Postal Service Contracting

Transportation companies again dominate this year’s Top 150 U.S. Postal Service Suppliers list. All told, USPS spent nearly $16 billion on purchases in FY 2018, about $900 million more than last year.  Not surprisingly for an agency charged with moving the mail, six of the top ten contractors provide transportation services or equipment.

The Top 150 list has been compiled annually since 1999 by David Hendel, a partner in the firm’s Technology, Manufacturing, and Transportation group and leader of the firm’s Postal Contracting team.  The list is compiled from data received in response to Freedom of Information Act requests.

The Postal Service spent $15.9 billion on all outside purchases in FY 2018, of which $9.8 billion went to the agency’s Top 150 suppliers. The Top 150 received $540 million more than last year’s Top 150 group, and $1.5 billion more than those in FY 2016.

The top 10 largest suppliers earned $4.2 billion, which is one quarter of the Postal Service’s total spend and $700 million more than last year’s Top 10.  They also collected $3 billion more than the next ten largest suppliers.

Transportation suppliers

As it has since 2002, Federal Express Corporation soared again to the top of the list as the Postal Service’s largest supplier.  FedEx increased its USPS revenues by $400 million, jetting to the $2 billion mark for the first time and landing a new record for single-year supplier revenue. FedEx carries package and letter mail for the Postal Service under a contract that continues through September 29, 2024.

As a whole, air transportation suppliers elevated their USPS revenue in 2018 from 2017’s totals.   United Parcel Service had $206 million in revenue in FY 2018, which ups its total from last year by $34 million and raises its ranking five notches from no. 10 to no. 5. Similarly, United Airlines gained $3 million; Delta Airlines, $11 million; American Airlines, $6 million; and cargo carrier Kalitta Air, $19 million.  These across-the-board increases suggest that the Postal Service is moving more mail volume by air than before, or paying more to do so.

Mail haulers Hoovestol Inc., and its affiliated company Eagle Express Lines, again took second place with $480 million in revenue, freighting an additional $28 million from last year.  We no longer consolidate entries from three separate companies held by parent Salmon Companies Inc., so the next largest ground carrier is Postal Fleet Services Inc. with $161 million in revenue.  Wheeler Bros., Inc., which provides automotive parts for the Postal Service’s aging fleet, road to $171 million in revenue to patch up the no. 8 spot.

FCA US, LLC (formerly Chrysler Group LLC) sped from no. 22 to no. 6 with $178 million in revenue.  FCA is supplying the Postal Service with roughly 19,000 commercially available ProMaster vans from Fiat Chrysler Automobiles.

Technology and services

Technology companies also figured prominently in the Top 10 for FY 2018.  EnergyUnited Electric Membership Corporation, which provides telecommunication and energy billing services, called in at no. 3, this time with $429 million in revenue, an increase of $27 million over last year. HP Enterprise Services, LLC, a provider of computer equipment, remained at no. 7, but with $21 million less revenue than last year.

Northrop Grumman Corporation/Solystic SAS ranked no. 9 with $169 million in revenue.. Accenture Federal Services saw a revenue decline of $39 million to $165 million, making it the no. 11 supplier.

The only company in the Top 10 not providing technology or transportation-related items is packaging products supplier Victory Packaging. Victory, ranked fourth this year, wrapped up $220 million in revenue, almost exactly the same amount as the last two years.

2018 TOP 10 USPS SUPPLIERS

Rank Company FY18 Revenues ($) Billing Location
1 Federal Express Corporation* 2,001,154,548.78 Pasadena, CA
2 Eagle Express Lines, Inc. / Hoovestol Inc.* 480,806,282.38 South Holland, IL
3 EnergyUnited Electric Membership Corporation* 429,307,400.89 Statesville, NC
4 Victory Packaging 220,139,733.80 Houston, TX
5 United Parcel Service of America, Inc* (UPS) 205,556,407.98 Louisville, KY
6 FCA US, LLC (Formerly: Chrysler Group LLC) 178,607,251.00 Auburn Hills, MI
7 HP Enterprise Services, LLC* 177,293,718.97 Plano, TX
8 Wheeler Bros., Inc. 171,581,828.95 Somerset, PA
9 Northrop Grumman Corporation /Solystic SAS* 169,690,459.91 Merrifield, VA
10 United Airlines, Inc.* 167,470,951.91 Pasadena, CA

*Denotes consolidated entry

Entries for companies believed to be affiliated or have common ownership were consolidated under the company with the highest individual ranking or best known name. City/state designations are based on the information in USPS payment records and may not be the contractor’s primary location. The data covers payments made by the Postal Service in FY 2018 (October 1, 2017 – September 30, 2018). As in past years, purchases made under credit cards (including U.S. Bank and Voyager card fuel purchases) are not included in the rankings.

About Husch Blackwell’s Postal Service Contracting Team

Husch Blackwell’s Postal Service Contracting team assists clients in contracting with the U.S. Postal Service, and its members are knowledgeable regarding the needs specific to the postal industry. The team has compiled annual reports on the top U.S. Postal Service suppliers since 1999, developed and presented dozens of seminars on Postal Service contracting to thousands of attendees, and written the definitive treatise on successfully doing business with the USPS. Previous lists of the Top 150 postal suppliers.

 About Husch Blackwell

 Husch Blackwell is an industry-focused law firm with offices in 18 cities across the United States. The firm represent clients around the world in major industries including energy and natural resources; financial services and capital markets; food and agribusiness; healthcare, life sciences and education; real estate, development and construction; and technology, manufacturing and transportation. For more information, visit huschblackwell.com.

 

Every year or so, the U.S. Postal Service changes the standard Terms and Conditions that apply to its newly awarded Highway Contract Route (HCR) and Contract Delivery Service (CDS) contacts. When this occurs, the new terms only apply to newly awarded contracts–existing contracts are unaffected and retain the same terms as when awarded.

But this year, the Postal Service has sought to apply new Terms and Conditions to existing CDS contracts as well as newly awarded ones. In an email to its CDS contractors, the Postal Service asked them to sign, without any “alterations or additions,” a contract modification that incorporated the new terms. If the contractor did not so, the Postal Service’s email threatened contract termination:

“Because of the Postal Service’s interest in maintaining consistency across its many CDS contracts, please note that a failure to respond to this correspondence … may lead the Postal Service to consider termination of the subject contract.”

After receiving this email, many contractors asked me: “Can the Postal Service really do this?” In my opinion, several legal arguments, if upheld, would make the resulting modification unenforceable. For example, the modification might fail for lack of consideration, because it gave the Postal Service what it wanted without giving anything that contractors valued in return. And it might fail for violation of the implied covenant of good faith and fair dealing, because it seeks to recapture benefits that were foreclosed at the time of contract award. But I think the best argument against its enforceability is based on the legal theory of coercion and duress. Normally, this is a difficult argument to make, but here the elements seem apparent from the Postal Service’s email itself.

Proving duress

To be relieved from a contract modification you signed on the basis of duress or coercion, you need to prove three things. First, you need to show that you involuntarily agreed to the modification. One common way of showing this is writing “under protest” next to your signature. But that was not an option here, because the Postal Service’s email said you must sign with “no alterations or additions” or it would nullify the document. No contractor sought the modification, nor was asked how they viewed it. The Postal Service’s email itself thus establishes involuntary action, as it permitted no response other than the contractor’s signature on an unaltered modification.

Second, you need to show that the circumstances permitted no other alternative than signing the modification. Once again, the Postal Service’s email again establishes this for you. The email says you must sign the modification or you risk having your contract terminated. In these circumstances, you have no other reasonable alternative to signing, because if you do not sign, you will lose the contract.

The Postal Service might argue that the email said a refusal to sign would only “lead the Postal Service to consider termination of the subject contract,” not that it was dead certain to be terminated. But viewed in context of the entire email, there was little reason to believe a non-conforming contract would survive. The Postal Service’s email explained that it was seeking uniformity in contract terms among all of its CDS contracts. If you did not sign the modification, then your contract would run counter to this policy. The email gave no reason to hope that your non-uniform contract would remain in place if you refused to sign the modification.

Third, you need to show that the circumstances you were faced with were the result of the Postal Service’s coercive acts and not a predicament of your own making. Once again, this is established by the Postal Service’s email. Contractors did nothing to place themselves into this predicament.

Gurdak case found similar coercion

A dozen years ago, the Postal Service tried something similar and the resulting modification was found to be coerced and unenforceable. In George P. Gurdak, PSBCA No. 5049, 05-2 BCA ¶ 33,092, the parties had previously agreed to a 10-year facility lease that required the contractor to make some renovations. When it came time for the Postal Service to approve the design of the renovations, the Postal Service balked, but not because of any problems it had with the design. Instead, the Postal Service wanted to pay a lower rent because it had re-measured the usable space and it was smaller than USPS had thought. The contractor strenuously objected to the modification, but the Postal Service said, “Take it or leave it.”  Without USPS’s design approval, the contractor could not proceed with the project, so the contractor signed the modification that reduced the lease rate.

After the building was renovated, the contractor submitted a claim for the original, higher lease rate. The contracting officer denied the claim, contending that the contractor had agreed to the lower rate in the signed modification. The contractor appealed to the Postal Service Board of Contract Appeals, contending the modification was coerced and unenforceable. The PSBCA agreed. Even though the Postal Service had the contractual right to approve the renovations design, its use of that right must still be exercised in good faith. The Board held that the Postal Service could not threaten exercise of a legitimate contract right if the exercise of that contract right would violate notions of fair dealing due to its coercive effect.

Just as in Gurdak, the Postal Service has threatened CDS contractors with exercise of a legitimate contract right (here, termination) in a way that violates notions of fair dealing and is coercive. In both cases, a “take it or leave it” threat was made for the wrongful purpose of forcing the contractor to accept new contract terms.

The Board in Gurdak held that the coerced modification was not binding on the contractor. Did this mean that the contractor could hold the Postal Service to those parts of the modification that it wished to enforce? In its email to CDS contractors, the Postal Service stated that the modification would also remove “outdated supplier obligations.”  If that is indeed true, then under Gurdak, is it possible that the Postal Service would still be bound to those parts of the modification?

What’s next?

In most cases, the modification will likely have little impact on performance, but it does increase the risk of disputes arising from the modification’s new obligations and approval requirements. Should USPS seek to enforce one of these new obligations, you may need to assert that such directive constitutes a constructive change because it arises from a coercive and unenforceable modification. If a mutually agreeable solution cannot be reached, you may need to bring a claim for the cost impact of the new directive under the Claims and Disputes clause of the contract.

The False Claims Act case against Lance Armstrong lasted longer than his 7 year Tour de France win streak.

While the settlement of the False Claims Act case against Lance Armstrong has generated a press release, a quick online search didn’t produce a copy of the actual agreement. So I filed a Freedom of Information Act request and the next day the Department of Justice provided me a copy of the Lance Armstrong settlement agreement.  Thank you, Team DOJ!  Below is my take on that agreement and what it tells us about the case.

The settlement amount

The settlement agreement provides that Lance Armstrong will pay $5 million to the Government and $1.65 million to the relator Floyd Landis. To put this in context, the Postal Service had paid about $40 million to sponsor Team Postal. Trebling that amount, and throwing in civil penalties and investigative costs, bumps up potential damages to well over $100 million. The settlement amount was thus less than 7 cents on the dollar.

Damages was always the Government’s weakness – because there weren’t any. This should have been apparent at the outset from the contemporaneous USPS reports on how much publicity and new revenue the Team Postal sponsorship had generated. These reports were poppycock, of course, but they still posed insurmountable problems for the Government’s case.

Continue Reading What the Lance Armstrong Settlement Agreement Tells Us about the Government’s Case

As part of our postal industry practice, we annually compile a list of the Top 150 USPS suppliers based on data received under the Freedom of Information Act.

In FY 2017, USPS spent $13.9 billion on outside purchases and rental payments, an increase of $181 million over last year.  The biggest increase went to the top 10 USPS suppliers. That group received a total of $3.9 billion, up $400 million from last year and accounting for 28 percent of the Postal Service’s total spend. The Top 150 suppliers received $9.2 billion, about two-thirds of the agency’s total spend. Only 81 suppliers collected revenues exceeding $25 million in 2017.

As it has since 2002, Federal Express Corporation lands atop the list, this year with $1.61 billion in revenues—about a $68 million drop from its 2016 earnings. FedEx carries package and letter mail for the Postal Service. FedEx’s air cargo network contract with the Postal Service has been extended several times, and the latest extension takes it to September 29, 2024.

Continue Reading Top 150 U.S. Postal Service suppliers get more in FY 2017

The U.S. Postal Service spends about $3 billion per year to move the mail by truck and does so under a special type of contract called a Highway Contract Route (HCR) contract. These contracts have unique contract clauses, and even their own lingo. For example, an HCR “amendment” is what the rest of the government contracting world would call a contract “modification.”

One of the biggest differences between HCR contracts and other government contracts is the Changes clause. Under an HCR contract, the contracting officer has limited ability to direct unilateral changes. The CO may only issue a unilateral change, called a “minor service change,” if the price impact would be $5,000 or less. Under a Contract Delivery Service (CDS) contract – a subset of HCR contracts for mailbox deliveries – unilateral changes must be $2,500 or less. Even for these changes, a contractor who disagrees with the CO’s determination may file a claim for additional compensation.

In addition to these monetary thresholds, unilateral changes are further restricted to certain types of changes. The only unilateral changes a CO can direct are an extension, a curtailment, a change in line of travel, a revision of route, and an increase or decrease in frequency of service or number of trips. The CO has no authority to unilaterally direct any other change, even if the price impact would be $5,000 or less. For example, the contracting officer may not unilaterally direct a contractor to change equipment or buy new equipment. Continue Reading The unique Changes clause in Postal Service HCR contracts

Similar to a Termination for Convenience clause, a Termination with Notice clause (often found in U.S. Postal Service contracts) allows a party to end a contract without breaching it. Under the clause, either party may terminate the contract without cost consequences by providing advance written notice – usually 60 days – to the other party. The Postal Service Board of Contract Appeals (PSBCA) addressed the limits that apply to the exercise of this clause in a decision on two closely related cases. Cook Mail Carriers, Inc., PSBCA No. 6583, and Patricia Joy Sasnett, PSBCA No. 6584, issued on March 24, 2017.

Cook and Sasnett each had separate Highway Contract Route contracts to transport mail at designated times between various points in Alabama. In March 2014, the Postal Service made changes to its processing network that affected several contractors, including Cook and Sasnett. While the network changes could have been effected by modifying their contracts, the Contracting Officer (CO) instead exercised the Termination with Notice clause.

When he terminated the contracts, the CO misunderstood the network changes.  He thought the changes were needed because the Gadsden, AL mail processing facility was closing.  In fact, the Gadsden facility was already closed and revised routes were needed because other mail transportation hubs were being relocated.

Propriety of the termination

Cook and Sasnett filed claims asserting the terminations were improper and the case ended up at the Postal Service Board of Contract Appeals (PSBCA). Examining the Termination with Notice clause, the PSBCA noted that while it does not include any express limitations, its use “is not truly unlimited.”  The PSBCA then considered whether the CO’s action was proper under three separate legal principles. Continue Reading Three legal principles that limit the Termination with Notice clause

postalTransportation contractors once again dominate the top spots in our annual list of the Top 150 U.S. Postal Service Suppliers. In fiscal year 2016, USPS spent over $14 billion on outside purchases, about half of that for transportation. As it has since 2002, Federal Express Corporation lands atop the list, this year with $1.678 billion in revenues – about a $300 million increase from last year. FedEx carries package and letter mail for the Postal Service. FedEx’s air cargo network contract with the Postal Service was recently renewed for a five-year period, extending the contract until September 29, 2024. Continue Reading Transportation Contractors Lead List of Top U.S. Postal Service Suppliers

Leslie Arkansas Post Office
The termination of a $34,000 mail delivery contract serving this post office in Leslie, AR could result in three standard clauses being declared unlawful on thousands of USPS transportation contracts.

Three standard clauses used in virtually all Postal Service surface transportation contracts are now on the chopping block. In an interim ruling, the Court of Federal Claims ordered the Postal Service to show why these three clauses should not be declared unlawful and unenforceable. Tabetha Jennings v. U.S., Fed. Cl. No. 14-132C, May 29, 2016.

The case involves the default termination of a $34,000 contract to provide mail delivery between Leslie and Timbo, Arkansas. Tabetha Jennings, the sole proprietor contractor, had provided service for seven years without any issues. Then, during a heavy volume Christmas season, a postmaster accused her of using a vehicle with insufficient capacity. The postmaster was wrong, but this charge led to other accusations. Eventually, the postmaster accused Jennings of conducting herself “in an unprofessional manner” and disrupting mail processing operations. These accusations, in turn, led the contracting officer to rescind Jennings’s security clearance and her access to postal premises and the mail.

Jennings disputed the accusations against her and presented statements from a different postmaster and from another contractor that backed her up. But the contracting officer was unmoved and did not lift the suspension of her security clearance. When Jennings failed to provide a substitute carrier to continue the service she had been barred from performing herself, the contracting officer terminated her contract for default. Continue Reading Court orders Postal Service to justify lawfulness of three standard clauses

Top 150 first page FY 2015Transportation and technology companies dominate the top 10 spots on the list of the Top U.S. Postal Service Suppliers for FY 2015.  Federal Express Corporation again tops the list, a position it has held since 2002. Overall, the Postal Service spent $12.5 billion on outside purchases, about half of it on transportation.

FedEx, now in the third year of a seven-year air cargo network contract, received nearly $1.4 billion in revenue, a 3 percent drop from last year. Package giant United Parcel Service is also among the agency’s top suppliers, earning $154 million in postal revenues and moving up from No. 12 to No. 11.

Other transportation-related companies in the top 10 include trucking company Salmon Companies, Inc. (No. 4, $229 million); Victory Packaging, logistics and distribution services provider for ReadyPost and other packaging supplies programs (No. 5, $212 million); commercial airline United Airlines, Inc. (No. 6, $197 million); and auto-parts supplier Wheeler Bros., Inc. (No. 9, $175 million). Not far behind are trucking company Eagle Express Lines, Inc., No. 12 ($140 million); cargo airline Kalitta Air, LLC, No. 15 ($97 million); and commercial airline Delta Air Lines, Inc., No. 16 ($93 million).

Technology-related companies on the list start with EnergyUnited Electric Membership Corporation, which provides telecommunication and energy billing services. EnergyUnited is again the Postal Service’s second-largest supplier with $440 million in revenue, most of which is paid out to other companies. At No. 3 is Honeywell International, Inc., which received $273 million under its contract to provide 225,000 Mobile Delivery Devices (MDD). Letter carriers use the MDD to scan mail and packages.

HP Enterprise Services, LLC, a provider of computer equipment, ranks No. 7 with $192 million in revenue, about $20 million more than last year. Accenture Federal Services, which provides enterprise technology and consulting services to the agency, is ranked No. 8 with $188 million. International Business Machines Corporation (IBM) and AT&T Corporation again placed in the Top 20. EMC Corporation, which recently won a Postal Service contract to provide information storage and management services, has already cracked the Top 20 with $81 million in postal revenue.

Rounding out the Top 10 with $159 million in revenue is Northrop Grumman Corporation, which operates the Postal Service’s central repair facility in Topeka, Kansas.

David Hendel, a partner at Husch Blackwell, has compiled annual lists of the top Postal Service contractors since 2002, including these lists from 2010 – 2014.

An agency must use-it or lose-it under a fixed-priced contract.  When an agency makes it impossible to receive a contractor’s service under a fixed-priced contract, it must still pay the full contract price. So long as the contractor is willing to live up to its end of the bargain, the contractor is entitled to payment regardless of whether it provided any service. And the agency’s failure to tender work does not itself serve as a constructive termination, so the contract remains in effect until actually terminated.

Those are the lessons of Olbeter Enterprises, Inc., PSBCA No. 6543, January 12, 2016, involving a point-to-point mail transportation contract. During the course of the contract, the Postal Service closed one of its facilities, making it impossible for Olbeter to provide the contracted service. The Postal Service, however, did not issue a termination notice or contract modification. Instead, it allowed the contract to remain in force and continued to make full payment, occasionally ordering other work for which Olbeter was paid separately.

Nine months after the facility closure, the parties agreed to a convenience termination. Later, the Postal Service decided that the payments it had made during the nine-month closure period were over-payments. The Postal Service recovered those amounts by withholding payments under a different contract. Olbeter appealed the withholdings to the Postal Service Board of Contract Appeals.

At the PSBCA, the Postal Service contended that Olbeter knew the facility had been closed, that this made performance impossible, and that the Postal Service intended to terminate the contract. The Postal Service thus argued that the facility closure itself served to constructively terminate the contract. The Board disagreed. Whatever the Postal Service’s intentions may have been, and regardless of Olbeter’s knowledge of those intentions, the agency had not taken action to terminate the contract. In addition, the parties had agreed to a termination nine months after the facility closed and the Board would not supplant that agreement with a constructive retroactive termination.

The Postal Service next contended that it had breached the contract itself by not tendering any mail. Since it had breached the contract, the Postal Service argued, Olbeter was limited to recovering its expectancy damages, which were much less than nine months of payments. The Board rejected this argument, holding that the agency’s failure to tender mail was not a breach.

Finally, the Postal Service contended that allowing Olbeter to retain nine months of payments for service it did not perform would unjustly enrich Olbeter or constitute a windfall. The Board denied this argument as well, noting that unjust enrichment is an equitable doctrine that applies when parties do not have an express contract, and here an express contract existed. That contract simply did not provide the Postal Service a mechanism to withhold payment for service that the agency had made impossible to perform.  Olbeter was thus entitled to retain the payments it had received for the nine-month closure period.

The principle underlying the Olbeter decision would apply equally to any fixed-priced contract where the government made performance impossible or waived its right to receive performance. If the contract does not have a clause that directly addresses such events, and if no contemporaneous action is taken to terminate it, the agency remains obligated to pay the full contract price.