WATERVILLE – Workers who lost their jobs when the C.F. Hathaway plant closed blamed corporate greed and free trade agreements for the death of the nation’s oldest shirt factory.

But a Michigan congressman says part of the blame belongs to federal prisoners who produced more than $150 million worth of clothing last year, shutting manufacturers like Hathaway out of lucrative federal contracts.

“In addition to foreign competition, unfair competition from federal prisoners has contributed to the demise of domestic textile manufacturers like Hathaway,” said U.S. Rep. Pete Hoekstra, a critic of Federal Prison Industries.

The death of the 165-year-old shirt manufacturer last month was sealed when Hathaway lost an Air Force contract for long-sleeved dress shirts worth $18 million to $20 million to a shirt plant in Macon, Ga.

Hoekstra contends there would have been more defense contracts for manufacturers like Hathaway to share if Federal Prison Industries did not have a lock on many federal contracts, including one that makes it the sole supplier of short-sleeved dress shirts for the Air Force.

FPI, which goes under the trade name UNICOR, is an arm of the U.S. Justice Department’s Federal Bureau of Prisons, employing nearly 22,560 prisoners. In 2001, it had sales of $583.5 million.

Donald Sappington, chief executive officer of Hathaway, said he was unaware that so much apparel business goes to prison inmates, and he praised Hoekstra for calling attention to something few people know about.

He agreed that additional government contracts could have kept the plant open. Although contracts with Wal-Mart and Dillard’s accounted for roughly two-thirds of the company’s annual production, Hathaway hoped to fill the remaining piece of the pie with the Air Force contract. Instead, the contract went to Macon Garment Co., which already had been making the shirts for 18 months.

Ruth Bracken, a spokeswoman for Federal Prison Industries, defended the agency, saying it’s rarely the loss of any single contract that forces a private company like Hathaway to move production offshore.

The prisoners tend to be a tempting target for critics, Bracken said from Washington. “We’re an easy scapegoat,” she said.

Federal agencies are required by law to buy from FPI unless it does not manufacture the specific item or it grants a waiver.

All told, the prisoners make 150 products, ranging from office furniture to military uniforms to circuit boards.

The program was established to give prisoners marketable skills. For many, it’s the first time they’ve held a job, and those who work in prison are less likely to return to crime when released, Bracken said.

“Even if they don’t look for a job in that specific industry, they’ve learned a work ethic,” she said. “They’ve learned to be part of a team.”

The prisoners are paid low wages – between 23 cents and $1.15 an hour – and they work about eight hours a week on average, she said.

Hoekstra brought his concerns last week to FPI’s board, which directed the agency’s staff to investigate the scope of its apparel contracts.

His main beef with FPI is over furniture. He has sponsored a bill to allow furniture makers in his congressional district to get in on the federal market, which he said was worth $257 million last year.

“I just want American workers and businesses to have the same chance to compete in the federal marketplace as prisoners,” he said.

Sappington, who is out of a job like 235 other Hathaway workers, said he couldn’t point to one contract as a “make-or-break thing.”

But he’s intrigued by Hoekstra’s point of view. “When you look at the total volume of apparel that they do, if it was on the open market? Yeah, that would make a huge difference,” he said.