Our objective was to determine if the U.S. Postal Service’s Highway Contract Route (HCR) contracting practices, including avoidance of conflicts of interest, are in compliance with Postal Service policies and procedures and in line with industry practices.
What the OIG Found
We found that the Postal Service’s HCR contracting practices were not always in compliance with its policies and procedures regarding conflicts of interest or in line with industry practices.
Under certain circumstances and with specific disclosures, the Postal Service’s Supplying Principles and Practices (SP&P) allow the consideration of contract offers from or the awarding of HCR contracts to Postal Service employees, their relatives, or individuals residing in the same household. HCR suppliers are required to disclose this information during the contract award and renewal processes. The contracting officers (CO) must then consult with the Postal Service’s Ethics Office (Ethics Office) to determine if conflicts of interest exist.
We reviewed all 13,945 HCR contracts in place as of September 1, 2016, and found 337 (over 2 percent) where the supplier and a Postal Service employee had matching addresses. Of the 337 contracts, we identified only 51 (about 15 percent) contracts where requests were forwarded to the Ethics Office for a conflict of interest review as required. Ethics Office reviews determined there were no issues in those contracts.
We found no documentation in the contract files to support that COs forwarded the remaining 286 contracts to the Ethics Office for review. Specifically:
- Forty-one contracts had the proper disclosures, but the CO did not consult the Ethics Office.
- Ninety-one contracts had disclosure forms, but the forms did not include a disclosure about the HCR supplier’s relationship with a Postal Service employee.
- Sixty contracts did not have the required disclosure forms.
For 94 contracts, it appears that the potential conflict occurred subsequent to contract award and the contracts did not include the required disclosure forms or the suppliers did not disclose their relationship with a Postal Service employee.
This occurred because Postal Service’s Supply Management group did not have a review process to ensure compliance with the SP&P requirements.
As a result, the Postal Service is at risk of conflicts of interest that can result in fraud, waste, and abuse, which could negatively impact its brand. We made a referral to our Office of Investigations concerning this matter. We estimated the Postal Service incurred unsupported questioned costs of about $17.3 million annually for HCR contract awards and renewals that were not in compliance.
Regarding other contracting practices, we found that the Statement of Work for HCR contracts allows a supplier six months to resolve an unsatisfactory Department of Transportation rating for vehicles whose gross vehicle weight rating is 10,001 pounds or greater. An unsatisfactory rating, as determined by the Federal Motor Carrier Safety Administration, occurs when a motor carrier does not have adequate safety management controls in place to ensure compliance with safety fitness standards. This six-month timeframe is much longer than the 60-day requirement of Title 49 of the U.S. Code of Federal Regulations. Additionally, the industry practice for a motor carrier rated unsatisfactory is generally prohibition from operating a commercial motor vehicle and immediate termination.
Finally, we found that the current HCR vehicle insurance minimum requirement of $750,000 is lower than the industry standard of $1 million.
What the OIG Recommended
We recommended management:
- Correct and resolve all OIG-identified potential conflicts of interest in accordance with the requirements of SP&P Section 7.12.
- Establish, at a minimum, an annual review process to ensure the contracting requirements of SP&P Section 7.12 are carried out.
- Revise the time period for resolving Department of Transportation unsatisfactory ratings to be, at a minimum, in compliance with Title 49 of the Code of Regulations.
- Increase HCR insurance minimum requirements to match industry standards.