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USPS awards $30m contract to firm it is suing for $390m

Tuesday, December 4th, 2012

The US Postal Service has awarded a $30m contract to Northrop Grumman Corporation at the same time it is attempting to sue the company over breaches of another contract, seeking a nine-figure sum.

Virginia-based Northrop Grumman filed a lawsuit back in May seeking $179m from the struggling Postal Service to compensate for delays in a $874m contract to install flats sequencing machines under the USPS modernisation programme.

USPS counter-sued at the end of October, denying various Northrop Grumman claims and firing back at its contract with allegations it breached its contract by failing to install the flats sequencing machines by the agreed dates.

The Postal Service is seeking $390m in damages, reflecting losses it says Northrop Grumman’s delays caused.

Nevertheless, last week Northrop Grumman said it has been awarded a fresh contract by USPS to run its central repair facility in Topeka, Kansas.

The Topeka facility provides repair services for USPS mail processing equipment, including electronic, hydraulic and mechanical systems.

Northrop Grumman has operated the facility since 1978.

Ric Kowalchik, the Northrop Grumman programme manager for the central repair facility, said: “Like our customer, we are committed to providing the nation with prompt and effective mail services.

“We’ve been supporting the Postal Service for more than 30 years, and will continue delivering reliable, innovative and affordable processes to support their mission,” added Kowalchik.

FSS

The legal battle between USPS and Northrop Grumman concerns a project that started as far back as 2003, when the Postal Service awarded a contract to develop machines to automatically sort flat-shaped mail like magazines and catalogues into walk-order for its mail delivery staff.

The first of 100 flats sequencing systems (FSS) was deployed in the USPS plant in Dulles, Virginia, in 2007, but USPS held back $63m in payments to Northrop Grumman when the project was not complete in July 2011.

In its filing this May, Northrop Grumman accused USPS of agreeing to a fixed-price contract for the FSS systems, but then suddenly demanding “thousands” of design changes as the machines were deployed, causing “significant” delays to the contract and Northrop Grumman’s payment.

Firing back, the Postal Service has now denied responsibility for the delays, saying that it agreed revised timetables with its contractor, which Northrop Grumman then failed to stick by, with deployment ultimately completed in August 2011.

USPS said each FSS machine was supposed to achieve savings in terms of the reduced manual sorting of flats of $325,000 a month, and claimed that Northrop Grumman had caused a total of 1,210 FSS machine months in lost savings, resulting in the $393.7m compensation claim.

The Postal Service said its refusal to pay $63m to Northrop Grumman in July was a partial consideration for the damages it sustained from the delays.

Source: Post&Parcel/Northrop Grumman

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