Raher 1
The Prison-Keeper’s Dilemma: Unsustainable and Undesirable Business Practices in Privatized
Corrections
By Stephen Raher
Table of Contents
I. Introduction and Background ..................................................................................................... 1
A. History of Privatized Prisons in the United States .............................................................. 2
B. Dueling Markets .................................................................................................................. 8
C. The New Growth Market: Immigrant Detention ............................................................... 11
II. Effect of Non-Governmental Status ........................................................................................ 13
A. Liability ............................................................................................................................ 17
B. Public Access to Information ........................................................................................... 18
III. Contractual Issues .................................................................................................................. 25
A. Starting Point: Procurement .............................................................................................. 28
B. Performance Monitoring ................................................................................................... 33
C. Contractual Provisions ...................................................................................................... 40
1. Duration ....................................................................................................................... 41
2. Pricing .......................................................................................................................... 43
IV. Fiscal Policy ........................................................................................................................... 46
A. Prison Capacity and Facility Ownership ........................................................................... 46
B. Prison Financing ................................................................................................................ 51
1. Municipal Finance ....................................................................................................... 52
2. Corporate Borrowing ................................................................................................... 54
V. Conclusion .............................................................................................................................. 60
I. Introduction
In his seminal book on government bureaucracies,1 public administration scholar James
Q. Wilson briefly mentions the curious rebirth of privately operated prisons. After describing the
early American use of private prisons and the resulting failure of the system due to corruption,
Wilson notes that “[o]f late, adult jails and prisons once again are being operated by private firms
such as the Corrections Corporation of America (CCA).”2 His discussion of privately operated
prisons was necessarily brief, due to the lack of any “good, independent studies of the efficiency
of such enterprises.”3 Wilson wrote these words in 1989. Twenty years later, much more has
been written about the modern American experiment in privatized prisons. While solid data is
still elusive, many operational studies have uncovered serious failings in the country’s private
carceral apparatus. In their mildest forms, operational failures manifest as poor management and
control. At worst, private prisons can facilitate serious corruption or become the scenes of
horrific crimes.

1

James Q. Wilson, Bureaucracy: What Government Agencies Do and Why They Do It (1989).
Id. at 360.
3
Id.
2

Raher 2
The argument over whether private prisons work often centers on one or more of three
issues: operational effectiveness, cost savings, and the morality of incarceration for profit. The
preponderance of available data seems to cast doubt on whether private prisons are more
effective or less expensive than government-run counterparts. The moral dimension is,
ultimately, non-reducible. Nevertheless, policy-makers throughout the nation continue to debate
each of the three issues. These well-worn arguments are not, however, the focus here. Rather,
this paper examines a set of issues which has received less attention in the literature, but is fertile
ground for analysis—the business law aspects of the private prison industry.
Early during the twentieth century prison privatization movement, skeptical lawmakers
raised many legal questions. Could the state delegate carceral power to a private contractor?
How would governments negotiate contracts with prison operators? How would risk be
allocated? For a variety of reasons, these questions quickly took a backseat to the need for rapid
expansion of state prison systems. Once the private prison industry had gained a toehold and
developed an operating record, policymakers began debating whether the experiment was
working—this debate still rages today. Lost in the fray was the more fundamental question of
whether correctional outsourcing is feasible from a contractual and financial perspective. As
shown in this paper, prisons are not amenable to government outsourcing.
After a brief history of privatized corrections in the United States, this paper examines
the general effects of non-governmental prison operation, with a focus on how contractors have
exploited their private status to the detriment of inmates, taxpayers, and contracting agencies. A
discussion of contractual issues follows, beginning with weaknesses in government procurement
and contract monitoring systems. Section II.C considers contract duration and pricing
structures—the two issues most relevant to risk allocation—including analysis of sample
contract terms. The paper concludes with a section on the complex and precarious financing of
the industry. Because many prison contracts still allocate considerable risk to contracting
agencies, this section begins with a brief overview of municipal financing as it relates to prison
construction. Then, the debt structure of the private firms is discussed. After an early period of
investor enthusiasm, the leading private prison firms experienced financial chaos after employing
complex leveraging strategies. The industry engineered a financial revival beginning in 2001,
thanks largely to an influx of revenue from new federal contracts. The paper concludes with an
outline of policy recommendations for winding down the private prison sector.
A. History of Privatized Prisons in the United States
The birth of the American prison system is a notorious paradox In the words of historian
David Rothman, “[i]n the 1820s and 1830s, when democratic principles were receiving their
most enthusiastic endorsement, when the ‘common people’ were participating fully in politics
and electing Andrew Jackson their president, incarceration became the central feature of criminal
justice.”4 Prisons were originally part of a uniquely American rejection of British social control
mechanisms.5 As a general matter, British and early colonial responses to dependent and deviant
populations (i.e., the poor, the criminal, the insane, and the orphan) were disorganized, harsh,

4

David J. Rothman, Perfecting the Prison: United States, 1789-1865, in The Oxford History of the Prison: The
Practice of Punishment in Western Society 100, 100 (Norval Morris & David J. Rothman, eds., 1998).
5
Id. at 102-104.

Raher 3
and heavily influenced by religious doctrines.6 Prisons were one component of a broad-based
reform movement that originated in the late eighteenth century and flourished in the early to
middle nineteenth century. Governments assumed responsibility for the operation of various
charitable institutions—asylums, reformatories, penitentiaries, and orphanages—designed to cure
deviant behavior.7
The initial use of incarceration in America was a novel alternative to British criminal
sentencing schemes, which relied heavily on corporeal and capital punishment. But Americans
quickly became dissatisfied with prisons, seeing them as breeding grounds for criminal
behavior.8 The Jacksonian-era rebirth of the penitentiary (and concomitant renaissance of other
charitable institutions such as the asylum) sought to reclaim the penitentiary as a rehabilitative
institution.9 In what was gradually becoming a familiar cycle, the Jacksonian reform movement
also ended in broad disillusion, as prisons once again became warehouses of cruelty and
inefficiency.10 This time, however, the reformers had laid the foundation for a major systemic
change, through the penitentiary’s enhanced emphasis on convict labor. Pioneered by penal
reformers in New York, some American prisons in the mid-nineteenth century began providing
inmate labor, for a fee, to private business firms. Early contract labor arrangements typically
entailed multiple private firms contracting for prison labor, with inmates working in prison
workshops, manufacturing goods which were then sold by the contracting firms.11
After the Civil War, the system of convict labor took a decided turn in favor of greater
private control of prisoners, particularly under the “convict leasing” system employed in many
southern states. Many southern states restricted or even abolished contract prison labor during
Reconstruction, but the economic depression of the 1870s saw states looking to cut prison costs
and businesses looking for cheap labor. When “redeemer” Democratic governors began ending
Reconstruction in the southern states, many prisons began leasing large numbers of inmates to
private industries. This iteration of inmate labor differed from earlier models in two notable
regards. First, the scale was much larger—in some states, two or three companies would
effectively lease all available prison labor.12 Second, companies typically assumed de facto
custody of leased convicts.13 Although some politicians and social reformers were disturbed by
the extremely harsh conditions that inmates endured under convict leasing arrangements, the
ultimate demise of the system was due to economic concerns. As organized labor became more
powerful, unions set their sights on abolishing private firms’ use of convict labor, citing the
unfairness of making free-world laborers compete with the low-cost and easily exploited pool of
inmate workers. The battle was long and complicated, but ultimately, the convict leasing system
6

David J. Rothman, The Discovery of the Asylum: Social Order and Disorder in the New Republic 1-14 (rev. ed.,
1990).
7
See generally, id. at 30-154.
8
Rothman, supra note 4, at 102-104.
9
Id. at 106 (“reformers hoped that the solutions that they devised to prison design problems would be relevant to the
wider society. With no ironies intended, they talked about the penitentiary as serving as a model for the family and
the school. The prison was nothing less than ‘a grand theatre for the trial of all new plans in hygiene and
education.’”).
10
Id. at 107-114.
11
Rebecca M. McLennan, The Crisis of Imprisonment: Protest, Politics, and the Making of the American Penal
State, 1776-1941 53-86 (2008).
12
Id. at 102.
13
Ahmed A. White, Rule of Law and the Limits of Sovereignty: The Private Prison in Jurisprudential Perspective,
38 Am. Crim. L. Rev. 111, 127 (2001).

Raher 4
was abolished during the 1880s and ‘90s, with the last vestiges disappearing in the early
twentieth century.14
The role of private contractors in the corrections system did not completely disappear
after the end of the convict lease system. Most notably, private (often not-for-profit) entities
have long been used to operate juvenile facilities and community-based corrections programs,
such as halfway houses.15 But generally, the use of prisoners as commodities in profit-making
industries disappeared in twentieth century American corrections—until the 1980s. The modern
advent of privately operated adult secure facilities came in 1979 when the Immigration and
Naturalization Service (INS) issued a contract to the international security firm Wackenhut, for
the operation of an immigrant detention facility in Aurora, Colorado. Corrections Corporation of
America (CCA) incorporated in 1983 and began operations under its first contract the next year.
From its inception, the private prison market has always been thin, with two dominant firms—
CCA and Wackenhut Corrections Corporation. Wackenhut started as a subsidiary of the
Wackenhut Corporation, and is now an independent entity, recently renamed “The GEO Group.”
Over the years, many smaller firms have been acquired by CCA and Wackenhut. In 1998 (after
much consolidation had already occurred) there were twelve private prison companies operating
in the United States—CCA and Wackenhut controlled a combined 77 percent of the total
domestic private bed capacity.16 Of the twelve companies listed in the 1998 census of private
facilities, at least three have subsequently been acquired by larger firms.17
The growth of the industry during the 1980s and early ‘90s can best be described as a
perfect storm, involving three interrelated policy dynamics.18 First, changes in sentencing policy
ensured an unrelenting increase in prison populations, necessitating new facility construction.
Second, unconstitutional conditions within state prison systems led to judicial mandates to
alleviate overcrowding—a challenge most states responded to by building more prisons. Third,
the increasing political clout of the fiscal conservatism movement made paying for prison
expansion more difficult.
Late twentieth century sentencing changes (the first factor of the perfect storm)
prioritized incarceration as the preferred response to crime. Fueled by misinformation and
14

Id. at 137-192.
Douglas McDonald, et al., Abt Associates, Private Prisons in the United States: An Assessment of Current
Practice, at 4-5 (1998).
16
Bureau of Justice Assistance, James Austin & Garry Coventry, Emerging Issues on Privatized Prisons, tbl. 3, at 4
(2001) [hereinafter “Austin & Coventry”] (CCA and Wackenhut controlled 51.4% and 25.1% of the market,
respectively).
17
CiviGenics, Inc., was acquired by Community Education Centers in 2007. Infra, note 332. Correctional Services
Corporation was acquired by GEO/Wackenhut in 2005. GEO Group, Inc., Annual Report (Form 10-K), at 1 (Mar.
17, 2006). Correctional Systems, Inc. was acquired by Cornell Companies in 2005. Cornell Companies, Annual
Report (Form 10-K), at 33 (Mar. 16, 2006).
18
Cf. John W. Kingdon, Agendas, Alternatives, and Public Policies, 98 (2d ed., 1995) (“Crises, disasters, symbols,
and other focusing events only rarely carry a subject to policy agenda prominence by themselves. They need to be
accompanied by something else. . . . [Or, quoting a case-study interview subject,] ‘A fortuitous catalyst [is often]
thrown into an existing environment.’”). Although no author has compiled detailed state-level case studies of this
policy process in the context of prison privatization, some isolated discussions do exist. See generally, C. Elaine
Cummins, Private Prisons in Texas, 1987-2000: The Legal, Economic, and Political Influences on Policy
Implementation (Oct. 25, 2000) (unpublished Ph.D. dissertation, American University) (on file with American
University Library); Stephen Raher, Walls of Stone, Bars of Gold: A Politico-Economic History of Colorado’s
Prisons (Nov. 2002) (unpublished paper, University of Colorado Graduate School of Public Affairs) (on file with
author).
15

Raher 5
sensational media portrayals of crime, voters in the 1980s became fixated on lengthy prison
sentences for convicted offenders—providing vote-seeking legislators an incentive to advocate
for longer sentences. Culminating in Lee Atwater’s fear-based Willie Horton campaign during
the 1988 presidential election, public opinion increasingly reflected insecurity about personal
safety and a belief that imprisonment was the most effective solution.19 In addition to
generalized public anxiety about crime, drug policy increasingly occupied center stage in
criminal justice policy debates, with federal and state lawmakers in a seeming competition to
craft the harshest drug sentencing regime.20 By 2003, drug offenders constituted 20 percent of
state prisoners and 55 percent of the federal prison population, representing a twelve- and
seventeen-fold increase, respectively, since 1980.21 All told, this period of tough-on-crime
politics saw the nation’s total prison population increase from 319,598 in 1980 to 1.4 million in
mid-year 2003—an increase of 334 percent.22
The second contributing factor to the rise of the modern private prison industry is a direct
result of the first. More stringent sentencing policy predictably lead to a higher prison
population; however, this population increase was not accompanied by adequate expansion of
the nation’s carceral infrastructure. Not surprisingly, this resulted in overcrowding and
substandard prison conditions. While deplorable prison conditions had been tolerated throughout
the nation’s history, states could not turn their backs on such problems in the 1980s and ‘90s, due
to the birth of prisoners’ rights litigation in the 1960s and ‘70s.23 Due to the more robust judicial
approach to vindicating prisoners’ constitutional rights, more prison systems found themselves
under court supervision. So pronounced was the overcrowding and resultant litigation that by
mid-1988, the corrections systems of thirty-nine states, the District of Columbia, and two
territories were operating under court orders to remedy unconstitutional conditions.24 These
judicial pressures made lawmakers much more susceptible to private-sector promises of quick
and cheap prison construction and operation.
Ironically, after the private sector reaped the benefit of the states’ need to rapidly expand
their carceral capacity, private operators received a windfall from the Supreme Court and
Congress. First, after judicial-crafted remedies created the need for a massive prison-building
campaign, the U.S. Supreme Court substantially curtailed the ability of judges to impose reforms
on correctional systems, adopting a substantially deferential standard in Turner v. Safley.25 Next,
ten years after Turner, Congress went several steps further and enacted the Prison Litigation

19

See generally, David C. Anderson, Crime and the Politics of Hysteria: How the Willie Horton Story Changed
American Justice (1995).
20
See generally, Eva Bertram et al., Drug War Politics: The Price of Denial 134-150 (1996).
21
Marc Mauer and Ryan S. King, The Sentencing Project, The 25-Year Quagmire: The War on Drugs and Its
Impact on American Society, 9-10 (Sept. 2007), available at http://www.sentencingproject.org/
Admin%5CDocuments%5Cpublications%5Cdp_25yearquagmire.pdf
22
Bureau of Justice Statistics, Sourcebook of Criminal Justice Statistics: 2003 (Ann L. Pastore & Kathleen Maguire,
eds.), 478, tbl. 6.1 (2005).
23
See e.g., Michael B. Mushlin, Rights of Prisoners § 1:4, at 14-18 (3d 3d., 2002) (describing the demise of the
constitutional common-law “hands-off doctrine” during the 1960s and ‘70s, culminating in the U.S. Supreme Court
cases Wolff v. McDonnell, 418 U.S. 539 (1974); and Procunier v. Martinez, 416 U.S. 396 (1974), overruled by
Thornburgh v. Abbott, 490 U.S. 401 (1989)).
24
McDonald, supra note 15, at 8.
25
482 U.S. 78, 89 (1986) (“when a prison regulation impinges on inmates’ constitutional rights, the regulation is
valid if it is reasonably related to legitimate penological interests.”).

Raher 6
Reform Act (PLRA), placing numerous procedural restraints on prisoner lawsuits.26 The
ultimate result of Turner and the PLRA is to lessen the likelihood that prisoners will prevail on
civil rights claims,27 a dynamic that benefits the private prison industry by reducing litigation
costs. Despite the change in the legal landscape, the initial period of vigorous judicial
vindication of prisoners’ rights created a policy window that opened long enough for the private
prison industry to establish itself. Once companies could show an operating track record (even a
checkered one), pitching new contracts to policy makers became easier. Notably, even though
Turner and the PLRA provided legal cover for prison operators (both private and governmental),
private operators were dealt a small setback when the U.S. Supreme Court held that contractors
are not entitled to a qualified immunity defense in § 1983 suits.28
The third and final factor that catalyzed the industry is the maturation of the fiscal
conservatism movement that began in the 1970s. As fiscal conservatives claimed policy
victories on the national level, states were expected to take on increased responsibilities.29 At the
same time federal responsibilities were devolving to the states, citizens demanded protection
from tax increases, frequently imposing constitutional restrictions on state taxing and borrowing.
When states encountered the recession of the early 1980s, these new revenue constraints lead to
profound turmoil in government budgeting.30 Private prisons benefited from this movement in
two ways. First, despite the overall pressure to reduce spending, prisons often enjoyed favored
status, due to public fear of crime and the ability of the state to justify public safety as an
essential governmental function.31 Second, even though incarceration as a concept received
26

Pub. L. 104-134, §§ 801-810, codified as 18 U.S.C. § 3626 (2008).
See e.g., Dorothy Schrader, Cong. Research Serv., Prison Litigation Reform Act: An Overview (C.R.S. Report
No. 96-513) at 9 (May 30, 1996) (describing the PLRA’s main effect as “limit[ing] the authority of the federal
courts to fashion remedies to correct violations of federal rights.”).
28
See infra, notes 103-106 and accompanying text.
29
Ruth Wilson Gilmore, Golden Gulag: Prisons, Surplus, Crisis, and Opposition in Globalizing California, 42
(2007) (“The federal retreat [from social spending] required subnational polities and institutions to take
responsibility for social problems whether they wanted to or not, forcing them to deal with the newly dispossessed,
who ranged from unemployed youth to financially needy students to homeless families. The contemporary rise of
the local state, celebrated by so many geographers, represents in part a generally reactionary move to reexternalize,
or keep external, such social burdens and fiscal costs.”). While Gilmore’s work is specific to California, it is
generally an excellent portrayal of a narrative that was repeated in many states. Not only is the California story
indicative of other states’ experiences because all states, to some degree, face similar challenges as actors in the
federalist system, but California’s policy innovations (especially in the realm of taxpayer activism) were often
exported to other states. For example, understanding Colorado’s recent fiscal policy necessitates an understanding
of ballot-measure activist Douglas Bruce (author of the Taxpayers’ Bill of Rights), who formed his political
ideology in southern California during the 1970s and ‘80s. See, Off Limits, Denver Westword, Aug. 31, 1994, at 9.
30
Gilmore, supra note 29, at 42-50.
31
Id. at 83-86 (“The central contradiction for the waning welfare-warfare, or military Keynesian, state was this: the
outcomes of tax struggle translated into delegitimation of programs the state could use to put surpluses back to work,
while at the same time, the state retained bureaucratic and fiscal apparatuses from the golden age. The massive
restructuring of the state’s tax base in effect made surplus the Keynesian state’s capacities. However, the state did
not disappear . . . Rather, what withered was the state’s legitimacy to act as the Keynesian state. . . . . [T]he new
state built itself in part by building prisons. . . . The result was an emerging apparatus that, in an echo of the Cold
War Pentagon’s stance on communism, presented its social necessity in terms of an impossible goal—containment
of crime, understood as an elastic category spanning a dynamic alleged continuum of dependency and depravation.
The crisis of state capacity became, peculiarly, its own solution, as the welfare-warfare state began the
transformation, bit by bit, to the permanent crisis workfare-warfare state, whose domestic militarism is concretely
recapitulated in the landscapes of depopulated urban communities and rural prison towns.”).
27

Raher 7
favored political status, fiscal constraints made borrowing for new construction difficult—thus
privatization emerged as a popular proposal. This popularity depended on notion that contract
facilities would avoid the need for state borrowing or expansion of public payrolls. At the same
time, by expanding prison capacity through private facilities, policy makers could claim cost
savings through private sector “innovations.”
After its initial growth stage, the private prison industry encountered a period of financial
distress in the late 1990s.32 Highly publicized operating failures battered the image of the
industry. The failures included a barrage of escapes, assaults, and murders at CCA’s Northeast
Ohio Correctional Center33 and a series of assaults, murders, a riot, and guard brutality at two
Wackenhut prisons New Mexico.34 Industry observers expected that two pieces of
Congressional legislation in 1996 and 1997 would result in an infusion of new contracts for the
industry.35 In anticipation of those new contracts, prison companies embarked on aggressive
financing plans which ultimately left the industry in even greater turmoil. CCA and Wackenhut
both experimented with real estate investment trusts (REITs), and ultimately saw their stock
prices decline precipitously due to investor disapproval. CCA’s REIT-financing experience was
so disastrous that in 2000, its independent auditor expressed “substantial doubt” about the ability
of CCA (then operating under the name Prison Realty Trust) to continue as a going concern.36
Although CCA and Wackenhut both recovered from their late ‘90s financial slumps, they remain
highly leveraged and depend on further expansion to pay down corporate debt.
By 2000, growth in private prisons seemed to be slowing37—no state was soliciting new
private prison contracts, and some existing contracts had been curtailed or rescinded.38 Yet,
between that year and 2005 (the most recent year for which data is available), 151 new privately
operated prisons came on-line, and the private sector’s share of all U.S. correctional facilities
jumped from 16 percent to 23 percent.39 What caused this resurgence? Although there are
several contributing factors, the primary catalyst has been the birth of the “national market” for
private prison beds.

32

See infra, notes 372-395 and accompanying text.
See generally, John L. Clark, Corrections Trustee for the District of Columbia, Report to the Attorney General:
Inspection and Review of the Northeast Ohio Correctional Center (Nov. 25, 1998), available at
http://www.usdoj.gov/ag/youngstown/youngstown.htm.
34
McDonald & Patten, supra note 15, at xxii-xxiii.
35
See infra, notes 365-369 and accompanying text.
36
Prison Realty Trust, Inc., Annual Report (Form 10-K), at F-16 (Mar. 30, 2000).
37
Austin & Coventry, supra note 16, at 6 (“indications show that growth in privatization may be slowing. For
example . . . private facility bed capacity has not increased since January 1, 1998. Additionally, stock prices for
most of the major firms have dropped substantially in the past year. There have also been a number of highly
publicized management problems with several privately operated facilities.”).
38
Judith Greene, Bailing Out the Private Prison Industry, Prison Legal News, May 2002, at 1.
39
James J. Stephan, Bureau of Justice Statistics, Census of State and Federal Correctional Facilities, 2005 (NCJRS
222182), 1 (2008). In 2005, there were a total of 415 privately operated prisons in the United States, housing an
average daily population of 105,451 inmates. Id. at app. tbl. 9. Although the Bureau of Justice Statistics issues
annual revisions to these figures, the data does not provide information on company-specific market shares, nor the
total capacity of the private prison system. Ever since the abrupt end to Prof. Charles Thomas’s Private Corrections
Project at the University of Florida (see infra, notes 175-176 and accompanying text), there has been no centralized
source of information on the capacity of the industry as a whole—one of many indicators of the lack of transparency
that hinders informed policy decisions.
33

Raher 8
B. Dueling Markets
The most recent development in private prisons is the emergence of two distinct markets
for prison beds. As McDonald and Patten describe the current state of the industry, the two
markets can be labeled the “dominant mode” and the “national market.” The dominant mode
(the model originally presented to policy-makers as the “private prison fix”) entails a state
agency contracting for some of its needed prison beds, and forming a one-to-one relationship
with a contractor.40 The second, national, market for private prisons is an outgrowth of the
speculative prison-building boom of the 1980s.41 In this market, prison operators advertise
available capacity to jurisdictions across the country, often filling a facility with inmates from
multiple agencies.42 Despite the growing prevalence of facilities on the national market,43 little
research has been done on the effects of this system.
Not surprisingly, there is qualitative evidence to suggest that inmate management is more
difficult when prisoners are shipped to foreign jurisdictions.44 Not only are prisoners less happy
when serving time far away from family and friends, but housing inmates from different
jurisdictions (who are subject to different administrative regulations) in one facility often breeds
tension.45 There are systemic problems as well. McDonald and Patten’s 1998 survey of private
prisons found that states paid higher per diem rates for out-of-state facilities than for in-state
contracts.46 The same survey revealed monitoring problems attendant to use of the national
market. Survey data show that 52 percent of in-state contract facilities are monitored by
government staff devoting over eighty hours per month to the facility—with nearly half (48
percent) of these facilities covered by full-time monitors.47 In contrast, 90 percent of nationalmarket facilities received less than twenty hours of monitoring a month.48 Moreover, in-state
contract monitors were four times as likely to receive job-specific training than those assigned to

40

McDonald & Patten, supra note 15, at 5 (“[T]he state prison system is the contractor’s sole client at the facility;
the only prisoners held in the facility are those under the jurisdiction of the client state agency. Moreover, the prison
is in the same state as the publicly operated prisons, which creates at least some of the conditions supportive of a
close integration between the publicly operated facilities and the privately operated prisons.”).
41
See infra, notes 328-330 and accompanying text.
42
McDonald & Patten, supra note 15, at 6 (“Many of these facilities that are oriented to the national market may not
have any prisoners at all from the correctional agencies in the states in which they are located. Indeed, they may
have no relationship at all with the state governments in these states, other than an obligation to pay corporate
income taxes. Owners of private property do not need licenses from state correctional agencies to build and
operated detention facilities and, until recently, most state legislatures have not established regulatory systems for
the states or localities to govern private prison operations.”).
43
Id. at 7 (the authors identified 84 privately operated prisons in 1998 which had contracts to house state inmates
from a foreign jurisdiction).
44
E.g., Matthew T. Clarke, Uprisings at CCA Prisons Reveal Weaknesses in Out-of-State Imprisonment Policies,
Prison Legal News, Jan. 2005, at 26.
45
Id., see also, Colo. Dept. of Corr., After Action Report: Inmate Riot – Crowley County Correctional Facility July
20, 2004 14 (Oct. 1, 2004) (on file with author) [hereafter “CCCF After Action Report”] (Citing “[i]nmates’
allegations of treatment disparity between Colorado inmates and Washington inmates regarding allowable property
and food portions” as a contributing factor in the 2004 riot at the CCA-operated Crowley County facility).
46
McDonald & Patten, supra note 15, at 7, 9 (all national-market contracts examined in the survey charged per diem
rates over $35, which exceeded the price of 55% of in-state contracts).
47
Id. at 30.
48
Id.

Raher 9
out-of-state facilities.49 Predictably, qualitative data from the survey showed that correctional
staffers generally perceived service from out-of-state facilities to be of lower quality.50 Despite
the problems inherent in the national market, states with inadequate prison capacity (and a lack
of political will to reduce prison populations) are left with no immediate alternative other than
seeking beds from this non-traditional market. While utilization of out of state beds is more
expensive in the long term, it avoids immediate outlays for new prison construction, thus
allowing for short-term budget balancing.
While McDonald & Patten’s survey focused on state governments’ utilization of out-ofstate prisons,51 the national market has been significantly enhanced through the workings of a
federal agency, the Office of the Federal Detention Trustee (OFDT). Created in 2000,52 the
OFDT was formed in response to Congressional “concerns about the problem of inadequate
planning and management of detention space in the Department of Justice.”53 The House
committee report accompanying the enabling legislation anticipated the office would be given
responsibility for “oversight of detention management, as well as improvement and coordination
of detention issues” throughout the Department of Justice.54 When the bill emerged from
conference, however, it contained slightly broader language, authorizing the trustee to “exercise
all powers and functions authorized by law relating to the detention of Federal prisoners in nonFederal institutions.”55 At the time the bill was enacted, all federal non-military prisoners were
held by one of three Department of Justice agencies—the Bureau of Prisons (BOP), U.S.
Marshals Service (USMS), or the Immigration and Naturalization Service (INS). Because the
final language was not limited to the Department of Justice, OFDT has retained power over
certain aspects of immigrant detention, even when INS moved to the new Department of
Homeland Security. OFDT has changed the dynamics of the modern private prison industry,
with many of these changes distorting what little competition existed. Moreover, the OFDT’s
role as a centralized federal procurer of beds on the national market has disadvantaged state
governments in need of additional prison capacity.
During its short existence, the OFDT has carried out two types of prison procurement—
contracting for entire facilities, and more piecemeal “bed brokering.” The facility-level
contracting—which follows the traditional, or “dominant” mode of state contracting—has
provided a new source of revenue for the private prison industry. Ironically, while OFDT has
played a crucial role in the constructive federal bailout of the industry, its procurement processes
contradict many of the economic arguments in favor of privatization. Industry supporters
frequently point to competition as a benefit of correctional outsourcing.56 OFDT’s procurement
49

Id.
Id. at 31 (“Not surprisingly, the most publicly visible troubles in privately operated prisons have occurred most
often in these arrangements whereby governments contract with out-of-state facilities to hold prisoners. State
contract administrators and monitors also rated their performance below that observed at in-state facilities with
which states had (mostly) exclusive relationships. In 38 percent of all contracts or agreements with out-of-state
facilities, the monitors or administrators rated the quality of the service as below that of comparable facilities in their
own department of correction, compared with 7 percent of the contracts with in-state facilities.”).
51
See, id., at 8, tbl. 1.2 (listing ten states that housed inmates in out-of-state facilities as of December 31, 1997).
52
Pub. L. 106-553, app. B, 114 Stat. 2762, 2762A-52 (2000).
53
H.R. Rep. 106-680, at 13 (2000).
54
Id.
55
Pub. L. 106-553, 114 Stat. at 2762A-52 (emphasis added).
56
E.g., Ass’n. of Private Corr. & Treatment Orgs., Increased Accountability (APCTO), http://www.apcto.org/
increaseaccountability.html (last visited Feb. 8, 2009) (“Private operators must . . . [c]ompete to earn the privilege of
50

Raher 10
practices, however, vitiate any pretense of competitive bidding. OFDT frequently issues solesource contracts for entire facilities.57 In other cases, OFDT has issued a “sources sought”
notice, seeking bids, but defined the eligibility requirements so narrowly as to limit the pool of
eligible bidders to one company, subsequently announcing a sole-source award.58 Notably, most
of OFDT’s solicitations are limited to bidders with an existing facility, a requirement that not
only limits the potential pool of bidders, but also increases the incentive for companies to avoid
or terminate state contracts in favor of more lucrative federal contracts.
OFDT’s other major procurement activity is the Detention Services Network
(“DSNetwork”), a national online bed-brokering platform which has fused the national private
corrections market with advanced information technology. OFDT advertises DSNetwork as “a
multifaceted, full-service Internet site to meet all detention service needs.”59 Other than a
cursory explanation of the features and technology behind the DSNetwork, OFDT provides no
information on the system, such as the identity of entities providing beds through the system, the
number of inmates placed through the system, or the amount of money disbursed for DSNetwork
placements. In fact, other than one webpage with USMS statistics,60 OFDT has released little
information about its operations. While OFDT also performs work for the BOP and Immigration
and Customs Enforcement (ICE), almost all publicly available data concerning the agency’s
operations are limited to USMS. The three federal civil detention agencies (BOP, ICE, and
USMS) are the only agencies who use DSNetwork to purchase prison beds.61 Because these
federal agencies are generally better funded than state corrections department, DSNetwork’s
facilitation of federal bed procurement runs the risk of applying upward price pressure on state

operating a correctional facility, and then re-bid on a regular basis.”); see also, Bruce L. Benson, Do We Want the
Production of Prison Services to be More “Efficient”?, in Changing the Guard: Private Prisons and the Control of
Crime 163, 174 (Alexander Tabarrok, ed., 2003) (“Private producers cannot simply cut costs by cutting quality and
continue to count on an undiminished flow of revenues because consumers will turn to substitutes that are of higher
quality for the price or to lower-price substitutes of comparable quality. Thus, competition forces private firms to
offer relatively high-quality services at relatively low prices. Technological efficiency results from competitive
pressures and from the profit motive.” Although Benson provides this general discussion of competition, he does
proceed to note some ways in which the private prison industry has not, and should not, follow classical economic
theory.).
57
E.g., Solicitation 101507 (Oct. 16, 2007) (notice of intent to award sole source contract to GEO Group, on behalf
of U.S. Marshals Service, for Robert A. Deyton Detention Facility in Clayton County, Georgia); Solicitation ODT7-R-0001 (Jun. 7, 2007) (notice of intent to issue a non-competitive contract on behalf of U.S. Marshals Service);
Solicitation ODT-USMS-7-0001 (May 18, 2007) (notice of intent to award sole source contract to CCA, on behalf
of U.S. Marshals Service, for Pinal County, Arizona detention facility).
58
Compare Sources Sought Notice, ODT-6-R-0002 (Jan. 6, 2006) (seeking an “existing secured detention facility
located within the geographic boundaries of Leavenworth, Kansas with a capacity of not less than 802 beds”) with
Presolicitation Notice, ODT-6-R-0002 (Feb. 8, 2006) (declaring one responsible source and awarding sole-source
contract to CCA); compare Sources Sought Notice ODT-USMS-5-0001 (Mar. 30, 2005) (seeking a an “existing
secured detention facility located within the geographic boundaries of San Diego County, California with a capacity
of not less than 700 beds”) with Presolicitation Notice ODT-5-R-0004 (May 10, 2005) (declaring one responsible
source and awarding sole-source contract to GEO Group).
59
Office of the Fed. Detention Tr., DSNetwork Initiative (information brochure), available at http://www.usdoj.gov/
ofdt/dsn_brochure.pdf.
60
OFDT Statistics, http://www.usdoj.gov/ofdt/statistics.htm (last visited Feb. 8, 2009).
61
Office of the Fed. Detention Tr., The Electronic Business Process for Intergovernmental Agreements 4 (Nov.
2007).

Raher 11
governments in need of immediate bed space. Moreover, because DSNetwork appears to be
available to any local government or private agency that wishes to make beds available,62 it has
the potential to radically increase the scope and size of the national bed market.
C. The New Growth Market: Immigrant Detention
The Immigration and Naturalization Service (INS)—now known as Immigrations and
Customs Enforcement (ICE)—has always relied heavily on privatized facilities. Not only did
INS issue the first modern contract for a privately operated correctional facility, but it continues
to utilize a growing network of privately operated detention centers. Precise data on ICE
privatization is difficult to find. The Bureau of Justice Statistics reports that in 2007, ICE housed
20,711 immigrant detainees in “intergovernmental service agreement” (IGSA) and Bureau of
Prisons facilities.63 While ICE does not publish a list of the IGSA facilities, it did include such a
list in a 2008 solicitation for a telecommunications services contract.64 The IGSA facilities are
mostly county jails, although a few state prisons appear on the list as well. The solicitation
separates IGSA facilities into two categories: those which hold detainees for seventy-two hours
or less, and those which hold for over seventy-two hours. In total, the solicitation lists 206 “over
seventy-two” facilities and 139 “under seventy-two” facilities, but does not provide information
on the total size of each contract.65 While the majority of ICE detainees are held in IGSA
facilities, about one-third are held in ICE facilities.66 These ICE facilities consist of both
contractor owned-and-operated detention centers, as well as ICE-owned facilities. The ICE
website lists eighteen such facilities, of which six are contractor-owned-and-operated.67 Of the
remaining twelve detention centers, all are owned by ICE, but operated by contractors.68
Although immigrant detention policy necessarily begins with ICE, it does not end there.
Perhaps the single greatest salvation of the industry (and certainly of CCA) has been the series of
62

Id. at 11.
Heather C. West & William J. Sabol, Bureau of Justice Statistics, Prisoners in 2007 (NCJRS 224280) 26, app. tbl.
18.
64
Immigrations and Custom Enforcement, Solicitation Number HSCETE-08-R-00001 (Jan. 3, 2008) (on file with
author). The solicitation documents have subsequently been removed from the Federal Business Opportunities
website.
65
Id. at 28-36.
66
West & Sabol, Prisoners in 2007, supra note 63, app. tbl. 18, at 26.
67
Immigration Detention Facilities, http://www.ice.gov/pi/dro/facilities.htm (last visited Feb. 7, 2009). The
webpage actually lists 22 facilities, however, one (San Pedro Service Processing Center) is closed, and three (Pinal
County Adult Detention Center, Stewart Detention Center, and Willacy County Detention Center) are IGSA
facilities.
68
See Immigrations and Custom Enforcement Solicitations HSCEOP-06-R-00012 (May 5, 2006) (Aguadilla Service
Processing Center), HSCEDM-09-R-00008 (Jan. 14, 2009) (El Centro Service Processing Center), HSCEDM-08-R00012 (Aug. 21, 2008) (El Paso Service Processing Center), HSCEDM-09-R-00001 (Jan. 14, 2009) (Florence
Service Processing Center), HSCEDM-08-R-00009 (Feb. 26, 2008) (Krome Service Processing Center), HSCEDM08-R-00007 (Jan. 15, 2008) (Port Isabel Service Processing Center); and Immigrations and Custom Enforcement
Contracts ACB-4-C-0001 (Broward Transitional Center), ACB-3-C-0002 (Buffalo Federal Detention Center). The
remaining four facilities do not have procurement information listed in Federal Business Opportunities. However,
two (LaSalle Detention Facility and South Texas Detention Facility) are listed as management contract facilities in
Wackenhut/GEO’s annual report. GEO Group, Inc., Annual Report (Form 10-K), at 10, 12 (Feb. 15, 2008). ICE’s
website states that the remaining two facilities are operated under contract by CCA (Otay Detention Facility) and
Ahtna Technical Services, Inc. (Varick Federal Detention Facility).
63

Raher 12
“Criminal Alien Requirements” (CARs) issued by the Federal Bureau of Prisons. Since 1999,
the BOP has issued several contracts for privately operated facilities to hold low-security foreign
nationals who are serving criminal sentences prior to deportation.69 In all there have been eleven
solicitations under the CAR series, although the three most recent (CARs 9 though 11) are still
pending. One phase (CAR-3) was cancelled prior to award.70
Obtaining salient information about the CAR contracts is extremely difficult.71 Based on
available solicitation documents, the six CAR contracts for non-federal facilities72 may
potentially provide capacity of up to twenty-two thousand beds.73 Award notices for CAR
phases 4 through 8 estimate that the aggregate price for the four contracts, over their respective
four-year base periods, will be near $1.1 billion.74 Given the favorable terms and pricing
structures utilized by the BOP,75 the CAR contracts are particularly valuable to prison operators.
Not only has the CAR process infused cash into an industry that might otherwise be on the brink
of insolvency, but the BOP’s preference for contracting with pre-existing facilities places the
agency in a superior competitive position vis-à-vis state corrections departments that are in need
of additional prison capacity.

69

See e.g., Bureau of Prisons, Solicitation RFP-PCC-00010 (“CAR 6 RFP”), Section C, at 11 (May 26, 2006)
(Seeking “management of a contract correctional institution(s) to accommodate approximately 7,000 beds for a low
security adult male population consisting primarily of criminal aliens. The criminal alien population will ordinarily
be low security non-U.S. citizen, primarily Mexican, adult males with sixty months or less remaining to serve on
their sentences.”).
70
See, Notice of Cancellation of Environmental Impact Statement Process: Criminal Alien Requirement, Phase III—
Arizona and California, 67 Fed. Reg. 31,826 (May 10, 2002) (although the notice references a cancellation notice in
Commerce Business Daily (CBD), this notice, along with many other CBD documents pertaining to the early CARs
is no longer available).
71
The author requested documents pertaining to four CAR contracts under the Freedom of Information Act (FOIA).
The Bureau of Prisons denied the author’s request for a FOIA fee waiver and demanded payment of $1,642.95
before it would produce the responsive documents. See Letter from Wanda M. Hunt, Bureau of Prisons, to Stephen
Raher (Dec. 2, 2008) (on file with author). The author promptly appealed the fee waiver denial, but the Department
of Justice has failed to comply with the statutory timeline for administrative adjudication and has not responded to
repeated inquiries concerning the status of the appeal.
72
CAR-7 is excluded from this analysis, as it is a “management only” contract for the federally-owned correctional
institution in Taft, California. See Bureau of Prisons Solicitation PCC-RFP-0011 (“CAR-7 RFP”) (Aug. 8, 2006).
73
See Bureau of Prisons Solicitations RFP-PCC-0005 (“CAR-1 RFP”) (Aug. 10, 1999) (seeking up to 7,500 beds);
RFP-PCC-0006 (“CAR-2 RFP”) (Apr. 5, 2000) (seeking approximately 1,500 beds); RFP-PCC-0008 (“CAR-4
RFP”) (Feb. 13, 2004) (seeking approximately 1,000 beds); RFP-PCC-0009 (“CAR-5 RFP”) (Jun. 21, 2005)
(seeking approximately 1,200 beds); RFP-PCC-0010 (“CAR-6 RFP”) (May 26, 2006) (seeking approximately 7,000
beds); RFP-PCC-0012 (“CAR-8 RFP”) (Apr. 29, 2008) (seeking approximately 4,000 beds).
74
See Bureau of Prisons Award Notices DJB1PC002 (Feb. 13, 2004) ($129 million contract to CCA, CAR-4);
DJB1PC003 (May 24, 2006) ($76 million contract to Reeves County, Texas, CAR-5); DJB1PC007 (Jan. 18, 2007)
($187 million contract to Reeves County, Texas, CAR-6); DJB1PC006 (Jan. 18, 2007) ($122 million contract to
Management and Training Corp., CAR-6); DJB1PC008 (Jan. 18, 2007) ($63 million contract to LCS Corrections
Servs., CAR-6); DJB1PC004 (Jan. 18, 2007) ($269 million contract to Cornell Companies, CAR-6); DJB1PC005
(Jan. 18, 2007) ($119 million contract to CCA, CAR-6); DJB1BPC009 (Apr. 25, 2007) ($143 million contract to
Management and Training Corp., CAR-7); DJB1PC010 (Apr. 1, 2009) ($226 million contract to CCA, CAR-8).
75
See infra, notes 270, 289-292, and accompanying text.

Raher 13
II. Effect of Non-Governmental Status
Supporters of privatization frequently cite the industry’s non-governmental status as a
benefit, insofar as it allows for “innovation.”76 Although this assertion is questionable to begin
with,77 it also fails to take into account the detriments associated with carceral operations by nongovernmental entities. The disadvantages of non-governmental prison operations are numerous
and varied. This section begins with a general discussion of the problems of prison operators’
non-governmental status. It then focuses on the two most prominent issues: liability and public
access to information.
At the broadest level of analysis, government outsourcing serves to diffuse state
sovereignty. White has framed the problem of prison privatization as representing
neither the straightforward retreat of sovereignty, nor its outright expansion. Rather the
private prison is fundamentally premised on a dynamic that combines these tendencies,
that seems to represent both the apparent retreat and the advance of the state in the prison
context. It is in this sense that private prisons must be understood in terms of the
extension and diffusion of sovereignty.78
In other words, states can expand the prison system (arguably the most extreme use of state’s
coercive powers) while simultaneously relinquishing government control over many features of
the carceral apparatus. As White elaborates, “the juridical structure of the private prison
attenuates and ultimately insulates the state from accountability of a more symbolic, political
kind. Private prisons tend to distance public officials from responsibility for the way private
prisons are run.”79 Although White describes corruption as the most obvious example, he also
notes that “the private prison converts the problems of prisons—which are endemic and
substantial in every case—into management questions and questions of relative performance,
efficiency, contract interpretation, and so forth.”80
76

Notably, leading privatization supporter Charles Thomas recently admitted that promises of innovation were
oversold. See, Charles W. Thomas, Correctional Privatization in America: An Assessment of Its Historical Origins,
Present Status, and Future Prospects, in Changing the Guard: Private Prisons and the Control of Crime 57, 81-82
(Alexander Tabarrok, ed., 2003), (“I expected that the private sector would bring much by way of creativity and
innovation to corrections that would then cause the diffusion of innovative approaches to public correctional
agencies. I was more wrong than right in this regard. I have seen a great deal of creativity and innovation on the
front of facility design and construction as well as in the greater willingness of the private sector to accept
technological innovation in, for example, the area of security. Thus far, however, I am unimpressed by the creativity
that the private sector has brought to the table in such areas as staffing patterns, performance incentive programs for
employees, fringe benefit and retirement programs for employees, and innovative programs for prisoners that
include adequately sophisticated measures of in-program and postrelease outcomes.”).
77
See e.g., Austin & Coventry, supra note 16, at 37-38 (“As pointed out by Gaes and colleagues [infra note 169], a
coherent theory of why privately operated prisons would outperform public facilities has yet to emerge. Indeed, one
could argue that the private sector has simply drawn upon the methods used by the public sector with respect to
inmate management and staffing and only attempted to reduce the costs associated with that model. In effect, the
private sector may be applying a more efficient model that is essentially mimicking the public sector. . . . Should
this approach be considered by policymakers, the future of privatization may be very limited as the public sector in
turn copies the private sector’s methods.”).
78
White, supra note 13, at 137.
79
Id., at 139.
80
Id.

Raher 14
Supporters of privatization are fond of rationalizing the industry’s shortcomings by
claiming that prisons are messy enterprises that will never be perfect. 81 Of course, this argument
is not limited to private operators—state corrections officials also seek to explain their failures
with similar logic. The diffusion of sovereignty can be illustrated by the different ways in which
private and public actors employ these arguments. To use a hypothetical, suppose a concerned
party (e.g., a family member of a prisoner, an inmate’s attorney, or a policy advocate) identifies a
failure within a prison system. The process of ameliorating this failure begins quite similarly
whether the prison is publicly or privately operated. Assuming, as is often the case, the
concerned party cannot resolve the issue with the corrections department, she can raise the issue
with the legislature.82 Often, general apathy toward prison conditions will preclude any
meaningful response. But in cases where legislators are motivated to seriously inquire about the
operating failure, prison administrators (public or private) will often respond by arguing, in
essence, that they have a difficult job which cannot be understood by those outside the
corrections profession.83 After the opening inquiry and response, the argument becomes a
garden-variety policy debate—both sides will articulate their own narrative, and the outcome
will be determined through the legislative process. If the prison administrator can persuade the
legislature that his job is complex and specialized, the status quo will prevail.
The difference between the public and private prison systems comes when the concerned
party prevails in her argument. A legislature is able to demand immediate change from a state
corrections agency. In contrast, the legislature is constitutionally prohibited from impairing an
existing contract with a private operator. Even if the needed change can be accomplished
without unconstitutionally impairing the operator’s contractual rights, an unwelcome change

81

See e.g., True Facts About Corrections Corporation of America (CCA) and Privatization,
http://www.thecca360.com/facts.php (last visited Jan. 26, 2009) (“The nature of the industry means that the potential
for incidents and disruptions always exists.”). Although this CCA-created webpage declares “as a result of CCA’s
dedication to safety and continual improvement of services, average rates for violent incidents and escapes at CCA
facilities are lower than rates at similar public facilities,” CCA provides no substantiating evidence, thus raising
questions of data analysis and methodology, see infra note 168. CCA’s unsubstantiated claim is even more suspect
in light of Austin & Coventry’s data analysis, which found that although for some operations metrics there is not a
statistically significant difference between public and private facilities, there is “one major exception: in this
comparison [controlling for facility security level], the privately operated facilities have a much higher rate of
inmate-on-inmate and inmate-on-staff assaults and other disturbances.” Austin & Coventry, supra note 16, at 52,
57.
82
A party could, in theory, address his concerns directly to a private prison operator, but if the issue is at all serious,
the contractor is quite unlikely to negotiate with a private citizen. Contracts and corporate literature are quite clear
that private prison operators view their only “customers” as contracting agencies, not inmates, family members, or
policy advocates.
83
This argument has deep historical roots, see Edgardo Rotman, The Failure of Reform: United States, 1865-1965,
in The Oxford History of the Prison, supra note 4, 151, 152 (when late nineteenth century prisons devolved into a
state of “pervasive overcrowding, corruption, and cruelty. . . . Wardens did not so much deny this awful reality as
explain it away, attributing most of the blame not to those who administered the system but to those who
experienced it.”). This dynamic—which implicitly or explicitly blames inmates for the systemic failings of the
prison system—can also be seen in the growth of the corrections industry as a “profession” complete with its own
vocabulary and framework of technical rationality—tools which help to dehumanize inmates and channel prison
employee dissatisfaction by directing it against inmates, politicians, and prisoner rights advocates who “don’t
understand” the challenges facing the profession. Cf. generally, Guy B. Adams & Danny L. Balfour, Unmasking
Administrative Evil (1998).

Raher 15
may provoke the private operator to terminate the contract at the soonest opportunity.84
Moreover, the legislature must rely on the corrections agency to effectively resolve problems
with private operators. This reliance on administrators not only inserts another layer of
bureaucracy in an already opaque accountability system, but may ultimately fail to solve
problems if the agency is timid in enforcing contractual terms because of a dependency on
private-sector capacity.
A recent example of the “prisons are difficult business” argument, and the concomitant
muddying of the waters of accountability, played out in an eight-year court battle in Texas.
While serving a six-month sentence in a Wackenhut-operated prison, Gregorio de la Rosa, Jr.
was murdered in a prison yard when two inmates smuggled a weapon out of their housing unit.85
De la Rosa’s estate argued that Wackenhut was negligent because it failed to search the attackers
when they left their housing unit, as required by Texas prison regulations.86 The jury found
Wackenhut negligent, but the company appealed, saying the verdict could not stand because it
was not supported by expert testimony.87 Wackenhut argued that “specialized knowledge was
required to show [it] had a duty to search the inmates passing through the crash gate or that the
failure to search the inmates violated this duty.”88 The Texas Court of Appeals ruled against
Wackenhut, noting that the company had not cited a single relevant case to support its
argument.89
The de la Rosa case shows that the “prisons are messy” argument does not always
prevail. Indeed, due to the particularly egregious facts of de la Rosa’s murder,90 it is not entirely
surprising that the jury overcame any potential bias based on de la Rosa’s status as a prisoner.
Given the weakness of Wackenhut’s legal arguments, it is also unsurprising that the company
lost on appeal. Nonetheless, the same arguments may well have prevailed in a legislative venue,
where the focus is on broad policy, not vindicating the rights of an individual crime victim.
Moreover, unlike an appellate court, legislators are overtly guided by value judgments—such as
legitimate policy beliefs (e.g., an inherent bias in favor of outsourcing) and less principled
factors, such as campaign contributions.

84

For example, when Nevada Department of Corrections raised concerns about CCA’s operations of the Southern
Nevada Women’s Correctional Center, CCA elected not to renew its contract, citing operating losses. See Corr.
Corp. of Am., Annual Report (Form 10-K) (Mar. 7, 2005) at 50.
85
Wackenhut Corr. Corp. v. de la Rosa, No. 13-06-00692, 2009 WL 866791, at *1-2 (Tex. App. – Corpus Christi,
Apr. 2, 2009).
86
Wackenhut conceded that it was obligated to comply with a state regulation that stated “[t]he officer shall conduct
pat-searches of inmates before permitting entrance or exit to or from any department within the area of
responsibility.” Id at 1 (emphasis by court). But, Wackenhut argued its employee’s failure to search the attackers
did not violate the policy because the housing unit did not constitute a “department.” Brief of Appellant at 32,
Wackenhut Corr. Corp. v. de la Rosa, No. 13-06-00692, 2009 WL 866791, at *1-2 (Tex. App. – Corpus Christi,
Apr. 2, 2009) [hereafter “Wackenhut Appellate Brief”].
87
Wackenhut Appellate Brief at 26 (“In this case, proof of negligence required expert testimony. Expert testimony
in a prison case is essential to support a claim because jurors are not familiar with what is reasonable care in a prison
environment.”).
88
Wackenhut Corr. Corp, 2009 WL 866791, at *21.
89
Id., n.33.
90
Id. at *1 (“A few days before his expected release, Gregorio [de la Rosa] was beaten to death by two other
inmates using a lock tied to a sock, while Wackenhut’s officers stood by and watched and Wackenhut’s wardens
smirked and laughed.”).

Raher 16
An example of legislative acquiescence to industry arguments can be found in the 2008
Congressional hearings concerning the Private Prison Information Act.91 Witness Tom Jawetz
(an ACLU staff attorney) testified concerning the need for increased public access to information
on private prison operations. While raising doubts about Jawetz’s credibility, Rep. Louis
Gohmert (R-TX) asked him if he had ever requested a tour of a private prison.92 When Jawetz
replied that a two-hour tour does not give the visitor a comprehensive picture of facility
operations, Gohmert flippantly replied, “Well, there is a way to have an opportunity to live in a
facility.”93 Most importantly, Gohmert’s colloquy misses Jawetz’s point. Jawetz testified that he
had taken a tour of the Willacy County Detention Center (operated by Management and Training
Corporation (MTC)) and noted substandard housing conditions, but could not use FOIA to
access MTC’s records pertaining to maintenance of the housing units because the records
weren’t held by a federal agency.94
While cases such as the de la Rosa murder show that serious operating failures can be
addressed by courts, in reality inmate access to courts is curtailed by judicial doctrine and the
PLRA.95 In addition, interested parties outside the prison system typically do not have standing
to challenge prison operations in court. Thus, many legitimate concerns that do not involve the
loss of life or limb must be raised with non-judicial oversight bodies, usually legislatures. When
prison operators are able to diffuse legislative attention by arguing that the only appropriate
remedy is through contract (a less public process than legislation), the state’s control of its
carceral apparatus is diminished.
On a more specific level, outsourcing is an effective way for governments to evade
numerous generally applicable accountability measures. The most prominent such evasion in the
realm of federal correctional outsourcing has been avoidance of environmental planning laws.
As a general rule, contractors are subject to the National Environmental Policy Act (NEPA)96
when constructing a prison destined for use under a federal contract. The federal government’s
recent habit of contracting for use of pre-existing facilities, avoids NEPA since there is no
federal involvement at the time of construction.97 The interest of contractors and the federal
government in avoiding NEPA is more than theoretical. Federal courts have held that one
purpose of NEPA is to ensure public participation in the planning process98—a goal in direct
conflict with prison-planners’ objective of managing public opposition.99
91

See infra, notes 121-127 and accompanying text.
Private Prison Information Act of 2007 (Part II): Hearing before the Subcomm. on Crime, Terrorism, and
Homeland Security of the H. Comm. on the Judiciary, 110th Cong. 110-190 (2008), at 65 [hereafter “H.R. 1889
Hearing”].
93
Id. at 66.
94
Id. at 56.
95
See supra, notes 25-26 and accompanying text.
96
42 U.S.C. § 4321-4370f.
97
See e.g., City of Highland Park v. Train, 519 F.2d 681 (7th Cir. 1975); Citizens Alert Regarding the Environment
v. U.S. Envtl. Protection Agency, 2003 WL 1889242 (D.D.C. 2003) (both holding that the possibility of future
federal funding of a project is not sufficient to make NEPA applicable).
98
E.g., Siera Club v. U.S. Army Corps of Engineers, 701 F.2d 1011 (2d Cir. 1983); Envtl. Defense Fund, Inc. v.
Stamm, 430 F.Supp. 664 (N.D. Cal. 1977); Citizens Against Toxic Sprays, Inc. v. Bergland, 428 F.Supp. 908 (D.Or.
1977).
99
Cf. U.S. Dept. of Justice, Nat’l. Inst. of Corr., An Information Brief: Issues in Siting Correctional Facilities, at iv
(May 1992) (“We must learn better ways to manage public opposition because we can expect that the future will
hold more, not fewer, decisions about where to locate correctional facilities.”).
92

Raher 17
While private prison companies’ non-governmental status can be exploited in numerous
different ways, two particularly salient areas are considered in the following sections. First is a
discussion of contractor liability for violations of inmates’ civil rights. Then subsection B
explores the problems concerning public access to information regarding private prison
operations.
A. Liability
Questions of liability largely center around allocating the risk for contractor violations of
inmate civil rights. In the early stages of the twentieth century prison privatization movement,
many issues of contractor liability implicated unsettled areas of the law. In 1988, the Supreme
Court issued its first ruling addressing the liability of contractors in the prison system. In West v.
Atkins, the Court held that a contract physician performing work in a state prison system was
acting under color of state law and was thus amenable to suit under 42 U.S.C. § 1983 for alleged
violations of an inmate’s Eighth Amendment rights.100 This rule has subsequently been applied
several times to allow § 1983 suits against private prison operators.101 The West holding
provided some encouragement to prisoner rights advocates, since § 1983 is an important
mechanism for vindicating inmates’ constitutional rights. Because a § 1983 action may only be
brought against a person acting under color of state law,102 the West holding was a necessary step
in clarifying the applicability of § 1983 to private contractors in a correctional system.
Once the Court had established the applicability of § 1983 to corrections contractors, the
next major question was whether a contractor was entitled to the defense of qualified
immunity.103 The Supreme Court addressed this question in Richardson v. McKnight, when it
held that prison guards employed by CCA could not raise a qualified immunity defense against a
prisoner’s § 1983 suit over injuries allegedly inflicted by the defendants.104 Although
Richardson increased the potential liability of private prison operators, its enduring effect is
somewhat uncertain for two reasons. First, the Court’s holding relied at least in part on a finding

100

487 U.S. 42, 54 (1988) (“Respondent, as a physician employed by North Carolina to provide medical services to
state prison inmates, acted under color of state law for purposes of § 1983 when undertaking his duties in treating
petitioner’s injury. Such conduct is fairly attributable to the state.”).
101
E.g., Rosborough v. Management & Training Corp., 350 F.3d 459 (5th Cir. 2003) (per curiam) (corporation
operating prison under contract with State of Texas was performing a public function and thus was subject to the
limitations of the Eighth Amendment), but cf. Richardson v. McKnight, 521 U.S. 399, 413 (1996) (Supreme Court
expressly declined to hold whether private prison corporation was acting under color of state law for purposes of
prisoner’s § 1983 suit); Cornish v. Corr. Servs. Corp., 402 F.3d 545, 550-551 (5th Cir. 2005) (court recited, with
implied approval, defendant prison corporation’s concession that it acts under color of state law when providing
juvenile correctional services, but held that defendant was not a state actor when making personnel decisions (citing
George v. Pacific-CSC Work Furlough, 91 F.3d 1227, 1230 (9th Cir. 1996) (“An entity may be a state actor for
some purposes but not for others.”))).
102
Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40 (1999).
103
For a discussion of qualified immunity, see Mitchell v. Forsyth, 472 U.S. 511, 525 (1984) (“The conception
animating the qualified immunity doctrine . . . is that where an official’s duties legitimately require action in which
clearly established rights are not implicated, the public interest may be better served by action taken with
independence and without fear of consequences.” (internal quotation marks omitted) (quoting Harlow v. Fitzgerald,
457 U.S. 800 (1982)).
104
521 U.S. 399 (1996).

Raher 18
that CCA’s operations were not heavily supervised by the state.105 Thus, it is unclear whether
the same result would follow in a state with a more aggressive monitoring program. Second,
four justices (three of whom are still on the Court) dissented from the Richardson holding, citing
both legal and policy objections.106
Today’s confused jurisprudence regarding § 1983 and private prisons raises important
fiscal questions. The government-supervision factor articulated in Richardson presents an
uncertain relationship with vicarious liability in the context of § 1983 liability. It is settled law
that the doctrine of respondeat superior does not apply to § 1983 actions.107 Accordingly, a
prisoner bringing a § 1983 claim against corrections officials must prove that the defendants had
personal involvement in the alleged deprivation of rights.108 But courts have not specified how
Richardson’s supervision factor interfaces with the respondeat superior doctrine. In other words,
if state supervision is not sufficient to allow a contractor to raise a qualified immunity defense,
might a state monitoring employee nonetheless have enough personal involvement in a
deprivation of rights to impose liability? The outcome is fiscally important, since most
government agencies voluntarily indemnify employees against § 1983 judgments. Thus, if a
contractor and government supervisor can both be held liable, the government may well end up
paying the employee’s judgment (through indemnification) and the contractor’s (by means of
passed-through costs in future rate adjustments).
Ultimately, the application of § 1983 to private prisons presents a policy paradox. If
private operators are more susceptible to liability than their state counterparts (under continued
adherence to Richardson), then the increased costs will presumably be passed on to contracting
agencies, thus raising the fiscal burden of privatization. On the other hand, if the courts equalize
treatment of public and private prisons, contractors will have reduced incentive to improve
conditions (and correspondingly reduce profit margins) in an effort to avoid § 1983 liability.
B. Public Access to Information
Another problematic aspect of prison privatization is the extent to which outsourcing
obscures public understanding of prison operations.109 At the same time private prison operators
defend their track record, they are able to obstruct evidence-based counterarguments by shielding
important operating information from public disclosure. As a general matter, federal and state
statutes mandating disclosure of government records frequently provide protections for
information relating to contractor activities—either through express disclosure exemptions for
105

Id. at 409 (“The firm is systematically organized to perform a major administrative task for profit. It performs
that task independently, with relatively less ongoing direct state supervision.” (citations omitted)).
106
Id. at 422-423 (Scalia, J., dissenting) (“Today’s decision says that two sets of prison guards who are
indistinguishable in the ultimate source of their authority over prisoners . . . are to be treated quite differently in the
matter of their financial liability. The only sure effect of today’s decision—and the only purpose, as far as I can
tell—is that it will artificially raise the cost of privatizing prisons. . . . Neither our precedent, nor the historical
foundations of § 1983, nor the policies underlying § 1983, support this result.”).
107
Polk County v. Dodson, 454 U.S. 312 (1981).
108
E.g., Schnitzler v. Reisch, 518 F.Supp. 2d 1098 (D.S.D. 2007) (denying defendant’s motion for summary
judgment because alleged involvement of warden and corrections department director in programming decision
raised material issue of fact).
109
This section focuses on the ability of the general public to access information about private prison operations.
The closely related issue of government access to information concerning contractor performance is discussed
separately, in section III.B.

Raher 19
trade secrets or judicial doctrines holding disclosure laws inapplicable to records in possession of
a contractor. These protections are often based on the premise that contractors provide
specialized services to the government as part of a larger business model. For example, if a
hypothetical aviation manufacturer (AirCo) was forced to disclose information about its design
process simply because it sold planes to the government, the company would risk revealing trade
secrets and would be at a competitive disadvantage solely because the government happened to
be among its customers. Such disclosure would not only harm AirCo, but this disadvantage
would distort the entire market, thus imposing spill-over effects on all participants. This logic
does not apply easily in the realm of private prisons.
Governments are the only customers of private prison operators, thus the only private
parties harmed by mandated disclosure are the contractors themselves. Moreover, there are no
substantial trade secrets in the private prison industry. Although a trade secret can consist of
“any information that can be used in the operation of a business . . . and that is sufficiently
valuable and secret to afford an actual or potential economic advantage over others,”110 it most
commonly applies to formulas, patterns, data compilations, computer programs, devices,
methods, techniques, or processes.111 Although private prison operators likely employ methods
and processes in the conduct of their business (e.g., operating procedures, educational programs),
such information is only entitled to trade secret protection if it is valuable, secret, and definite.112
Notably, information does not qualify as a trade secret if it is “generally known or readily
ascertainable through proper means by others to whom it has potential economic value.”113
The ill fit between trade secrets law and private prisons can be illustrated through an
example. Private prison operators typically assert a proprietary interest in facility staffing
plans.114 Case law is not entirely clear whether such information is eligible for trade secret
protection as a matter of law.115 But assuming for purposes of argument that government
contractors’ staffing plans are protected, the AirCo hypothetical again illustrates the policy
justification for such protection. A party concerned with the quality of products being sold by
AirCo to the government would not usually have a need for AirCo’s personnel data. Potential
problems with AirCo’s planes can be determined by examining the product itself—whether the
plane is manufactured by ten employees or a hundred employees is not material. In the case of a
privately operated prison, however, staffing in large part is the product that the government
contracts for. Thus, shielding such information under a claim of trade secret protection
unnecessarily hinders independent evaluation of whether the government has received a fair
bargain under the contract.
To the extent that private prison operators do have a proprietary interest in operational
data, this private interest is almost always outweighed (except in cases of bona fide sensitive
security information, e.g., facility architectural drawings) by public disclosure. Scholarly
110

Restatement (Third) of Unfair Competition § 39 (1993).
Id., cmt. d.
112
Id.
113
Id., cmt. f.
114
See e.g., GEO Group, Inc., Response to Florida ITN DMS 08/09-026, infra note 209, § 2.F.39 (“Staffing Plan,”
redacted in its entirety at bidder’s request).
115
E.g., E.T. Moye v. Eure, 204 S.E.2d 221, 224 (N.C. App. 1974) (dictum indicating that list of plaintiff’s sales
personnel does not qualify as trade secret); The Finish Line, Inc. v. Foot Locker, Inc., No. 1:04-CV-877-RLY-WTL,
2006 U.S. Dist. LEXIS 3294, at *27 (S.D. Ind. Jan. 18, 2006) (listing of contact information for plaintiff’s district
managers held not eligible for trade secret protection).
111

Raher 20
research on the efficacy of private prisons has been hampered by a lack of reliable data. To the
extent that such data is kept secret due to the inapplicability of public records statutes to private
contractors, policy makers will never receive adequate information to determine the operational
success or failure of prison privatization.
Access to federal records is governed by the U.S. Freedom of Information Act (FOIA). 116
Commentators have long noted that FOIA raises serious questions vis-à-vis private prison
operators.117 Although FOIA presumptively requires disclosure of records actually held by the
contracting agency,118 federal agencies that contract with private prisons may receive
summarized reports which misrepresent the underlying data.119 When critical information is held
by the contractor, not the supervising agency, FOIA is likely not applicable. Although no court
seems to have ruled on this question in the context of private prisons, the Court of Appeals for
the District of Columbia Circuit has held as a general matter that a government contractor (even
one exercising an adjudicatory function under “detailed government control”) is not an “agency”
for purposes of subjecting it to FOIA.120
In 2007, Representative Tim Holden (D-PA) introduced H.R. 1889, which would make
FOIA applicable to entities operating prisons under contract with the federal government.121 The
Subcommittee on Crime, Terrorism, and Homeland Security initially held a hearing on H.R.
1889 on November 8, 2007, at which Rep. Holden cited problems with escapes and inmate
assaults at CCA’s Northeast Ohio Correctional Center (NOCC). Although the NOCC operated
under federal contract, CCA did not submit any operational reports to federal agencies, thus there
was no meaningful information accessible to FOIA requesters. According to Rep. Holden’s
testimony, state legislators and the media had been unsuccessful in obtaining information on the
problems occurring at the NOCC.122 As subcommittee chairman Bobby Scott (D-VA) later
explained, H.R. 1889 appeared uncontroversial at the time of the November 2007 hearing. Soon
after the hearing, however, CCA contacted subcommittee staff “to express its strong opposition
to the legislation and question the necessity of the bill.”123
Due to CCA’s opposition, Chairman Scott held a second hearing on June 26, 2008.
Although CCA declined to testify at the hearing, it submitted a written statement calling H.R.
1889 “a solution in search of a problem.”124 In its statement, CCA claimed that government
oversight is sufficient to allay any problems with access to information, and cited one example of

116

5 U.S.C. § 552 (2007).
E.g., Malcolm Russell-Einhorn, Legal Isues Relevant to Private Prisons, in Abt Associates, Private Prisons in
the United States: An Assessment of Current Practice, Appx. 3, at 37-38 (1998); United Technologies Corp., Pratt
& Whitney Aircraft Group v. Marshall, 464 F.Supp. 845 (1979) (government contractor could not prevent defendant
federal agency from releasing, under FOIA, a mandatory annual statistical report the contractor had submitted to
defendant pursuant to procurement regulations).
118
Russell-Einhorn, supra note 117, at 37.
119
See infra, notes 237-258 and accompanying text.
120
Pub. Citizen Health Research Group v. Dept. of Health, Educ. and Welfare, 558 F.2d 537, 544 (D.C. Cir. 1981).
121
Private Prison Information Act of 2007, H.R. 1889, 110th Cong. (2007).
122
Hon. Tim Holden, Testimony before the Subcommittee on Crime, Terrorism, and Homeland Security of the
House Committee on the Judiciary, Nov. 8, 2007, available at http://judiciary.house.gov/hearings/pdf/1108071.pdf.
123
H.R. 1889 Hearing, supra note 92, at 1 (statement of Rep. Bobby Scott, Chair, Subcomm. on Crime, Terrorism,
and Homeland Security).
124
Id. at 3 (statement of Corr. Corp. of Am.).
117

Raher 21
a FOIA requester being able to obtain facility reports from the contracting agency.125 In addition
to its own in-house lobbying, CCA employed three lobbying firms in its fight against H.R.
1889.126 Moreover, the Reason Foundation (a conservative think tank) testified against H.R.
1889 at the 2008 hearing and the U.S. Department of Justice expressed concerns about the bill’s
potential costs.127 The committee took no action on H.R. 1889 between the hearing and the
adjournment of the 110th Congress.
Of course FOIA is only part of the access to information debate, since many private
prison contracts are with state and local governments, thus implicating state open records
statutes. While state statutes generally do not, on their face, apply to contractor records, some
courts have recognized the unique status of private entities which are the functional equivalents
of state agencies.128
Not surprisingly, CCA has been as vocal in its opposition to falling under state open
records law as it was to H.R. 1889. In 2008, a Tennessee trial court held that CCA was the
functional equivalent of a state agency and was required to fulfill a request for records under
Tennessee’s Public Records Act. In reaching its decision, the trial court relied on Tennessee’s
functional equivalency test, articulated in Memphis Publishing Co. v. Cherokee Children &
Family Services.129 Stating that privatization should not act to curtail access to information on
government operations,130 the Cherokee court established a four-factor test to determine
functional equivalency.131 The first, and “cornerstone,” factor is “whether and to what extent the
entity [e.g., a contractor] performs a governmental or public function.”132 The remaining three
factors are the level of government funding of the private entity, the extent of governmental
control over the entity, and whether the entity was created by legislative action.133
Although the trial court admitted the fourth Cherokee factor weighed against a finding of
functional equivalency, it found that the remaining three factors all favored subjecting CCA to
the Public Records Act. Not surprisingly, CCA appealed the decision. Although CCA is entitled
to pursue its appellate remedies, the legal arguments it advances are at times counterintuitive.
For example, when addressing the first Cherokee factor (the cornerstone governmental function
125

Id. CCA’s argument does not address the problem of contractors providing insufficient information to the
supervisory agency, see infra, notes 237-258 and accompanying text.
126
See 2008 lobbying disclosure reports of Akin, Gump, Strauss, Hauer & Feld; Podesta Group, Inc.; and McBee
Strategic Consulting, LLC (all reporting H.R. 1889 lobbying on behalf of CCA) (on file with author), available at
http://disclosures.house.gov/ld/ldsearch.aspx.
127
Id. at 68-69 (Letter from Keith B. Nelson, Principal Deputy Assistant Attorney General, to Rep. Howard Coble,
Member, Subcomm. on Crime, Terrorism, and Homeland Security).
128
This does not, however, necessarily lead to the conclusion that private prisons meet the functional equivalency
test in all situations. E.g., State ex rel. Oriana House, Inc. v. Montgomery, 854 N.E.2d 193 (Ohio 2006) (holding
that private entities that are functionally equivalent to state agencies are subject to Ohio’s Public Records Act, but
concluding that a private non-profit organization operating a halfway house did not meet the functional equivalency
test).
129
87 S.W.3d 67 (Tenn. 2002).
130
Id. at 77 (“Privatization may be desirable in itself, but it should not come without . . . leaving public
accountability intact. Not only should the public be able to monitor the private company’s activities, but the
monitoring should be on the same terms as when the public agency was the information vendor.” (quoting Craig D.
Feiser, Protecting the Public’s Right to Know: The Debate over Privatization and Access to Government
Information under State Law, 27 Fla. U.L.Rev. 825, 833 (2000) (omission by the court))).
131
Id. at 79.
132
Id.
133
Id.

Raher 22
test), CCA cites Tennessee’s eighteenth- and nineteenth-century history of privately operated
prisons as grounds for concluding it does not perform a governmental function.134 While CCA’s
argument is historically interesting, it disregards the last 150 years of changes in correctional
administration and the relevant statutory language.135 Even more incredibly, CCA addresses the
second Cherokee factor (the level of government funding) by arguing it receives no funding from
the State of Tennessee. Despite the fact that Cherokee itself involved a private entity operating
under a contract with the state,136 CCA argues that its revenue from the state constitutes payment
for services, not “funding.”137 Again, CCA’s position misinterprets Cherokee, which focused on
the extent, not the nature, of government funding.138
The impact of reduced access to information is wide-ranging. Private prison operators
are exceedingly protective of information regarding their operations, thus making informed
analysis of the policy successes (or failures) of correctional privatization difficult to conduct.
One recurring issue in this context is data on personnel recruitment and retention. This is an area
in which federal and state contracts differ markedly. Federal contracts for private prisons are
generally covered by the provisions of the Service Contract Act of 1965,139 which requires
contractors to pay wages at least equal to the local prevailing wage for same job class.140 Thus,
once a bidder identifies the location of its proposed facility, the contracting agency provides the
minimum wages,141 and the contractor is able to incorporate those costs into its proposed price.
In stark contrast, state contracting procedures typically do not contain comparable requirements,
nor do most states require detailed wage information as part of a bidder’s proposal. For example,
a CCA proposal submitted to the State of Virginia142 contained a seven-page “Plan for Obtaining
Qualified Workers,” which consisted solely of generalizations143 and vague descriptions of
personnel programs such as “[u]se of employee development activities to promote positive
employee relations.” Thus, while the proposal is publicly accessible through Virginia’s open
134

Brief of Appellant at 24-32 (“CCA Appellate Brief”), Friedmann v. Corr. Corp. of Am., No. M2008-01998COA-R3-CV (Tenn. Ct. App. Dec. 31, 2008).
135
The Cherokee court explained the purpose of the first factor as “ensur[ing] that a governmental agency cannot,
intentionally or unintentionally, avoid its disclosure obligations under the Act by contractually delegating its
responsibilities to a private entity.” Cherokee, 87 S.W.2d at 79. Accordingly, the focus of the analysis is properly on
the government agency’s responsibilities at the time of contracting, not 150 years in the past. Regardless of CCA’s
characterization of historical correctional practices, it is unquestioned that the twenty-first century corrections
system in Tennessee is the sole responsibility of government.
136
Cherokee, 87 S.W.3d at 79-80.
137
CCA Appellate Brief, supra note 134, at 32-36.
138
Cherokee held that Cherokee Children & Family Services met the government funding factor because “over
ninety-nine percent of its funding came from governmental sources,” 87 S.W.3d. at 79, a standard which presumably
covers CCA, a company that candidly admits it is “dependent on government appropriations.” Corr. Corp. of Am.,
Annual Report (Form 10-K) at 21 (Feb. 25, 2009).
139
41 U.S.C. §§ 351-358.
140
41 U.S.C. § 351(a), see also Federal Acquisition Regulations, Subpart 22.10 (implementing regulations).
141
E.g., Federal Bureau of Prisons, Solicitation RFP-PCC-0015 (“CAR-11 RFP”) § I.8 (Jun. 12, 2008).
142
Corr. Corp. of Am., Proposal to Virginia Dept. of Corrections to Design, Build, Finance, and Operate a Medium
Security Correctional Facility in Charlotte County, Virginia (Aug. 16, 2007).
143
E.g., id. at 59 (“Methods of recruitment for vacant positions are designed to attract qualified applicants from
outside the organization, as well as within. The procedures will include, at a minimum:
• Recruitment strategies designed to attract qualified applicants from outside the organization;
• Schedules and post assignments that include cross sex staffing; and
• Establishing qualifications for applicants that permit experience to be substituted for education when that
experience is extensive and pertinent to the duties of the position.”).

Raher 23
records statute, CCA controls the meaningful data that show the extent to which its performance
is consistent with its promises.
Compensation and other personnel information is of particular interest when measuring
the effectiveness of correctional privatization. Because approximately 65 to 70 percent of a
typical prison budget is spent on labor, the key to a contractor’s profit margin lies in controlling
personnel costs.144 This is done either through reducing staff or reducing compensation—an
approach that the industry says it can do without sacrificing quality of operations.145 But there is
good reason to doubt the industry’s claims because compensation effects staff turnover, which in
turn impacts facility safety.146 Industry-wide staff-turnover data used to be included in a
privately published statistical compendium which reported annual staff turnover rates as high as
53 percent in the private prison industry.147 More recent editions, however, do not contain
turnover data.148 The only reliable compensation data for private operators is limited to highlevel employees whose salaries and benefits must be reported to the Securities and Exchange
Commission. While this information does not allow for a comprehensive analysis of industry
compensation patterns, it does at least raise the question of where private sector cost savings
come from. In 2007, GEO/Wackenhut reported total base salary and cash bonuses for five senior
executives ranging from $575,269 to $2.7 million (with a mean of $1.2 million).149 During the
same time, CCA paid base salaries and cash bonuses for seven senior executives ranging from
$353,550 to $1.7 million (mean of $765,406)—although executives were also eligible for
bonuses of up to 150 percent of base salary.150 Neither of these sets of figures includes stock
options, deferred compensation, or fringe benefits. In 2001 (the most recent year for which data
is available), the national average salary for a state corrections director was $106,893, with no
state paying over $150,000.151 During the same year, CCA and Wackenhut had mean senior
executive cash compensation of $458,492 and $576,900, respectively.152
In addition to hindering research, contractor control of operational information
disadvantages local communities which are selected for new private facility construction. The
financial incentive for private operators to control public relations is not merely theoretical—
144

See Austin & Coventry, supra note 16, at 16.
Id. (citing Lawrence F. Travis, et al., Private Enterprise and Institutional Corrections: A Call for Caution, 49
Federal Probation 11, 13 (1985)).
146
E.g., CCCF After Action Report, supra note 45, at 65 (concluding that “[h]igh staff attrition rate and
inexperience has contributed to lack of ability to appropriately respond to emergencies.”); see also id. at 62 (“It
became apparent to responding CDOC Investigators and the CDOC SORT [“Special Operations Response Team”]
Commander arriving on scene that a quicker and stronger response by the facility security staff at the initial onset of
the riot would have limited the extent of the riot. Investigators believe that the lack of response was due to
indecisive command level decision making or inadequate staffing and resources, or both. The facility’s command
staff either could not or would not deal with the situation at its inception.”).
147
The 2000 Corrections Yearbook: Private Prisons 101 (Camille and George Camp, eds., 2000), cf. Mark P.
Couch, Private Prison Operator Pitches Savings to State in Capitol Hearing, Denver Post, Mar. 7, 2007, at B-05
(CCA customer relations executive self-reporting turnover of “30 percent to 40 percent of its Colorado workforce a
year.”).
148
See, The 2002 Corrections Yearbook: Adult Corrections (Camille Camp, ed., 2002).
149
GEO Group, Inc. (f.k.a. Wackenhut Corrections Corp.), Definitive Proxy Statement (Form DEF 14A), at 21 (Apr.
3, 2008).
150
Corr. Corp. of Am., Definitive Proxy Statement (Form DEF 14A), at 40 (Apr. 15, 2008).
151
2002 Corrections Yearbook, supra note 148, at 150.
152
Corr. Corp. of Am., Definitive Proxy Statement (Form DEF 14A), at 18 (Apr. 16, 2002); Wackenhut Corr. Corp.,
Definitive Proxy Statement (Form DEF 14A), at 10 (Apr. 1, 2002).
145

Raher 24
CCA and Wackenhut are both candid about the risks posed by local opposition.153 One apparent
strategy in private facility siting is to locate new prisons in economically depressed rural
communities.154 Despite mounting evidence that prisons are not good economic development
tools,155 prison developers often sway local opinion leaders by promising robust payrolls and
large property tax payments.
Although academic researchers have produced sound evidence questioning the economic
development aspects of prisons, such studies—written in the jargon of peer-reviewed journals
and frequently using fairly abstract variables as indicators of economic impact—are often
ineffective in influencing public opinion. Without access to reliable data on private prison
compensation, it is difficult for potential host communities to make an informed decision on a
proposed private prison, although anecdotal evidence often suggests promises of high-paying
jobs are overreaching.156 Notably, private prison operators—particularly CCA—have recently
increased their public relations efforts related to facility siting. In early 2008, CCA launched a
specialized website based on the marketing slogan “caring for our communities, caring for our
neighbors.”157 Although the site contains little hard data, it inundates users with repetitive claims
of healthy economic development, typically couched in generalized platitudes.158 While CCA

153

Corr. Corp. of Am., Annual Report (Form 10-K), at 24 (Feb. 27, 2008) (“Our success in obtaining new awards
and contracts sometimes depends, in part, upon our ability to locate land that can be leased or acquired, on
economically favorable terms . . . . When we select the intended project site, we attempt to conduct business in
communities where local leaders and residents generally support the establishment of a privatized correctional or
detention facility.”); GEO Group, Inc. (f.k.a. Wackenhut Corrections Corp.), Annual Report (Form 10-K), at 23
(Feb. 15, 2008) (similar description of siting risks).
154
See Corr. Corp. of Am., Form 10-K, supra note 153, at 24 (“Some locations may be in or near populous areas
and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a
proposed site.”); GEO Group, Inc., Form 10-K, supra note 153, at 23 (“Otherwise desirable locations may be in or
near populated areas and, therefore, may generate legal action or other forms of opposition from residents in areas
surrounding a proposed site.”).
155
Terry L. Besser & Margaret M. Hanson, Development of Last Resort: The Impact of New State Prisons on Small
Town Economies in the United States, 35 J. of the Community Development Society 1-16 (2004); Susan E.
Blankenship & Ernest J. Yanarella, Prison Recruitment as a Policy Tool of Local Economic Development: A
Critical Evaluation, 7 Contemporary Justice Review 183-198 (2004); Douglas Clement, Big House on the Prairie,
14 FedGazette n. 1 (Jan. 2002); Ryan Scott King, et al., An Analysis of the Economics of Prison Siting in Rural
Communities, 3 Criminology and Public Policy 453-480 (2004); David Shichor, Myths and Realities in Prison
Siting, 38 Crime and Delinquency 70-87 (1992).
156
E.g., E-mail from Kindra Mulch, Director of Social Services, Kit Carson County (Colorado), to Linda Fairbairn,
Administrator of Social Services, Prowers County (Colorado) (Aug. 15, 2003) (on file with author) (“I would tell
you that the average salary paid @ our prison [CCA’s Kit Carson Correctional Center] qualifies most people for
WIC, Family Planning and Child Health Plan Plus, and in a few cases a small food stamp and child care
allotment.”).
157
CCA Community, at http://www.ccacommunities.com (last visited Apr. 13, 2009).
158
E.g., Local Community Economic Development News, available at http://www.ccacommunities.com/static/
assets/EconDev_Tabloid_5.25.07.pdf, is an eight-page newsletter apparently designed for distribution in
communities selected for new CCA development. The newsletter consists mostly of vague statements such as
“[h]osting a CCA correctional institution can potentially mean hundreds of jobs with an annual payroll in the
millions;” “CCA pays applicable property taxes on the facilities it owns” (a cleverly-worded half-truth, since it
refers only to “applicable” property taxes, not addressing the numerous situations in which CCA has negotiated tax
abatements with local economic development authorities, see Philip Mattera, et al., Jail Breaks: Economic
Development Subsidies Given to Private Prisons 28-46 (2001)); and “CCA provides competitive salaries, job
training that leads the industry, and excellent opportunities for rapid advancement nationwide.” The only objective

Raher 25
has become increasingly adept at using strategic marketing to frame such generalizations in
compelling and aesthetically pleasing media, it has simultaneously prevented dissemination of
the hard data that could prove or disprove the company’s claims.
CCA’s most common response is that operational data is available to contracting
agencies.159 Setting aside the issue of whether agency monitors receive accurate and complete
data, this argument still misconstrues the purpose of public information laws. Because
corrections departments so often depend on private prisons to provide needed bed space, agency
staff are not necessarily motivated to request information such as compensation data. In fact, an
agency may not even have the contractual ability to demand such data.160 Public records laws
are designed to counteract agency hesitancy by allowing interested parties to independently
analyze government operations. Without articulating a compelling justification for secrecy,
prison operators have been largely successful in their efforts to prevent or hinder release of
salient operating information.
III. Contractual Issues
The government-contractor relationship is often cited as one of the chief benefits of
correctional outsourcing.161 The problem with this argument is that effective government
procurement depends on clearly defined goals which the procuring agency can verify by
evaluating contractor performance. Thus, successful outsourcing depends on two requirements:
clarity in the bid solicitation and response documents, and effective performance monitoring
techniques.
Supporters of prison privatization have occasionally acknowledged the mixed track
record regarding clearly defined procurement goals, but argue that the theory of results-oriented
contracting is reason to continue the experiment.162 This argument overlooks the fact that
prisons, like most government agencies, operate under legislatively imposed objectives which

pieces of operational data contained in the entire eight page newsletter are nationwide totals of inmates and
employees.
159
See supra notes 123-125, infra notes 244-247, and accompanying text.
160
If, as is common, the contract merely specifies that the prison operator shall comply with applicable labor laws
(e.g., the Fair Labor Standards Act), then precise employee-compensation data is not relevant so long as the operator
is paying minimum wage.
161
E.g., APCTO, supra note 56 (“Public-Private Correctional Partnerships ensure that the private operator of a
particular facility is held accountable to a much higher degree than are publicly-operated facilities.”); Richard P.
Seiter, Executive Vice President and Chief Corr. Officer, Corr. Corp. of Am., Address to the Corrections Section,
Academy of Criminal Justice Science 4 (Mar. 2008), transcript available at http://www.ccacommunities.com/static/
assets/Private_Corr_Review_of_Issues.pdf (“Private prisons almost always have extremely detailed requirements
enumerated in their contracts by which accountability is easily measured and monitored); but cf., Developments in
the Law – The Law of Prisons, 115 Harv. L. Rev. 1838, 1877 (2002) (“Contracts are necessarily incomplete: because
the government and the private provider can only describe a general service and cannot specify beforehand in full
detail exactly how the contractor should provide that service, the contractor has wide latitude in running the
prison.”).
162
Thomas, supra note 180, at 64 (“Privatization . . . presupposes that government will identify goals with some
specificity but will defer to the creativity of the private sector to devise the means and methods to achieve those
goals. The vast majority of facility management contracts, however, devote virtually all of their attention to
processes and methods and almost none to the setting of short- or long-term performance goals.”).

Raher 26
are multiple, conflicting, and vague.163 An key component of American public administration is
the duty to disentangle these conflicting objectives and implement the best feasible policy given
the interests of various stakeholders and available resources. This is difficult enough in a public
agency, due to the well-studied inefficiencies of government bureaucracy. But the inadequacies
of public bureaucracy do not disappear in the contracting state—they merely overlay a corporate
bureaucracy that brings its own set of inefficiencies and an overt focus on private inurement.
Definitional problems during the early contracting phases lead to further difficulties
during the implementation and monitoring stages. The stated objective of agency monitoring of
private prisons is generally framed in terms of promoting public safety and ensuring compliance
with contractual provisions.164 The measurement frameworks that governments have developed
in the context of correctional outsourcing reflect the prevailing beliefs of the 1990s, when prison
privatization saw dramatic growth. In response to public perceptions of government inefficiency
many executives and legislatures, including Congress, imposed new measurement and
accountability systems on public agencies.165 The federal approach, based on input from public
administration scholars, was to require “clear and precise” strategic plans and performance goals.
Congress, like many critics, expressed a preference for performance goals which measure
outcomes rather than outputs.166 The committee report accompanying the major federal
legislation on performance monitoring used the following analogy to illustrate the difference
between outcomes and outputs: “Eligible clients completing a job training program are outputs;
an increase in their rate of long-term employment would be an outcome.”167
The difficulty of measuring outcomes in the context of prison operation is substantial. If
the goal of incarceration is simply to isolate and confine convicted offenders, then outcomes can
be measured by escape statistics. If, on the other hand, incarceration presupposes some
rehabilitative component, then recidivism rates become the obvious metric by which to measure
outcomes. But methodological problems typically frustrate evaluators’ ability to meaningfully
measure the efficacy of prisons. For example, tracking released offenders is notoriously
difficult. Moreover, most inmates will reside in different prisons (both publicly and privately
operated) during the course of their sentence, making it difficult to attribute success or failure to
any particular facility.
Private prison supporters cite a number of positive performance evaluations as proof of
success.168 But the most lauditory studies have been dismissed upon closer review. A 1998
163

Aaron Wildavsky, Speaking Truth to Power: The Art and Craft of Policy Analysis 30 (1979) (“Everyone knows
that objectives of many public agencies are multiple, conflicting, and vague—multiple and conflicting because
different people want different things with varying intensities, and vague because often people will be unable to
agree about exactly what they do agree on, especially if they are forced to agree beforehand.”).
164
E.g., Richard Crane, Ass’n of State Corr. Administrators, Monitoring Correctional Services Provided by Private
Firms 2 (2000), available at http://www.asca.net/documents/monitor.pdf.
165
E.g., Sen. Rep. No. 103-58, at 2 (1993), reprinted in 1993 U.S.C.C.A.N. 327, 328 (citing one need for the
Government Performance and Results Act (P.L. 103-62) as “[p]ublic confidence in the institutions of American
government . . . suffering from a perception that those institutions are not working well.”).
166
Id., 1993 U.S.C.C.A.N. at 341.
167
Id.
168
E.g., Corrections Corporation of America – Independent Studies on Privatization,
http://www.correctionscorp.com/cca-resource-center/research-findings/independent-studies-prison-privatization/
(last visited Jan. 26, 2009). CCA’s webpage of “independent” research prominently features an abstract of a 2007
study by Vanderbilt University professors James F. Blumstein and Mark A. Cohen. It does not mention that the
research project was funded by CCA and the private prison trade organization Association for Private Correctional

Raher 27
comprehensive review of evaluation projects noted the prevalence of “argument-without-proof”
in privatization performance reviews, criticizing a recent pro-privatization literature review as
containing “[a]necdote . . . combined with ‘glittering generalities’ to produce a conclusion
having little or no foundation.”169 Similarly, the question of whether private prisons are more
cost effective than publicly operated facilities has not led to any credible evidence of cost
savings through outsourcing.170
Several favorable performance reviews in the 1990s were conducted by University of
Florida professor Charles W. Thomas. For example, a 1993 Arizona contract with private prison
operator Management and Training Corporation (MTC) contained a provision making renewal
contingent upon MTC showing it operated the prison at similar or superior cost and quality
compared to state prisons. Thomas was hired to conduct the cost and quality review.171 Despite
expressly acknowledging that the operations of the private prison differed so much from state
prisons as to make any comparisons unreliable, Thomas nonetheless concluded that the private
prison’s operations were superior to state-operated prisons,172 but the study was later criticized
by researchers as suffering from several material methodological shortcomings.173

and Treatment Organizations. See James F. Blumstein, et. al., Do Government Agencies Respond to Market
Pressures? Evidence from Private Prisons (2007), available at http://www.correctionscorp.com/
static/assets/Blumstein_Cohen_Study.pdf. The CCA webpage then lists seventeen additional studies purporting to
present favorable evidence of correctional privatization. Two of the studies are from 1993, before meaningful
performance data was available. Eight are published by conservative think-tanks which have broad pro-privatization
agendas (including three publications from the Reason Public Policy Institute, two chapters from a book published
by the Independent Institute, and one publication each from the Rio Grande Foundation and the Alabama Policy
Institute). Three of the listed publications are not “studies,” but rather presentations made by industry advocates to
various boards or legislative committees. One article is an unsigned student law review note which, although
published in a prominent journal, is a discussion of legal theory, not a performance evaluation (Developments in the
Law – The Law of Prisons, see infra note 310). The remaining three items consist of a 1999 report by the Florida
Office of Program Analysis and Government Accountability (which has been followed by several more critical
reports, see e.g., infra note 248), a three page 1997 study of three prisons in Louisiana (William Archambeault &
Donald Deis, Cost Effectiveness Comparison of Private vs. Public Prisons in Louisiana: A Comprehensive Analysis
of Allen, Avoyelles, and Winn Correctional Centers, J. of the Okla. Criminal Justice Research Consortium, vol. 4
(1997)), and a 1996 article by privatization supporter Charles Logan (Charles H. Logan, Public vs. Private Prison
Management, 21 Crim. Justice Review 62 (1996)).
169
Gerald G. Gaes, Scott D. Camp & William Saylor, The Performance of Privately Operated Prisons: A Review of
Research, in Douglas McDonald, et al., Abt Associates, Private Prisons in the United States: An Assessment of
Current Practice, Appx. 2, at 2 (1998).
170
Austin & Coventry, supra note 16, at 37 (“Only a few studies can be relied upon in a debate over cost efficiency
of prisons. It is generally accepted that the best research conducted to date was the Tennessee study that showed no
or very minimal differences with respect to costs. The remaining studies had serious methodological flaws that limit
their ability to reach firm conclusions.”).
171
Id. at 12.
172
Id. at 13-15.
173
Id. at 16 (“it is abundantly clear that [Thomas’] evaluation does not provide an apples-to-apples comparison.
Thomas himself was aware of this fact, as was the Arizona Department of Corrections when they contracted for the
evaluation. It seems there was no comparable facility to Marana [the privately operated prison] in the entire Arizona
prison system. Still, this does not justify the strategy Thomas followed of comparing the Marana facility to the
average of the other publicly operated facilities. . . . Using Thomas’ approach, the comparisons are not that
informative. More informative are the comparisons made in the body of the text of Marana to individual state
facilities, but these comparisons do not provide the basis for the findings presented in his 13 conclusions.”).

Raher 28
Thomas’ most high-profile research concerned his home state of Florida, where he coauthored a 1999 study for the Florida Correctional Privatization Commission comparing
recidivism rates of inmates released from public and private facilities and concluded “[t]he
private prison group had lower rates of recidivism.174 While the study reserved judgment on
causation, it contained several aggressively pro-privatization conclusions. After the study was
published, press reports revealed that Thomas’ Private Corrections Project (housed at the
University of Florida) was funded by corporate donations from private prison companies and
Thomas himself had accepted a paid position on the board of directors of Prison Realty Trust,
CCA’s newly-established real estate investment trust.175 After an investigation by the state’s
ethics commission, Thomas was fined $20,000 for violating the Florida conflict-of-interest
statute, and resigned from the University of Florida.176 Certainly not every evaluation of private
prison performance presents problems as clear-cut as the Thomas case. Nonetheless, operational
appraisals have generally suffered from poor design and doubtful conclusions.177
This section begins with a discussion of the bid solicitation and evaluation process. Next,
the challenges of performance monitoring are considered. Even if effective performance
monitoring was possible as a theoretical matter, there is good reason to doubt governments’
ability to obtain reliable information from contractors. Finally, the section concludes with an
examination of certain contract terms that tend to cause problems.
A. Starting Point: Procurement
Government procurement theory generally recognizes three reasons to contract for
services, none of which clearly apply to prison outsourcing. First, governments seek private
contractors for “day-to-day services to government that may or may not have ever been
performed by government employees. . . . [such as] landscaping, janitorial, temporary clerical,
and translation services.”178 The early (and troubled) history of privatized corrections
notwithstanding, prisons have long since been regarded as a core governmental function and do
not fit within this category. The second class of services amenable to outsourcing is when a
government seeks “professional expertise for special projects or matters.”179 Aside from some
aspects of prison construction (e.g., architectural services), this category too is inapplicable to
prisons. Until the 1990s, alomst all expertise in the correctional field was found in government
agencies, since only governments operated prisons. Thus, rather than government needing to
seek private sector expertise, it is generally the private sector that seeks experienced employees
174

Lonn Lanza Kaduce, Karen F. Parker & Charles W. Thomas, A Comparative Recidivism Analysis of Releasees
from Private and Public Prisons, 45 Crime & Delinquency 28, 28 (1999).
175
Gilbert Geis, Alan Mobley & David Shichor, Private Prisons, Criminological Research, and Conflict of Interest:
A Case Study, 45 Crime & Delinquency 372, 374-375 (1999).
176
Dara Kam, Ethics Board Fines UF Professor $20,000, Sarasota Herald-Tribune, Oct. 22, 1999, at 1B.
177
See generally, Gaes, et al, supra note 169; General Accounting Office, Private and Public Prisons: Studies
Comparing Operational Costs and/or Quality of Service, GAO/GGD-96-158, at 3 (1996) (five post-1991 studies
reviewed by GAO “offer little generalizable guidance for other jurisdictions about what to expect regarding
comparative operational costs and quality of service if they were to move toward privatizing correctional
facilities.”).
178
Nat’l. Ass’n. of State Procurement Officials (NASPO), State & Local Government Purchasing Principles &
Practices 73 (2001).
179
Id.

Raher 29
from public corrections agencies.180 Finally, governments may “use contractors to implement
large-scale programs, or conclude that large-scale programs may be better administered through
a private contractor.”181 Whether prisons are properly placed in this category is the ultimate
question of the policy debate examined in this section.
While private prison contracts as a species differ from most other governmental service
contracts, so too are there substantial differences among private prison contracts. The greatest
difference relates to ownership of the facility. Publicly owned prisons can either be owned
directly by the contracting jurisdiction, or by a nominally private, government-controlled specialpurpose entity.182 Privately owned prisons are typically owned by the contractor, but can be
owned by a third-party private lessor.183 When a government contracts for the management of a
publicly owned facility, the procuring agency has greater ability to terminate the contract and
select a new provider.184 Also, such a contract is more analogous to traditional government
procurement activities insofar as the government is procuring one discrete product: operation of
its facility. In contrast, government use of contractor-owned-and-operated facilities presents a
host of issues not contemplated by the traditional procurement framework.185 Procurement
statutes tend to envision contractor-owned infrastructure as excludable collective goods like
public utility facilities, roads, or parking lots.186 Because such infrastructure is used by private
parties, government outsourcing allows the contractor to assume the risk of ownership and
collect revenue from private users. The risk in such a project (i.e., insufficient revenue to cover
costs) is borne solely by the contractor. While private prison contractors bear a smiliar risk, the
government also bears a risk—namely the possibility of losing needed prison capacity if, for
example, the contractor receives a more lucrative offer from another jurisdiction.
The success or failure of government contracting depends overwhelmingly on the
strength of the contract, which in turn depends largely on the groundwork laid during the preaward procurement process. Thorough and transparent negotiations allow potential problems to
be addressed in the final contract, and also help prevent corruption by facilitating bona fide
competition.187 Even though most procurement contracts are integrated agreements, the contents

180

Privatization proponent Charles Thomas has acknowledged and criticized this staff recruitment dynamic, see,
Thomas, supra note 76, at 64 (“The problems posed by contracting agencies’ peculiar obsession with mandating
adherence to traditional processes while being strikingly inattentive to outcomes is aggravated by the fact that
private management firms have predominantly hired former government employees, who too often bring publicsector ways of thinking with them as they migrate into the private sector. Sometimes these weaknesses have been
magnified by top management teams that have no correctional experience.”).
181
NASPO, supra note 178 (citing illustrative examples of “residential rehabilitation facilities for juveniles, or the
management of the entity’s data center, or of a state mental health institution.”).
182
See infra, notes 352-356 and accompanying text.
183
See infra, note 402 and accompanying text.
184
Douglas McDonald & Carl Patten, Jr., Abt Associates, Governments’ Management of Private Prisons 11 (2003)
(“If governments have the option of canceling or not renewing a contract and signing up another provider, firms will
be under pressure to perform effectively or risk going out of business.”).
185
See id. (“if monopoly conditions prevail or if a single provider is entrenched in a particular state, the government
will lose freedom of action and may become excessively dependent upon the private provider.”).
186
Model Procurement Code § 5-101(8) (2000).
187
See e.g., Model Procurement Code § 3-201, cmt. 3 (“Fair and open competition is a basic tenet of public
procurement. Such competition reduces the opportunity for favoritism and inspires public confidence that contracts
are awarded equitably and economically.”).

Raher 30
of the ultimate contract are shaped by the solicitation (issued by the contracting agency) and the
responsive proposal submitted by the bidder.188
There are several different methods of bid solicitation,189 and the lack of uniformity in
prison procurement reflects the uneasiness with which correctional privatization fits into the
traditional framework of procurement. It was not until the 2000 revisions that the ABA’s Model
Procurement Code addressed the new breed of modern procurement activities (including private
prisons) which combine infrastructure and services.190 Although the Model Code’s definition of
“infrastructure facility” encompasses privately operated prisons,191 the types of procurement
vehicles envisioned by the code are generally not compatible with the arrangements typically
employed for private prison contracting. Private prisons that are financed by the operator
resemble the Model Code’s “design-build-finance-operate-maintain” category, except that the
Code specifies that no state funds shall be “appropriated to pay for any part of the services
provided by the contractor during the contract period.”192 This reflects the traditional use of
design-build-finance-operate-maintain contracts for projects that generate sufficient revenue to
cover the contractors’ debt service.193 So too, the Model Code’s “design-build-operatemaintain” category is somewhat analogous to prison contracts, except for the requirement that
“[a]ll or a portion of the funds required to pay for the services provided by the contractor during
the contract period are either appropriated by the [State] prior to award of the contract or secured
by the [State] through fare, toll, or user charges.”194 Because prisons are not revenue-generating
projects, none of the Model Code’s infrastructure procurement mechanisms are well-suited to
correctional outsourcing. Perhaps as a result of this uneasy fit, most private prison contracts
(even those for contractor-owned facilities) are framed purely as the provision of services, thus
downplaying the extent to which contractors control the government’s physical carceral
infrastructure.
Ultimately, the bid solicitation process is legally significant for two reasons. First, the
content of the request for proposals (RFP) determines the scope and detail of the information
upon which government procurement officials base their contracting decisions. Second—and of
greater legal significance—the procurement documents can take on evidentiary significance in
the event of a contract dispute. In a typical government procurement, the RFP and bid
submission form the framework of offer and acceptance, thus defining the basis of the party’s
agreed-upon bargain. Private prison contracts do not fit neatly into this paradigm because they
often contain extremely broad terms. Thus, a vendor accused of breach could easily raise a
defense based on the ambiguity of a contractual term.195
188

See William Collins, Ass’n of State Corr. Administrators, Contracting for Correctional Services Provided by
Private Firms 6 (2000), available at http://www.asca.net/documents/contract.pdf.
189
E.g., Model Procurement Code, art 3, part A (Methods of Source Selection).
190
Model Procurement Code, art. 5 (Procurement of Infrastructure Facilities and Services).
191
Id. § 5-101(8) (“Infrastructure facility means a building; structure; or networks of buildings, structures, pipes,
controls, and equipment that provide . . . [inter alia] public safety services. Included are . . . jails [and] prisons.”
(emphasis added)).
192
Id. § 5-101(4)
193
Id. cmt. 2.
194
Id. § 5-101(5) (brackets in original).
195
See, e.g., M.J. Paquet, Inc. v. New Jersey Dept. of Transp., 794 A.2d 141, 153 (N.J. 2002) (“Where a court
determines that an ambiguity exists in a government contract, the writing is to be strictly construed against the
draftsman, the government entity.”); but see, e.g., Cook v. Okla. Bd. of Pub. Affairs, 736 P.2d 140, 145, n.7 (Okla.
1987) (if ambiguity is found in public contract and cannot be resolved by standard rules of construction, “the

Raher 31
One infrequently discussed aspect of prison outsourcing’s awkward fit with public
procurement is the ways in which prison contracts in some ways resemble government grants.
While there is no evidence that anyone has seriously argued that prison contracts are government
grants (in fact, CCA has relied on its non-grantee status in court196), it is useful to compare
prison contracts to the Model Code’s definition of grants: “the furnishing by the [State] of
assistance, whether financial or otherwise, to any person to support a program authorized by
law.”197 This definition does not easily fit prison contracts where the private operator is
compensated on a per-inmate, per-day basis, but it could arguably apply to those contracts which
guarantee a fixed minimum compensation regardless of occupancy. Perhaps cognizant of the
ambiguity in the aforementioned definition, the drafters of the Model Code added the following
description of activities that are not government grants: “an award whose primary purpose is to
procure an end product, whether in the form of supplies, services, or construction.”198 Private
prison operators would doubtlessly argue that their contracts are for the procurement of services.
Such an argument would almost certainly prevail in most courts. Nonetheless, it is worth noting
that the Model Code’s reference to an “end product” is not easily applied to privately operated
prisons, given the difficulty in defining what such outsourcing is designed to accomplish.
Correctional professionals have begun to realize the importance of drafting meaningful
199
RFPs. Many professional debates have focused on how detailed the solicitation document
should be.200 RFPs fall along a spectrum, ranging from terse, open-ended lists of questions to
lengthy documents with many complex and detailed requirements. Ultimately, neither end of the
spectrum can address the inadequacies of the prison outsourcing process.
One example of the less detailed, open-ended approach can be found in Colorado.
Although Colorado has six private prisons, the statutory RFP framework201 was not employed
when the first five facilities were constructed.202 When the Colorado Department of Corrections
(DOC) issued its first private prison RFP in 2001 (at the direction of the legislature), the
statement of work consisted of many vague and open-ended provisions. Typical among them
was the “Self Monitoring” provision, directing bidders to “describe the process for selfmonitoring the facility operations to ensure compliance with all applicable ACA standards, DOC

uncertainty is presumed to have been caused by the private party; thus, the ambiguous contract provision will be
interpreted most strongly against the private party.”).
196
See supra note 137 and accompanying text.
197
Model Procurement Code § 1-301(13).
198
Id.
199
Collins, supra note 188, 9-16.
200
See e.g., Collins, supra note 188, at 9-10 (characterizing bid solicitations as falling into the requirements-based
(detailed) or performance-based (flexible) categories).
201
Colo. Rev. Stat. §§ 17-1-201 – 17-1-207 (2008)
202
State of Colorado, Office of the State Auditor, Private Prison Procurement: Department of Corrections
Performance Audit 7-8 (2006). Instead of issuing contracts through the statutory RFP process, the Department of
Corrections chose to execute inter-governmental agreements (IGAs) under Colo. Rev. Stat. § 17-1-105(1)(f)
(authorizing contracts with political subdivisions of the state), wherein the county or city in which the prison is
located acts as the contractor, in turn subcontracting with the prison owner/operator for actual operation. See State
of Colorado, Office of the State Auditor, Private Prisons: Department of Corrections Performance Audit 13-14
(2005) for an explanation of the IGA system.

Raher 32
Administrative Regulations, state and federal laws, and all applicable health and safety
standards.”203
GEO/Wackenhut was one of the vendors which submitted a proposal in response to the
2001 Colorado RFP.204 The section of its proposal which addresses self-monitoring is a study in
tautology. For example, the proposal boasts of Wackenhut’s “unique” use of contract
compliance officers. In order for the Colorado procurement staff to make a meaningful decision,
the proposal would hopefully describe the track record of the contract compliance officer
program and list specific job duties. Instead, the proposal recites vague job duties which are
essentially implied by the job title—duties such as “develop[ing] quality control programs for
self-monitoring and corporate monitoring,” “conduct[ing] or oversee[ing] audits of the facility”
and “respond[ing] to audits of the facility conducted by the client.”205 Other descriptions of
Wackenhut’s self-monitoring techniques are similarly so vague as to be virtually useless to a
proposal evaluator.206 The self-monitoring plan predictably relies on procedurally-focused
mechanisms such as document reviews and ACA accreditation. In the subsection that most
directly responds to the RFP’s request for a description of self-monitoring plans, Wackenhut lists
seven goals purportedly designed “to provide direction [to staff members] and to provide a clear
view of expectations”—unfortunately every one of the seven goals is either a repackaging of the
RFP’s language or is so laden with undefined terms as to be meaningless.207 Thus, while
Wackenhut responded to the RFP’s question, the content of the response is so vague as to
preclude any meaningful evaluation by procurement officials.
Illustrative of the other end of the RFP spectrum is Florida’s recent invitation to negotiate
(ITN) for the design, construction, and operation of a two-thousand bed prison. Instead of using
open-ended requests for information, the Florida ITN contains eighteen pages of detailed
contract conditions, and ninety-three pages of technical specifications.208 In lieu of requesting
details on how the bidder will operate the prison, the ITN requests information on the bidder’s
203

Colo. Dept. of Corr., Pre-Parole and Parole Revocation Center, Request for Proposal #6187 (2001), § A.2, at 12
(on file with author).
204
Wackenhut Corr. Corp., Proposal Submitted to Colorado Department of Corrections, § 5.d (Sept. 2, 2002).
205
Id. at 1.
206
Id. at 2 (“corporate staff maintain daily, weekly and monthly contact with Facility Administrators and Wardens to
gather the information necessary to monitor performance. . . . [Site visits] will include either informal auditing or the
formal use of audit instruments.”).
207
Id. at 3 (the seven goals are:
• Achieve the optimum performance in pursuit of contract objectives and goals
• Achieve the most favorable degree of performance obtainable considering the achievement of contract
objective in light of WCC’s [Wackenhut Corrections Corporation] most effective utilization of
available resources
• Exceed minimum performance standards and equate this level of performance with a fair performance
rating
• Strive to attain and document the highest standards of excellence in executing our responsibilities
under the contract
• Achieve performance excellence measurable against standards consistent with the contract, applicable
client directives, ACA Standards, and other applicable industry standards
• Take every step to ensure the services provided are commensurate with the interest of the client and
provide effective safeguards and security in support of the contract’s mission
• Achieve favorable ratings for identifying problems to the client and developing and implementing
corrective actions).
208
Florida Dept. of Management Servs., Invitation to Negotiate DMS 08/09-026 (2008), §§ 5 and 6.

Raher 33
qualifications to operate the prison. While the Florida format seems to have some advantages
insofar as the contracting terms are spelled out with specificity, the focus on bidder qualifications
raises the recurring question of whether the state receives adequate information upon which to
make an informed decision. For example, the proposal from GEO/Wackenhut contains a thirtytwo page introductory section on “corporate qualifications,” of which twenty-nine pages have
been redacted from the publicly available version at the bidder’s request.209 The non-redacted
portions contain questionable statements such as “GEO has consistently met contractual
obligations on all company contracts. To date we have never had a contract terminated due to
default. GEO strives to ensure high quality contract compliance through vigilant internal and
external monitoring.”210 While it may be technically true that GEO has never had a contract
“terminated due to default,” its annual filings with the Securities and Exchange Commission are
filled with references to contracts which were not renewed. Poor performance is often a
contributing factor behind non-renewal, but with so many contracts using one-year renewal
options, states are far more likely to exercise the option not to renew (without cause) than to
invoke the formal default procedure to terminate a contract mid-year.
In its proposal, GEO lists Colorado among ten states with which the company has a
“strong professional relationship . . . [that] has helped to ensure that our mission . . . is to safely,
securely, and humanely confine inmates in a secure criminal justice facility.”211 Aside from the
overwhelming banality of the assertion, it is wildly inaccurate for GEO to say that it has a
“strong” relationship with the state of Colorado, since it has been awarded two contracts by
Colorado, both of which were subsequently rescinded for non-performance.212 Thus, while
Florida’s bid solicitation is more specific than Colorado’s, the inaccuracies and vague content of
the bid responses raise the same concerns regarding inadequacies of the evaluation process.
B. Performance Monitoring
Once a government contract has been awarded, compliance is ensured via the procuring
agency’s monitoring of contractor performance. The monitoring of private prison contracts
raises two concerns, which this section addresses in sequence. First, the solicitation-phase
difficulties in precisely defining satisfactory performance (discussed in the prior section) present
ongoing problems during the monitoring phase. Without a clearly articulated set of contract
objectives, it is difficult if not impossible for contractors to be held accountable for their
performance. Second, recent events in the industry raise serious questions about the
government’s ability to obtain reliable information from prison operators.
One result of the difficulty in meaningfully gauging outcomes has been an increased
reliance on procedures as a proxy for performance evaluation. Many procurement documents
contain statement-of-work provisions such as “[t]he facility shall have formal, written facility

209

GEO Group, Inc., Response to Florida ITN DMS 08/09-026, § 1-A.B (“Corporate Qualifications”) (2008).
Id. at 1.
211
Id., § 1-A.B.2 (“Minimum Required Data”), at 6.
212
See Letter from Aristedes W. Zavaras, Executive Director, Colo. Dept. of Corr. to Wayne H. Calabrese, GEO
Group (f.k.a. Wackenhut Corr. Corp.) (Apr. 24, 2007) (on file with author) (rescinding offer to enter into an
implementation agreement after GEO demanded a bed guarantee, contrary to the terms of the parties’ original
negotiations); R. Scott Rappold, State Kills Plan for Pueblo Prison, Colorado Springs Gazette (Dec. 16, 2006)
(reporting a similar disagreement with GEO over another proposed prison).
210

Raher 34
rules, and an offender discipline system.”213 Similarly, many contracts rely on facility
accreditation by the American Correctional Association (ACA) as a means of ensuring desirable
outcomes.214 The role of ACA accreditation in diffusing accountability is significant. As a 2003
government-funded study noted:
the goal of achieving ACA accreditation of detention facilities is not an outcomes-based
performance goal. Rather . . . ACA standards primarily prescribe procedures. The great
majority of ACA standards are written in this form: “The facility shall have written
policies and procedures on . . . .” The standards emphasize the important benefits of
procedural regularity and effective administrative control that flow from written
procedures, careful documentation of practices and events, etc. But, for the most part, the
standards prescribe neither the goals that ought to be achieved nor the indicators that
would let officials know if they are making progress toward those goals over time.215
The only studies to have addressed the results of ACA accreditation questioned whether
conformance with ACA standards results in better conditions.216 Also, the more emphasis a
contract places on ACA-type procedures, the more difficult it is for the contracting agency to
assert remedies for breach of contract when the operator promulgates policies that it does not
follow. Contractual provisions typically emphasize the adoption of procedures—a meaningless
requirement if the operator then ignores those same procedures.217
One example of monitoring difficulties can be found in the experience of the Colorado
Department of Corrections (DOC). Since the advent of private prisons in Colorado, facility
monitoring has been the responsibility of the DOC’s Private Prison Monitoring Unit (PPMU).
The DOC has long touted the efficacy of the PPMU, including in the aftermath of a 2004 riot at
CCA’s facility in Crowley County, when the DOC assured the Denver Post editorial board that
private prisons were “inspected weekly” and subject to “full-scale audits.”218 A subsequent
review by the state auditor, however, discovered numerous deficiencies in the PPMU, including
findings that 16 percent of weekly visits had not been performed, monitors were typically on-site
at each prison less than ten hours a week, and required reports had been completed for only 63

213

Colo. Dept. of Corr., Pre-Parole and Parole Revocation Center RFP, supra note 203, § C.2, at 17
E.g., Correctional Services Contract between Corr. Corp. of Am. and the State of Oklahoma Dept. of Corr., May
2004, § 5.2, at 14 (“The Contractor shall maintain ACA accreditation of the Facility for the term of this Contract.”).
215
McDonald and Patten, supra note 184, at 26 (emphasis and second omission in original, footnote omitted).
216
Id.; cf. Jerome G. Miller, Last One over the Wall: The Massachusetts Experiment in Closing Reform Schools 90
(2d ed., 1998) (in criticizing late twentieth-century changes in correctional management, Miller singles out the
“control model” of the 1960s Texas prison system, describing it as “[a]n efficiently run system of minute rules,
unbending regulations, and obsessive accountability, it was violent to its core. The values which countenanced
depersonalization and chronic abuse of inmates were left untouched. Things were simply managed better. This
seems to be the goal of contemporary corrections.”).
217
See supra note 86 and infra note 230.
218
Editorial, Keep Close Eye on Private Prisons, Denver Post, Oct. 19, 2004, at B-06 (quoting DOC spokeswoman
Alison Morgan).
214

Raher 35
percent of site visits.219 In addition to the quantitative shortcomings of the PPMU, the auditor’s
report also questioned the qualitative value of the monitoring activities.220
The most substantial findings in the auditor’s report dealt with inadequate performance
by Colorado’s private prison contractor (at the time of the report, CCA operated all private
prisons in Colorado). Not only did the report identify many contractual and statutory violations
of which the DOC was unaware,221 it also identified twenty-one known issues which the PPMU
itself considered “to be significant and ongoing violations of the contracts,” but which the DOC
had not acted to correct.222 While it is perhaps surprising at first glance that the DOC would not
invoke its contractual remedies for inadequate performance, the auditor’s report touches on the
likely cause of the agency’s lax monitoring when it notes that one company (CCA) owned all
four private prisons under contract with the state, housing 40 percent of the state’s male prison
population.223 Thus, strict enforcement of contractual remedies could possibly lead to contract
termination by the contractor, leaving Colorado with a 40 percent drop in prison capacity. The
report recommends that the DOC enhance its competitive procurement operations—a suggestion
the Department acted on, but which in turn led to another investigation by the auditor’s office
when a senior-level DOC employee took paid sick-leave in order to assist a prospective bidder
prepare its proposal.224
Inadequate performance procedures are only part of larger structural deficiency
preventing effective contract evaluation. Sometimes the monitoring process itself can lead to
unintended consequences. Several examples have come to light in current litigation concerning
the CCA-operated Metro Detention Facility in Nashville, Tennessee.225 The management
contract tersely requires CCA to “report all incidents in accordance with designated Sheriff’s
Office policy regarding the reporting of incidents.”226 Such a provision is standard in all private
prison contracts and is seemingly unremarkable; yet, the incident reporting function was
apparently a contributing factor in the mistreatment of Metro inmate Frank Horton. On January
31, 2008, Captain Patrick Perry, a shift supervisor at the Metro jail, visited the Metro Public
Health Department to report that Mr. Horton, a mentally ill inmate, had been held in isolation
since March 2007 without having left his cell, during which time his mental health deteriorated
sharply.227 A health department employee visited Mr. Horton that day but “could not adequately
219

State of Colorado, Office of the State Auditor, Private Prisons: Department of Corrections Performance Audit
60 (2005).
220
Id. at 62 (“[T]he weekly inspection reports typically do not contain measurable results or data that can be used to
evaluate contract compliance or compare the service levels at private and state-run prisons. The results from the
reports we reviewed were often vague and of limited value in assessing contract compliance at private prisons. For
example, one report we reviewed stated ‘Staff morale is positive. They [the private prison] continue to have a real
emphasis on staff fitness.’ Although staff morale may contribute to the overall operations of the private prisons,
such statements do not provide an objective basis for evaluating contract compliance.”) (alteration in original).
221
Id. at 19-29.
222
Id. at 67-68 (“We found that although the Department has documented continued contract violations on the part
of the private prisons, it has failed to take action to enforce the terms of the contracts.”).
223
Id. at 71.
224
See Office of the State Auditor, Private Prison Procurement, supra note 202.
225
The facility is operated under contract with the Metropolitan Government of Nashville and Davidson County, a
consolidated city/county government operating pursuant to Tenn. Code Ann. § 7-1-103 (2005).
226
Management Services Contract between Corrections Corporation of America and the Metropolitan Government
of Nashville and Davidson County (“Metro Contract”), § 3.8 at 14 (Mar. 25, 2004) (on file with author).
227
Memorandum from Catherine Seigenthaler, Metro Public Health Department, to Stan Romine and Jim Diamond
(Jan. 31, 2008) (on file with author).

Raher 36
assess his orientation due to his inability to speak coherently.”228 When Perry later testified in a
civil suit by Horton’s guardian, he said that as Horton’s mental illness intensified, he refused to
leave his cell.229 Even though leaving Horton in his cell for months at a time violated CCA’s
own operating procedures, the facility’s management allowed the situation to escalate because
involuntarily extracting Horton from his cell would constitute a “use of force,” necessitating an
incident report to the sheriff’s office.230 According to Perry, CCA management was displeased
that the Metro facility had the highest use-of-force statistics in the region. To bring down the
numbers, management issued blanket directives discouraging use of force231 and tied employee
bonuses to statistical data, including incident reports.232 Reducing incidents is a commendable
goal from a management, business, and humanitarian standpoint. However, the Horton incident
shows how an intense focus on quantitative evaluations can lead to counter-productive results.
The deposition of Captain Perry also sheds light on the inadequacies of a formalistic
reliance on procedures.233 When asked about CCA’s policy for handling inmate grievances,
Perry testified that the written grievance policy was supplemented by an “informal” policy
requiring inmates to submit a written “information request form” to receive a grievance form.234
According to Perry, this requirement was part of CCA’s efforts to resolve inmate grievances
informally. Given the adversarial nature of the prison system, informal dispute resolution is a
respectable goal. However, Perry describes a Kafka-esque system wherein officers could not
distribute grievance forms because the unit had run out of information request forms.235 More
disturbingly, corporate impediments to inmate grievances may be a self-serving legal defense
tactic, since prisoners are legally required to exhaust administrative remedies before filing suit
under 42 U.S.C. § 1983.236 Regardless of the intent underlying CCA’s policy of informal
grievance resolution, the outcome as told by Perry is a predictable result in a system that
singularly relies on procedural regularity as a proxy for meaningful operational objectives.
Even if monitoring systems could overcome the difficulties of defining performance
criteria, contractor control over evidence and possible manipulation of data raises further
concerns about the ability of governments to effectively oversee private prisons. When CCA
chief counsel Gustavus Puryear was nominated for a federal judgeship in 2007, the Senate
Judiciary Committee questioned his handling of CCA quality assurance data. These questions
arose when former CCA employee Ronald T. Jones accused Puryear of overseeing a reporting

228

Id.
Deposition Transcript of Patrick Perry, Sept. 17, 2008 (“Perry Deposition”) at 15:6-19:4, Braswell ex rel. Horton
v. Corr. Corp. of Am., Civil Action No. 3:08-0691 (M.D. Tenn. filed Jul. 16, 2008).
230
Id. at 22:22-23:3.
231
See e.g., id. at 87:16-20 (“[Assistant Warden] Corlew put the word out that we would not be using force under
any, under any—unless it was an emergency, and then if the emergency occurred, it was still our fault and we’d still
catch an ass chewing from it.”).
232
Id. at 25:25-26:7 (“there is what’s called zero tolerances at the facility . . . rape, riots, or disturbances they like to
call them, escapes, hostage situations and unnatural deaths, those things right there count against you majorly. They
can be the difference between getting an $80 bonus check and a $500 bonus check.”).
233
See supra notes 213-216 and accompanying text.
234
Id. at 50:8-14.
235
Id. at 52:19-25 (“If you don’t have any information request forms in the unit, how can you give an inmate a
grievance? An inmate can’t ask for a grievance without an information request form. If you don’t have any
information request forms in the unit, how can the inmate get a grievance?”).
236
Porter v. Nussle, 534 U.S. 516, 525-527 (2002).
229

Raher 37
system that tracked serious incidents but withheld particularly damaging information from
contracting agencies.237 Specifically, Jones wrote to the Judiciary Committee that Puryear
directed me, and other quality assurance department staff who process audit report
findings, to create two reports for distribution of audit findings. I would prepare one
report with all of the audit findings and auditor comments in it for “internal purposes
only” and a separate more generic report that contained only general information about
audit results as a whole. . . . I was instructed to put language at the bottom of the detailed
report that indicated to recipients of that report that it was internal privileged information
and was not to be distributed unless authorized by Mr. Puryear.238
Jones also alleged that Puryear used attorney-client privilege to shield information239 and
directed that certain serious events be reclassified as less serious incidents.240
Puryear expressly denied any wrongdoing and contradicted some of Jones’s factual
assertions. But CCA’s corporate response to the allegations was more revealing. CCA
responded with a publicized letter to its contracting agencies which denied Jones’ account of data
manipulation.241 Although CCA accuses Jones of “paint[ing] a misleading and inaccurate
picture of CCA’s quality assurance process,”242 the specific counter-arguments illustrate the
difficulties plaguing oversight of privately operated facilities. In addition to some vague
tautologies,243 CCA’s letter raises several specific defenses of its monitoring and reporting
activities.
First, CCA states that contracting agencies have “full access to facility reports, and . . .
[conduct their] own audits.”244 Due to variations across contracts, such a blanket assertion is
problematic, especially given the weaknesses of many contracts. Most contracts contain detailed
regulations concerning inmate records, but these provisions do not extend to the facility records
that are the subject of Jones’ allegations. For example, Colorado’s contract for the CCAoperated Crowley County Correctional Facility contains a provision requiring state access to
records regarding the contractor’s performance, but specifically excludes “documents protected
by attorney/client privilege or the attorney work product doctrine.”245 Thus, under the very terms
237

Gethan Ward and Bill Theobald, Ex-CCA Official: Puryear Mislead Clients, The (Nashville) Tennessean, Mar.
14, 2008, online edition; Adam Zagorin, Scrutiny for a Bush Judicial Nominee, Time.com, Mar. 13, 2008,
http://www.time.com/time/printout/0,8816,1722065,00.html (last visited Nov. 13, 2008).
238
Letter from Ronald T. Jones (Feb. 24, 2008) (on file with author).
239
Zagorin, supra note 237 (“Puryear mandated that detailed, raw reports on prison shortcomings carry a blanket
assertion of ‘attorney-client privilege,’ thus forbidding their release without his written consent. From then on,
Jones says, the audits delivered to agencies were filled with increasingly vague performance measures.”).
240
Id. (“In 2006, for example, Jones says CCA had to lock down a prison in Texas to control rioting by as many as
60 inmates. Despite clear internal guidelines defining the incident as [a zero tolerance event], Jones says he was
ordered not to label it that way. Instead it was logged as, ‘Altered facility schedule due to inmate action.’”).
Notably, Jones’ states that Puryear was particularly concerned about “zero tolerance” events, an allegation that
corroborates the testimony given by former CCA supervisor Patrick Perry, see supra note 232.
241
Corr. Corp. of Am., Letter to Customers (Form 8-K), Exhibit 99.1 (Mar. 17, 2008).
242
Id.
243
E.g., “CCA remains committed to openness and transparency with our customers and the greater public. . . . We
believe in the accuracy of our records, the professionalism of our employees and the quality of services we provide
in partnership with our customers.”
244
Id.
245
State of Colorado Contract 09-CAA-00003, § 13.11(1) at 45 (May 2008) (on file with author).

Raher 38
of the contract, Colorado’s monitors cannot examine the allegedly falsified data without
litigating the propriety of CCA’s claim of attorney-client privilege. The State of Idaho’s most
recent contract with CCA (for housing inmates in out-of-state facilities) is not governed by a
standard contract, but instead by the terms contained in the state’s RFP and CCA’s proposal.
Notably, the CCA-drafted proposal (which governs Idaho’s access to information) allows for
state access to contractor records, but expressly excludes “proprietary corporate information.”246
Indeed, CCA’s assertion that contracting agencies had “full access” to data is seemingly
contradicted by Puryear’s own written response to the Judiciary Committee, in which he
admitted that CCA did not inform customers that the information even existed.247
Additionally, CCA’s citation of agency audits is of dubious value. Florida, for example,
conducts routine audits of private prisons, yet a recent legislative investigation discovered that
the Department of Corrections (DOC) had cited “repeated and substantive problems” including
“violations of security requirements that could endanger the public, correctional officers, and
inmates, including inoperable alarms, spotlights, and escape sensors; buildings not checked for
tunneling; and missing tools that could be crafted by inmates into weapons.”248 Despite these
findings by DOC auditors, the Department of Management Services (the contracting agency in
Florida) admitted to not taking corrective action “because neither its headquarters staff nor its
contract monitors stationed at the private prisons are subject matter experts in corrections.”249
CCA’s letter to customers also remarks that the company “responds directly according to
the terms of our contract, which generally mandate notification to the contract monitor as well as
detailed record-keeping through established facility incident reporting mechanisms.”250 Of
course, responding to allegations of contract malfeasance by claiming contractual compliance is
an exercise in ipse dixit. Nonetheless, some contracting agencies have recently enhanced
incident reporting requirements. After the 2004 Crowley County Correctional Facility (CCCF)
riot and subsequent legislative audit,251 Colorado’s Department of Corrections dramatically
revised its contractual provisions for incident reporting. The old standard form contract required
immediate reporting only of escapes and inmate deaths.252 The current Colorado contract, on the
other hand, specifically lists forty-five types of incidents which require immediate reporting to
state monitors.253 This change in Colorado’s reporting requirements is likely attributable to the
findings of an after-action report on the CCCF riot. Investigators found pre-riot warning signs
had been reported, but could not determine whether CCA employees took any action to follow-

246

Corr. Corp. of Am., State of Idaho RFP for Inmate Housing, § 3.29.2 at 74 (May 1, 2007) (on file with author).
Responses of Gustavus Adolphus Puryear IV, Nominee to the U.S. District Court for Middle District of
Tennessee, to Additional Written Questions of Senator Diane Feinstein, at 6 (n.d.) (“Because the intent was to use
such documents for internal purposes only, so that auditors would feel free to make candid observations to help
protect the health and safety of CCA’s employees and inmates, we did not make customers aware of these
documents.”).
248
Florida Office of Program Policy Analysis & Gov’t. Accountability, While DMS Has Improved Monitoring, It
Needs to Strengthen Private Prison Oversight and Contracts (Report No. 08-71), 3 (Dec. 2008).
249
Id. at 4.
250
CCA Letter to Customers, supra note 241.
251
See supra, notes 218-220 and accompanying text.
252
Colo. Dept. of Corr., Pre-Parole and Parole Revocation Center RFP, supra note 203, §§ 9.J and K, at 10.
253
Colorado Contract 09-CAA-0003, supra note 245, § 5.13 and Ex. K (listing 46 reportable incidents, 45 of which
require immediate reporting).
247

Raher 39
up on these reports.254 Although Oklahoma’s current contractual language requires reporting of
all incidents,255 it requires immediate reporting only of enumerated “serious incidents.”256 While
this is a step in the right direction, the definition of “serious incidents” is limited to offender
incidents, thus excluding problems such as major staff misconduct, critical equipment
malfunction, or even attempted riots or escapes. Idaho, however, has the most vulnerable
incident reporting requirement, since its out-of-state contract is governed by CCA’s proposal,
which only requires reporting pursuant to CCA’s own system of incident classification.257 Since
CCA’s self-imposed reporting system requires immediate reporting only of certain incidents,
facility management can potentially control the number of reported incidents by manipulating the
incident classification.258
Another informative response to allegations of CCA data manipulation came from Mr.
Puryear himself. During his confirmation hearing, Puryear was asked about CCA’s refusal to
release an after-action report on a 2004 hostage-taking incident at its facility in Bay County,
Florida. Puryear explained that there was no report to release because the after-action
investigation had been conducted by outside counsel which merely “provided an oral report
based on the notes and documents prepared in his investigation, and . . . shared his understanding
of what had transpired and his mental impressions surrounding the defenses CCA could make in
the litigation likely to result.”259 Such wording, used by an attorney, suggests a conscious
corporate effort to invoke the work product doctrine.260 CCA’s use of outside counsel to
investigate facility incidents was also mentioned by former CCA warden Brian Gardner in a
recent deposition—when asked about a particular incident at his facility, Gardner stated “we
were stopped before we started our investigations of it, we only had the initial . . . paperwork
done. And then the investigation was completed by an outside investigator, and then I did not
have privy [sic] to that information.”261 Of course, there is nothing inherently wrong with CCA
invoking the work product doctrine—if it anticipates litigation (from an injured inmate or
employee, for example), CCA is legally entitled to prepare a defense under the protections of the
254

CCCF After-Action Report, supra note 146, at 14 (in addition to a litany of inmate complaints voiced to
monitoring staff, “three CCCF staff members submitted reports to CCCF Supervisory Staff noting possible trouble
forthcoming from inmates. . . . It is unknown what action was taken by CCA to follow-up on any of these reports.”).
255
State of Oklahoma, FY 2009 Renewal of the Correctional Services Contract between Corrections Corporation of
America and Oklahoma Department of Corrections, § 5.18(A), at 3 (on file with author) (incorporating by reference
Okla. Dept. of Corr. Policy No. 050109, § I.A, which defines “incident” as “any occurrence, which appears out of
the ordinary, is suspect, is a rule violation, has serious impact on the security of the institution or provides the
sharing of information”).
256
Id. (requiring contractor compliance with DOC’s serious incident reporting policy); Okla. Dept. of Corr. Policy
No. 050108, § XI.A.1, available at http://www.doc.state.ok.us/Offtech/op050108.htm (defining six “serious
incidents”).
257
Corr. Corp. of Am., Idaho Proposal, supra note 246, § 3.29.3, at 74-77.
258
Id. The incident classification can often vary based on management response. For example, an inmate fight can
be “Priority I” (most serious) if it results in hospital admission, “Priority II” if it results in “outside medical
treatment,” or Priority III (least serious) if it does not result in medical treatment.
259
Letter from Gustavus Puryear, to Sen. Dianne Feinstein, Senate Judiciary Committee (Mar. 5, 2008) at 7 (on file
with author).
260
See e.g., Upjohn Co. v. U.S., 449 U.S. 383 (1981).
261
Deposition Transcript of Brian Gardner, Sept. 18, 2008, at 27:23-28:3, Braswell ex rel. Horton v. Corr. Corp. of
Am., Civil Action No. 3:08-0691 (M.D. Tenn. filed Jul. 16, 2008); accord Deposition of Patrick Perry, supra note
229, at 80:1-4 (CCA employee testified the first person he met with after inmate death was “a lawyer that CCA had
that was . . . conducting what they call an after-action review of the things that were going on.”).

Raher 40
doctrine. The problem, however, comes from the fact that practically any internal oversight
activity carried out in the management of a prison can be claimed to be in anticipation of
litigation. Because the work product privilege endures even if anticipated legislation does not
occur,262 CCA can essentially shield any internal investigations under the doctrine. Even this
state of affairs could possibly be tolerable if there was a mechanism for access to privileged
information by a contracting agency exercising its oversight function. Unfortunately, because
such disclosure would almost certainly vitiate CCA’s privilege against third parties,263 such
information-sharing is unlikely to happen and contracting agencies cannot compel disclosure of
materials in which CCA asserts a work product interest.
Finally, on a practical level, private prisons maintain physical control over most relevant
evidence of their performance. Several incidents have suggested that prison operators will act
improperly to prevent such evidence from coming to light. For example, when the family of
murdered Wackenhut inmate Gregorio de la Rosa filed suit, they requested the facility’s video
tapes of the incident. Testimony at trial revealed that stationary video cameras were trained on
the location of de la Rosa’s beating and that the video tapes were taken daily to the warden’s
office.264 The prison warden testified in his deposition that he had seen the videotape of the
beating and proceeded to “describe[] the video and the beating in detail.” Shortly after the
deposition, however, the warden changed his testimony, “claiming that the video never existed”
and saying his testimony was based on “his ‘own little movie’ in his mind.”265 Similar
evidentiary problems occurred in connection with the death of Estelle Richardson, an inmate at
the CCA-operated Metro Detention Facility in Nashville, Tennessee. Richardson died (from
traumatic injuries) approximately twenty-four hours after a “use of force” incident.266 The
officers who used force told investigators from the Davidson County Sheriff’s Office that they
did not videotape the incident because the unit’s video recorder was broken. During the same
interview, the sheriff’s investigator inspected the video camera and found it in working order.267
One of the officers involved in the use of force incident also claimed to have forgotten to change
the tape for the wall-mounted surveillance camera.268 The de la Rosa and Richardson incidents
both illustrate the probable futility of depending on contractors to provide evidence of their own
shortcomings.
C. Contractual Provisions
Because private prison contracts vary across (and sometimes within) jurisdictions, a
detailed analysis of typical terms is difficult. Some types of provisions surface frequently in
agency/vendor disputes—terms such as liquidated damages clauses, auditing requirements, and
procedures for remedial action. When analyzing contracts for potential government risk,
however, two subjects emerge as particularly salient. First, contract duration determines how
long the contracting agency can enforce the contractor’s obligations. This is particularly
262

E.g., Jackson v. U.S. Attorneys Office, 293 F.Supp.2d 34 (D.D.C. 2003) (attorney materials prepared in
anticipation of prosecution which did not occur held exempt under FOIA’s work product exemption).
263
See e.g., U.S. v. Mass. Inst. of Tech., 129 F.3d 681 (1st Cir. 1997).
264
Wackenhut v. de la Rosa, supra note 55, at *6-7.
265
Id. at *6.
266
Memorandum from Investigator Chelle Knight, to Davidson County Sheriff Daron Hall (Aug. 5, 2005).
267
Id. at 9-10.
268
Id. at 10.

Raher 41
important in cases of contractor-owned facilities, where the duration establishes the minimum
time period during which the state can depend on privately-owned infrastructure to supplement
state-owned prison capacity. The discussion of duration necessarily includes provisions relating
to contract termination. Second, pricing structure determines the fiscal impact of privatization
on public budgets. As discussed in Section III.C.2, different methods of pricing can
dramatically change risk allocation between governments and contractors.
1. Duration
Durational provisions, including termination procedures, carry different significance
depending on the type of contract. Most notably, facility ownership (a topic considered in
Section IV.A) largely determines the potential effects of abrupt contract termination. If a prison
is owned outright by the contracting government, then termination of a management-only
contract will present moderate, but manageable, disruption. The contracting agency can seek a
new operator. Alternatively, it can assume operation of the facility, retaining some contractor
staff during a transition period. Considerations regarding contractor-owned facilities are entirely
different. If a prison operator is able to terminate a contract on short notice, the contracting
jurisdiction may be faced with an imminent lack of prison capacity. If the contract allows the
operator to terminate without cause, it could conceivably terminate simply to enter into a new
contract with a higher-paying jurisdiction. Even protective measures, such as state purchase
options, are often inadequate to foreclose significant government risk in certain circumstances.
There are two durational structures—finite and indefinite. Finite-period contracts are
used by most state governments. Often, such contracts are for a base period with multiple
renewal options. Under the Federal Acquisition Regulations (FAR), the federal government
similarly must use fixed time periods when using indefinite delivery/indefinite quantity (ID/IQ)
contracts (most private prison contracts are classified as ID/IQ).269 Federal ID/IQ contracts
allow cancellation if the contracting agency does not receive adequate appropriations. Such
cancellations are governed by the Federal Acquisition Regulations, which require payment of a
cancellation fee.270 Although the objective of the cancellation fee is to cover contractor costs,271
the Bureau of Prisons sets the cancellation fee at a fixed percentage of the annual anticipated
contract price—an arbitrary amount that does not necessarily correlate with actual costs incurred
upon termination.272 While many federal agencies (such as the Bureau of Prisons) use finiteperiod contracts as contemplated by the FAR, the Department of Homeland Security (DHS)
received procurement flexibility as part of its authorizing legislation.273 Accordingly, DHS

269

Federal Acquisition Regulations § 16.504(a)(4)(i) (ID/IQ solicitations must “[s]pecify the period of the contract,
including the number of options and the period for which the Government may extend the contract under each
option.”).
270
Federal Acquisition Regulations § 52.217-2; see e.g., Federal Bureau of Prisons, Solicitation RFP-PCC-00010
(“CAR-6 RFP”), § I.B, at 2 (May 26, 2007) (incorporating FAR cancellation provision).
271
Federal Acquisition Regulations § 5-217-2(d).
272
E.g., CAR-6 RFP, supra note 270, § I.B, at 2 (in four-year contract, cancellation fee in second year is 30% of
base period price, third year is 15%, and fourth year is 7.5%).
273
Homeland Security Act of 2002, Pub. L. No. 107-296 §§ 831-834 (codified at 6 U.S.C. §§ 391-394).

Raher 42
agency Immigration and Customs Enforcement has issued several “perpetual duration”
contracts.274
State contracts generally have more flexible termination procedures, which entail
potential benefits and risks for contracting governments. Some of Oklahoma’s contracts, for
example, allow either party to terminate the contract for convenience, upon a minimum of 180days’ notice.275 If parties wish to seek damages arising from a breach, they must follow a
different termination-for-cause provision, which requires ninety days’ notice to the breaching
party, and requires the state (if it is the party invoking the termination clause) to mitigate its
damages.276
At first glance, the State of Oklahoma’s major protection in the event of termination
appears to be the statutorily mandated option to purchase.277 On closer examination, however,
the mandatory purchase option leaves the state vulnerable in some circumstances. Oklahoma
law requires any contract for a privately owned prison to include a provision giving the state “the
option at the beginning of each fiscal year . . . to purchase any such facility.”278 Because the
option must be exercised at the “beginning” of the fiscal year (an undefined term), presumably a
contractor could terminate for convenience in the middle of the fiscal year, thus depriving the
state of the ability to timely exercise the purchase option. Despite the weaknesses of
Oklahoma’s contractual protections, the state’s biggest vulnerability may be political, not legal.
Even though Oklahoma is heavily dependent on privately-owned beds (the state houses twentythree percent of its prisoners in private facilities279), Sen. Glenn Coffee, the president pro tem of
the state senate, recently proposed closing several state facilities and shifting even more
prisoners to private beds.280 Incidentally, CCA’s political action committee made over $17,000
in state campaign contributions during the 2006-07 reporting cycle.281 Following mixed public
reaction to Coffee’s proposal to increase reliance on private prisons, Sen. Coffee introduced
legislation to abolish the independent Board of Corrections—a move that would bring the
Department of Corrections under more direct political control.282
Colorado’s contracts allow either party to terminate upon sixty days’ notice.283 Although
the contractual termination clause seems to imply that the state may take temporary control of
the facility in the event of a termination,284 the statute upon which this provision is based is
274

See Corr. Corp. of Am., Form 10-K, supra note 153, at 10-12 (listing four ICE contracts with “indefinite”
duration) and GEO Group, Form 10-K, supra note 153, at 10 (listing three ICE contracts with “perpetual” duration).
275
E.g., Correctional Services Contract, supra note 214, § 2.4(A), at 11 (“Either party may terminate this Contract
whenever, for any reason, it determines that it is in its best interest to do so.”); see also FY 2009 Renewal of the
Correctional Services Contract between Corr. Corp. of Am. and Okla. Dept. of Corr., at 1-2 (Jul. 1, 2008) (on file
with author) (retaining termination for convenience clause); but see Correctional Services Contract between GEO
Group, Inc., Lawton Corr. Fac., and the State of Oklahoma Dept. of Corr. (July 2008) (on file with author) (five-year
contract with four one-year renewal options, no termination for convenience provision).
276
E.g., Correctional Services Contract, supra note 214, § 10.4, at 43-44.
277
See id. § 2.3, at 10 (state has annual option to purchase the facility, at appraised fair market value).
278
Okla. Stat. tit. 57, § 561.1(B)(4) (2009).
279
West & Sabol, supra note 63, at 23, app. tbl. 13.
280
Barbara Hancock, Use Private Prison Beds More, Lawmaker Urges, Tulsa World, Jan. 28, 2009, at A11.
281
Oklahoma Ethics Commission, Disclosure Reports for Corrections Corporation of America Political Action
Committee (ID #504015), available at http://www.ok.gov/ethics (last visited Apr. 23, 2009).
282
Barbara Hoberock, “Vindictiveness” Alleged in DOC Amendment, Tulsa World, Apr. 11, 2009, at A1.
283
E.g., Colorado Contract 09-CAA-00003, supra note 245, § 3.10, at 17.
284
Id. (“Within 60 days (or less, if any event occurs involving the noncompliance with or violation of contract terms
and which presents a serious threat to the safety, health, or security of the inmates, employees, or the public) after

Raher 43
clearly limited to events “involving the noncompliance with or violation of contract terms and
[which] present[] a serious threat” to public safety.285 Thus, if a contractor wanted to invoke the
sixty day termination clause and the state had not identified any material non-compliance, the
state-control statute would appear to be non-applicable. Even if Colorado argued that the sudden
loss of inmate beds constituted a public safety threat, the statue is conjunctive, requiring both
nonperformance and a safety threat. Such a contractor termination is not merely a theoretical
prospect, given recent threats by CCA to convert Colorado prisons to facilities for higher-paying
jurisdictions.286
The most ubiquitous contractual protection for states is the appropriations clause, which
appears in virtually every private prison contract. Such provisions allow the state to terminate
the contract upon non-appropriation of funds.287 The fact that appropriations clauses arguably
give the state unilateral ability to terminate may explain why private prison operators are
frequently given comparable powers under termination-for-convenience provisions. While such
bilateral arrangements may appeal to general concepts of equity, the equal division of
termination powers does not lead to an equitable allocation of risk. The state’s power under an
appropriations clause is arguably limited to instances of bona fide fiscal shortfalls.288 Although
termination-for-convenience clauses are typically bilateral, such a provision only serves to
benefit a prison operator. Unless the state is obligated to pay for a minimum number of beds, it
is unlikely to invoke a convenience termination provision. Instead, a convenience termination is
most likely to be sought by a prison operator who wishes to end the contract to use a given
facility for inmates from a jurisdiction willing to pay more than the current contract rate.
2. Pricing
The manner in which private prison contracts structure compensation is ultimately an
issue of risk allocation. Contracting governments typically desire flexibility in the number of

the delivery of said [termination] notice, the DOC may exercise its right pursuant to C.R.S. § 17-1-205 and under the
circumstances identified in this statute, to temporarily take physical custody of the Facility”).
285
Colo. Rev. Stat. § 17-1-205 (2008). The contractual termination provision obliquely acknowledges this
limitation by the phrase “and under the circumstances identified in this statute,” see supra note 284.
286
Corr. Corp. of Am., 2007 4th Quarter Earnings Conference Call (Feb. 7, 2008) (CCA President and CEO John D.
Ferguson explained “We have said that without an adequate increase in per diem that we will want to market some
of those beds . . . to other jurisdictions and customers.”).
287
E.g., Correctional Services Contract, supra note 214, § 10.5, at 44 (“The payment of money by the State under
any provisions hereto is contingent upon the availability of funds appropriated annually in sufficient amounts for
contractual services to pay for correctional services pursuant to this Contract.”); Colorado Contract CAA-09-00003,
supra note 245, at 49 (“Financial obligations of the State of Colorado payable after the current fiscal year are
contingent upon funds for that purpose being appropriated, budgeted, and otherwise made available.”); Contract
Agreement between State of Idaho and The City of Littlefield, Texas and The GEO Group, Inc., § 8.6, at 23 (Jun.
20, 2006) (on file with author) (“It is understood and agreed to that IDOC is a governmental entity, and this Contract
shall in no way or manner be construed so as to bind or obligate the IDOC or the State of Idaho beyond the term of
any particular appropriation of funds by the State Legislature as may exist from time to time.”).
288
See Restatement (Second) of Contracts § 230 (1979) (Even if a contract terminates an obligor’s duty of
performance upon the occurrence of a certain event, such performance is not discharged “if the occurrence of the
event . . . is the result of a breach by the obligor of his duty of good faith and fair dealing.” Thus, arguably, a state
agency that seeks non-appropriation of funds in order to invoke the contractual appropriations clause would be
vulnerable to a claim for breach of the duty of fair dealing.).

Raher 44
inmates housed in a contract facility, whereas operators often want a guaranteed amount of
revenue.
Fixed-price contracts provide the most stability to private prison operators. To provide
this stability to the contractor, the contracting agency assumes the risk that it might pay for
unused beds. As a result, fixed-price contracts are rare outside of the federal government. Under
the approach most frequently used by the Federal Bureau of Prisons (BOP), the contractor is paid
a reduced “ramp up” price at the beginning of the contract—this fixed monthly rate applies from
the start date until the facility reaches 50 percent capacity.289 Once the inmate population
exceeds 50 percent of the contract capacity, the BOP pays a fixed monthly operating price for the
remainder of the term, regardless of actual inmate population.290 While fixed-price contracts can
sometimes protect governments that expect high levels of use,291 the BOP contract structure does
not allow for this benefit, since prison operators are paid an additional “fixed incremental unit
price” when inmate population exceeds 90 percent of the contracted capacity.292
Most state contracts, on the other hand, pay operators a designated amount per-inmate,
per-day. While this structure gives agencies the flexibility to respond to fluctuating inmate
populations, it is a frequently-cited complaint by private operators.293 One method contractors
sometimes propose to mitigate their risk of low populations is a guaranteed minimum facility
population. One of the most noteworthy examples of the minimum-occupancy guarantee
occurred in 2001 in Mississippi. At the time, there were four privately operated adult prisons in
Mississippi,294 none of which had minimum-occupancy guarantees. Two of the facilities—the
CCA-operated Delta Correctional Facility and the Wackenhut-owned-and-operated Marshall
County Correctional Facility—received guarantees under which each contractor would receive
payments for nine hundred inmates, regardless of actual occupancy.295 This was not a
contractual guarantee; rather, it appeared as a provision in the corrections appropriations bill.
The Mississippi legislature passed the bill, despite the corrections commissioner’s warning that
289

E.g., CAR-6 RFP, supra note 270, § I.B, at 3.
Id. at 3-4.
291
See McDonald and Patten, supra note 184, at 16 (“The contractor will not be able to be reimbursed for any
marginal costs associated with high levels of use, but will be able to keep revenues and profit from lower-thanexpected levels of use.”).
292
E.g., CAR-6 RFP, supra note 270, § I.B, at 4.
293
E.g., Corr. Corp. of Am., Form 10-K, supra note 153, at 26 (“We cannot control occupancy levels at our
managed facilities. Under a per diem rate structure, a decrease in our occupancy rates could cause a decrease in
revenues and profitability.”). The per diem payment structure is a prominent cause for investor concern. This
dynamic presents a conflict of interest for prison operators insofar as otherwise socially beneficial occurrences, such
as falling crime rates, constitute financial risks to the industry. See e.g., id. at 24 (“[A]ny changes with respect to
drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted, and
sentenced, thereby potentially reducing demand for correctional facilities to house them. . . . Similarly, reductions in
crime rates could lead to reductions in arrests, convictions and sentences requiring incarceration at correctional
facilities.”); GEO Group, Form 10-K, supra note 153, at 23 (“the demand for our correctional and detention
facilities and services could be adversely affected by changes in existing criminal or immigration laws, crime rates
in jurisdictions in which we operate, the relaxation of criminal or immigration enforcement efforts, leniency in
conviction, sentencing or deportation practices, and the decriminalization of certain activities that are currently
proscribed by criminal laws or the loosening of immigration laws.”).
294
The 2002 Corrections Yearbook, supra note 148, at 116.
295
S.B. 3123, 2001 Reg. Sess. (Miss. 2001), § 10, at 6 (“the Commissioner of the MDOC shall make payments for
housing . . . not less than nine hundred (900) state inmates at the Delta Correctional Facility and not less than nine
hundred (900) state inmates at the Marshall County Correctional Facility.”).
290

Raher 45
there were not enough inmates to fill the guaranteed beds.296 Despite the absence of a
contractual occupancy guarantee, Wackenhut president Wayne Calabrese defended the
legislative guarantee, telling a newspaper “I think it’s fair to say the state invited private
companies into the state of Mississippi to design, build, and operate facilities to the state’s
specifications and size. We want to make sure the price we gave to the state, which was based
on full or nearly full occupancy, is in fact what we receive.”297 Of course, this statement flatly
contradicts the notion that private operators are held accountable through contracts. Under
Calabrese’s logic, operators can simply remove objectionable contract terms through the posthoc exercise of political power. In 2001, Governor Ronnie Musgrove vetoed the appropriations
bill298 but his veto was overridden the next day.299
The following year, the corrections appropriations bill did not include a minimum bed
guarantee, but it did contain a provision preventing the governor from reducing the amount
appropriated for private prison payments.300 This time, the governor exercised Mississippi’s
partial veto procedure, striking the offending provision.301 Despite the fact that the partial veto
was ultimately ruled unconstitutional,302 the governor used the veto as an opportunity to
renegotiate the state’s private prison contracts. Under the renegotiated deals, the state cancelled
its contract with the CCA-managed Delta prison, while channeling more inmates to the CCAmanaged Wilkinson County prison, and Wackenhut’s prisons in Meridian and Marshall
County.303
The Mississippi experience illustrates the potentially drastic consequences that can arise
from using improvident pricing structures. On at least two occasions, Wackenhut has defaulted
on preliminary procurement agreements by demanding a post-hoc bed guarantee.304 Such
minimum occupancy provisions are attractive to prison operators because they minimize the risk
of insufficient inmate populations. Because of publicized cases such as the Mississippi
experience, most states do not guarantee minimum facility occupancy. But the federal
government does use bed guarantees. Accordingly, federal customers have become much more
desirable—giving prison companies one more reason to prefer federal contracts to the detriment
of states.

296

Patrice Sawyer, Legislature 2001: MDOC Gets ‘Ghost Inmates,’ Clarion-Ledger (Jackson, Miss.), Mar. 27, 2001,
at 1A.
297
Patrice Sawyer, Legislature 2001: Prisons Want Full Funding; Company Wants State to Honor Price for 1,000
Beds, Clarion-Ledger (Jackson, Miss.), Mar 28, 2001, at 1A.
298
Governor’s Veto Message for Senate Bill 3123 (Mar. 30, 2001).
299
SB 3123 – History of Actions/Background, http://billstatus.ls.state.ms.us/2001/pdf/history/SB/SB3123.htm.
300
S.B. 3163, 2002 Reg. Sess. (Miss. 2002), § 3, at 5-6 (“Any transfers or escalations shall be made in accordance
with the terms, conditions and procedures established by law, except that no transfers shall be made which reduce
funds allocated in Section 3 to . . . Private Prisons.”).
301
Governor’s Transmittal Message for Senate Bill 3163 (Apr. 9, 2002) (“[F]ull funding for the Private Prisons is
integrated . . . with a protective provision against any transfer of any of the funds. This restriction against transfer
joined with full funding serves to insulate the Private Prison industry from the cold budgetary winds that affect all
other operations of the Department of Corrections. . . . This full appropriation and unusual restriction locks away
money for Private Prisons whether there are sufficient inmates to justify the allocation or not.”).
302
Barbour v. Delta Corr. Facility Auth., 871 So.2d 703 (Miss. 2004).
303
Clay Harden, Governor: New Prison Deals to Save $9M, Clarion-Ledger (Jackson, Miss.), Jul. 27, 2002, at 1A.
304
See supra, note 212.

Raher 46
IV. Fiscal Policy
After an initial period of keen investor interest and rising stock prices, the private prison
industry began financing operations and expansion through substantial borrowing. Today, the
publicly traded operators remain highly leveraged. Some may argue that financial leverage is a
benefit of privatization—instead of public debt, prison expansion is financed by private firms
which bear the associated risks.305 In reality, however, the risks of financial failure are
ultimately borne by any jurisdiction which depends on private facilities to house a substantial
portion of its prison population. Once a state becomes dependent on privately owned
infrastructure, its ability to maintain its carceral capacity is inextricably linked to the health of
the private owner. There is one notable protection that some states have taken advantage of—
public ownership of facilities; however, this too has its own downsides.
Of course, defining “dependence” on private capacity is not a precise matter. In 2007,
thirty-two states kept at least some inmates in private prisons.306 One could categorize “highprivatizing” states as those that keep at least 10 percent of their prisoners in private facilities
(sixteen states307), but even this discounts the disruption that could result in a “low-privatizing”
state that suddenly loses beds for a thousand or more prisoners.308
To fully appreciate the danger posed by the industry’s financial structure, this section
begins by considering how facility ownership impacts government risk. Privately operated
facilities can be owned either by the contractor or the government, but each model entails risks.
The section concludes with an examination of the financing strategies used by the industry, and
the related problems. Given the complexity and detail of the industry’s financial structure, it is
doubtful that financial risk is fully contemplated by the procurement officials who negotiate
prison contracts. Accordingly, most policymakers who support privatization are probably
unaware of the risks that contracting jurisdictions assume by relying on the industry’s financial
engineering.
A. Prison Capacity and Facility Ownership
As discussed in previous sections, contracts for prison operation are often based on
inadequate procurement processes and typically have weak enforcement provisions.
Accountability is further inhibited by the oft-cited argument that prisons are difficult institutions
to manage, thus performance failures at private institutions are unavoidable events for which the
contractor cannot reasonably be held responsible.309 As a result, the primary remedy for
contracting agencies who are dissatisfied with a private operator’s performance is termination of
305

E.g., Thomas, supra note 180, at 87 (“many government agencies define the private sector’s ability and
willingness to commit large amounts of private capital to the construction of new facilities as a significant advantage
of privatization.”).
306
West & Sabol, supra note 63, at 23, app. tbl. 13 (2008) (on a regional level, southern and western states housed
8.8% and 9.2% of total prison populations in private facilities during 2007, compared to 2.4% and 1.9% in the
Northeast and Midwest, respectively).
307
Id. (New Jersey, Vermont, Minnesota, Kentucky, Mississippi, Oklahoma, Tennessee, Texas, Alaska, Arizona,
Colorado, Hawaii, Idaho, Montana, New Mexico, and Wyoming).
308
For example, Pennsylvania houses only 2.2% of its total prison population in private facilities, but this
nonetheless amounts to 2,686 inmates.
309
See supra note 83 and accompanying text.

Raher 47
the contract—in fact some supporters of privatization argue that the termination option makes
private prisons more accountable than public facilities.310 Although termination is often a simple
legal matter,311 in reality the “remedy” of termination is illusory if the contracting jurisdiction
does not have adequate infrastructure to house the prisoners who will be displaced.312
At first glance, public ownership of privately operated prisons sounds like an effective
tool to avoid contractor entrenchment and lack of government control.313 In reality, many
government-owned, privately operated prisons have been built on a speculative basis, for use in
the national bed market. This structure allows the operator to reap the benefits of operating
contracts when prison populations are sufficient, while government owners bear the risk of an
empty facility. One such example can be found in the Mississippi bed-guarantee dispute of 2001
and 2002.314 Following the 2002 budget dispute, the Mississippi governor cancelled the state’s
contract with the CCA-operated Delta Correctional Facility.315 CCA, however, suffered little
economic consequence because the state simultaneously increased the number of inmates housed
at the CCA-operated Wilkinson County Correctional Facility. Thanks to the offsetting increase
in Wilkinson County, CCA reported that there was essentially no net impact to corporate
revenues.316
The risk of financial loss upon termination of the Delta contract was borne by the quasipublic Delta Correctional Facility Authority, which had issued $24 million in revenue bonds to
construct the prison.317 The Authority, typical of many such entities throughout the country, is a
single-purpose entity created by the County Board of LeFlore County (where the Delta facility is
located).318 Upon completion, the prison was to be leased to the State of Mississippi and
operated by a CCA subsidiary.319 While the Authority is obligated to make regular payments to
310

See e.g., Developments in the Law – The Law of Prisons, supra note 161, at 1883.
See supra notes 275-276 and accompanying text.
312
This very problem was acknowledged by privatization supporter Charles Thomas in his 2003 examination of
privatization. Thomas, supra note 180, at 88 (“Government agencies too often have exposed themselves to
unnecessary risks by failing to protect their own legitimate interests when the ownership of important infrastructure
assets is private rather than public. This is most particularly the case when the private management firm that
operates the facility is the same as the private entity that owns the facility. Such an arrangement easily can place the
public interest at risk if the caliber of services being provided fails to meet expectations. If such a circumstance
were encountered, then a contract termination would be impossible unless the government agency involved has
sufficient excess capacity and thus can absorb the increased prisoner population.”). Thomas then argues that the
proper solution to this situation is a government purchase option, a proposal which overlooks the valuation
difficulties, and the fact that such an option would essentially constitute an off-balance sheet contingent liability of
the contracting government.
313
Approximately half of privately operated prisons are owned by government agencies. A 1998 survey of 84
privately operated prisons found that 34 were owned by governments, and another seven were owned by nominally
private entities controlled by governments. McDonald & Patten, supra note 184, at 13.
314
See supra, notes 294-303 and accompanying text.
315
Supra, note 303 and accompanying text.
316
Corr. Corp. of Am., Annual Report (Form 10-K) 63 (Mar. 28, 2003) (as a result of increased occupancy at
Wilkinson County facility, “[t]hese events are not expected to have a material impact on our financial statements.”).
317
See generally, Delta Corr. Facility Auth., Offering Statement: Mortgage Revenue Bonds, Series 1995 (Jul. 17,
1995) (on file with author).
318
Id. at 1.
319
Id, at 35-37 (describing lease) and 46-53 (describing management agreement with Corrections Partners, Inc., a
CCA subsidiary which was subsequently folded into CCA’s management corporation as part of the 1998 merger, see
Prison Realty Corp., Inc, Registration Statement Under the Securities Act of 1933 (Form S-4), Contribution Form,
Ex. 10.10 (Oct. 16, 2998)).
311

Raher 48
bondholders, the bonds themselves are secured only by a trust deed on the prison and a security
interest in the lease payments from the state of Mississippi (or any other lessor).320 Because the
state’s lease was terminable upon non-appropriation of funds,321 the security in lease revenues
became worthless upon termination. The only remedy bondholders could invoke upon the lease
termination was to foreclose on the facility.322 Of course, without a jurisdiction willing to lease
the prison, bondholders are left with collateral worth very little. Although the Authority is
obligated to “use its best efforts to continue to operate the Project in order to generate revenues”
in the event of a lease termination,323 the offering statement for the bonds also discloses that the
Authority “has no employees and has no experience in the operation of correctional facilities.”324
Furthermore, CCA’s only contractual obligation is to “operate, maintain and manage” the
facility,325 which becomes an illusory obligation if there are no inmates in the prison. Thus,
while CCA was discharged of its contractual obligations, the Delta Authority remained obligated
on the prison bonds.
Yet even the previous paragraph does not paint a complete picture of the risks entailed in
public-sector ownership. The bond offering statement for the Delta prison explicitly provides
that the Delta Authority has no taxing power and the bonds are secured only by the lease
revenues and property.326 Despite the seemingly straightforward language of the bond
documents, economic reality is quite different. While revenue-backed securities (such as
certificates of participation and revenue bonds) are not legally backed by the taxing authority of
the issuing government (or indeed, may be issued by a quasi-governmental entity such as the
Delta Correctional Facility Authority), market participants essentially expect the government
issuer to make payments in lieu of allowing a default. Accordingly, while bondholders may lack
legal recourse to a government’s general funds, it is well established that upon a revenue bond
default, ratings agencies will downgrade all of the government’s debt instruments, thus
prohibitively increasing the future cost of borrowing.327 Thus, if there is any potential of a
320

Id. at 7-10 (describing security for the bonds).
Id. at 35.
322
Id. at 40-41 (describing remedies upon default).
323
Id. at 3.
324
Id. at 21.
325
Id. at 50.
326
E.g., Delta Offering Statement, supra note 317, at 8 (“The obligation of the Authority to pay principal of and
interest on the Series 1995 bonds does not constitute an obligation of the Authority for which the Authority is
obligated to levy or pledge any form of taxation or for which the authority has levied or pledged any form of
taxation. The Authority has no taxing power. The Series 1995 bonds are limited, special obligations payable by the
Authority solely from revenues derived by the Authority from the Project, including lease payments made by the
Mississippi Department of Corrections pursuant to the Lease.”) (emphasis omitted).
327
See, e.g., Patrice Hill, S&P Says Trend of Lease Defaults May Lead to More Rating Downgrades, The Bond
Buyer, Oct. 28, 1991, at 1 (“Failure to appropriate on one lease . . . might lead to a rating downgrade on other lease
obligations. And ratings on other forms of the issuer’s tax-backed debt might be affected, as could the issuer’s
[general obligation bond] rating.”) (internal quotation marks omitted); Kent John Chabotar, Financing Alternatives
for Prison and Jail Construction, Government Finance Review, Aug. 1985, at 7, 12 (“Even if the government is not
technically liable for the debts of the independent entity that issued the bonds or certificates and built the prison, a
default by the entity on its obligations would discredit the government and might shake investor confidence in the
creditworthiness of future bond issues.”); Letter from Richard Marks, Partner, Piper Rudnick LLP, to Hon. Mitch
Landrieu, Chairman, Louisiana Juvenile Justice Comm’n. (Apr. 18, 2003) (on file with author) (addressing State of
Louisiana’s liabilities under lease of juvenile prison from single-purpose non-governmental entity which had
financed construction through bonds secured solely by real property and lease revenues; concluding that although
321

Raher 49
facility becoming vacant, the true risk in a publicly-owned/privately-operated facility is borne by
the public owner.
The disproportionate risk allocation is especially true in the case of speculative prisons—
facilities built without a guaranteed source of inmates. An early round of speculative prison
building in Texas lead to disastrous results, with nine jail leases (representing over $100 million
in underlying securities) defaulting between 1990 and late 1993.328 Although the speculative
market has not returned to the same magnitude and risk level seen in the early 1990s Texas
debacle, there has been enough activity that in 2001 Standard & Poor’s issued a special statement
on bond rating criteria for publicly-financed prisons.329 Although it acknowledged the increased
risk entailed in privately operated prisons, S&P also stated that “not all private prison projects
are the same,” stressing that “the riskiest financings involve projects with no firm commitment
from any governmental entity.” Accordingly, the first criteria listed for rating prison bonds was
the presence of an executed contract for placement of inmates in the facility.330
Despite the warnings over the years concerning the myriad dangers accompanying
speculative prison building, the practice has continued, albeit on a reduced scale. Currently, the
city of Hardin, Montana is faced with an empty 464-bed speculative prison which the city
financed through a local port authority.331 The prison, if activated during the first two years of
its existence, would be operated by Community Education Centers, a privately-held prison
operator headquartered in New Jersey.332 The offering statement for the $27 million bond issue
acknowledges that repayment is contingent on obtaining a contract to house prisoners in the
facility and that “[t]he continuing demand for the beds in the Project [i.e., the prison] is
predicated on the assumption that demand for jail space, in the aggregate, will continue to exceed
the supply of available space. However, due to economic social, and political factors, it is
impossible to predict whether this assumption will hold true.”333 To address this risk factor, the
bond issuer commissioned a feasibility study which concluded that the prison could be marketed
to the Montana DOC, federal, tribal, and local governments.334 The feasibility study bases its

“[n]either the State nor the Department [of Public Safety and Corrections] is directly obligated to pay” the bonds,”
Standard & Poor’s was prepared to downgrade the state’s credit rating if the state invoked its ability to terminate the
lease; and, noting that “[B]ecause of the significant involvement of the Department in the issuance of the 1998
Bonds, the Standard & Poor’s position is based on a belief that the 1998 Bonds represent obligations of the
Department and the State similar to appropriation backed bonds issued by the State.”).
328
Patrice Hill, Private Prisons Are Riskiest COP Deals Going: “Fundamentally Flawed,” Nuveen Report Says,
The Bond Buyer, Nov. 2, 2993, at 1.
329
Richard J. Marino, Colleen Woodell & James Penrose, Standard & Poor’s Public Finance Criteria: Prison
Financings (Jun. 15, 2001) (on file with author).
330
Id.
331
Two Rivers Auth., Inc., Offering Statement: Senior Lien Project Revenue Bonds, Series 2006, at 14 (Apr. 24,
2006) (on file with author) (“The Issuer is a local port authority created by the City to promote, stimulate, develop
and advance the general welfare, commerce, economic development and prosperity of the area, the State of Monana,
and its citizens. The issuer currently has no assets other than its interest in [the prison].”).
332
The Hardin prison was planned under an operating agreement with CiviGenics, Inc. (another privately-held
company), which was acquired by Community Education Centers in 2007. See Id., at 16; Community Education
Centers, Inside CEC (Spring 2007) (company newsletter describing acquisition of CiviGenics), available at
http://www.cecintl.com/UploadedFiles/86997_CECnwsltr.pdf.
333
Id. at 2-3.
334
Id., app. B (A Feasibility Analysis for a Federal and State Detention Support Center), at B-11.

Raher 50
conclusions on privatization trends at the agencies the authors anticipated would contract with
the Hardin prison. But the lack of any commitment from these agencies makes the study nothing
more than guesswork. For example, the study postulates that the U.S. Marshals Service and
Immigration and Customs Enforcement (ICE) are likely customers, noting that “[although] the
magnitude of their need in Montana . . . is low[, it is] of sufficient magnitude to suggest that the
agencies are potential users of the proposed Center.”335 This recommendation is somewhat
perplexing given that the report admits that ICE detains extremely few individuals in Montana.336
The report also notes that the U.S. Marshals Service holds individuals for appearance in U.S.
District Court, but does not mention that four of the five District Court offices in the state are
over 270 miles from Hardin.337
The Hardin feasibility study placed great emphasis on the possibility of a contract with
the Montana Department of Corrections, while also acknowledging that no agreement had been
reached.338 After construction was complete, the Montana DOC declined to contract for beds in
the facility. Officials from the city and the Two Rivers Authority complained to the legislature
that they had made an “informal agreement” with the DOC, a claim that the corrections
department denied. 339 Although the feasibility study did not consider the possibility of housing
out-of-state inmates, the offering document did claim that out-of-state agencies were potential
clients,340 while also noting that state law may not permit such arrangements.341 In December
2007, the Montana Attorney General issued an opinion concluding that the Hardin facility was
prohibited by statute from housing inmates from other states and the federal government except
for certain narrow categories.342 Hardin then filed suit in state court, asking for a declaratory
335

Id. at B-11.
Id. at B-18 (“Current bed need of this agency in the area is relatively low based on the pattern of use in the Big
Horn and Yellowstone jails. Yellowstone typically holds two to four individuals while Big Horn will hold that
number on occasion and has reached a one day high of ten. The use is not consistent and many days will see no use.
. . . the Hardin Center could, at best, expect use as overnight holding of individuals in transit.”).
337
Other than the Billings office (46 miles from Hardin), the U.S. District Court for the District of Montana has
division offices in Butte, Great Falls, Helena, and Missoula, which are 273, 275, 285, and 391 miles driving
distance, respectively. See http://www.mtd.uscourts.gov/court.htm.
338
Two Rivers Auth., Offering Statement, supra note 331, at B-11 (“The Montana Department of Corrections
(MDC) represents a logical client based on proximity and the potential for long-term stable contract use. Two
requests for proposals have been issued by that agency and when combined represent an interest of the MDC in
obtaining [a]t least 376 contract beds.”).
339
Jennifer McKee, Hardin Officials Say They Expected Inmates, Billings Gazette, Feb. 13, 2007, available at
http://www.billingsgazette.net/articles/2008/02/13/news/state/25-hardinjail.prt (“Paul Green, a Hardin businessman
ho worked at the city’s economic development branch several years ago when the prison was in the planning stage,
said he meet with [DOC Director Bill] Slaughter then and walked away feeling that the state would fill the prison if
the city built it.”).
340
Two Rivers Auth., Offering Statement, supra note 331, at 2 (“Individuals in the custody of . . . other state and
local governmental entities that are allowed by law to transfer their inmates to the Project (the ‘Transferring
Entities’) may also be held at the Project.”).
341
Id. at 4 (“Huges & Luce, LLP, Special Counsel to the Underwriters, has issued an opinion that State law permits
the incarceration in the Project of inmates from the Transferring Entities. If State law should be amended so as to
prohibit bed space in the Project form bring occupied by inmates from such other governmental entities . . . the
Project may not be able to generate sufficient Project Revenues to pay principal of and interest on the Bonds by
housing only legally available prisoners.”).
342
52 Mont. Op. Att’y Gen., No. 4, ¶¶ 27, 31 (Dec. 3, 2007) (“Section 7-32-2203 of the Montana Code Annotated
specifies who may be confined in a detention center, and does not authorize the long-term confinement of out-ofstate or federal inmates for purpose of serving a felony sentence imposed in another jurisdiction. . . . [T]he only
336

Raher 51
judgment ruling that the prison could house out-of-state prisoners. Agreeing with the City’s
proposed construction of the relevant statutes, the court issued the requested declaration,
effectively overruling the Attorney General’s opinion.343 Notwithstanding the legal victory, the
Hardin facility has not been able to enter a contract for placement of out-of-state inmates, despite
efforts to do so.344 Hardin also submitted a bid to house Montana prisoners, but in December
2008 the DOC awarded a contract to another bidder, saying the Hardin application was
incomplete.345
B. Prison Financing
The private prison industry is heavily dependent on corporate debt. This is, of course, not
unique in the contemporary American business world; however, the implications of high
leverage are different in an industry whose only customers are governmental entities. A
background discussion of public finance is helpful to fully comprehend the current fiscal
dynamics of prison privatization. As discussed in this section, for most of the twentieth century
prison construction was funded through normal government appropriations processes. But at the
same time the dynamics of anti-crime politics led to the call for more prisons, government
spending and borrowing became increasingly difficult. Initially, many governments turned to
revenue-bond financing, a move that necessitated the creation of essentially fictitious prison
revenue streams. At roughly the same time, private operators decided to use a similar model for
their own financing—by borrowing against government lease or contract payments, the private
sector promises greater access to capital with which to fund prison expansion.346
The problem with the industry’s claims is the precarious nature of the collateral. The
only assets of any material value that prison companies can pledge as security are accounts
receivable (i.e., anticipated government payments) and the prison facilities themselves. The
value of receivables depends on long-term stability or growth in private prison contracts. Thus
far, the gamble has generally worked, with a few notable difficulties along the way. But as states
are increasingly compelled to reconsider policies that created unsustainable prison populations,
creditors of private prison companies could find their primary security drying up. If such a
scenario led to a borrower default, lenders would presumably seek to recover by repossessing

federal or out-of-state inmates allowed by Mont. Code Ann. § 7-32-2203 would be those whose confinement is
authorized by subsections (1) to (3) (persons committed in order to secure their attendance as witnesses in criminal
trial; persons charged with crime and committed for trial; and persons committed for contempt or upon civil process
or by other authority of law).”).
343
City of Hardin v. Montana ex rel. Hardin, No. BDV-2007-955, 2008 Mont. Dist. LEXIS 171 (1st Dist. Mont.
Jun. 5, 2008). The state subsequently announced it would not appeal the district court’s ruling. Jennifer McKee,
State Won’t Fight Decision on Hardin Jail, Billings Gazette, Jun. 28, 2008, available at
http://www.billingsgazette.net/articles/2008/06/28/news/state/18-hardinjail_s.prt.
344
Jennifer McKee, Wyoming Won’t Put Prisoners in Hardin Jail, Billings Gazette, May 29, 2008, available at
http://www.billingsgazette.net/articles/2008/05/29/news/state/30-hardin.prt (after considering the Hardin facility,
Wyoming Department of Corrections decided not to enter a contract, citing concerns about the prison’s design,
specifically security and recreation issues).
345
Jennifer McKee, Corrections Contract Awarded, Billings Gazette, Dec. 31, 2008, available at
http://www.billingsgazette.net/articles/2008/12/31/news/state/44-corrections.prt.
346
Seiter, supra 161, at 4.

Raher 52
real estate assets, leaving those jurisdictions still reliant on private prison capacity with a fairly
meaningless claim against an insolvent prison operator.
This section first considers the modern evolution of U.S. prison financing. It then
undertakes a review of financing strategies employed by the leading private prison companies.
1. Municipal Finance
Historically, state and local governments built prisons either by paying for construction
out of current revenues (“pay-as-you-go financing”) or by issuing general obligation (GO)
bonds.347 During the 1980s and ‘90s, however, political demand for stricter sentencing policies
led to a sustained wave of new prison construction that coincided with a period of intense public
opposition to government borrowing and spending.348 As states began cutting taxes, revenues
were often insufficient to support pay-as-you-go financing of prison construction. At the same
time, GO bonds became increasingly difficult to issue given the fact that many states require
voter approval of GO debt. Not only did voter approval of state debt became more difficult as a
general matter during the late-twentieth century, but prisons have always fared particularly
poorly at the polls,349 making GO debt for prison expansion especially difficult.
As GO bonds and pay-as-you-go financing became less practical, states began exploring
revenue-backed securities as a means of prison borrowing. The two primary such mechanisms
for prison financing have been revenue bonds and certificates of participation. By 1997, revenue
bonds accounted for 50 percent of all publicly-issued debt, and were increasingly popular in the
context of prison construction.350 Revenue bonds are not backed by the issuer’s full faith and
credit, but instead rely on a stream of revenue generated by the financed project. Accordingly,
revenue bonds have long been used to pay for toll roads, utility infrastructure, parking lots, and
other revenue-generating items.351 Because prisons do not generate material revenues,
governments must use financial sleight of hand to fit prison construction within the revenue bond
framework. Using a structure pioneered in New York and California, states form a specialpurpose agency for the purpose of issuing revenue bonds.352 The bond proceeds are then used to
construct the facility, which is typically owned by the special agency. Debt service can be made
in one of two ways. First, the legislature can make annual appropriations to cover bond
payments. Alternatively, in the case of lease revenue bonds, the special agency will lease the
prison to the state department of corrections, pledging the lease payments as security for the
347

Chabotar, supra note 327, at 7.
See supra notes 29-31 and accompanying text.
349
Id. (“In the November 1983 elections, 72 percent of all bond proposals passed; for jails only 40 percent passed.”);
Jedidiah Horne & Kaia Dekker, Money Votes and Steel: The Use of Lease Revenue Bonds for Prison Construction
(2003) (unpublished research paper) (on file with author) (analyzing public opinion polling regarding voter attitudes
toward prison bonding; although methodological difficulties prevented a statistically significant finding, the authors
found some indications that voter skepticism of GO bond-financing for new prisons may have lead to increased use
of revenue bonds).
350
Ass’n. of State Corr. Administrators, Alternatives for Financing Prison Facilities, at 2 (1999) available at
http://www.asca.net/documents/alt_main_000.pdf.
351
See Standard & Poor’s, Public Finance Criteria, at 106 (2000).
352
See Alternatives for Financing, supra note 350, at 3-5. The special entity might be limited solely to one project,
or may issue bonds for many state projects. New York, for example, issues prison bonds through the multi-purpose
Empire State Development Corporation (f.k.a. New York State Urban Development Corporation), while California
does so though the State Public Works Board.
348

Raher 53
bonds.353 Because the state’s obligation on the bonds is indirect, revenue bonds usually avoid
state law requirements for voter approval of public debt. Even if a state is contractually
obligated to make lease payments sufficient to cover annual debt service, such a commitment
generally does not qualify as public debt so long as the lease contains an annual appropriations
clause.354 But the real-world likelihood of a state debt downgrade in the event of a lease
termination essentially makes the appropriations clause a legal fiction.355
Certificates of participation (COPs) take the legal fiction of revenue-backed municipal
securities one step further. Prison COPs generally involve a lease-sublease or lease-purchase
agreement, as do revenue bonds. However, in the case of COPs, the securities are issued by a
nominally private third party, and paid through government lease payments.356 Despite the
additional (and highly theoretical) level of separation between the government and the COP
issuer, the same prospect of ratings downgrades remains, and ratings agencies still consider COP
debt to be state debt for purposes of rating future debt issuances.357 Even Colorado, which
constitutionally requires voter approval of revenue bonds, has judicially exempted COPs from
the public-vote requirement.358
Revenue bonds and COPs are politically popular because they avoid the need for voter
approval. But the political advantage comes at a cost. As mentioned above, revenue-backed
debt is still considered state debt for purposes of future bond ratings. Additionally,
notwithstanding the prospect of ratings downgrades, because revenue-backed securities are not
legally backed by the issuer’s full faith and credit, they usually receive lower credit ratings, thus
making debt service more expensive than for GO bonds.359
States’ expanded borrowing ability attributable to revenue-backed securities was still not
sufficient to keep pace with rapidly expanding prison populations. Thus, the private sector
stepped in to provide new access to capital.360 Even if private operators borrow money to
finance their facility construction and operations, many policymakers see this as preferable to
government borrowing because private investors, rather than taxpayers, are supposedly taking on
the risk. This logic, however, fails to take into account the ultimate effect of corporate debt. In
the early days of prison privatization, shifting borrowing to the private sector may have produced
advantages for contracting governments. Consider a hypothetical Company X which receives a
353

Id. at 3.
E.g., Rider v. City of San Diego, 959 P.2d 347, 352-353 (Cal. 1998).
355
See supra notes 287-288 and accompanying text.
356
See e.g., Colo. Rev. Stat. § 24-82-703 (2008) (the lessor under all state lease-purchase agreements must be a
“nonprofit corporation organized for the purpose of becoming a lessor pursuant to the provisions of [the authorizing
statute]. The controller, the director of the office of state planning and budgeting, and the director of research of the
legislative council shall serve ex officio as directors of such nonprofit corporation.”).
357
See, Standard & Poor’s, General Description of Corporate & Government Ratings Credit: Rating Methodology,
at 3 (Jun. 26, 2007), available at http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/
2,1,1,4,1148445596596.html (off-balance sheet obligations are recognized during ratings process).
358
Colo. Criminal Justice Reform Coal. v. Ortiz, 121 P.3d 288 (Colo. App. 2005) (holding that COPs are not subject
to voter approval, despite Colo. Const., art. X, § 20(4)(b), which requires voter approval for “creation of any
multiple-fiscal year direct or indirect [government] debt or other financial obligation whatsoever without adequate
present cash reserves pledged irrevocably and held for payments.” (emphasis added)).
359
See e.g., Moody’s Public Finance Department, Moody’s on Municipals: An Introduction to Issuing Debt, at 25
(1987) (“The starting point for debt analysis is the pledged legal security and other bondholder protections, and it is
the task of the bond analyst to determine whether the borrower will meet these commitments.”).
360
See e.g., McDonald & Patten, supra note 184, at 3-5 (listing “reducing overcrowding” as leading objective
behind prison privatization, based on survey of state correctional administrators).
354

Raher 54
state contract to build and operate a five-hundred-bed prison. If Company X becomes
insolvent,361 its creditors would presumably foreclose on the prison, thus forcing the state to
negotiate a solution with the lenders. But given the fact that lenders generally have no interest in
operating prisons, and correctional facilities are notoriously ill-suited for adaptation to other
uses, the creditors in this hypothetical may have no other alternative than to sell the prison to the
state. Given the state’s bargaining advantage, it may well be able to demand a reasonable price.
The problem, however, is that this hypothetical does not account for the new “national market”
in prison beds.362 Today, a foreclosing creditor does have other options. If creditors seek to
reduce their losses by leasing the facility (under management by another operator) to a higherpaying jurisdiction, the contracting state may be forced to satisfy the debt secured by the prison
(regardless of its relation to fair market value).
2. Corporate Borrowing
Having established the potential result of high private prison debt, an overview of
corporate borrowing is in order. The private prison industry experienced a period of great
growth between 1986 and 1996.363 A series of highly-publicized operating failures in the mid1990s caused widespread speculation as to the sustainability of private corrections.364 But while
the markets were still processing the publicized failures, two major pieces of Congressional
legislation reinvigorated the industry. First, the Illegal Immigration Reform and Immigrant
Responsibility Act of 1996 (IIRAIRA) dramatically increased the number of incarcerated
immigrants. 365 IIRAIRA does not mention private prisons; in fact, the statute merely authorizes
(but does not fund) additional detention beds.366 Financial markets, however, correctly
anticipated that the new immigration law would result in substantially increased revenue for
private prison operators, given the Immigration and Naturalization Service’s historical
preference for contract detention facilities.
The other Congressional action that gave investors hope was the National Capital
Revitalization and Self-Government Improvement Act of 1997 (NCRSGIA), which passed as a
rider to the Balanced Budget Act of 1997.367 The NCRSGIA was a wide-ranging legislative
response to the fiscal problems plaguing the District of Columbia. Acknowledging the difficulty
that D.C. faced as the only U.S. city required to run a prison (as opposed to jail) system,
Congress dissolved the D.C. prison system and transferred all sentenced felons to the custody of
the federal Bureau of Prisons (BOP).368 Instead of leaving implementation details to the BOP,
the NCRSGIA directed the BOP to house at least two thousand inmates in private facilities by
361

For simplicity’s sake, this hypothetical does not consider aspects of the bankruptcy, such as the automatic stay,
which could potentially introduce additional complications for the contracting government.
362
See supra note 42 and accompanying text.
363
Douglas McDonald, et al., Private Prisons in the United States: An Assessment of Current Practice, at 6 (1998)
(NCJRS 179708).
364
See supra notes 33-34 and accompanying text.
365
Pub. L. No. 104-208, div. C, 110 Stat. 3009, at §§ 303 (codified as amended at 8 U.S.C. § 1226) (creating
restrictions for release of apprehended aliens), 305(a)(3) (codified as amended at 8 U.S.C. § 1231(a)(2))
(prohibiting release of aliens pending execution of a deportation order).
366
Id., § 386 (codified as 8 U.S.C. § 1368).
367
Pub. L. 105-33, 111 Stat. 251, 712-787.
368
Id. § 11201(b).

Raher 55
year-end 1999 and at least half of all D.C. inmates in private facilities by 2003.369 Although the
statutory privatization requirement generated optimism among private prison supporters, the
BOP failed to meet the 1999 benchmark, citing delays in the contracting process due to
environmental review procedures and litigation.370 BOP’s subsequent compliance with
NCRSGIA’s privatization provision is unknown.371
Despite the potential for growth in the late 1990s,372 the two industry leaders (CCA and
Wackenhut) saw their stock prices decline markedly. On August 5, 1997 (the date NCRSGIA
was enacted), CCA and Wackenhut shares closed at $104.22 and $9.63, respectively. By
December of 2000, both companies saw lows of 94¢ and $2.00, respectively. Wackenhut’s
decline was less dramatic and was eventually followed by a substantial recovery. CCA, on the
other hand, has never attained share prices comparable to what it saw in the mid-1990s. As
equity became a less viable option for financing expansion, both companies began increasing
their reliance on borrowing. The fiscal practices of the industry leaders, particularly CCA, can
only be thoroughly understood after a brief review of the real estate investment trust (REIT)
experiment of the late 1990s.
In April 1997, CCA made headlines by placing nine of its facilities in the first prisonbased REIT, named Prison Realty Trust.373 REITs are special-purpose entities that benefit from
favorable tax treatment. In return for their favored treatment, the Internal Revenue Code
imposes significant operating restrictions on REITs.374 One year after CCA formed Prison
Realty Trust, it proposed converting the entire company into a REIT, while simultaneously
spinning off several operating subsidiaries. CEO Doctor Crants375 called the restructuring “a

369

Id. § 11201(c)(1).
General Accounting Office, District of Columbia: Issues Related to the Youngstown Prison and Lorton Closure
Process (GAO/GGD-00-86), at 10-12 (as of December 31, 1999 no D.C. inmates were housed in private facilities).
In response to the GAO report, the BOP wrote “we have modified our contracting procedures, and are confident that
these revisions are the best method for preventing the recurrence of issues experienced during the first phase of
contracting bed space for District of Columbia (DC) sentenced felons.” Although neither the BOP nor the GAO
elaborates on what these modifications entail, the environmental delays may explain the subsequent use of preexiting facility requirements in the series of CAR solicitations.
371
The Deputy Attorney General (DAG) is statutorily required to submit annual progress reports to Congress,
detailing the BOP’s compliance with the privatization requirement. When the author requested these reports under
the Freedom of Information Act (FOIA), the DAG’s FOIA liaison responded that the documents were not in its
possession and the office was unsure when the reports could be obtained. See Letter from Carmen L. Mallon, Chief
of Staff, Office of Information and Privacy, to Stephen Raher (Apr. 8, 2009) (on file with author).
372
CCA began its 1997 annual report with the declaration “The Company believes the United States private
corrections industry is in a period of significant growth. . . . Since correctional and detention facilities are viewed as
an essential service, fiscal pressures have caused governments to seek to deliver these services more cost effectively.
Further, as a result of the number of crimes committed each year and the corresponding number of arrests,
incarceration costs generally grow faster than any other part of a government’s budget. In an attempt to address
these pressures, government agencies responsible for correctional and detention facilities are increasingly privatizing
facilities.” Corr. Corp. of Am., Annual Report (Form 10-K), 5 (Mar. 30, 1998).
373
Corrections Corp. of America: Nine Facilities to be Sold to the First Prison REIT, Wall Street Journal, Apr. 25,
1997, at B4. Under the terms of the transaction, CCA transferred nine prisons to Prison Realty Trust (a publiclytraded REIT) for $308,000. CCA then leased the prisons from the REIT under long term (10-12 years) noncancelable, triple-net leases. Corr. Corp. of Am., Form 10-K, supra note 372, at F-17.
374
See 26 U.S.C. § 857
375
Crants’ is not a doctor. Rather, his parents gave him the first name “Doctor” in hopes he would be successful.
370

Raher 56
terrific formula for rapid growth.”376 In recommending that its shareholders approve the merger,
CCA predicted that the new REIT structure would “enhance the surviving company’s ability to
obtain financing for the ownership of correctional facilities.”377
Although the restructuring was motivated largely by anticipated tax benefits, the tax
provisions applicable to REITs were cited as one substantial factor in the relatively quick failure
of the new Prison Realty Trust. At the time of the restructuring, the Internal Revenue Code
required REITs to pay out at least 95 percent of taxable income as shareholder dividends.378 In
paying the required dividends, Prison Realty Trust was legally unable to amass cash reserves to
pay for facility expansion. The company’s original strategy was to fund new construction
through borrowing and sales of corporate stock.379 After the merger, however, the REIT’s stock
price declined precipitously due to a combination of shareholder litigation and growing market
disfavor of REITs in general. At the same time that Prison Realty was faced with increased
constraints on raising equity capital, it was unable to obtain sufficient debt financing to fund its
expansion plans and the required dividend payments.380 One shareholder attributed the failure to
“[a] number of factors . . . [including] overleverage, and longer time to fill available space in
speculative facilities.”381 CCA’s speculative prison building was also cited as a material factor
by an investment analyst who remarked of the restructuring:
There was a whole lot of financial engineering going on which did not work out. The
other thing was, the company basically continued to build prison beds essentially on
speculation, believing that the market was so strong, and they weren’t able to fill them.
So now they’re trying to unwind the financial engineering and they’re trying to deal with
the fact that they’ve got 12,000 empty beds.382
376

David D. Kirkpatrick, Corrections Corp. Agrees to be Acquired by CCA for About $3 Billion in Stock, Wall
Street Journal, Apr. 21, 1998, at A3. The restructuring, which was approved by shareholders, entailed the nascent
Prison Realty Trust acquiring CCA in a creeping multi-step merger. See Prison Realty Corp., Registration Statement
under the Securities Act of 1933 (Form S-4), at 43 (Oct. 16, 1998) (describing structure of the merger). The
transaction involved the creation of several operating entities—immediately prior to the merger, CCA transferred all
its non-real-property assets to a management company and two “service companies.” Id. at 5. The management
company then leased the facilities from the REIT and performed certain administrative functions. The service
companies (operating under the CCA name, pursuant to a licensing agreement) held the facility contracts and were
required to pay 95% of net income to the REIT. Id. at 85-98.
377
Id. at 53 (the CCA board based this prediction on anticipated “increased market capitalization of the surviving
company following the Merger, the increased shareholders’ equity for the surviving company resulting from the
Merger and the establishment of the surviving company’s proposed credit facility”).
378
26 U.S.C. § 857(a)(1) (1998).
379
Prison Realty Corp., Form S-4, supra note 376, at 72-73
380
Corr. Corp. of Am., Annual Report (Form 10-K), at 14 (Apr. 17, 2001) (“During this time New Prison Realty
was trying to raise approximately $300.0 million of debt financing through an offering of high-yield notes. Because
of these events and the conditions of the capital markets generally, New Prison Realty was only able to raise $100.0
million in this financing, and the notes bore interest at a much higher rate than was expected.”).
381
After Three Years, Prison Realty Throws of Shackles of REIT Status, Nat’l. Mortgage News, Oct. 2, 2000, at 16
(quoting a spokesperson for Gotham Partners Management, NY, a shareholder of Prison Realty Corporation)
(internal quotation marks omitted).
382
Id. (quoting an investment analyst who requested to remain anonymous) (internal quotation marks omitted).
Another facet of the restructuring that was the target of investor criticism was the relationship between the REIT and
the privately-held operating companies. The 1997 merger was premised on the assumption that the operating
companies would make relatively high lease payments to the REIT, which in turn would increase shareholder
dividends. The amount of the lease payments was such that the operating companies were projected to lose money

Raher 57

While investors and analysis articulated numerous theories to explain the restructuring’s failure,
others began to wonder whether the company could remain financially viable.
As the new REIT structure began to unravel, CCA increased its credit facility with
Lehman Commercial Paper from $650 million to $1 billion.383 Shortly thereafter, Prison Realty
and the operating companies agreed to a proposed restructuring wherein a consortium of lenders,
led by Fortress Investment Group and the Blackstone Group, would provide a new $1.2 billion
credit facility. Under the terms of the plan, CEO Doctor Crants would resign and CCA would
restructure as a subchapter C corporation while raising $350 million in new equity.384 By yearend 1999, CCA’s position had become dire. As of December 31, CCA was in default on three
financial covenants contained in its new credit facility.385 In addition, CCA had defaulted on the
provisions of a purchase agreement concerning $40 million in convertible subordinated notes.386
The combination of CCA’s operating losses and the prospect of creditors accelerating corporate
debt led the company’s independent auditors to include a note in the 1999 financial statements
expressing “substantial doubt about the Company’s ability to continue as a going concern.”387
A few months after the Fortress/Blackstone restructuring plan was announced, CCA
agreed to an alternate restructuring plan proposed by Pacific Life Insurance Company.388 Under
the Pacific Life plan, CCA would still restructure as a C-corporation, but it would refinance or
renew its existing $1 billion bank credit facility. It would also raise $200 million through an
offering of common stock, but Pacific Life agreed to serve as a backstop purchaser, buying
convertible preferred stock to make up any difference between the $200 million target and
proceeds actually raised through the offering.389

for the first several years following the merger, a deficit which was anticipated to be funded through borrowing.
However, when borrowing proved to be impractical and the operating companies were obligated to make lease
payments on empty speculative facilities, the new structure became unsustainable. Corr. Corp. of Am., Form 10-K,
supra note 380, at 13-14.
383
The original, $650 million, post-merger credit facility was arranged by Nationsbank, Lehman Brothers, and the
Bank of Nova Scotia. Credit Agreement Dated January 1, 1999, available as Exhibit 10.33 to Prison Realty Corp.,
Registration of Securities of Successor Interests (Form 8-K12G3) (Jan. 6, 1999). The new $1 billion credit facility
was lead and managed by Lehman Commercial Paper. Amended and Restated Credit Agreement Dated August 4,
1999, available as Exhibit 10.1 to Prison Realty Trust, Inc., Quarterly Report (Form 10-Q) (Aug. 17, 1999)
384
Corr. Corp. of Am., Form 10-K, supra note 380, at 15; see also Robert D. Hershey, Jr., Prison Realty Trust, Once
a High-Flying REIT, is Plagued by a Bad Market and Management Woes, New York Times, Dec. 28, 1999, at C-6.
385
Prison Realty Trust, Inc., Form 10-K, supra note 36, at 13 (CCA, then operating as Prison Realty Trust, was in
violation of the interest coverage ratio, leverage ratio, and net worth covenants of its $1.2 billion credit facility).
386
Id.
387
Id. at F-16 (“Continued operating losses by New CCA, declarations of events of default and acceleration actions
by the Company’s and New CCA’s creditors, the continued inability of New CCA to make contractual payments to
the Company, and the Company's limited resources currently available to meet its operating, capital expenditure and
debt service requirements will have a material adverse impact on the Company’s consolidated financial position,
results of operations and cash flows. In addition, these matters concerning the Company and New CCA raise
substantial doubt about the Company's ability to continue as a going concern.”).
388
Corr. Corp. of Am., Form 10-K, supra note 380, at 15. The Fortress/Blackstone consortium sued for breach of
contract, with both sides settling in August 2001. Corr. Corp. of Am., Annual Report (Form 10-K), at 39 (Mar. 22,
2002).
389
Corr. Corp. of Am., Form 10-K, supra note 380, at 16.

Raher 58
In furtherance of the Pacific Life proposal, CCA negotiated a waiver and amendment to
its Lehman Commercial Paper credit facility.390 Pacific Life, however, was not convinced that
the modified credit facility satisfied the terms of its agreement with CCA.391 In response, CCA
exercised its right to terminate the Pacific Life agreement, instead going forward with the terms
of the renegotiated credit facility with Lehman Commercial Paper. Under this agreement, CCA
terminated its REIT status, reacquired the operating and service companies it had spun off in the
1997 transaction, and made several management changes.392 Despite CCA’s original predictions
of enhanced equity financing via the restructuring, it emerged from REIT status in December
2000 with $972 million due under its credit facility, $7.6 million due under the operating
company’s credit facility, and $171 million in various notes, bearing interest of eight to twelve
per cent.393 For the same year (2000), CCA produced a $731 million loss (following a $73
million loss in 1999).394 Shortly before shareholders approved the restructuring, CCA officials
admitted that company leaders had considered filing bankruptcy as an alternative to the second
restructuring.395
Although CCA’s REIT experiement has received substantial attention, it is not the only
instance of private prison financial trouble. Cornell Companies, arguably the most financially
insecure of the publicly traded prison operators, has not formed a REIT, but has twice used leasebased financing in an effort to raise capital. In December 1998, Cornell entered into a $60
million synthetic lease credit facility with a consortium of lenders lead by ING Capital
Corporation.396 In June 2000, Cornell and the lenders increased the total amount of the facility to
$75 million.397 Cornell used the loan proceeds to fund construction of new facilities, yet treated
its lease obligations as an off-balance-sheet liability.398 A few years later Cornell’s corporate
auditor, Arthur Anderson, came under increased scrutiny in the wake of the Enron scandal. In
response, a special committee of the Cornell board investigated the synthetic leases and
determined that they had not been properly reported, necessitating a restatement of the
company’s financial statements.399
Shortly before Cornell’s synthetic lease troubles became public, it entered another
complicated financing agreement, this time a sale-leaseback transaction.400 Under the saleleaseback (for which Cornell paid $3.65 million in financial advisor fees401) Cornell transferred
390

Waiver and Amendment Dated June 9, 2000, available as Exhibit 10.1 to Prison Realty Trust, Inc., Current
Report (Form 8-K) (Jun. 13, 2000).
391
Corr. Corp. of Am., Form 10-K, supra note 380, at 16 (Pacific Life announced it “had significant concerns with
respect to a number of terms” in the amended credit facility and requested additional information from CCA).
392
Id. at 17-21. It was during this management restructuring that CCA hired the politically well-connected Gustavus
Puryear who came to the company from a staff position in Sen. Bill Frist’s office. Id. at 21.
393
Id. at 22.
394
Id. at F-4.
395
Gethan Ward, Prison Firm Won’t File Bankruptcy to Bail Out, The Tennessean, Aug. 17, 2000, at 1E.
396
See Third Amended and Restated Credit Agreement (Dec. 3, 1998), available as Exhibit 10.23 to Cornell
Companies, Inc., Annual Report (Form 10-K) (Apr. 1, 1999).
397
Fourth Amended and Restated Credit Agreement (Jul. 21, 2000), available as Exhibit 10.1 to Cornell Companies,
Inc., Quarterly Report (Form 10-Q) (Aug. 14, 2000).
398
Cornell Companies, Inc., Annual Report (Form 10-K), at 46 (Apr. 16, 2002).
399
Id. at 46-48, 64-66; David Ivanovich, The Fall of Enron: Investors’ Distrust Propels Firms to Issue Restatements,
Houston Chronicle, Feb. 14, 2002, at A-15.
400
Premises Transfer Agreement (Aug. 14, 2001) and; Master Lease Agreement (Aug. 14, 2001), available as
Exhibits 10.1 and 10.2, respectively, to Cornell Companies, Inc., Current Report (Form 8-K) (Aug. 28, 2001).
401
Cornell Companies, Inc., Form 10-K, supra note 398, at 47.

Raher 59
eleven of its prisons for $173 million to the unaffiliated Municipal Corrections Finance, LP
(MCF). At the same time, Cornell entered a twenty-year lease of the same facilities, with
twenty-five years of renewal options.402 Although the sale-leaseback was also implicated in
Cornell’s 2002 accounting restatements,403 the largest potential impact could lie in the future.
Although there is no current indication that Cornell is considering bankruptcy, it is the most
precarious of the publicly trade prison companies, thus the implications of a Cornell bankruptcy
filing are not purely theoretical. Moreover, when MCF issued bonds to raise the purchase price
for the eleven facilities, it established a reserve fund to make lease payments in the event of a
Cornell bankruptcy.404 Even in the event that a Cornell bankruptcy estate were able to
successfully claim the reserve fund as an asset of the estate, MCF has guaranteed the reserve
fund,405 in an apparent attempt to avoid default on the bonds and keep the prisons out of a
bankruptcy estate. If Cornell were to file bankruptcy, it or a trustee could terminate unfavorable
operating contracts while either assuming or assigning its obligations under the MCF lease in
connection with more lucrative federal contracts.406 As a result, states with Cornell contracts
would be forced to find new prison beds or match the more desirable federal rates.
All three major private prison companies (CCA, GEO/Wackenhut, and Cornell) make
heavy use of bank credit facilities. The risk of the prison operators’ leverage is not lost on the
companies themselves. The annual Securities and Exchange Commission filings by the leading
publicly-traded private prison companies407 feature quite sober discussions of the potential
downsides of debt financing. CCA admits that it has “a significant amount of indebtedness”
which could “require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, and other general corporate purposes.”408 While CCA’s
disclosure of financing risks is terse and somewhat vague, GEO/Wackenhut provides much
greater detail regarding the risks its investors face. For example, GEO details some of the
restrictive covenants imposed on the company under its bank credit facility, noting
our Senior Credit Facility requires us to maintain specified financial ratios and satisfy
certain financial covenants, including maintaining maximum senior and total leverage
ratios, a minimum fixed charge coverage ratio, a minimum net worth and a limit on the
amount of our annual capital expenditures. Some of these financial ratios become more
restrictive over the life of the Senior Credit Facility. We may be required to take action
to reduce our indebtedness or to act in a manner contrary to our business objectives to
meet these ratios and satisfy these covenants.409
402

Premises Transfer Agreement and Master Lease Agreement, supra note 400.
Cornell Companies, Inc., Form 10-K, supra note 398, at 47.
404
Cornell Companies, Inc., Annual Report (Form 10-K), at 76 (Mar. 14, 2008).
405
Id.
406
See 11 U.S.C. § 365 (2008).
407
Notably, despite the fact that Cornell Companies is arguably the most financially precarious of the publiclytraded operators, it’s Annual Report contains the most summary disclosure of financing risk. Devoting a mere two
sentences to the issue, Cornell concludes “[t]o the extent our cash and current financing arrangements do not provide
sufficient financing to fund these [expansion] projects, financing may not be available or may only be available on
terms that are unfavorable to us.” Cornell Companies, Inc., Annual Report (Form 10-K), at 18 (Mar. 14, 2008).
408
Corr. Corp. of Am., Form 10-K, supra note 153, at 29-30.
409
GEO Group, Inc., Form 10-K, supra note 153, at 20.
403

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GEO also admits to the risk posed by interest rates. Not only is the company exposed to interest
risk on its credit facility (which contains a variable interest rate), but it also entered into an
interest rate swap agreement in September 2003 which leaves it vulnerable to unfavorable
changes in the London Interbank Offered Rate.410
The bank credit facilities are secured by all of the borrower’s assets and frequently
contain covenants preventing asset sales without consent of the lenders. For example, CCA’s
current credit agreement prevents facility sales outside of three scenarios.411 First, CCA can sell
unoccupied prisons for a minimum price of $25,000 per bed.412 Second, it can sell any facilities
for cash, at fair market value, so long as aggregate sales do not exceed $45 million in any fiscal
year.413 Finally, CCA can sell a facility for cash to a government corrections agency so long as
the sale is for fair market value and in connection with a CCA management contract for the
facility.414 GEO/Wackenhut’s credit facility contains similar restrictions, except there is no
provision for vacant facilities and the aggregate-annual-value limit is $5 million.415
The impact of these restrictive covenants is intimately tied to the federal government and
the national market in private prison contracts. If the borrowing company defaults on a credit
agreement, the lender’s most meaningful recourse is against the borrower’s real property assets
(i.e., prisons). Because the lenders do not have expertise in operating prisons, the most likely
scenario is that foreclosing creditors will seek to lease the facilities in connection with lucrative
federal contracts unless the current state government user agrees to meet the price demanded by
the lenders. Moreover, this price would be presumably be based on the amount outstanding on
the borrower’s credit facility. Because of this dynamic, corporate borrowing by private prison
companies has a direct relationship to the contingent liabilities a state would face in the event of
a contractor debt default. This fact contradicts the claims of privatization proponents who claim
private risk as a benefit of correctional outsourcing.
V. Conclusion
The history of U.S. correctional policy is decidedly cyclical. Reforms are followed by
dissatisfaction, followed by inaction, followed by more reforms. Historically, most prison
reform movements have been motivated, at least initially, by ideals of rehabilitation and
society’s responsibilities to wayward individuals. Twentieth century private prisons can be
viewed as a reform movement, but the motivations were not benevolent. Rather, the primary
objective underlying the modern private prison industry was rapid expansion of the nation’s
prison system. Private prisons did deliver on the promise of quick expansion. But carceral
growth came at a cost. Most obviously, states are now struggling under the fiscal impact of large
prison populations. And, as shown throughout this paper, private operation of prisons presents
substantial operational challenges to contracting agencies.
410

Id. at 21.
Credit Agreement (Dec. 21, 2007), available as Exhibit 10.1 to Corr. Corp. of Am., Current Report (Form 8-K)
(Dec. 21, 2007).
412
Id. § 10.4(g), at 80.
413
Id.
414
Id.
415
Third Amended and Restated Credit Agreement (Jan. 24, 2007), available as Exhibit 10.1 to GEO Group, Inc.,
Current Report (Form 8-K), § 11.5, at 74-75 (Jan. 30, 2007).
411

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Privatization depends on the existence of a strong contractual relationship between the
government and the vendor. But strong, healthy relationships in the context of private prisons
are hindered by ill-defined objectives and ineffective monitoring systems. While private
operators relentlessly claim that their services are beneficial and efficient, they prevent public
access to information which could substantiate or refute these claims. Meanwhile, many
contracting agencies have little interest in seriously analyzing the efficacy of privatization
because they are dependent on contractor-owned infrastructure. In the early days of
contemporary prison privatization, states had some bargaining leverage since prison operators
were fledgling entities which would be financially harmed by a contract cancellation. But the
end of the twentieth century witnessed the explosive growth of the secretive and lucrative
immigrant detention sector. Along with other components of the national prison-bed market,
immigrant detention has changed the landscape of prison outsourcing. States that depend on
privately owned prison capacity are increasingly vulnerable as prison operators can now shop for
customers.
Certainly, as states begin to reduce prison populations through sentencing changes and
other policy reforms, they should prioritize the withdrawal of inmates from private facilities.
But such a process could be exceedingly difficult. After a certain number of contract
terminations, private operators—saddled with large amounts of corporate debt—will destabilize,
with potentially catastrophic results for those states still dependent on private facilities. Such a
process would combine the complexity of the nation’s current financial crisis with the difficult
and dangerous arena of criminal justice administration.
Since the federal government is largely responsible for the emergence of the national
prison market, it must provide the solution to the nation’s current private prison problem. A
federal solution must begin with immigration policy, which has been the primary driver behind
the private prison industry in recent years. But immigrant detention policy cannot be addressed
in a vacuum. Although a rapid draw-down in immigrant detention populations is desirable from
a practical and humanitarian perspective, it would likely wreak havoc on the private prison
industry. As the industry destabilized, state correctional systems would be beset by uncertainty
and many local governments would be forced to service debt on empty detention facilities.
Accordingly, immigration policy reform must be integrated with a specific “private prison fix.”
There are many potential policy approaches. The federal government could provide funding for
states to acquire private facilities (hopefully tied to prison population reduction goals).
Alternatively, Congress could develop a specialized bankruptcy or receivership process for the
industry. Yet another possibility is a federal “deprivatization” process, modeled after the
creation of Amtrak.
Whatever specific form the federal response to the private prison industry takes, now is
the ideal time to undertake the challenge. President Obama recently issued a memorandum
instructing all federal agencies to thoroughly reexamine outsourcing practices and procedures.416
The directive emphasizes the need to appropriately monitor contractors and ensure that the
federal government maximizes value. When applying this process to prison contracting, the
federal agencies would be well-advised to take a broad, inter-governmental view of the problem.
If the federal government extricates itself from the private prison industry (as it should), the
negative impacts will be felt by the states.
416

Memorandum on Government Contracting, 74 Fed. Reg. 9,755 (Mar. 6, 2009).

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Massive prison growth in the late twentieth century is a social experiment that has failed.
Embedded in this experience is the subsidiary privatization experiment. Due to government
reliance on private capacity and complex financial engineering, winding down the industry will
be challenging. Nonetheless, the track record of private corrections shows that it is a challenge
that must be undertaken.