As it did last year and each of the previous eleven, Federal Express Corporation topped the list of the U.S. Postal Service’s largest suppliers in Fiscal Year 2014. EnergyUnited, which provides consolidated telecommunications and energy billing services to the Postal Service, once again held the second spot.
The list of the top five USPS suppliers in FY 2014 also includes mail hauler Pat Salmon & Sons, Inc., Victory Packaging, and transportation supplier Kalitta Air, LLC.
The top ten USPS suppliers in FY 2014 includes United Airlines, Inc., Hewlett-Packard Co., Accenture Federal Services, Wheeler Bros., Inc., and Northrop Grumman Corporation.
The full list of the Top 150 USPS Suppliers is compiled every year by David P. Hendel, a partner in Husch Blackwell’s Government Contracts Practice Group. David focuses his practice on representing contractors that do business with the United States Postal Service.
All of the recent Top 150 USPS Suppliers lists are available here:
The contractor’s duty to proceed with performance pending the resolution of disputes is a basic concept in the law of government contracts. It is laid out explicitly in FAR 52.233-1(i), the mandatory disputes clause that appears in nearly all federal contracts: “The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.”
But the duty to proceed has important limits. A contractor is excused from its duty to proceed and may stop work if the government materially breaches its own obligations under the contract.
Breaches occur in many contexts. A cardinal change in the scope of work is a breach that excuses a contractor’s performance. Terminating a contract just to get a lower price is a breach. Refusing to pay for a contractor’s work without an adequate excuse is also a breach.
According to the decision in Kiewit-Turner v. Dep’t of Veteran Affairs, CBCA No. 3450 (Dec. 9, 2014) [pdf], the government breaches the contract by ordering a contractor to continue performance when it is clear that there will be no funds available to pay for the work. The Civilian Board of Contract Appeals recognized Kiewit-Turner‘s right to stop work when the Department of Veteran Affairs failed to provide a design that would have allowed construction to be completed within the budget established by the available appropriations. Despite the general duty to proceed, Kiewit-Turner was not required to continue performance because it was clear that the construction costs would exceed the available funds and the VA refused to seek additional funding or incorporate value engineering changes to reduce the overall construction cost. Continue Reading
If you are getting ready to submit a claim on a federal contract—especially one that challenges an assessment of liquidated damages—take note of the Federal Circuit’s decision in K-Con Building Systems, Inc. v. United States, No. 2014-5062 (Fed. Cir. Feb. 12, 2015) [pdf]. It has some specific instructions for the contents of your claim letter and demonstrates the harsh results that follow from a misstep in the disputes process.
K-Con held a Federal Supply Schedule contract for prefabricated structures. In 2004, it won a $582,000 Coast Guard task order for the design and construction of a Coast Guard cutter support building at Port Huron, Michigan.
K-Con’s July 2005 Claim
When K-Con was unable to complete the work by the deadline set forth in the task order, the Coast Guard assessed liquidated damages of $109,554—186 days at $589 per day. On July 28, 2005, K-Con submitted a one-page claim letter seeking remission of the liquidated damages.
Although it was brief, K-Con’s letter asserted three reasons why the liquidated damages assessment was improper:
- K-Con “was not the sole cause of any alleged delays” and any K-Con delays were “concurrent with delays caused by the government;”
- the government “failed to issue extension to the completion date as a result of changes to the contract by the government;” and
- the liquidated damages “are an impermissible penalty.”
K-Con’s letter requested a contracting officer’s final decision. Though it demanded relief of more than $100,000, K-Con’s letter asserted that a certification was not required “since the assessment of liquidated damages is a claim by the Government.”
Ever since the Postal Service “defaulted” on its annual $5.5 billion payment to the U.S. Treasury for retiree pre-funding obligations, it has been assumed that USPS is a pauper agency. But a new white paper issued by the USPS Office of Inspector General concludes that the value of the Postal Service’s real estate holdings, and other factors, far outweigh its retiree obligations.
The OIG estimated the Postal Service’s total retiree healthcare and pension liabilities at $403.8 billion. That’s a lot of stamps, but the Postal Service has already set aside $356.6 billion (83 percent) of this amount, leaving an unfunded liability of $86.6 billion. The OIG concluded that when this $86.6 billion is considered in conjunction with four factors, the agency’s assets would fully cover these obligations, and then some.
The Postal Service’s real estate holdings is the most important factor. The Postal Service values its real estate assets at book value, which is $13.2 billion. But book value considers only the original purchase price and depreciation, not what these assets would actually sell for. The OIG estimates the fair market value of these assets as high as $85 billion. That figure would offset all but $1.6 billion of the Postal Service’s unfunded liability.
The next factor is the impact of interest rates. Over the past few years, interest rates have been at historically low levels, and this may have skewed current day assumptions about USPS’s long-term liability. Changes in interest rates have a dramatic effect. The OIG cites to a study that found even a modest 1.25 percent increase in the current interest rate would reduce unfunded liabilities by $72.3 billion.
Requiring postal retirees to use Medicare as their primary health insurer, backed up by their postal health care plans, would further reduce the Postal Service’s retiree healthcare liability by $42.9 billion. This would require a change in the law, but various postal reform bills have already proposed this change.
Demographics is the fourth factor considered by the OIG. The Postal Service’s unfunded obligation is based on demographics associated with federal employees. But the demographics of the average postal worker is significantly different than the average federal employee. Applying postal specific demographics would reduce unfunded liability by $8.5 billion.
Taking into account all of these factors, the OIG concludes that the Postal Service has more than enough assets to cover its future obligations to retirees. Lawmakers, take note!
UPDATE (February 25, 2015): USPS Chief Financial Officer Joe Corbett does not agree that the value of USPS assets could be as high as $85 million. During his presentation at a meeting of the Association for Postal Commerce (Postcom), he stated this estimate fails to take into account that many facilities were built specifically to suit USPS needs and would not ideally suit other businesses or operations. Corbett estimated the Postal Service’s real estate holdings to be worth about $25 billion.
Not your typical federal agency, the U.S. Postal Service is an “independent establishment” of the executive branch of the United States government. (39 U.S.C. § 201.) As a result, many federal procurement rules do not apply to the Postal Service. Here are the major differences between USPS’s purchasing policies and those of other federal agencies:
- Not only is the FAR inapplicable, but the Postal Service’s own special purchasing rules were not issued as regulations. Instead, the agency considers its Supplying Principles and Practices manual to be “advisory” and non-binding.
- While the rest of the federal government is bound by the Competition in Contracting Act and must obtain “full and open competition,” the Postal Service has no such mandate. When it competes a requirement, it need only obtain “adequate competition whenever appropriate.”
- All purchases are conducted as negotiated procurements; there are no Invitation for Bids (IFBs). All proposals are evaluated on a “best value” basis.
- The Truth in Negotiation Act (TINA) does not apply to the Postal Service. The Postal Service, however, sometimes employs a contract clause that imposes a similar requirement. TINA’s statutory exceptions therefore do not apply, so the Postal Service could seek cost information when other agencies would be prohibited from doing so.
- There are no mandatory set-aside procurements for small, disadvantaged businesses, and USPS does not participate in the SBA’s Section 8(a) program. The Postal Service does actively seek diversity in its procurements, and tracks contract and subcontract awards to small, minority-owned, and women-owned businesses.
- Prequalification of contractors is regularly used by the Postal Service to limit competition to prequalified suppliers.
- Postal Service acquisitions are made with agency funds, and thus there are no legal restrictions on multi-year procurements or limitations imposed by Congressional funding.
- The Postal Service can seek title to intellectual property, not just unlimited rights. The Postal Service may also limit contractors from selling intellectual property developed for USPS to postal competitors.
- In the proposal evaluation and award process, there are no competitive range determinations or regulations governing Best and Final Offers (BAFOs). The term “discussions” has its ordinary dictionary meaning, and discussions may be held multiple times with one offeror and less frequently with other offerors. Revised proposals need not be submitted on a common cut-off date. Once a prospective awardee is selected, the Postal Service can conduct pre-award negotiations with the selected offeror.
- The GAO has no authority to consider protests involving Postal Service purchases. Instead, the Postal Service has its own internal “disagreement” process and a Supplier Disagreement Resolution Official (SDRO). The SDRO, however, is not independent of Supply Management and does not make any documentation available to the protester. Protests can also be brought before the U.S. Court of Federal Claims.
“Long-Life Vehicles” turned out to be a fully appropriate name for the fleet of 163,000 carrier vehicles the Postal Service first bought in 1987. Now looking to replace them, the Postal Service recently issued a Request for Information and Sources Sought notice for its “Next Generation Delivery Vehicle” (NGDV). Companies have until March 5, 2015 to submit their comments and pre-qualification responses. The Postal Service will then determine which companies will be eligible to receive the RFP for competitive prototype development.
The Postal Service anticipates making a single award to a supplier for up to 180,000 vehicles. With an anticipated price range of $25,000 to $30,000 per vehicle, that works out to a contract valued between $4.5 and $5.4 billion. But don’t expect the Federal Acquisition Regulation (FAR) and other bedrock federal procurement laws to apply to this purchase. The Postal Service is exempt from a wide-range of federal procurement rules and has its own purchasing policies called the Supplying Principles and Practices manual.
While the NGDVs are expected to share some design similarities with the current Long-Life Vehicle, the draft specifications describe many enhancements. The new vehicle must accommodate more package volume, have improved ergonomics and functionality, obtain better fuel economy, and produce lower harmful emissions. And, of course, neither snow nor rain nor gloom of night should stay these vehicles from the swift completion of their appointed rounds. If all goes to plan, the first delivery of 3,000 vehicles will be making their rounds by January 2018.
Despite getting a rare Writ of Mandamus from the D.C. Circuit Court of Appeals establishing that its internal investigations were covered by the attorney-client privilege, Kellogg Brown & Root must still turn them over. As predicted in our earlier posts on Barko v. Halliburton, Judge James Gwin has ruled that KBR waived the attorney-client privilege that would otherwise have shielded KBR’s internal investigation documents from discovery. His rationale is reflected in three opinions published in November and December 2014.
In a June 2014 opinion, the D.C. Circuit held that KBR’s internal investigation documents would be privileged if obtaining or providing legal advice was “a primary purpose of the communication, meaning one of the significant purposes. . . .”
But the Court of Appeals also invited the District Court to consider additional arguments that might have been timely asserted as to “why these documents are not covered by either the attorney-client privilege or the work product doctrine.”
That is what Judge Gwin did. When the case returned to the District Court, Barko sought “interviews, reports, and documents that KBR prepared while investigating tips KBR had received that involved the same allegations found in Barko’s complaint.” Barko relied on four arguments to support his claim that KBR had waived any attorney-client privilege or work-product protection over the documents:
- KBR put the contents of the documents at issue in the litigation;
- KBR’s Rule 30(b)(6) witness reviewed the privileged documents prior to testifying at his deposition;
- The documents fell under the crime-fraud exception to the privilege; and
- KBR had failed to list these documents on a privilege log when responding to an earlier administrative subpoena from the Defense Criminal Investigative Service (“DCIS”).
In an opinion issued on November 20, 2014, Judge Gwin accepted the first two arguments.
Submitted by Husch Blackwell Associate Kayt Kopen
Federal contractors will soon need to update their Equal Employment Opportunity policies and their Affirmative Action Plans. According to an announcement by DOL’s Office of Federal Contract Compliance Programs, federal contracts and subcontracts awarded or modified after April 8, 2015, must include new contract language prohibiting discrimination on the basis of sexual orientation or gender identity. The new rule implements Executive Order 13672, signed by President Obama on July 21, 2014.
For most purposes, the new rule requires contractors to treat sexual orientation and gender identity just like race, color, religion, sex, and national origin. It prohibits discrimination and segregation, for example, and requires contractors to take affirmative action to ensure the fair treatment of job applicants. Contractors will be required to flow down the new requirements to their subcontractors, to put up new notification posters, and to refer specifically to sexual orientation and gender identity in job postings.
But not all of the requirements carry over directly from existing law. Contractors will not be required to include sexual orientation or gender identity in their affirmative action placement goals or to collect or analyze data to quantify their compliance. Contractors also will not be required to ask individuals to identify themselves on the basis of sexual orientation or gender identity.
DOL’s list of answers to frequently asked questions about the new rule is available here.
OFCCP’s five-year moratorium on enforcement actions against Tricare providers (Apr. 14, 2014)
Affirmative action for protected veterans and individuals with disabilities (Sept. 19, 2013)
TRICARE hospitals and pharmacies are not subcontractors (Jan. 9, 2012)
OFCCP’ push for a 7% disabled workforce (Dec. 27, 2011)
Contractors receive about $50 billion a year through GSA multiple award schedule contracts. With that level of spending, it is easy to see why GSA has adopted policies and procedures that allow it to secure the best possible pricing for each one of its schedule contracts.
Initially, GSA uses discounts, terms, and conditions that contractors offer to other customers to negotiate “most favored customer” pricing.
But negotiated prices stated in a schedule contract are not necessarily fixed for the entire term of the contract. The contractor remains subject to the Price Reductions Clause (GSAR 552.238-75), which imposes a duty to report certain changes in its commercial pricing terms. Under some circumstances, the PRC allows a downward adjustment in the contractor’s fixed prices.
Two triggers for adjustments under the PRC
Two types of events will trigger the Price Reduction Clause. The first is relatively straightforward: GSA and the contractor base the federal supply schedule pricing on a commercial price list, catalog, schedule, or similar document. The contractor later reduces the list price or otherwise revises the price list or offers more favorable pricing, discounts, or terms to another customer. When that occurs, the contractor must offer the same reduced price, discount, or better terms to the government.
The second situation is a bit trickier. The PRC is triggered when the contractor makes a pricing change that disturbs the relationship between the government’s pricing and the pricing offered to the customer or customers whose pricing terms are established as the “basis of award.”
Calling the Voyager fuel card program unmanageable and uneconomic, the USPS Office of Inspector General recommends that the Postal Service use another method to manage fuel under its HCR contracts. In its advisory report dated September 30, 2014, the OIG concludes that the Voyager fuel card program has cost more money that it saved and discourages fuel efficiency. The Postal Service spent $5.1 billion for 1.6 billion gallons of fuel for Highway Contract Route (HCR) contracts under the program over the last nine years.