Postal Deal With FedEx Studied
Auditors are looking into whether U.S. Postal Service managers misinformed their governing board by claiming that a contract with Federal Express will save the debt-ridden agency more than $1 billion.
A spokesman for the Postal Service office of inspector general, which reports to the presidentially appointed Board of Governors, said Monday it is reviewing the $6.3 billion, no-bid contract with FedEx.
Air cargo carrier Emery Worldwide complained to the Postal Service governors last month that they were "materially misinformed" before approving the deal in January.
The FedEx contract will "cost USPS much more, both now and in the future, and will lead to reduced service levels" for the American public, said the two-page letter from Emery.
The Postal Service recently notified Emery and another carrier that their postal contracts will be terminated, with FedEx replacing both. Emery challenged the FedEx contract in U.S. Claims Court but lost.
The Justice Department said Monday it is continuing to look at possible antitrust implications of the FedEx contract.
Postal Service spokesman Azeez Aly Jaffer said "it's unfortunate" that the companies are debating this in a court of public opinion.
"Trust me, it's a terrific deal," Postmaster General William Henderson told the House Government Reform Committee at a hearing last week.
Several secret discussions last year between Henderson and FedEx chief Fred Smith about a possible "strategic alliance" triggered extensive negotiations, resulting in the seven-year contract. Shortly after announcing the deal in January, Henderson said he is leaving the postal service in May. He has not announced his plans beyond that.
The claimed cost savings are based on contract details that are being withheld as confidential, proprietary information. The only person in Congress permitted to see all provisions of the contract is Rep. Dan Burton, R-Ind., who chairs the reform committee.
University of Baltimore law professor Charles Tiefer, former deputy general counsel to the House of Representatives, said the public's money "is rarely given away with this kind of secrecy unless they're building the atomic bomb for the first time."
Tiefer, an expert in government contracts, said the contract puts FedEx in a "long-term semi-monopoly position." The contract includes a nonrefundable $100 million upfront "signing bonus" so FedEx can offset its start-up costs; Tiefer said "the government rarely bestows" such bonuses.
Postal Service manager Paul Vogel, who helped negotiate the FedEx contract, said, "There are always start-up costs."
"Any company is … going to recoup them," Vogel said. "If you pay up front then it's a cost that's done with."
Emery is appealing an unsuccessful court challenge to the contract, under which FedEx will carry the postal service's two-day Priority and overnight Express mail.
In her decision upholding the FedEx contract, federal claims court Judge Christine Miller was nonetheless critical, saying the quasi-governmental agency's "objective" from the start of negotiations was "a sole-source award" to FedEx.
The postal service hired a consultant simply to justify the objective, Miller said, noting that in an internal plan drawn up last August, the postal service said the consultant should "assist the Postal Service in developing the business case for a contractual relationship with FedEx."
But eliminating Emery from consideration so early in the evaluation process was not "unlawful" or "irrational," the judge concluded.
FedEx spokesman Jess Bunn said Monday the company is confident the contract will be upheld on appeal.
