The Industry
The contemporary for-profit prison era began in the mid-1980s. In 1985, Kentucky became the first state to turn over the complete operation of a prison to a for-profit company.3 Much of the impetus for industry growth came from Tennessee Republican activist Thomas Beasley, who founded Corrections Corporation of America (CCA) in 1983 with backing from venture capitalist Jack Massy, who also helped build Kentucky Fried Chicken and the Hospital Corporation of America.4 The fledgling industry came into the public eye in 1985 when CCA offered to take over the entire prison system in the state of Tennessee for 99 years.5 The state refused, but the offer ignited widespread press attention and public debate. Since then, CCA has continued to unsuccessfully lobby Tennessee for control of its prison system.
The for-profit prison industry has boomed since its inception. For-profit prison revenues passed the $1 billion mark in 1998.6 While there are currently 163 for-profit correctional facilities in operation or construction in 30 states, Puerto Rico and the District of Columbia, more than half of all for-profit prisons can be found in just four states: Texas (43), California (24), Florida (10) and Colorado (9). The capacity of for-profit prisons totaled approximately 123,000, or 7 percent of the 1.8 million U.S. inmate population in October 1999.7 One reason that for-profit prisons have not expanded further is that many jurisdictions, including some with the largest prisoner populations, do not have the statutory authority to house prisoners in for-profit facilities. In addition, regulation and oversight of for-profit prisons has increased as governments have acquired experience in this arena and realized the potential risks they are assuming.
At the close of 1999, there were 12 for-profit firms managing adult correctional facilities in the United States. Tennessee-based CCA and Florida-based Wackenhut Corrections, a subsidiary of the Wackenhut Corporation, are the major players in the for-profit prison industry with more than 75 percent of all private prison beds in the market. CCA managed 83 facilities with an approximate design capacity of 75,000 beds, or 55 percent of the for-profit prison beds in the United States. Wackenhut had 35 facilities under contract with a bed capacity of 29,000. After CCA and Wackenhut, there are four mid-level players: Utah-based Management and Training Corporation (7.45 percent of the for-profit market), Texas-based Cornell Corrections (5.79 percent), Florida-based Correctional Services Corporation (5.35 percent) and Massachusetts-based CiviGenics (3.16 percent). The rest of the companies in the industry held the remainder of the market.8
To a large degree, CCA’s size can be attributed to the fact that it was the first major player in the industry. In addition, the company has increased its market share through acquisitions, building speculative prisons, and gaining sole-source contracts. For instance, in 1998 CCA purchased U.S. Corrections Corporation, which at the time was the largest privately held for-profit management firm. Similarly, in 1995 CCA expanded its operations by eight facilities and 3,946 beds with the acquisitions of Corrections Partners Inc. (CPI) and the purchase of the Eden Detention Center (Eden, Texas) from independent owner and operator Roy Burnes.9
CCA has also led the industry in the very risky business of speculative (spec) prison building, whereby it builds a prison before there is a contract for beds. A speculative prison may be seen as an economic development project for the host jurisdiction. The inmates are usually from one or more jurisdictions — often not from the host jurisdiction. The purchasers of spec bed space are typically governments that are desperate to relieve overcrowding. When overcrowding reaches a crisis state, a government will often enter into a sole-source emergency contract at a high per diem rate, generating healthy profits for CCA. The District of Columbia entered into such a contract in 1997, which led to murders, escapes and a successful lawsuit against CCA by District inmates housed in a Youngstown, Ohio, for-profit prison. Initially, the District’s financial control board rejected a $172 million prison contract with CCA that it said had the “appearance of impropriety.” For instance, the contract would have stuck the District with a whopping $14.7 million cancellation clause.10 CCA had the upper hand because it had available bed space in a tight market. In the end, the District awarded a $6.8 million contract to CCA. The District’s financial control board later conceded that CCA was the only company to bid on the contract.11
CCA is not the only firm to profit from sole-source contracts. In fact, obtaining sole-source contracts may be a deliberate business strategy by many for-profit corrections firms. For instance, when taxpayers attempted to turn a sole-source arrangement in Alaska into a competitive bid, Allvest Inc. filed a lawsuit to stop the City of Delta Junction from pursuing competitive bids for the proposed for-profit prison.12 In another example, Cornell Abraxas wooed legislators in North Carolina into passing legislation specifically aimed at guaranteeing it a sole-source contract from the state.13 The purpose of the competitive bidding process is to help ensure that taxpayers get the best service provider at the most competitive rate. When these for-profit prison operators obtain sole-source contracts, the public usually winds up paying more than it would to house its inmates in a publicly run facility.
3 Douglas McKenzie and Bradley Martin, “Prison Privatization in Ohio,” presented at Annual Meeting of the Ohio Association of Economists and Political Scientists, Ohio Wesleyan University, Delaware, Ohio, October 12, 1996, pg. 4.
4 Eric Bates, “Prisons For Profit,” The Nation, January 5, 1998, pg. 12.
5 David A. Vise, “Private Company Asks for Control of Tenn. Prison 99-Year Contract Bid Gets Mixed Reception,” The Washington Post, September 22, 1985, pg. F01.
6 Jim Macdonald, “Dynamics of Growth of the Privatization Industry,” paper presented at 4th Annual Privatizing Correctional Facilities, sponsored by World Research Group, Las Vegas, Nevada, September 24, 1999, pg. 4.
7 University of Florida, Center for Studies in Criminal Law Web.
8 Ibid.
9 “CCA Expands With Two Industry Acquisitions,” PR Newswire, October 21, 1995.
10 “Escaping a Bad Prison Contract,” The Washington Post, March 23, 1997, pg. C06.
11 “Private Firm Wins,” The Washington Post, May 15, 1997, pg. D07.
12 “Allvest Files Breach-of-Contract Lawsuit Against Delta Junction,” Associated Press, September 15, 1999.
13 Joseph Neff, “Private Juvenile Facility Proposed Near Wilmington Is On Track,” The News & Observer (Raleigh, N.C.), October 27, 1999, pg. A1.
