The supplier of U.S. currency paper faces little competition.
Rub a dollar bill between your fingers, and even with closed eyes you can tell you're not holding an ordinary piece of paper. Bills feel rough, almost crinkly, while regular paper is smooth. That's because bills are made of excess fabric from blue jeans and T-shirts as opposed to the wood pulp of ordinary paper. That distinctive texture, along with security threads and watermarks, is designed to discourage would-be counterfeiters.
Such high quality comes with a price-and whether or not the United States is overpaying is up for debate. The Bureau of Engraving and Printing, the agency in charge of making money, spends $115 million a year to buy blank notes from Crane & Co., which the bureau then prints with the familiar images and text. Crane, which operates out of Dalton, Mass., was recently awarded the currency contract again, for the 127th year in a row. For some, so many consecutive awards suggest a travesty of the procurement process. For Crane, it means the company is good at what it does.
To understand how it's even possible for one company to hold a contract for so long, you have to know something about the currency market-specifically, that there isn't one. Aside from counterfeiters, the bureau is the only purchaser of currency paper. As a result, few companies make it. Indeed, since the late 1800s, there has been only one manufacturer, and that's Crane.
Making the paper requires hefty upfront investments in security, high-quality printing mills and technology. Companies don't want to make those investments unless they can be guaranteed enough business to make their investments back, and the bureau can't make those kinds of guarantees because the contract is competed at least every four years.
In an effort to surmount those barriers, the bureau has experimented with different enticements over the years. In the 1990s, Tim Vigotsky, the former associate director for management at BEP, offered bidders money to subsidize their investments. He says it wasn't enough; Crane still emerged the winner.
Lansing Crane, chief executive of the company, says, "Competition exists if the potential for competition exists." Because he knows other companies are out there, he argues that his company is as efficient and low-cost as possible.
Sean Gailmard, assistant professor of political science at Northwestern University, says that the currency contract, because it requires such a specialized product, might be a rare situation in which limiting competition is actually useful. A long-term relationship with one contractor will encourage the contractor to specialize and invest in BEP's needs, he says. "Why would I make investments if I'm going to be outbid the next time around by some other supplier?" he asks.
The Government Accountability Office isn't so sure. In April 2005, it recommended that BEP conduct more outreach to paper manufacturers before issuing solicitations to increase the chances of competing bids. GAO also recommended that the bureau reassess the importance of having a second supplier, and to actively seek one if the benefits are found to outweigh the costs.
In 2006, Jennifer Sellers, the contracting officer for the paper currency contract, tried to restructure it so companies would have a two-year start-up and four-year manufacturing period to give them time to invest in the infrastructure after winning the contract. Crane filed a protest, arguing that the plan wasn't fair. "If they want to be competing in this area, they should make their own investments," says Lansing Crane.
The GAO sustained the protest in January 2006. After a revised solicitation was issued, one company submitted a proposal, but it wasn't technically acceptable. That left Crane. Sellers and Crane are wrapping up their contract negotiations and expect to announce the results this month.
Sellers says she's still looking at other ways to induce competition, but she isn't ready to share them publicly. Meanwhile, she's asking companies that might be interested in the contract after 2010, which is when the most recent Crane contract expires, to submit proposals for innovative strategies that would entice them to enter the market.
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