Currency Paper Procurement:

Meaningful Competition Unlikely Under Current Conditions

GGD-98-181: Published: Aug 28, 1998. Publicly Released: Aug 28, 1998.

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Pursuant to a legislative requirement, GAO provided information on the: (1) optimum circumstances for the procurement of distinctive currency paper; (2) effectiveness of the Bureau of Engraving and Printing's (BEP) efforts to encourage competition in the procurement of currency paper; (3) fairness and reasonableness of prices paid for currency paper by BEP and the quality of the paper purchased; and (4) potential for disruption to the U.S. currency paper supply from BEP's reliance on a single source.

GAO noted that: (1) the optimum circumstances for the procurement of distinctive currency paper would include an active, competitive market for such paper, where a number of responsible sources would compete for BEP's requirements; (2) however, these circumstances have not existed because of the unique market for currency paper and some statutory restrictions; (3) BEP has been aware of the need to increase competition and has made some efforts recently to do so in areas under its control; (4) however, BEP must procure currency paper within the current statutory framework, which limits currency paper contracts to 4 years, prohibits currency paper production outside of the United States, and prohibits purchase of currency paper from foreign-owned or controlled entities; (5) of the 20 paper manufacturers that responded to GAO's survey, 12 said they were interested in and have the capability now, or could be made capable in the near future, of supplying at least part of BEP's currency paper needs if existing statutory requirements and some of BEP's solicitation terms were changed; (6) 7 of the 12 are domestic paper manufacturers, and 5 are located in foreign countries; (7) although the long-term relationship between BEP and Crane & Co., Inc. has historically resulted in quality currency paper, BEP was unable to determine that it had obtained fair and reasonable prices for 13 of the 17 contract actions awarded from 1988 to 1997; (8) BEP sometimes accepted prices even though it was unable to determine that they were fair and reasonable because it had no other source for currency paper; (9) GAO believes that BEP's assessments of the fairness and reasonableness of Crane's proposed prices were hampered by a number of factors, including the lack of market prices for currency paper and the limited analyses of proposed costs and prices it performed; (10) as the government's agent for acquiring currency paper, BEP is responsible for ensuring that the government's supply of paper is not disrupted; (11) although the potential for disruption in the supply of currency paper exists, there have been no such disruptions; (12) however, for many years, because BEP did not maintain a reserve inventory of paper to provide for contingencies, it was more vulnerable to adverse consequences if a disruption had occurred and was at a disadvantage in its contract negotiations because it lacked an alternative source for currency paper; and (13) BEP has recently been purchasing paper to build a 3-month reserve supply and, under the Conte Amendment, could buy paper from a foreign source if no domestic source exists.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress did not take any action regarding this recommendation.

    Matter: To further assist the Secretary in obtaining competition from domestic sources, Congress may wish to consider lengthening the 4-year limit for currency paper contracts to give potential offerors a longer time to recover their capital investments. If adequate price competition among two or more suppliers can be achieved, concerns over whether the prices paid are fair and reasonable should be reduced.

  2. Status: Closed - Not Implemented

    Comments: Congress did not take any action regarding this recommendation.

    Matter: Congress may wish to consider revising the Conte Amendment, which allows the Secretary of the Treasury to obtain currency paper from a foreign-owned source only if no domestic supplier is available, to permit the Secretary to authorize obtaining currency paper from a foreign-owned source on a temporary basis if it is determined that no domestic supplier will provide paper at fair and reasonable prices. Such a provision should improve the likelihood that fair and reasonable prices could be obtained.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Treasury did not change how it incorporates security measures in its currency paper procurements.

    Recommendation: The Secretary of the Treasury should ensure that the government obtains royalty-free data rights to any future security measures incorporated into currency paper.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: On March 14, 2002, the BEP said that the agency issued a paper solicitation in November 2001, based on the amount of paper needed on the best available estimate provided by the Federal Reserve for currency for a 4-year period.

    Recommendation: To further enhance opportunities for other paper manufacturers to offer to provide currency paper to the government and to obtain offers that represent the best value to the government for the paper, the Secretary of the Treasury should ensure that all future currency paper procurements reflect the expected amounts of paper needed and orders against contracts are for consistent amounts. This would allow the supplier(s) to maintain a steady production level and stabilize workforce levels.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: On March 14, 2002, the Bureau of Engraving and Printing (BEP) said it issued a solicitation for paper in November 2001, and required offerers to submit cost and pricing data to determine the reasonableness of prices. An award is expected in July of 2002.

    Recommendation: To strengthen BEP's capacity to ensure fair and reasonable prices, the Secretary of the Treasury should direct BEP to, to the extent possible, make more extensive use of price analysis to determine the fairness and reasonableness of prices, including the collection of data from foreign countries on their currency prices and data on similar supplies purchased by other agencies, such as paper for passports and money orders.

    Agency Affected: Department of the Treasury

  4. Status: Closed - Implemented

    Comments: In a letter dated August 23, 1999, BEP stated that for the current contract, the supporting documentation (the cost data, which includes proposed profit) was not required because it was competitively awarded. BEP is now complying with FAR.

    Recommendation: To strengthen BEP's capacity to ensure fair and reasonable prices, the Secretary of the Treasury should direct BEP to include data and analyses in the currency paper procurement record that demonstrate the benefits the government is to receive when it approves profit levels that are aimed at recognizing or providing an incentive for capital investments.

    Agency Affected: Department of the Treasury

  5. Status: Closed - Implemented

    Comments: In a letter dated August 23, 1999, BEP noted that it will provide post-award audits when applicable, therefore, BEP is now complying with the FAR.

    Recommendation: To strengthen BEP's capacity to ensure fair and reasonable prices, the Secretary of the Treasury should direct BEP to arrange for post-award audits of the contractor's costs.

    Agency Affected: Department of the Treasury

  6. Status: Closed - Implemented

    Comments: In a letter dated August 23, 1999, BEP noted that it will perform audits for future contracts to ensure fair and reasonable prices, when applicable, under Public Law 100-679. BEP is now complying with the FAR (Federal Acquisition Regulations).

    Recommendation: To strengthen BEP's capacity to ensure fair and reasonable prices, the Secretary of the Treasury should direct BEP to ensure that the contractor maintains acceptable cost accounting and estimating systems for future contracts and that they are periodically audited.

    Agency Affected: Department of the Treasury

 

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