Our objective was to determine the effectiveness of the March 2017 Highway Contract Route (HCR) baseline fuel price per gallon (ppg) procedural guidance for all HCR contracts awarded or renewed between June 1 and October 1, 2017.
The U.S. Postal Service uses supplier-operated HCR to transport mail and equipment between plants, post offices, or other designated points that receive or dispatch mail. In fiscal year (FY) 2017, the Postal Service spent about $597 million on fuel for HCR suppliers, which is about 16 percent of the total contract value of almost $3.7 billion for about 13,500 HCR contracts.
This is our third and final report assessing the effectiveness of the Postal Service’s fuel price index (FPI) program. In FY 2017, we issued two reports identifying that the Postal Service did not effectively establish the contract baseline fuel ppg for the Southern and Eastern Transportation Category Management Teams. We recommended management develop and implement national policy and procedures for establishing the contract baseline fuel ppg and document market analysis, including supplier documentation and written evaluations supporting best value for the contract baseline fuel ppg.
To address our recommendations, management implemented guidance for determining the contract baseline fuel ppg and in March 2017 trained Surface Transportation Category Management Center personnel. The guidance requires establishing the contract baseline fuel ppg based on a market analysis using Internet search engines and source documentation to support the local fuel price analysis. Setting an accurate baseline is critical to the effectiveness of this program. When the baseline fuel ppg is set at higher than the market analysis the contract specialists are to provide a written justification for the higher fuel rate.
The Postal Service uses the U.S. Department of Energy (DOE) regional fuel indexes to adjust the monthly fuel ppg when fuel index prices fluctuate by $0.05 or more in a month.
In this report, we reviewed 174 statistically sampled HCR contracts from the 1,094 HCR contracts awarded or renewed between June 1 and October 1, 2017.
What the OIG Found
We found the March 2017 HCR baseline fuel ppg guidance was not effective. Specifically, in the 174 statistically sampled contracts reviewed, we found:
- Forty (about 23 percent) had all of the required documentation, to include fuel price documentation.
- Seventy-one (about 41 percent) did not have the necessary documentation to meet any of the procedural guidance requirements.
- Forty-four (about 25 percent) did not have documentation supporting the market price analysis.
- Nineteen (about 11 percent) did not have justification documentation for establishing a ppg higher than the DOE’s regional fuel index price or the local market fuel price.
During our review, we noted that 90 of the 174 reviewed contracts (about 52 percent) exceeded the DOE’s regional fuel index price or the local market fuel price and did not have the required documentation.
This occurred because management did not establish processes to ensure compliance with the March 2017 guidance for the contract baseline fuel ppg.
Contract managers said the Postal Service awards contracts based on best value, which considers price and other factors in its award decisions. Additionally, they said that they trust their specialists to perform their work and do not have the resources to validate and ensure compliance with the requirements of the procedural guidance for about 14,000 HCR contracts.
Insufficient documentation could affect the contract award decision. Consequently, the Postal Service could have overpaid 707 of the 1,094 HCR suppliers by over $606,000 between June and December 2017. The fuel price differences ranged from $0.01 to $1.40 per gallon above the DOE’s regional index price. We estimated that annually this could be over $1 million. This was based on the monthly contract fuel ppg being higher than the DOE’s regional fuel index price.
What the OIG Recommended
We recommend management establish periodic review processes to ensure Surface Transportation Category Management Center personnel are following the March 2017 guidance for establishing the contract baseline fuel price per gallon.