WASHINGTON -- The days of federal prison inmates getting a leg up on small and large companies to produce clothing, electronics or office furniture for the federal government are over.

Federal Prison Industries Inc.'s 70-year monopoly on federal procurement contracts ended Wednesday when President Bush signed into law the $388 billion omnibus spending package, which includes a provision changing federal contracting policies.

"The enactment of this provision is the culmination of a 10-year effort to ensure that private-sector companies have a fair opportunity to sell their products to their own government," said U.S. Sen. Carl Levin, Michigan's senior senator, in a written statement. "If Federal Prison Industries said that it wanted a contract, it got that contract, regardless of whether a company in the private sector may offer to provide the product better, cheaper or faster."

Under the new regulation, no federal monies can be spent to purchase products or services from FPI if they can be made at a cheaper price by a private company.

FPI operates 100 factories around the country, using about 20,000 inmates to produce 90 different products. The U.S. Department of Justice manages the program through the Bureau of Prisons.

FPI was created in 1934 as a way to keep prisoners busy during the day while providing them with job skills they could use once they were released from prison.

The language enacted into law Wednesday extends to all federal agencies the same procurement rules that ended FPI's monopoly on Defense Department contracts in 2001. That provision was offered by Levin as well.

FPI data show that the agency employed 20,274 inmates and generated $667 million in net sales in 2003. FPI also spent $497 million that year purchasing goods from the private sector to make its products.

FPI, which had no comment Wednesday, has been resistant to changes in procurement rules, fearing they would result in fewer federal contracts and leave prisoners dangerously idle.

Some lawmakers have suggested that FPI instead provide products and services to nonprofit agencies that might not be able to afford private companies. In the past, FPI has said it would consider such an option.

FPI's so-called "mandatory source rule," which requires federal agencies to go to FPI first before seeking bids from private companies, has raised the ire of small and large businesses that have been closed out of the federal market.

"Steelcase is thrilled to see this made permanent by President Bush," said Jeanine Hill, a spokeswoman for Grand Rapids-based Steelcase Inc., the international furniture maker that lost federal contracts to FPI. "We feel that passage of this is well overdue for our industry. During a time when the office furniture industry was declining, FPI was growing into a multimillion-dollar company."

While the new rule allows for a more competitive bidding process, it doesn't reform FPI's entire contracting system -- something many lawmakers think is needed. They hope to pass an FPI overhaul bill in early 2005.

"This will create a better environment for us to get our reform done," said U.S. Rep. Pete Hoekstra, R-Holland, who sponsored a comprehensive reform bill that passed the House, but wasn't taken up by the Senate. "For the longest time, the alternative (to major reform) was if we do nothing, the current system would be in place. Now we'll have some protections for the private companies."