USPS OIG – Shipping Services Contract Compliance
Our objective was to assess contractual compliance and oversight of the Parcel Select shipping services contract with [redacted] (customer).
A Negotiated Service Agreement (NSA) is a contractual agreement between the Postal Service and a specific mailer. An NSA provides the mailer with customized pricing based on volume commitments, has specified terms and conditions, and may include modifications to current mailing standards and other postal requirements.
On [redacted], the Postal Service signed a 3-year nationwide NSA shipping services contract with the customer. The contract applies to Parcel Select and Parcel Return Service packages (contract packages) delivered to:
- [Redacted], which are local post offices that deliver packages directly to the mail recipients. The customer is currently using the program in [redacted] and plans to expand to other parts of the country.
- [Redacted], which are mail processing centers that sort mail and transport it to local post offices, are located nationwide. The customer primarily used [redacted] in Quarter 4, calendar year (CY) 2020, during peak season.
In CY 2020, the customer shipped about [redacted] contract packages through [redacted] and about [redacted] packages through [redacted]. From January 1 through June 30, 2021, the customer shipped about [redacted] packages through [redacted] and about [redacted] packages through [redacted]. To date this contract has generated over [redacted] in revenue for the Postal Service.
The contract includes requirements pertaining to mailing standards, package weight, data and label elements, [redacted], volume estimation, price calculation and adjustment, delivery unit and sectional center facility mix percentages, fuel fees, business reviews, and record keeping. The customer transmits manifest details, including package weight, dimensions, shipping, and postage information to the Postal Service daily.
The customer complied with 13 of 15 contract requirements we reviewed such as those covering [redacted] and [redacted] mixed percentages, data elements, fuel fees, and [redacted]. However, the customer did not always adhere to the mailing standards and package dimensional weight requirements. Specifically, the customer did not always prepare pallets and packages in accordance with the mailing standards in the Domestic Mail Manual, as required by the contract. At the six delivery units visited, the customer:
- Prepared pallets that exceeded the maximum height allowed, making it difficult and unsafe for Postal Service employees to reach packages at the top.
- Placed heavy packages on top of smaller packages, crushing smaller packages underneath.
- Used packing tape that did not always sufficiently adhere to packages, which required Postal Service employees to retape the packages.
- Used mailing boxes too large for the contents and did not use cushioning to prevent movement, thereby causing packages to get crushed.
- Packaged multiple liquids without secured caps, resulting in liquids leaking and spilling on other packages, thereby damaging boxes or fading out labels.
- Placed too many items in boxes, making them very heavy and damaging them.
Postal Service personnel who managed the contract did not adequately monitor the customer’s packaging at the [redacted] and facilities personnel at the delivery units we visited did not have an effective way to report issues as they occurred; therefore, these issues continued to occur. This also resulted in additional workload to Postal Service personnel as they had to retape, repack, or return damaged packages to the customer. Employees are at an increased safety risk when handling improperly prepared pallets and packages.
In addition, the customer provided incorrect information for dimensional weight in the manifest data. Specifically, the customer:
- Calculated dimensional weight for packages by applying a dimensional weight divisor (divisor) of 166 when they should have applied a divisor of [redacted] per the contract. Since the customer used a lower divisor, the dimensional weight calculated was overstated.
- Submitted a dimensional weight for packages of [redacted] or less, causing the Postal Service system to erroneously consider the dimensional weight when calculating postage. Per Postal Service guidelines, actual weight should be used to calculate postage for packages of or less, not dimensional weight.
These issues resulted in the customer paying higher postage than required by the contract. We analyzed payment data for Quarter 3, CY 2020, and found that [redacted] transactions (30 percent) had incorrect postage due to the customer using the wrong divisor or submitting the dimensional weight, totaling [redacted] in overpayments, or 1.5 percent of total postage paid.
Finally, the Postal Service can improve future contracts by including specific terms and conditions for yearly volume commitments. The contract states the customer will commit in good faith to ship at least [redacted] contract packages in CY 2020 and [redacted] in CY 2021. It includes [redacted].
[Redacted]. As the Postal Service expands the program nationwide, it becomes more critical to clearly define and enforce contract terms and conditions to cover costs and ensure profitability.
We recommend management:
- Reiterate the Domestic Mail Manual’s required mailing standards to the customer.
- Monitor the customer’s packaging of mail to ensure they are following the required standards.
- Develop a mechanism for facilities personnel to report mail packaging issues and concerns regarding the customer.
- Inform the customer of dimensional weight issues.
- Request that the customer discontinue submitting dimensional weight information for packages of [redacted] or less.
- Consider evaluating the volume quarterly and modifying the pricing structure; and including terms and conditions to ensure the customer achieves yearly volume commitments in future contracts.