Most Favored Customer Pricing
Background
U.S. Postal Service contracting officers (CO) play an essential role in the contracting process by including appropriate clauses in contracts and ensuring compliance with contract terms and conditions.
COs include the most favored customer pricing clause (MFCP clause) in contracts to ensure the Postal Service receives prices for goods and services that are equal to or lower than those offered to other customers purchasing similar quantities, under comparable terms and conditions. This clause allows COs to request applicable pricing data from suppliers to independently assess whether the Postal Service is receiving the most favored customer pricing.
As of September 1, 2016, there were 285 active contracts with the MFCP clause in the Contract Authoring Management System (CAMS), the Postal Service's primary contracting system. However, a CAMS computer-generated report for the period October 1, 2013, through July 31, 2016, only identified 211 such contracts.
Our objective was to determine whether the Postal Service properly uses and enforces the MFCP clause.
What the OIG Found
COs arbitrarily used and enforced the MFCP clause in contracts. They generally included the MFCP clause in contracts regardless of relevance. There are 154 COs; however, based on the CAMS report, 30 COs had the MFCP clause in their contracts. Of the 30 COs, 26 (87 percent) we surveyed did not request customer pricing data from suppliers for 247 of 285 contracts they managed. These issues occurred because there is no formal criteria for when to include the clause in contracts or how it should be enforced, and COs either did not properly manage contracts with the MFCP clause, used a contract template that incorrectly included the clause, or inherited contracts with the MFCP clause when the clause was not applicable. COs also included the MFCP clause in contracts as a pricing leverage to create additional competition within suppliers for goods or services that were specific to the Postal Service, but could become commercially available to the public in the future. Furthermore, there is no formal guidance on how to conduct most favorable customer pricing data analysis.
Four of the 30 COs properly requested and assessed customer pricing data, identifying [redacted] million in additional savings. When COs do not enforce the MFCP clause, there is an increased risk the Postal Service is overpaying for its goods and services.
In addition, the Postal Service could not identify the true universe of contracts in CAMS that contain the MFCP clause. COs identified 74 contracts in CAMS that included the clause but were not reflected in the CAMS report. This occurred because COs did not use the designated clause field in CAMS to capture this data, some contracts preceded implementation of CAMS, and COs generated contracts externally and imported them into the system, thereby preventing the use of the designated clause field.
When the Postal Service does not use all CAMS functionality, there is an increased risk contracts with the MFCP clause will be mismanaged and inaccurately reported.
What the OIG Recommended
We recommended management enhance existing policy for determining when the MFCP clause should be included in contracts, how to implement the clause, specify in the contract how the clause will be enforced, and review and modify contract templates containing the MFCP clause to determine if the clause should remain in those contracts.
We also recommended management develop procedures to instruct COs who use CAMS to manage their contract to use the system to develop solicitation and contract documents to ensure the MFCP clause is properly included in the contract.