When word spread earlier this month that an Indian IT services company planned to set up a 200-person business process outsourcing unit in an Andhra Pradesh jail, it wasn't long before the snark began flying. Are captive centers on the rebound? Imagine the low attrition rates! Inmates working for banks—what could possibly go wrong?

When Phil Fersht, founder of outsourcing analyst firm Horses for Sources, first heard about it, he says, "I thought it was a joke."

Meanwhile, in the U.S., prisoners have been handling a variety of business services for private corporations since 1999. In 2002, they began taking on call center work. Nearly 1,100 inmates locked up in eight federal prisons from Dublin, Calif. to Morgantown, West Va. man tier-one help desks, handle outbound business-to-business calls, and provide directory assistance for Federal Prison Industries (FPI).

For private sector customers outsourcing their call centers to FPI, which operates under the trade name UNICOR, the price is right. Employees behind bars earn an average of 92 cents an hour to man the phones.

UNICOR says prison labor is a low-cost alternative to offshore outsourcing. Its customers either want to repatriate work previously done in India or another low-cost locale, or contract with UNICOR in lieu of an offshore provider, says UNICOR Public Information Officer Julie Rozier.

Callers are unaware that the person on the other end of the line is in jail, says Rozier. And the call center workers, nearly 90 percent of whom are female (male prisoners tend not to volunteer for phone work, according to Rozier), do not deal with any personal identifying information or classified data about the customers they're servicing.

UNICOR bills its services business group, which also provides distribution and order fulfillment, document conversion, and printing and design services, as "the best kept secret in outsourcing."

It's no wonder: Few non-government customers go public about outsourcing to prison inmates. Moreover, contracts with UNICOR for call center work today include non-disclosure clauses to protect clients' identities, says Rozier.

From Chain Gangs to Call Centers

Call centers are a far cry from chain gangs, but putting prisoners to work is not a new practice. In fact, FPI was established in 1934 under President Franklin D. Roosevelt to manufacture goods for the government. But it was only in 1999 that it was given the authority to sell services to private corporations.

The program has riled some labor unions and industry groups over the years. The U.S. Chamber of Commerce, for example, has complained that UNICOR has an unfair competitive advantage over its private sector members in winning government contracts. The AFL-CIO has argued against the widespread use of prison labor because, the union says, it takes jobs away from Americans on the outside.

In 2003, Dell ended its contract with UNICOR for hardware recycling services amidst an onslaught of objections to the contract. Some critics expressed concerns that convicts handling toxic waste were not protected by OSHA and EPA safety standards. Others complained that employing prisoners hurt the private recycling industry. The PC maker said it transferred the work to private vendors for business reasons and not in response to protests from special interest groups.

Rozier says "great care is taken to ensure private sector jobs in the U.S. are not impacted or displaced" by UNICOR's call centers or other inmate work programs. Defenders of the program also note that its limited scope—FPI employs 17,000 convicts in all—has little negative impact on non-convict professionals or private sector competitors.

UNICOR's call centers currently serve less than ten customers, most of them small to mid-size enterprises, says Rozier.

Interestingly, it's UNICOR's size that ultimately means outsourcing to federal prisons won't make much of a dent in corporate offshoring of similar work. "The idea seems good for rehabilitating offenders," says Horses for Sources' Fersht, but the limited scale presents little competition for offshore call center or business process outsourcing providers.

Fersht doesn't think running a call center from a prison makes much sense. He says the cost to effectively train and manage prisoners is likely to be higher than it is to train staff at, say, a "rural shore" call center in Nebraska. Moreover, finding call center supervisors to manage the inmate call center staff would probably pose a challenge. "Why would quality call center managers want to work in a prison," he asks.

Finally, adds Fersht, deploying quality call-center software applications and monitoring equipment in a jail is not going to be as easy as it would be in a secure facility.

Fersht thinks it would make more sense for inmates with specific skills to tackle ad hoc projects in the areas of application development, internet-based research, or data entry, but UNICOR has not revealed any plans to move beyond its current suite of business services.