Commissioner Joe Schmidt said he's looking for "what the market might offer us right now."
The department houses 868 prisoners, or 20 percent of its inmates, at a private prison operated by Corrections Corp. of America because it does not have enough space in Alaska.
The contract is up for renewal June 30 and will be extended three months, said department spokesman Richard Schmitz.
Corrections Corp. of America is expected to submit its own bid, but Alaska officials already have visited potential sites in Colorado and Minnesota.
"This is driven by our own want, our own need, to be responsible with public money," Commissioner Schmidt said.
Both private and state-run institutions are interested in taking Alaska prisoners.
Administrators of a new 464-bed prison in Hardin, Mont., say they plan to bid for some of Alaska's business. Hardin made national news when it offered to house detainees from Guantanamo Bay.
Greg Smith, head of an economic development agency in Hardin, said the Alaska contract could create jobs in his small town. He's been calling Alaska prison officials "as often as I can without bugging them."
Schmidt said the contract will go to whoever offers the best deal for good security and treatment programs.
"You see, we want to do more, but we don't want to pay more," the commissioner said.
Schmidt has been pushing the department in a new direction since he was appointed by Gov. Sarah Palin in 2006, advocating for more inmate education, treatment programs and vocational training. His goal is to reduce Alaska's high recidivism rate. Three out of five prisoners who leave prison are re-arrested for a new offense.
Alaska started sending prisoners out of state in the mid-1990s. The Red Rock prison in Eloy, Ariz., currently holds medium-security inmates from Alaska sentenced to at least two years, Schmitz said. The state pays Corrections Corp. of America $61.63 per day, per prisoner. Travel and medical expenses make the real price higher, he said.
Costs at the maximum-security Spring Creek Correctional Center in Seward are about $140 per day, per prisoner, Schmitz said.
A new contract will end in 2012 when Alaska opens a new 1,500-bed state prison at Point MacKenzie in the Matanuska-Susitna Borough.