Two southeast companies that make U.S. military uniforms are shedding hundreds of jobs, as the government looks to federal inmates for the fatigues.

American Power Source makes military clothing in Fayette, Ala., but its government contract expires in October. Federal Prison Industries – which also operates under the name UNICOR will snag the work, and leave the task to inmates. FPI has the first right of refusal for U.S. Government contracts, under a 1930 federal law.

American Apparel, the Selma, Ala., based military clothing manufacturer closed one of its plants and continues to downsize others due to the loss of some of its contracts to FPI. According retired Air Force colonel and spokesman Kurt Wilson, the company laid off 255 employees and cut the hours of 190 employees this year alone. So private workers end up losing their jobs to prisoners.

"The way the law is – Federal Prison Industries gets first dibs and contracts up to a certain percentage before they have to compete against us," Wilson, the executive vice president of business development and government affairs, said. "The army combat uniform, for instance, is an item that they take off the top. As a result American tax payers pay more for it – but the bottom line is each soldier is paying more for their uniform."

American Apparel charges $29.44 per uniform, but the FPI uniform costs $34.18 – a 15 percent difference.

FPI has been around since the 1930s. It provides training, education and employment for inmates in federal custody. With more than 13,000 inmates, FPI operates in about 80 factories across the United States. The company is not allowed to sell its goods to the private sector -- and the law requires federal agencies to buy its products, even if they are not the cheapest.

"It has been going on for some time," Wilson said. "Unfortunately what comes to bear now is, as demand for uniforms begins to decrease, budgets decrease and the problem gets bigger for us. Therefore we have to lay people off."

FPI officials were unavailable for an interview, but the company does offer a number of statistics which dispute the criticism.

"It is important to note that FPI produces only 7 percent of the textile garments purchased by DLA. The other 93 percent are produced by other entities," Julie Rozier, an FPI spokeswoman said in a statement to Fox News.

"FPI's percentage has remained fairly consistent over the past decade, with slight declines. FPI is a program that directly protects society by reducing crime and preparing inmates for successful release back into society to become law-abiding citizens; FPI does not receive a congressional appropriation for its operations," the statement said.

Inmates working for UNICOR or FPI are 24 percent less likely to reoffend and 14 percent more likely to be employed long-term upon release, according to the government company's website. More than 40 percent of Unicor's supplies were purchased from small businesses in 2011.

The battle between the two has caught the attention of lawmakers in Washington.

Representative Bill Huizenga, R-Mich., is sponsoring a bill which would reign in the ability to take work from private companies.

"We all have seen those terrible statistics, forty-plus months of 8.1 percent unemployment. We know the actions the government has taken it doesn't look like this is going to get better any time soon," Huizenga said. "Here we are having a prison population coming in and taking jobs away from the private sector - why in the world we think this is OK. I can guarantee you if this were a Chinese product with Chinese prisoners making that - we would be outraged."
Huizenga went on to say the outrage amongst his constituents is palpable.

"It's just this outside entity called UNICOR or Federal Prison Industries coming in and saying sorry - that work is now ours. We are going to having prisoners doing this," he said. "Of course they are outraged, of course they are frustrated. They are angry, they're hurt frankly that their own federal government would come in and do this to them at a time when their watching their friends and neighbors struggle with $4 gasoline and they're trying to keep their mortgage in check."

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