In an era of intense competition for government contracts, Crane & Co. stands out. For over a century its paper has been the heart of every crinkled dollar in an American wallet, every crisp C-note stacked in a bank vault.
Despite a six-year Treasury Department investigation of alleged overcharges, multimillion-dollar disputes with auditors and grumbling from Congress, Crane remains the nation's sole supplier of currency paper.Now Treasury's Bureau of Engraving and Printing is preparing to award its biggest contract ever - $400 million worth of paper, for all the greenbacks to be printed through 2002. And Crane's critics in Congress want to put an end to what they believe has been a sweetheart deal.
"Common sense tells you that we'd get a better deal if we had competition," said Rep. Jim Kolbe, R-Ariz., chairman of the House Appropriations subcommittee that oversees Treasury's budget. "This is not like making F-16 jets - there are plenty of other suppliers."
Currently, Crane is the only American company outfitted to make the specialized paper, which by law must be made in the United States. In recent years, other companies have rarely bid on contracts.
Chairman Lansing Crane said the company, based in Dalton, Mass., has won its contracts, including one worth $75 million that expires next year, by providing a superior product at a reasonable price.
He conceded the company's profit margins on currency paper, ranging in recent years from 11 percent to 20 percent, seem high for a government contractor.
But Crane said the price is fair because the company has invested hundreds of millions of dollars in specialized equipment, including machinery, computers and lasers, for use in transforming bits of old blue jeans and other cotton and linen into extra-strong paper with unique security features.
Kolbe and Crane have been at odds before. Kolbe, who represents a copper-mining state, is a longtime advocate of replacing the dollar bill with a coin. Crane has lobbied against the dollar coin.
The congressman is backing a measure in an appropriations bill that would prohibit the Bureau of Engraving from awarding a new contract without congressional authorization. The bureau plans to award the contract in the fall.
Bureau officials say the agency welcomes competition and retooled the new contract using industry suggestions to make it easier for other companies to bid.
But they defend their use of a single supplier. They note that the bureau pays only one-half cent for the paper in each dollar bill in a total printing cost of 4 cents.
Nevertheless, documents and interviews show the government often has clashed with Crane over prices:
-Crane was told this year the government may file a lawsuit over $494,000 in alleged double-billing. The allegation stemmed from a six-year investigation by the Treasury's inspector general. Treasury officials would not comment. Crane denies overcharging.
-In 1995, Crane paid back $12.7 million after an arbitrator was called in to resolve a dispute over a refund for the government on several contracts.
-Treasury audits questioned $50 million in contract costs from 1993 to 1995. Auditors also suggested Crane might be taking advantage of its position as the sole source of paper. "Crane went so far as to threaten . . . it would stop producing currency paper," they said in an inspector general's report.
Lansing Crane said that referred to contract talks in 1995, when he said the company simply warned that it would have no legal obligation to supply paper if its contract ran out. "We always found a way to work things out," he said.
And bureau spokesman Larry Felix conceded: "With any long-term relationship, there are serious disagreements."
Government auditors ordered by Congress to study currency paper costs concluded that the lack of competition leaves no basis to determine whether the government is getting the best deal, sources familiar with a General Accounting Office analysis said. A draft of the report will be finished early this week.
GAO investigators are considering whether to recommend that the government provide financial help to contractors to engender competition, said the sources, who spoke on condition of anonymity. The government floated that idea last year but dropped it.
Felix said the bureau would look at such proposals, as well as to joint ventures with foreign companies experienced in making currency paper. The agency told Congress that it has received several proposals for the new contract.
For now, the government needs Crane. The company and a sister firm hold patents on an anti-counterfeiting security strip, visible on newer $20 bills when they are held before a light. The strip was developed specifically to meet U.S. government needs in the 1980s.