside} and {I have an umbrella in my closet} and a desire: {I do not want to get wet}, then my action of grabbing my umbrella is rationally related to my beliefs and desires. To act irrationally simply means to deliberate in a manner inconsistent with relevant variables. For a brief overview of practical reasoning, see Practical Reason, STAN. ENCYCLOPEDIA PHIL. (Oct. 13, 2003), [].
  143. See Eric Schlosser, The Prison-Industrial Complex, ATLANTIC (Dec. 1998), [].
  144. A review of all examples of wrongful interests involved in operating a private prison is beyond the scope of this Article. However, one example is that because contract prisons are administered by publicly traded companies, they will lobby lawmakers for policies that benefit their industries rather than the public interest. These policies include harsher prison sentences for criminals rather than policies that decrease recidivism and encourage rehabilitation. See PRICE, supra note 2, at 132–33, for an overview of these arguments. Another example of a wrongful interest is the motive to keep a facility at full capacity. CCA opened a facility in Youngstown, Ohio, in 1997 and filled it with prisoners from the Washington, D.C., prison system. Dolovich, supra note 2, at 461. The prisoners were classified as medium security without taking necessary measures to house maximum-security prisoners. Id. This led to a spike in assaults and two deaths. Id. Modifying the Youngstown facility to handle maximum-security prisoners would exam have cost $14,659 in income per day. Id. at 461 n.84. CCA did not object to receiving these maximum- security inmates or take these costly steps, they simply reclassified them as medium risk. Id.
  145. For a discussion of the interest of a prison guard in a private prison, see McKnight v. Rees, 88 F.3d 417, 424 (6th Cir. 1996), aff’d sub nom. Richardson v. McKnight, 521 U.S. 399 (1997).
  146. Rees, 88 F.3d at 424.
  147. Richardson, 521 U.S. at 421–22 (Scalia, J., dissenting).
  148. Id. at 421.
  149. Id.
  150. The exact form of the business entity involved in the contract arrangement is irrelevant to my argument.
  151. The author is the first to apply this term, however, Sasha Volokh made this argument in a private email exchange with me, in addition to a lecture on private prisons to the Georgia State University graduate department in philosophy in 2012. Email from Alexander Volokh, Assoc. Professor of Law, Emory Univ. Sch. of Law, to author (Dec. 3, 2012, 14:40 CST) (on file with author).
  152. Alexander Volokh, Privatization and the Law and Economics of Political Advocacy, 60 STAN. L. REV. 1197, 1221–23 (2008).
  154. See Email from Alexander Volokh to author, supra note 151.
  155. For a detailed discussion of how an agent’s share of the wealth effects impacts his decisionmaking, see Eugene F. Fama & Michael C. Jensen, Separation of Ownership and Control, 26 J.L. & ECON. 301 (1983).
  156. See IG REPORT, supra note 7, at 29–30.
  157. Cf. id. at iii.
  158. Cf. id. at 22–23.
  159. See Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,237–38 (Sept. 12, 2011)
  160. Sasha Volokh, The Supreme Court Has Restricted Civil Rights Litigation by Federal Private Prison Inmates: Should We Care?, WASH. POST (Feb. 17, 2014), [] (discusses the challenges faced by inmates in private prisons when they attempt to bring cases in federal and state court).
  161. The view that private individuals are restricted from using force except as a means of self-defense has its roots in classical expressions of state legitimacy. For example, John Locke stated that “all force (as has often been said) belongs only to the magistrate, nor ought any private persons at any time to use force unless it be in the self-defen[s]e against unjust violence.” John Locke, A Letter Concerning Toleration, in THE SECOND TREATISE OF CIVIL GOVERNMENT AND A LETTER CONCERNING TOLERATION 121, 132 ( J. W. Gough ed., 1948).
  162. IG REPORT, supra note 7, at 13.