USPS OIG: Delivery Vehicle Acquisition Strategy
Our objective was to assess the Postal Service’s acquisition strategy for delivery and collection vehicles.
The Postal Service’s mission is to provide reliable and affordable universal mail delivery and postal retail services to the U.S. In fiscal year (FY) 2019, the Postal Service delivered to about 160 million delivery points, six days a week. The Postal Service delivers 48 percent of the world’s mail volume and more packages than any other business using the largest vehicle fleet in the U.S. In FY 2019, the Postal Service had about 203,767 delivery and collection vehicles.
The backbone of the delivery fleet is the purpose-built, right-hand-drive Long Life Vehicle (LLV), which is used to deliver mail on city and rural routes across the country. The expected service life of these vehicles is 24 years and 69 percent of the current fleet is now between 25 and 32 years old.
As the fleet continues to age, maintenance costs remain high and older model vehicles will be retired as they become too costly to maintain or repair. In FY 2019, the Postal Service spent about $706.2 million in maintenance costs for 141,057 LLVs. While annual LLV maintenance costs have not significantly changed since 2018, average maintenance costs per vehicle were about $5,000, and nearly 10,000 LLVs averaged more than $12,000 in annual maintenance costs.
The combined effect of aging vehicles, additional delivery points, and a changing mail mix increases the need for new delivery vehicles to meet operational demands six days a week. To address this need, the Postal Service has committed more than $2.3 billion to add or replace over 68,000 delivery and collection vehicles. In FY 2015, the Postal Service began planning the acquisition process for a new purpose-built, Next Generation Delivery Vehicle (NGDV) to start replacing the current LLV fleet beginning in FY 2018 through FY 2019. However, by the end of FY 2019, the Postal Service had not awarded the estimated $5-6 billion contract(s) for the production of the NGDV. Due to frequent changes to the NGDV acquisition timeline, the planned production deployment date is now scheduled for January 2022.
The Postal Service plans to purchase 37,768 commercial off-the-shelf vehicles, including 30,608 right-hand drive vehicles and 7,160 left-hand drive vehicles over a three-year period beginning in FY 2020 to meet immediate vehicle needs, replace high maintenance cost LLVs, and sustain delivery operations until NGDV production.
In recent months, the global COVID-19 pandemic has impacted many companies and industries both financially and operationally, including the Postal Service and the automotive industry. The Postal Service anticipates a substantial drop in mail volume and the long-term impact is forecasted to be significant. We completed our fieldwork before the President of the United States issued the national emergency declaration concerning the novel coronavirus disease outbreak (COVID-19) on March 13, 2020. The results of this audit do not reflect any process and/or organizational changes that may have occurred as a result of the pandemic.
The Postal Service’s vehicle acquisition strategy, which uses modeling of current and projected operational data, was generally adequate for acquisition of a mixed vehicle delivery fleet. However, that strategy encountered significant implementation delays in producing a viable purpose-built NGDV by the target deployment date of 2019. Specifically, the following delays occurred during NGDV development:
- Issuance of the Request for Proposal to suppliers for the NGDV prototype vehicle took six months longer than initially planned due to extensive stakeholder briefings.
- During the prototype vehicle design and development phase, the Postal Service extended the timeframes for building 44 prototype vehicles from six months to one year based on requests from suppliers for additional time to develop proposals and design prototype vehicles.
- The Postal Service and suppliers required additional time to build and assemble the prototypes. While suppliers initially planned a year to design and build their prototypes, they only allocated 18 weeks to build, assemble, and complete supplier testing of the vehicles before delivery. Without adequate time to test their assembled vehicles, the vehicles delivered by four of the five suppliers experienced critical safety failures during the prototype testing phase, including brake failures and leaking fuel tanks. As a result, the Postal Service suspended field testing and returned all of the vehicles to the suppliers, to address any deficiencies. This resulted in delays of one to three months prior to resuming testing.
- When the prototype testing phase resumed, the Postal Service implemented two additional tests — a simulated field test and a durability test — to address critical safety issues. This resulted in delays of between three to eight months depending on the individual performance of a supplier’s vehicle.
- After the two additional critical safety tests were completed, three of the five suppliers completed the remaining prototype tests by December 2018. The Postal Service extended the testing period an additional three months to allow the remaining two suppliers to complete testing by March 2019.
Management stated the original timelines presented were not sufficient and more time was needed to develop and test the prototypes. Management adjusted the NGDV testing and deployment schedule six times between April 2015 and September 2019 to account for additional time needed to complete the prototype development and testing process.
The Postal Service noted that due to the competitive nature of the NGDV acquisition and to stay unbiased, they intentionally limited oversight of suppliers’ design and build activities throughout the duration of the prototype phase to prevent any potential conflicts in the competitive process. The Postal Service’s Engineering group conducted 46 monthly virtual meetings with suppliers, two in-person design meetings with four of the five suppliers at their facilities and no in-person design meetings with one supplier located outside the U.S. where travel restrictions prevented onsite visits and alternative monitoring processes had to be used. While we acknowledge the prototype phase is a research and development process, Engineering officials were not able to physically observe the progress in building the NGDV prototypes. Such observations may have identified potential issues with the vehicles before the prototype testing phase began.
The U.S. Government Accountability Office has identified ten best practices associated with high-quality and reliable schedules for government acquisition programs. One such practice is a schedule risk assessment, which is an essential basis for managing a schedule, making progress, and identifying and resolving potential problems. The Postal Service conducted supplier risk assessments after the design review meetings to evaluate the vehicle design and program schedule risks, the suppliers’ progress in completing significant milestones, and any schedule risks in meeting Postal Service delivery dates. However, to prevent potential unequal/biased influence on vehicle design among suppliers, the Postal Service did not use the risk assessments to mitigate or resolve potential problems, technical challenges, integration risks, or other events that occur during the prototype design phase.
In addition, we noted that most commercial fleet acquisition strategies favor standardization or customization of commercial off-the-shelf vehicles rather than purpose-built vehicles. Customization of existing vehicles follows fleet management best practices found among foreign posts and Postal Service competitors. Developing a purpose-built vehicle for the operational needs of the Postal Service adds significant time and complexity to the overall acquisition timeline. However, the original acquisition and deployment schedule appeared to be developed heavily towards the use of an existing vehicle product that was close to production readiness.
Given the significant capital investment the NGDV program will require, the Postal Service’s projected liquidity, and the delays experienced in the NGDV prototype development phase, we believe a thorough assessment of the NGDV production timelines is warranted to determine the risk of further delays.
We recommended the Vice President, Delivery Operations, coordinate with the Acting Vice President, Engineering Systems, to perform a schedule risk assessment of the NGDV production timeline to evaluate the risk of further delays and determine whether modification to the mixed vehicle acquisition strategy is warranted.