Leon Worden




Coin Blanking Might Be Privatized

By Leon Worden
COINage magazine • Vol. 42, No. 2
February 2006

T
he U.S. Mint already outsources the production of Lincoln cent planchets. It buys about 10 billion ready-to-strike penny blanks every year from Jarden Zinc Products of Greenville, Tenn.
    For the other denominations — 5-cent Jefferson nickels through Sacagawea dollars — it buys coils of "coin strip" from two private companies and punches 6 billion to 7 billion coin blanks itself at the Philadelphia and Denver mints.
    What would be more cost effective: for the Mint to continue making the coin blanks itself, or farming out their production to private companies, as it does with Lincoln cent planchets?
    The government is about to find out.
    On Sept. 16, 2005, the Mint opened the BAU process to a competitive bid. "BAU" is bureaucratic shorthand for blanking (punching slugs), annealing (softening by heating) and upsetting (adding the rim) — everything that goes into readying a metallic disc for striking into a coin.
    Before you jump to conclusions, it's not a done deal. The Mint isn't issuing pink slips to the 135 employees at Philadelphia and Denver who are directly involved in the production of coin blanks, or 163 full-time positions, if you count support staff. Not yet, anyway. The Mint hasn't decided it will definitely outsource the blanking, annealing and upsetting of nickels, dimes, quarters, half-dollars and dollars.
    At this stage, it's still an experiment to see who can do it cheaper — the Mint or the private sector.
    According to government documents, "The goal of the public-private competition is to compare the agency's total costs incurred by paying for the (Mint staff's) services to produce planchets, against the agency's total costs incurred by paying for planchets from private-sector companies."
    But it's not just an academic exercise. There will be a winner. By the end of the first quarter of 2006, if everything stays on track, either the Mint will win the right to keep doing what it does for the next five years — it must bid on the contract like any private vendor — or the Mint will be underbid and the process will be privatized. Thus the term, "public-private" competition.
    This actually wasn't the Mint's idea, or even the Treasury Department's. It goes higher.
    Competitive sourcing is part of the President's Management Agenda. In concept, it goes back to Dwight Eisenhower, who decided in 1955 that federal agencies that perform commercial activities should periodically determine whether the private sector can perform those functions more efficiently. The idea is to save the taxpayer a few bucks.
    According to the Office of Budget and Management, which administers the program today, 17,595 full-time federal jobs were opened to competitive bids in 2003, resulting in savings of $237 million. In 2004, a total of 12,573 full-time jobs were "competed" and saved taxpayers $285 million.
    There are only so many functions at the U.S. Mint that can be privatized. By law, only the Mint can perform the act of coining — striking a government-approved impression into a metal planchet. But the act of making planchets can be, and is, in the case of the Lincoln cent, performed by the private sector.
    Those 135 Mint employees who make planchets today can take some comfort in knowing that 89 percent of the 17,595 federal jobs that were put to bid in 2003, and 91 percent in 2004, stayed in-house. The private sector couldn't beat them.
    On the other hand, Mint employees could face some serious competition.
    "Mint officials advised OMB that they anticipate strong private sector interest in a competition to deliver planchets to the Mint's circulating coining presses for stamping into finished coins," OMB Administrator David H. Safavian said in a July 14, 2005, memo. He quoted a Treasury Department official who expected the competition to be "sufficiently robust to ensure that vendors will be aggressive in preparing their bids."
    Bids are tentatively due Jan. 13 and the results could be announced as soon as three weeks later.
    But the Mint has had trouble meeting deadlines in the past.
    This is at least the second time in as many years that the Mint has put the BAU process to bid. It first opened the competition Oct. 23, 2003, and under federal regulations, it had 12 months to award the contract. One thing led to another, and it didn't happen.
    The Treasury Department's Office of Inspector General, which had been independently ordered by Congress to analyze the cost-effectiveness of coin blank production, conducted an audit. In October 2004 the Inspector General reported that in addition to missing milestones, the Mint published conflicting coin-blank specifications, couldn't decide whether private contractors could use Mint equipment, and assigned the same Mint staffer to oversee both the competitive bidding process and the submittal of the Mint's own bid — a conflict of interest.
    Winter turned into Spring, the entire proposal was re-thought, Mint Director Henrietta Holsman-Fore left for the State Department on Aug. 1, and on Sept. 15 the Mint's chief financial officer, Robert J. Byrd, issued a memo to employees.
    "The purpose of this memorandum is to inform the affected United States Mint employees in Denver and Philadelphia that we are re-announcing the [public-private competition] for BAU operations at both facilities," Byrd wrote. "The original draft solicitation [from 2003] is hereby canceled. A new solicitation will be posted no later than September 16, 2005."
    No doubt the memo went over like a lead balloon.
    The Sept. 16 solicitation is unique among federal competitions. Instead of going up against the one lowest qualifying private-sector bidder, the Mint's planchet production costs will be weighed against a combination of two private-sector bids.
    The Mint orders metal coin strip from two different suppliers today and turns it into coins at two different locations for a reason. The nation can't afford for its coin supply to be interrupted if a hurricane wipes out a metal fabricator or terrorists take down a Mint facility. It's a redundant system.
    In like vein, private companies can bid on only half (actually 40 to 60 percent) of the BAU contract. The two low bidders must come from different geographic regions in the United States, they can't get their coin strip from the same supplier, and each must provide planchets to both Denver and Philadelphia (as well as proof planchets to San Francisco, which gets them from Denver and Philadelphia now).
    "The Mint must maintain a contingency, in the event a supplier fails to perform, that will insure a continuous supply of coin for commerce," a Nov. 10 Mint document states. "This competition is designed to facilitate two independent supply chains for planchets, as currently exists today."
    The two low bidders' cost per kilogram of coin planchets will be compared to the Mint's cost of producing the same planchets. If only one private bidder beats the Mint's price, its cost will be averaged with the next lowest private bidder's. In no event will the job be split between the Mint and a private vendor.
    To give private companies a fighting chance, bidders don't have to buy their own equipment. If they win, they'll have to pay for its upkeep and it remains government property, but they'll get to haul away Philadelphia and Denver's blanking presses, annealing furnaces and upsetting mills.
    After all, the Mint won't need them anymore.


©2006 MILLER MAGAZINES INC./LEON WORDEN. ALL RIGHTS RESERVED.
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