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As background, the files to be sent to these contractors are PDF files created on an AS/400. Exchange will be used to send the files. Subsequently, the contractors will be sending back files that would need to be encrypted as well.
Thanks you for your time.
At the risk of sounding like I'm in marketing, you should look at PGP. (Full disclosure -- I'm CTO and founder of PGP Corporation.)
PGP would work best with Outlook or Outlook Express, but it will also work with Webmail, albeit with more work for your users. PGP can encrypt files, messages, attachments and so on. It also includes disk encryption.
For more information on this topic, visit these other SearchSecurity.com resources:
David Strom's Security Tool Shed: Pretty Good Privacy review
David Strom's Security Tool Shed: SigabaSecure not bad, but PGP is better
David Strom's Security Tool Shed: Hushmail is secure and easy to use
Dig Deeper on Email and Messaging Threats-Information Security Threats
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