[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT HEARING OF THE U.S. POSTAL SERVICE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE POSTAL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 19, 2000
__________
Serial No. 106-170
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
__________
U.S. GOVERNMENT PRINTING OFFICE
67-996 WASHINGTON : 2001
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Robert A. Briggs, Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Postal Service
JOHN M. McHUGH, New York, Chairman
MARSHALL ``MARK'' SANFORD, South CHAKA FATTAH, Pennsylvania
Carolina MAJOR R. OWENS, New York
BENJAMIN A. GILMAN, New York DANNY K. DAVIS, Illinois
STEVEN C. LaTOURETTE, Ohio
DAN MILLER, Florida
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Robert Taub, Staff Director
Jane Hatcherson, Professional Staff Member
Heea Vazirani-Fales, Counsel
Matthew Batt, Clerk
Tony Haywood, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on September 19, 2000............................... 1
Statement of:
Corcoran, Karla W., Inspector General, U.S. Postal Service,
accompanied by Colleen McAntee, Acting Assistant Inspector
General for Audit.......................................... 29
Henderson, William J., Postmaster General and Chief Executive
Officer, U.S. Postal Service............................... 22
Ungar, Bernard L., Director, Government Business Operations
Issues, accompanied by Teresa Anderson and Gerald Barnes,
Assistant Directors, General Government Division, General
Accounting Office.......................................... 66
Letters, statements, et cetera, submitted for the record by:
Corcoran, Karla W., Inspector General, U.S. Postal Service,
prepared statement of...................................... 31
Fattah, Hon. Chaka, a Representative in Congress from the
State of Pennsylvania:
Letter dated September 18, 2000.......................... 102
Prepared statement of.................................... 6
Henderson, William J., Postmaster General and Chief Executive
Officer, U.S. Postal Service, prepared statement of........ 23
LaTourette, Hon. Steven C., a Representative in Congress from
the State of Ohio, information concerning a court case..... 124
Tierney, Hon. John F., a Representative in Congress from the
State of Massachusetts, prepared statement of.............. 99
Ungar, Bernard L., Director, Government Business Operations
Issues:
Chart on mail volume..................................... 67
Prepared statement of.................................... 70
OVERSIGHT HEARING OF THE U.S. POSTAL SERVICE
----------
TUESDAY, SEPTEMBER 19, 2000
House of Representatives,
Subcommittee on the Postal Service,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1 p.m., in
room 2154, Rayburn House Office Building, Hon. John M. McHugh
(chairman of the subcommittee) presiding.
Present: Representatives McHugh, Sanford, LaTourette,
Fattah, Owens, and Davis.
Also present: Representatives Tierney and Biggert.
Staff present: Robert Taub, staff director; Heea Vazirani-
Fales and Loren Sciurba, counsels; Matthew Batt, clerk; Jane
Hatcherson, professional staff member; Robin Butler, office
manager, Committee on Government Reform; Dana Johnson, deputy
chief of staff, personal staff; Abigail Hurowitz,
communications assistant, personal staff; Tony Haywood,
minority counsel; Denise Wilson, minority professional staff
member; and Earley Green, minority assistant clerk.
Mr. McHugh. I want to apologize at the outset. There are
all kinds of new electronic gimmicks up here, and fail-safe
systems, and I have not been cleared for flying this machine.
So if there is any breakdown, I apologize for that.
Let me welcome you all here. I don't see a gavel, so I will
call the meeting to order.
Thank you so much for being here in such strong numbers.
Certainly, as we all know, our witnesses today are not
newcomers. They have, to a person, all testified before this
subcommittee on previous occasions, and I want to thank them
again for participating in this, our annual oversight hearing.
Of course, they include the Postmaster General, Bill
Henderson; the Inspector General of the U.S. Postal Service,
Carla Corcoran; and again, Mr. Bernard Ungar of the General
Accounting Office. I know I speak for all of the members of the
subcommittee when I express our appreciation to you all for
your help and your cooperation over these past years. Certainly
we are very interested in what you are going to share with us
today.
I would also like to state my appreciation to the
Postmaster General, for most of you who have had the time to
read his opening statement, for the kind things he has to say
about me in that presentation. I am not certain they are
deserved, but they are greatly appreciated. I think he
describes very well the road that we have traveled these past 6
years in trying to modernize our postal laws.
It has been a road that has been filled with detours and
potholes and distractions. Indeed, to the detriment of many
Americans, I fear that postal reform may not in fact be enacted
in the year 2000. But we are fooling ourselves if we think that
with the growing cost pressures and shrinking revenue base of
the Postal Service, that this Congress can continue to delay
addressing this most important matter.
Sustained volume declines, coupled with early delivery cost
increases, ensure that the postal laws will have to undergo, I
think, a major adjustment. My fear is that rather than
undertaking reasonable and gradual changes, as we have
attempted to accomplish, we will instead find ourselves dealing
with the worst crisis and be left with choices of desperation
in our duty to provide affordable universal mail delivery that
binds the Nation together.
Let's not kid ourselves: The crisis is upon us. In the past
year, the Postal Service has encountered increasing financial
difficulties as mail volumes have grown more slowly than
expected and as postal costs have increased greatly and have
been proven difficult to restrain. With just days left in the
fiscal year, the Postal Service is facing its first money-
losing performance since 1974. The Postmaster General stated
last month that the service could be as much as $300 million in
the red when the books are tallied a few days from now.
The testimony of the nonpartisan independent General
Accounting Office I feel focuses like a laser on the key policy
challenges facing Congress and the American people. I would
like to quote from that report briefly, if I may.
the Postal Service faces an uncertain future. Can the
Postal Service maintain and, where necessary, improve on the
quality of mail delivery service? Can the Service continue to
provide affordable postal rates? Can the Service remain self-
supporting through postal revenues? Can the Service continue in
the long term to provide the current level and scope of
universal postal service?
The Postal Service is lumbering along under a 30-year-old
legislative framework and it may not be able to overcome the
problems it faces. As the Inspector General will underscore,
the Service faces major management challenges in its attempts
to grow revenues and to compete in a rapidly changing market,
maintain affordability, improve the workplace climate, and
enhance productivity.
It is no surprise that the Postal Service is seeking
innovative approaches to dealing with these challenges. About 2
weeks ago, the Postal Service announced the possibility of a
strengthening alliance with Federal Express. Questions have
and, I suspect, will continue to a rise from this pronouncement
and we will be interested in further explanation and evaluation
from our witnesses on that topic today.
There is plenty to be discussed in this oversight hearing.
Both the IG and the GAO are on the front lines as America's
postal watchdogs, and they have proven to be valuable partners
with the Congress in reporting to us on a broad range of postal
operations. We look forward to their testimony today and our
review of initiatives they have indicated to the Postal Service
that they could undertake to improve its own performance.
As both the IG and the GAO have found, the Postal Service
requires significant attention to such areas as labor
management relations, internal controls and revenue
projections; and the subcommittee looks forward it hearing from
them and from the Service as to plans to develop innovative
solutions to these long-standing problems.
Furthermore, a troubling finding of the GAO is its negative
assessment of the Postal Service's efforts under the Government
Performance and Results Act. The performance plans and reports
that are required under the act should allow Congress, postal
managers and the American public to easily determine how well
the Postal Service is improving its performance and achieving
its goals. Unfortunately, it appears that the latest reports
are not as clear and understandable as they might be, and we
look forward to discussing this important issue today.
Those are just a few of the topics that I suspect we will
be venturing into. There may, in fact, probably will be others.
Let me go off script for a moment.
As I suspect the number of people here suggest, many of you
are aware that this will be our final oversight hearing in this
Congress. As I understand the rules, as I understand the
vagaries of elections, it will probably be my last as chairman.
I want to express my deepest appreciation to all those who have
been so helpful to me.
Of course, Mr. Fattah here, the gentleman from
Pennsylvania, and his very active role in assisting us, along
with our staffs, in trying to undertake, I have to say, one of
the more bipartisan efforts in committee in Congress, this very
important challenge. It has been a pleasure to all the
subcommittee members on both sides. I appreciate all of the
help, all of the insights and hard work that they have put
together; to the Postmaster General, Bill Henderson and his
successor, for putting up with me and my well-intended but
nevertheless I suspect far too often misguided and misdirected
efforts; and to the folks here at the panel.
I want to thank those of you in the audience, many of whom
I have gotten to know so very well over the past 6 years. I
have said repeatedly that I did not recognize the scope of what
the Postal Service means in America when Bill Clinger called me
that first day and asked me to take up this position. I am
amazed at how this network of sometimes very different
organizations and interests works so well together, and even
when there is disagreement, the focus remains upon the critical
nature of delivering our Nation's mail to virtually every
household in America.
It is a humbling experience, and I can only express in very
inadequate words the admiration I have for the more than
800,000 postal workers in this Nation who deliver tens of
millions of pieces of mail each and every hour of each and
every day to America. It is something that most of us take for
granted, because they have done it so well for so long, but I
would hope that would be an opinion and a perspective that in
the future this subcommittee not adopt, because it doesn't just
happen. It takes a lot of hard work and a lot of cooperation,
and we need to be productive players in that.
Last, and certainly not least, I want to express both my
deepest thanks and my highest admiration for the subcommittee
staff members, the folks who are seated here who really are
remarkable in their understanding and their dedication to this
initiative. I understand that government employees, staff
people, whether they be here on the Hill or located in a
bureaucracy, are often maligned, and I think very unfairly so.
But I have never in now nearly 30 years of public service been
associated with a finer group of individuals.
I get into trouble if I start mentioning names, but I do
want to mention a few: Dan Blair, who was our first committee
director, who has now moved on to bigger and brighter things,
he tells us, over in the Senate. I am sure that that is true.
Of course, Steve Williams, who has moved on to better things. I
saw Steve earlier here today, who was so helpful in those early
days.
We now have some folks who started with the subcommittee,
who have moved on, who may be in the room today: Ken John, who
went on to the GAO, Abby Hurowitz, who definitely took a
demotion and came to work on my personal staff, but who remains
such a joy and a delight. We have Tom Sharkey, who was first a
detailee from GAO to the subcommittee and then from the IG to
the subcommittee, and Loren Sciurba and Matthew Batt; and of
course Heea Vazirani-Fales, who has been with the subcommittee
for so many years, who brings a sense of focus to us; and Jane
Hatcherson and others who are here.
I save, in my humble opinion, the best for last. I really
want to thank the gentleman on my left, Robert Taub, who is now
the director, and as my chief of staff is continuing to give me
the opportunity to work with one of the brightest people I have
met in my life and one of the nicest guys I have met in my
life.
These people, taken collectively, have given me invaluable
insight and assistance at those times when I was too far off
point--it was because I didn't listen to them well enough;
those times when I came out looking fairly well, it is because
I listened to them very well. I want to thank them and all of
you.
With that little trip of nostalgia, I would now be happy to
yield to the ranking member, the gentleman from Philadelphia,
PA, for any opening comments he might wish to make.
Mr. Fattah. Thank you, Mr. Chairman.
Let me first indicate that I think that when the entire
story is written on postal reform, the gentleman from New York
will have been the impetus for reforming the Postal Service
here in these United States. Your work, even though you may not
realize a result immediately, in the short-term future does set
the context in which this country will go forward in terms of
trying to respond to the set of uncertainties that exists in
which the Postal Service has to operate.
I want to commend you for your work. For those of us in the
minority, we have never felt we were in the minority working
with you. We felt it was a partnership, and we want to thank
you for your leadership on these critical issues.
I do want to recognize many who are in the audience, but in
particular, a Board of Governor member from my State of
Pennsylvania, Ms. Daniels. I want to recognize her presence.
I have a formal statement that I will enter into the
record, but it is obvious that the Postal Service has, as I
think the Postmaster General will lay out, a multiprong
strategy to deal with the issues that it confronts, cost
containment and growing revenues and the question of
legislative reform. I don't want to delay us from hearing from
the Postmaster General and from the other witnesses.
I will enter my statement for the record, and will be very
interested to hear not just on the broader subjects that the
Postmaster General will outline, but also on an emerging new
set of interests and concerns relative to the FedEx
discussions. And even though there has been no formal material
provided or, perhaps, even agreed upon at the moment, this
committee and its work will have to be informed by those
discussions as we go forward.
I would thank you, Mr. Chairman, and I will provide my
formal remarks for the record.
[The prepared statement of Hon. Chaka Fattah follows:]
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Mr. McHugh. I thank the gentleman for his kind comments and
the feelings are mutual.
We do have a request from two nonsubcommittee members,
committee members who would like in; and the procedure we have
followed in the past is to allow those folks, without
objection, to have an opportunity to pose questions after the
subcommittee members do. So we have Mr. Tierney from
Massachusetts, and Mrs. Biggert has also suggested that she
would wish to drop by.
So I would ask that, as we have in the past, those two full
committee members be extended that courtesy after the
presentations of our witnesses and the questioning by the
regular members.
Without objection, so ordered.
With that, and all the niceties out of the way, let's kick
some butt here. If you want to please rise, we will administer
the oath.
[Witnesses sworn.]
Mr. McHugh. The record will show that all of the witnesses
responded to the oath in the affirmative.
With that, as is our custom, I am happy to yield to the
Postmaster General of the United States, Mr. William Henderson,
for his testimony. Thank you for being with us.
STATEMENT OF WILLIAM J. HENDERSON, POSTMASTER GENERAL AND CHIEF
EXECUTIVE OFFICER, U.S. POSTAL SERVICE
Mr. Henderson. Thank you, Mr. Chairman. I won't read my
testimony to you. I will ask that it be introduced for the
record.
But I would like to say that I appreciate your leadership.
I think you have started a dialog on reform. Whether it is
concluded this year or not, I think you will be credited with
the vision that could have saved the Postal Service if it
doesn't wait until a crisis occurs.
I agree with your assessment that these are troubling
times. Affordability becomes more and more difficult as
revenues soften, and affordability is the cornerstone of the
Postal Service. Growth, just in this accounting period alone,
which at the conclusion of the fiscal year was flat--there is
no growth over last year. We estimate that we will miss the
revenue plan by as much as $790 million under plan in revenue
this fiscal year.
We are having to adjust our plans for the next fiscal year
because of this softening in growth.
So the problem exists today, and the solutions of raising
prices are just killing off the market. So we have to figure
out something else to do, and that something else, I believe,
starts with postal reform.
So I appreciate your leadership in that and I look forward
to working with you as this Congress winds down.
[The prepared statement of Mr. Henderson follows:]
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Mr. McHugh. Thank you very much, Bill. I appreciate your
brevity. That will give us more time for discussion afterwards.
We move to the Inspector General, Ms. Corcoran.
STATEMENT OF KARLA W. CORCORAN, INSPECTOR GENERAL, U.S. POSTAL
SERVICE, ACCOMPANIED BY COLLEEN McANTEE, ACTING ASSISTANT
INSPECTOR GENERAL FOR AUDIT
Ms. Corcoran. Good afternoon, Chairman McHugh and members
of the subcommittee. I appreciate this opportunity to discuss
the accomplishments of the Office of Inspector General. Joining
me today is Colleen McAntee, the Acting Assistant Inspector
General for Audit. With your permission, I would like to submit
my long statement for the record.
Mr. McHugh. Long. It was complete. I read it.
Without objection, so ordered.
Ms. Corcoran. The Postal Service is challenged now more
than ever to maintain its reputation for reliability. Although
it faced challenges this year, the Postal Service also had many
notable achievements, such as the Year 2000 Initiative. My
office has identified over one quarter of a billion dollars in
savings this year. In addition, our investigations have yielded
26 arrests, 11 indictments, 3 convictions, approximately $10
million in recoveries, and 35 contractor suspensions and
debarments.
My testimony today will highlight work we have done over
the past year to help the Postal Service meet what we believe
to be its major challenges. We have examined relocation
benefits paid to postal executives. Our first audit questioned
whether the moves were in the best interests of the Postal
Service.
Our second review questioned why the amount of
miscellaneous expenses paid to executives was up to five times
higher than those paid by comparable private companies.
In both reviews we questioned whether these relocation
payments were used to augment the statutory pay cap.
We reviewed the external first-class mail measurement
system. We found customers were not fully informed that on-time
delivery scores did not measure postal-wide performance.
We investigated a major telecommunications contractor. Our
investigation resulted in the Postal Service recovering $12.2
million in mischarges and avoiding up to $96 million in
additional costs over the remaining life of the contract. We
also identified $36 million in questioned contract costs with
the assistance of a contract audit agency.
In a joint investigation, we found two postal managers were
able to defraud the Postal Service of $3.2 million.
We reviewed the budget formulation process and found that
it was difficult for the Postal Service to manage its program
costs because accounting records only reflect expenses after
they are paid at the program level.
Now I would like to turn to the important issue of labor-
management relations. We were pleased that the Califano study
referenced much of our work. We have continued the work that we
discussed with you last year concerning postal implementation
of the violence prevention and response programs by looking at
the program in 26 district offices. In the area of workplace
safety, we issued our first video report, which allowed postal
management and the Governors to see firsthand the conditions of
the facility.
Enhancing whistleblower protections within the Postal
Service has been of interest to you, Mr. Chairman. The
Postmaster General recently agreed with me that the protections
provided by the Whistleblower Protection Act should be adopted
in the Postal Service as a matter of policy.
In the area of technology, we salute the Postal Service's
efforts to automate its processes. We believe this is a
direction the Postal Service needs to go in the 21st century.
Our reviews have been directed toward assuring that postal
management has accurate and reliable information to base their
decisions on technology investments. While the benefits of
technology are enormous, proper computer security safeguards
are extremely important.
In recent e-commerce testimony, we cautioned that the
Postal Service needs to address lessons learned from more
traditional programs, such as contracting, which could also
affect the e-commerce area. We are working with the Postal
Service to ensure that the OIG has appropriate access to
information while recognizing the need for confidentiality.
As you know, our enabling legislation requires us to
conduct oversight of the Inspection Service. One of the
initiatives successfully completed this year was the revised
designation of functions that generally provides that OIG will
perform all audits and procurement fraud investigations within
the Postal Service.
Now I would like to update the subcommittee on my office's
progress.
We have worked to educate postal managers and other
stakeholders about our mission and the importance of our
independence in carrying out that mission. Therefore, we
reacted quickly when changes were proposed by the General
Accounting Office that challenged our independence. We voiced
our concerns, and I am pleased to report that the Comptroller
General recently advised me our office would continue to be
viewed as organizationally independent.
Mr. Chairman, we are extremely proud of the diverse talent,
skills and professional experience of our staff. Of the 660
individuals on board as of today, 50 percent are women and 48
percent are minority.
Mr. Chairman and Mr. Fattah, I would like to thank you for
your support in establishing this office. I would also like to
thank you and the Governors for recognizing the continued
benefits of our work. The approval of our fiscal year 2001
budget will help increase our visibility to Postal Service
stakeholders.
In closing, I would like to thank you for this opportunity
to testify before the subcommittee. We will continue to assist
the Postal Service, the Governors, and Congress by providing
accurate information to help you make important decisions.
This concludes my statement.
Mr. McHugh. Thank you very much, Mrs. Corcoran. We
appreciate it and appreciate all your work as well.
[The prepared statement of Ms. Corcoran follows:]
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Mr. McHugh. Finally, and certainly not least, Mr. Bernard
Ungar, Director of Government Business Operations Issues for
the General Accounting Office.
Let me say a special thanks to you and to the GAO for being
so responsive to our many requests, issued by both sides here,
to try to assist us in understanding the issues and the
challenges that face the Postal Service. You have been a
tremendously supportive coplayer in this process, and we are
deeply appreciative for that.
With that, Mr. Ungar, our attention is yours.
STATEMENT OF BERNARD L. UNGAR, DIRECTOR, GOVERNMENT BUSINESS
OPERATIONS ISSUES, ACCOMPANIED BY TERESA ANDERSON AND GERALD
BARNES, ASSISTANT DIRECTORS, GENERAL GOVERNMENT DIVISION,
GENERAL ACCOUNTING OFFICE
Mr. Ungar. Thank you, Mr. Chairman, for those kind words,
and members of the subcommittee. We are certainly appreciative
of being here today to assist the subcommittee in its oversight
efforts with respect to the Postal Service.
As the Inspector General and Postmaster General did, I too
would like to submit a formal statement for the record and
summarize our statement.
Before I do that, I would like to mention I am accompanied
by Teresa Anderson and Gerald Barnes, Assistant Directors in
our General Government Division, who have worked on postal
matters for longer than I have, so they are quite in tune on
those issues.
In brief, over the last 5 years, the Postal Service's
performance has certainly had a number of quite positive
aspects to it in terms of profits that it had not heretofore
made, delivery performance, and high rankings of customer
satisfaction. These are certainly noteworthy achievements.
As the Postmaster General indicated, on the other hand, all
the news is not good. Mail volume and mail revenues have not
grown as much as expected and costs have increased more than
expected. This obviously has put the Postal Service into a very
uncertain situation.
The Postal Service's most recent strategic plan paints a
more pessimistic scenario in terms of the volume or expected
volume growth and revenue growth than the picture that it
presented to us last year and that we presented to the
subcommittee last year. While the future is certainly difficult
to predict and it is very difficult to say what exactly is
going to take place, that does not mean that the Postal Service
or the subcommittee should sit by and let events take shape
without aggressive and innovative interaction.
With that, I would like to show a graphic that we have
distributed in advance that shows what the dilemma is with
respect to first class mail volume. If first class mail volume
does not grow as expected, or it grows less than expected or
doesn't grow at all, it presents a real predicament for the
Postal Service. I think this graphic shows why.
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Mr. Ungar. Looking at first class mail volume, it
constitutes 51 percent of the volume, 58 percent of the
revenue, but contributes two-thirds of the overhead costs.
These overhead costs in the short term generally do not vary
with volume; over the long term they could.
Thus, if first class volume goes down or doesn't grow very
much, the Postal Service is going to have a difficult time
trying to capture the funds to cover the overhead, and over
time is certainly going to have to look at the price structure,
look at service, or a combination thereof.
This certainly raises the question that H.R. 22 has
addressed, and other folks have addressed; and that is, what
kind of organization does the Congress want the Postal Service
to be in the future? What kind of flexibility should it have,
what kind of constraints should it operate under, what kind of
rules and regulations should it be subject to? This is
certainly a question with the Federal Express announcement that
was made earlier. That is really what we see as the key policy
issue facing this Congress and probably the next Congress and
maybe the one after that.
In the oversight area, there are three issues that I would
just like to briefly summarize. They are closely related to the
public policy issues.
The first issue has to do with the Postal Service's
progress in improving productivity and cutting costs, certainly
a very important area. Here, for example, we are encouraged by
the growth in productivity that the Postal Service expected
this last year, 2.2 percent. This is very positive
encouragement considering it has not improved productivity in
recent years; in fact, productivity declined in a number of
years before this year.
It is also encouraging that the Postal Service has embarked
on a series of cost-cutting initiatives, including breakthrough
productivity. We think it is very important for the
subcommittee to ask the Postal Service about these particular
measures--what are they, when are they going to take place and
what kind of progress is being made?
The second area relates closely to an area that the
Inspector General mentioned as well, the human capital area.
There are three specific elements to that we would like to
highlight.
One is the long-standing problem the Postal Service has
faced in the labor-management relations area. We are encouraged
some progress has been made, but there is still a long way to
go in that area.
There are a large number of grievances the Postal Service
has to deal with, as recently reported by the Violence
Commission. While these are certainly important to the work
force, they also detract from the main mission of delivering
the mail, and certainly absorb a substantial amount of costs,
which have been estimated at over $200 million a year, to deal
with.
The question here is, do the postal unions, the management
associations, and the Postal Service itself share the same
sense of urgency that labor relations have to be improved, have
to be worked on, so that the Postal Service and its
stakeholders can get on with the business of addressing the
major challenges that the Service faces?
Also, the Postmaster General recently said that a very
large percentage of the Postal Service's executives are over
the age of 50, and succession planning is a very key ingredient
in the future of the Postal Service. It is going to be
important for the subcommittee to oversee the Service's efforts
to deal with this issue, as well as assure that its diversity
goals are achieved at the same time.
Finally, the last issue that I would like to briefly
mention has to do with the reliability and the credibility of
the information--performance information--that the Postal
Service has been reporting. Today, we issued to you, to this
subcommittee, our report on enhancements needed in the Postal
Service's Results Act efforts.
Here, as well as in the recent effort that we did for this
subcommittee and the Senate Subcommittee on Electronic
Commerce, we were distressed to see that some of the
information that the Service had been reporting in terms of its
financial performance was unreliable and not credible, and some
of the information that had been reported on its overall
performance in its 1999 performance report was, in our view,
quite misleading.
We are pleased that the Postal Service has recognized that
these are areas that need to be improved and has promised
prompt and swift corrective action.
That concludes my summary, Mr. Chairman.
I would also like to, as others have done, thank you
personally and the rest of this subcommittee for the support
that you have shown for GAO, particularly in those years when
we were going through some fairly challenging budget
reductions. We certainly appreciate your support then and your
continuing support.
[The prepared statement of Mr. Ungar follows:]
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Mr. McHugh. Our pleasure. Thank you.
As a lifelong New York Giant fan, I immensely enjoyed the
performance last night at FedEx Field. But speaking of FedEx,
Mr. Postmaster General, it is no secret that your discussions
with Federal Express have gained some attention. As I
understand it, it was not your intention to make any
announcement at the time the media came upon and reported your
discussions, but nevertheless, we have a new reality there
where a lot of questions have been raised.
In short, what can you tell us about that alliance as it is
being called?
Mr. Henderson. We, for the record, did not announce a
strategic alliance with Federal Express. The discussions were
leaked to the media and we decided, Fred and I, rather than to
have no comment, that we would actually comment on what we were
discussing.
The cornerstone of our discussion revolves around the use
of Federal Express's air transportation network, which is not
something new to the Postal Service. We today use Emery Air, a
subsidiary of CNF, so we are just in discussions with them
talking about the possibility of using their air transportation
network, which is the finest and most extensive in this
country.
As a part of that discussion, we have had discussions with
RPS, which is now FedEx ground service, for several years,
about the possibility of using a drop-ship rate that exists in
the current rate structure for residential delivery of
packages. We have continued that discussion with FedEx ground
service, and again, that is not something new. It is something
that has been ongoing.
The new part is that we did talk to Federal Express about
the possibility of selling retail in post offices, allowing
post offices to sell FedEx products, and also in the return
business to pick up FedEx products if those who use that
merchandise want to return it, with the exposure of e-commerce
that we would use our residential America delivery network to
return those to Federal Express.
These are all just topics that we are discussing. We have
reached no agreements yet. We would like to do this in the
framework of a strategic alliance. There is no exclusivity
involved in this. Anyone who wants to come to the table and
talk is welcome to come to the table. We are talking of a
similar arrangement to what we have with DHL.
Mr. McHugh. On the exclusivity question, you may be aware,
for example, that Judiciary Chairman Hyde has written the
Justice Department asking them to look at and report back on
possible antitrust concerns that evolve out of this proposal. I
suspect that is a little hard to do, having no details, but the
concept and the question itself, I think, is central to many of
the concerns, understandably, that have been expressed.
Did you--let me back up. Obviously, I and others, I assume,
like Senator Daschle, who has endorsed H.R. 22, believe that
the Postal Service in its unique position is pretty well free
of antitrust requirements. That is why we put in H.R. 22
provisions very specifically that would subject the Postal
Service to antitrust requirements as they apply to the private
sector.
But, nevertheless, did you or anyone in the Postal Service
discuss antitrust or legality questions with the Justice
Department prior to entering the discussions, or did you intend
to do that upon completion of the framework?
Mr. Henderson. We intended to go to the Justice Department
when we reached an agreement. And independent of that, our
general counsel looked at the concept; even though there is no
concrete agreement, looked at the concept and concluded with
the help of independent counsel that there was no antitrust
issue here.
Mr. McHugh. You do have strategic alliance guidelines that
frankly evolved out of, I believe, in part, the recognition
that the General thought the antitrust provisions do not apply,
but there had to be some framework and guidelines by which you
could enter these.
Was this agreement--and it is hard to say, because it is
not complete, but are you putting it together in a way that is
consistent with those strategic alliance guidelines; or how are
you approaching that?
Mr. Henderson. That is our proposal to Federal Express,
that we follow those guidelines, similar to the ones that were
tested in court earlier, a couple of years ago. But I don't
have a response from Federal Express.
Mr. McHugh. I guess the answer was, you will, but you
haven't, because you are not done?
Mr. Henderson. Right.
Mr. McHugh. OK. I am going to step out of normal course
here, because this is an issue that is of concern to other
members. I would yield to other members of the subcommittee at
this time if they have a question they would like to pose now.
They can certainly pose it on their own time, but now, in this
regard.
No members down here? However you want to do it. I don't
want to get bad feelings on the last day.
Mr. Fattah. Well, two things. This is housekeeping. I have
an opening statement from Congressman Tierney that I would like
to have placed in the record.
Mr. McHugh. Without objection, that will be entered in its
entirety.
[The prepared statement of Mr. Tierney follows:]
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Mr. Fattah. I would like to reference Chairman Hyde's
letter and ask that it be entered into the record, because I
think the chairman's letter indicated that it was his opinion
that the Postal Service would not be encumbered by antitrust
laws, presently, under its configuration. That is how I
remember the letter, at least.
If we could agree it would be entered into the record----
Mr. McHugh. We agree on both points. I do think that was
the chairman's position--however, he was asking for formal
review--and it will be entered without objection into the
record.
[The information referred to follows:]
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Mr. Fattah. Now, the Postmaster General.
These discussions that you are having with Federal Express,
you say, do not have any exclusivity associated with them. You
have had discussions with others or are willing to entertain
discussions with others vis-a-vis what you see as the viability
and the profitability of strategic alliances with entities that
may have a capacity similar to Federal Express, like UPS or
others; is that correct?
Mr. Henderson. That is correct. Yes, we have had--off and
on, over the years, we have kept in contact with people like
UPS and Federal Express and have had informal discussions about
a whole range of topics. So, actually, I had started this
conversation with Federal Express some time ago, and it kind of
lay dormant for a while; and suddenly we were both interested
in it, and we put teams together.
But we are open to discuss with anybody. There is no
exclusivity here.
Mr. Fattah. I think that is an important point. Also, I
would imagine it is difficult to have these kinds of
discussions, however, in the context of a congressional
hearing.
Mr. Henderson. It is a little awkward.
Mr. Fattah. But I think that you can understand the general
concern that has been raised when such an alliance between the
Postal Service and Federal Express is at least broached in the
media. It suggests to the people perhaps that there would be
some concern.
But I think that you should be taken at your word that the
Postal Service is looking for partnerships among and between
any number of different entities to the degree that it helps
you meet your goals.
So I want to yield at this time, Mr. Chairman, and revisit
this as we go forward.
Mr. McHugh. Mr. LaTourette.
Mr. LaTourette. Thank you, Mr. Chairman. I appreciate your
courtesy so we can talk about this issue all at one time.
Something I didn't get to say at the beginning of the hearing
is when we were doing the Contract with America and we
Republicans thought up term limits for subcommittee chairmen
and chairmen, it was a good campaign issue, but in practice it
hasn't turned out to be so good.
I would say that the reason I volunteered for this
subcommittee the last two Congresses has been your leadership,
and although I apologize to you for being a burr under your
saddle from time to time, I have done nothing but benefit from
your guidance; and even when chastised by you, I know it has
been in a way to make me a better Member of Congress, and I
appreciate your kindness. Thank you.
Mr. Postmaster General, I have some questions, too. I guess
it came as a little bit of a surprise to me. I understand, now
that you have described it, but I read about it in the
newspapers, and I suppose other Members did. And the reason it
came as a surprise is, during our August recess the Postal
Service in Cleveland was kind enough to have us all in for a
congressional briefing to tell us what was going on with the
Postal Service, and I don't remember this specifically being on
the list.
But as I heard you respond to the chairman, apparently not
only general counsel but an independent counsel has looked at
the issue of exclusivity. I understand that.
Let me ask you this: Does the information you have received
back from general counsel and the independent counsel spell out
what law, regulation or other authority exists for the Postal
Service to enter into such an agreement?
Mr. Henderson. I don't know that off the top of my head,
but I will be glad to provide it to you.
Mr. LaTourette. If you could provide that for the
subcommittee, I would appreciate that.
Aside from exclusivity, I come to this a little bit as an
old county official, and not just exclusive contracts, but
noncompetitively bid contracts.
Are you of the opinion that the Postal Service, to enter
into a strategic alliance, does not have to come up with an
idea; that is, we want someone to do--we are going to take your
stuff the last mile and use your air service. Are you of the
opinion they don't have to bid that service, you can enter into
these discussions?
Mr. Henderson. The last mile, there is really no way to bid
that. We have a rate that anyone can use today to drop packages
at a post office, and we will deliver them the last mile,
whether they are FedEx or UPS or DHL. In fact, we do have DHL
packages today.
Mr. LaTourette. To enter into such a strategic alliance,
however, is there any belief that this has to be bid, that you
have to come up with a proposal and then bid, that this is the
service or the deal you want to enter into with somebody and
have somebody come back with the lowest and best price?
Or doesn't that apply to the Postal Service?
Mr. Henderson. No, entering into a strategic alliance does
not have to be put out for open bid, no.
Mr. LaTourette. OK. And I understand that there are
discussions, but can you sort of spell out for the subcommittee
where you think it is going to go from here? By that I mean,
not are you going to make a deal or not, but say you reach a
deal. What review and approval processes for this proposed
strategic alliance is this deal going to be subjected to before
it is finalized, and everybody signs off on it?
Mr. Henderson. Well, obviously it would come to the
management committee of the Postal Service. I am not personally
negotiating the arrangement with Fred Smith. Then, following
that, I have made a commitment I would take it to the board of
Governors for approval.
Mr. LaTourette. OK. And you mentioned Emery in your remarks
as well. I am aware of not only the agreement that the Postal
Service has with Emery, but also there apparently was a
difficulty recently with negotiated amounts in terms of what
Emery thought it was going to undertake on behalf of the Postal
Service, and they thought they needed more money for--not only
the regulation, but the volume that the Postal Service was
providing. The agreement was renegotiated; that it is the
subject of litigation. That is an accurate statement, right?
Mr. Henderson. The litigation has concluded. They filed a
lawsuit. ``they,'' being Emery, filed a lawsuit to terminate
the contract, and a judge ruled that they could not terminate
the contract, and we are back in negotiations with Emery. The
crux of the issue with Emery is the fact that we planned and
budgeted on one rate, and their costs were simply higher. And
so we feel their costs are too high, and we are going to
mutually agree to a way to get out of an arrangement with one
another.
Mr. LaTourette. I had understood the judge had granted
summary judgment and basically said that the Postal Service had
until a date certain, October 12, if I remember right, to come
back and comply with the agreement, found you out of compliance
with the agreement. I am wrong in that?
Mr. Henderson. Well, the subject of the lawsuit was to
terminate the agreement. The judge said that Emery could not
just terminate the agreement. He asked us to go back to an
interim rate which we used at one point when we felt that Emery
really did have some costs--that we wanted to have a win-win
situation, we didn't want a win-lose situation. That is not the
way you audit.
But we did an audit of Emery and we found some cost
discrepancies; and we asked the IG to do a complete audit, and
we told Emery that as soon as that audit is completed that we
will settle whatever obligations we both have.
Mr. LaTourette. And the strategic alliance or the agreement
you have with Emery is smaller in scope than what is being
discussed with FedEx, though; is that accurate?
Mr. Henderson. It is a different type of arrangement--parts
of it are similar. The air transportation piece is similar.
There is no plan to have FedEx do distribution as Emery does
today. That is contracted out. So it is just a different
arrangement in its totality, than Emery. But as I say, the
cornerstone is air transportation for both Emery and for
Federal Express strategic alliances.
Mr. LaTourette. The last question I have, and again I thank
the chairman, if I understand your discussions with FedEx
ground and the sale of FedEx packages and the return of things
ordered over e-commerce through FedEx, are you contemplating
that there would be a FedEx box, delivery box, parcel drop-off
box, located in the lobby or somewhere within the physical
confines of the U.S. post offices in this country? Is that in
the scope of your discussions?
Mr. Henderson. That is a subject they are discussing with
us that we haven't agreed to.
Mr. LaTourette. I would be interested in your feeling about
that. I understand you have not agreed to it, but how do you
feel about that?
Mr. Henderson. Well, I would not want a box in the lobby to
be perceived by our employees as a complete threat, and it
would depend on how much money we can make off of something
like that. We are very open to having Federal Express or UPS or
anybody else at our counters.
The devil is in the details. How much money can we make off
of it?
Mr. LaTourette. But, again, the advice you received from
general counsel or independent counsel or from whomever you
rely on for legal advice is, you could reach a strategic
alliance that would allow FedEx, for payment, to put their
positions in the lobbies of post offices across the country,
and no one else's, unless there was a similar agreement in
place, unless you reached a deal with somebody else to do the
same thing.
Mr. Henderson. Right. If we don't reach a deal, we won't be
able to do it.
Yes, we feel we have the right to sell whatever we want to
sell, within reason. We are not selling packaged meat products
and things like that, but a strategic alliance is certainly
something that we would look at as another source for revenue.
We are very much interested in improving our revenue picture.
That is an obligation we have as management, and we think this
is an interesting way to do it.
Mr. LaTourette. Thank you very much.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman. I didn't know he was
trying to be a burr under the saddle. I thought he was trying
to help me strive toward excellence. I appreciated his untiring
efforts in that regard.
Let me go back to revenues, because--I am sorry, Mr. Davis
from Illinois. I did not see any indication earlier.
My apology, sir. I am happy to yield to you.
Mr. Davis. Thank you very much, Mr. Chairman. I want to
thank you for yielding. I also want to share the compliments
that have been made relative to the manner in which you have
conducted the affairs of the committee. I too feel like Ranking
Member Fattah, that you have made this side feel much less like
a minority and more of a partner, and we certainly appreciate
that.
I also want to compliment you, Mr. Henderson, and your
colleagues, on keeping the Postal Service in the black, moving
ahead, although there are changes in the business climate and
certainly changes in technology.
I appreciate the fact that we have the opportunity to
discuss the FedEx question right now. Obviously it is a great
concern of mine, as well as it is a great concern to some of
its competitors. People like United Parcel, who are
constituents of mine, in a real way have some serious concerns
in terms of not knowing what the details are going to be and
having some feeling that there might end up being some
disadvantage at which they are placed; and we certainly do not
want to see that happen.
As I understand it, FedEx provides very specific delivery
and money back guarantees on both its air and its home delivery
service. The Postal Service's delivery and refund guarantees
are much more limited. How are these differences going to be
resolved in the context of shipments that originate in one
place or on one network, and then terminate on the other?
Have you gotten into any discussions, do you have ideas
about that?
Mr. Henderson. We are not commingling the products. We, at
this point, don't have any cobranded products, so FedEx will
operate the way it normally does, and we will likewise operate
the way we normally do.
Mr. Davis. Are you saying there would not be instances
where there would be joint movement, or where there would be
movement at one level part of the way and movement at the other
level by a different entity, the Postal Service in one instance
and FedEx in another?
Mr. Henderson. FedEx, it is my understanding--and I don't
like to answer questions for Federal Express; that is not
really what I do--but Federal Express does not intend to share
their product, transportation or delivery of overnight packages
with us. That is their core business; that is completely
separate.
They have talked about using our drop-ship rate at the
Destination Delivery Unit [DUI], which is open to anyone, and
that discussion began before FedEx bought RPS. That has been
ongoing for a long time. The only thing that we would do in
that instance would be if it is their decision, we would be
delivering the last mile, so to speak, to the residents.
Other than that, the only relationship would be the air
transportation of U.S. Postal Service products, much like Emery
does today, we would lease their planes for a per-pound rate.
Just as a matter of information, we do that with UPS today at
Christmastime. We will lease planes that are available.
I mean, that is how the deal works, and it would be
constituted under a strategic alliance like we did with DHL.
Mr. Davis. It is also my understanding that it is generally
the case that the Postal Service requires payment up front of
postage before it processes and delivers mail. Is that the
general policy that would be applied to FedEx shipments that
are handed off to the post office for final delivery?
I am saying the Postal Service, you generally pay first,
and then you get the service. Is that going to be the
arrangement with FedEx?
Mr. Henderson. Well, to the degree that we can, it would
probably be some sort of electronic manifesting to tell us how
much money they owe us. We haven't worked out the details yet.
But the DDU rate is available today, and right off the top
of my head, I am not sure how the customers actually reimburse
us for the postage. But it would be a similar guideline for
Federal Express. We both have corporate accounts, so all the
money isn't paid up front. You have a corporate account where
the Postal Service--for example, on Express Mail, for which we
can bill you for the postage.
Mr. Davis. I have also been trying to figure out in my own
mind and determine how much difference there is between a
strategic alliance and a contract.
Mr. Henderson. Well, a strategic alliance is a little
broader. A contract is a fiduciary document that agrees on
price; a strategic alliance, you continue to have discussions
about where you can have synergy, where you can build off of
other folks--off your infrastructure. It is just a broader
arrangement.
It is not like a vendor-supplier arrangement. It is a
better way, in my opinion, to do business, because you have an
ongoing relationship. It is not just about money and service.
Mr. Davis. So you maintain that relationship. Does that
ongoing relationship in any way preclude--it is almost like
being married, I guess, in a way.
Mr. Henderson. A little like polygamy. More than one wife
in a marriage.
Mr. Davis. I mean, but you are precluded from having that
same relationship with other entities?
Mr. Henderson. No, we are not precluding anyone. If you are
talking about UPS, we are happy to talk to UPS. The phone is
silent, though.
Mr. Davis. So----
Mr. Henderson. I can't get them to go out on a date, much
less marry them.
Mr. Davis. I am not really a promoter of polygamy, but I
would think in this instance that it certainly gives me a
different level of feeling and assurance that we are not
talking about closing the door, that we are talking about other
approaches to doing business, but letting the door remain open
to competition and opportunity for others to come in.
Mr. Henderson. That is correct.
Mr. Davis. Thank you very much.
I have got some other questions, Mr. Chairman, if we get to
them, fine. If not, I certainly want to submit those and ask
that we get written responses to them.
Mr. McHugh. Well, if they are as creative as in your last
round, we are looking forward to them.
Back to numbers, and as a personal closure remark or remark
of closure on this issue for the moment, obviously this is of
great interest to this subcommittee, and I think it is fair to
say, through many sectors of government and the private sector
as to how this is going to play out. We are looking forward to
working with you as it unfolds further.
Back to numbers: It was in this subcommittee room about a
year ago that we talked about potential revenue losses to the
Postal Service deriving from a variety of sources, not the
least of which was diversion of first class mail to the
Internet. The figure that was used as the extreme was $17
billion potential losses. Some scoffed at that.
In my opinion, some folks who theretofore showed a great
deal of knowledge about the issue lost a lot of credibility in
suggesting that there was virtually no threat at all. I have
never wanted to be more wrong about a question in my life than
the fears that I have expressed repeatedly about the potential
revenue losses to the Postal Service that, sad to say, we see
accruing already.
Mr. Ungar, in your written comments, you cited a couple of
figures and examples. You talked about 880 million Social
Security checks, tax refunds and other payments normally sent
by the Treasury Department that in 1998, 68 percent of that
total were sent electronically rather than mailed, and the
calculation is $180 million in lost first class mail revenue in
that one segment alone.
You then go and discuss a figure supplied, as I understand
it by the American Bankers Association, where banks through a
concerted effort, and understandably from their business
practices perspective, had reduced their mail volume in 1999 by
nearly 18 percent compared to just 2 years the previous, their
1996 levels.
My first question, because I didn't see it and I would be
interested, do you have a dollar figure for lost revenues that
that 18 percent represents as compared to the $180 million on
the Treasury mailings?
Mr. Ungar. No, Mr. Chairman, we do not have that.
Mr. McHugh. Mr. Henderson, are you familiar with that
figure? Would you have any idea?
Mr. Henderson. Would you repeat the question?
Mr. McHugh. Yes, sir. The American Bankers Association has
reported that in 1998, versus 1996, they had reduced their
mailings by first class by 18 percent. I was just curious, how
much money does that mean that you, the Postal Service, have
lost because they are no longer putting that 18 percent in the
mail?
Mr. Henderson. They estimate--and I will make this more
accurate if my memory is incorrect--about 1 percent of first
class mail has been marauded as a result of--I wouldn't call
that electronic diversion, but it is changing the business
model out there where banks are consolidating.
There are 30 percent fewer banks today than there were in
1990 as a result of bank consolidations. So those two,
combined, have had a very slowing impact on the growth of first
class mail. You can see, as I said earlier, the growth right
now is about 1.3 percent, and it is flat in the last part of
the year.
So there is an impact. It is hard to quantify, to reach in
there, because we don't have any measure of that. We have a
measure, when I say that, of what bills and payments are doing
other than by sampling. We are doing the household diary this
fall again, where we measure households across the United
States. We use that for ratemaking information, and we will get
an indication on how much electronic diversion from that survey
exists out there.
Mr. McHugh. Well, back to Mr. Ungar--I appreciate your
comments--is there any reason to expect that that 18 percent by
the banks, or that 64--or 68 percent, I guess it was--that were
electronically mailed, is the high watermark or is the low
watermark? It seems to me intuitively, banks are going to try
to reduce that figure more, that both from the perspective of
the Treasury service what they would like to see happen, as
well as how more and more of their recipients, customers, are
going to want to have electronic transfer, that that figure is
going to grow.
This is the beginning, rather than the end. Is that a fair
statement?
Mr. Ungar. Yes, Mr. Chairman, I think it probably is a fair
statement.
As you are probably aware, there is legislation Federal
Government-wide that requires Federal agencies to go more and
more electronic in the next several years. So that is certainly
going to have a large impact.
In the private sector, I am sure that cost-cutting and
efficiency are certainly things that many companies are
interested in and that they will certainly pursue; and with
greater and greater use of the Internet and more and more
competitors out there, wanting and encouraging people to do
transactions electronically and pay bills electronically, it is
probably going to rise rather than fall.
Exactly where this is going to all end up is a little
unclear, but it certainly doesn't appear to be the low mark.
Mr. McHugh. Last year I asked you, as I recall, you took
the $17 billion figure at, relatively, face value, that that is
what the Postal Service suggested could be their ultimate,
extreme revenue loss; and as I recall, you said, well, we
didn't verify that, but have no reason to suspect that it is
particularly out of line either.
Mr. Ungar. One point of clarification. We didn't directly
deal with the $17 billion. We were addressing the potential or
expected decline in volume. I think it was the Postal Service
or another organization that really entered into the picture
the $17 billion. But it was clear that mail volume was expected
to go down and that would translate into some revenue
shortfall.
Mr. McHugh. You are right. I stand corrected. But it was a
reasonable step from mail volume to revenues when you are
dealing with first class.
Bill, you spoke about, I believe the figure you stated was
a $790 million loss from your fiscal plan for this year?
Mr. Henderson. Yes, that is correct.
Mr. McHugh. That puts you how much in the hole?
Mr. Henderson. Probably in the neighborhood of $100 to $200
million. That is very close on $65 billion in revenue--it could
swing either way, but we are pretty sure there is going to be a
net loss this year.
I will just give you some numbers. If $790 million is what
we missed our plan by in revenue, the growth is down to about
1.3 percent in first class mail.
On the expense side, the gasoline prices, which most
surcharge for--we couldn't because we had this elongated rate
process--that is going to be about $350 million in surcharges
or in higher gasoline prices. Workers' Comp has gone up another
couple of hundred million dollars.
So we could have ended this year with over $1.5 billion in
the hole. Fortunately, we sensed that in time, and we have cut
costs over $1 billion. So getting down as low as a $100 million
to $250 million loss was a Herculean effort that the Postal
Service accomplished at all levels, especially in the field.
Mr. McHugh. Let's talk about what the next step is.
All of us, certainly those people in my district, we
measure trips not in miles but by hours, and we hope very
dearly that gasoline prices will stabilize. So let's--I don't
know if you can do this, but for the moment let's take it out
of that equation.
You have other realities, it seems to me, that probably
aren't going to go away in the short term. Mail volumes I
expect will continue on their current trend, if not become more
drastic, and other costs where you have now squeezed quite a
bit out.
How are you approaching your fiscal plan for next year?
What are you looking at and how do you plan to accommodate it?
Mr. Henderson. It is going to be very difficult to break
even next year, given the unanticipated costs we have and the
softening of the revenue. We haven't included that and taken it
to the Governors. We are trying to figure out a way through
cost-cutting to at least break even, but right now it is dim,
from my perspective, looking at all the cuts we have already
made, the administrative cuts that we plan, the productivity
numbers.
We have the highest productivity this year that we have had
in nearly a decade, and to have a $100 million loss or $200
million loss with that kind of productivity tells you the kind
of pressure that the U.S. Postal Service is being placed under.
Mr. McHugh. Mr. Ungar, can you give my friend, the
Postmaster General, any reason for optimism, or do you pretty
much concur with the things he is seeing?
Mr. Ungar. Mr. Chairman, I think we pretty much concur. I
think there are going to be additional pressures.
We know, for example, and certainly Mr. Henderson knows,
that negotiations are currently going on with three of the
unions. It is probably unlikely that wages will go down. We
know that retirement costs are going up, health care costs are
also going up. So it doesn't look too encouraging.
It is a positive note, though, that the Service has
announced a breakthrough productivity initiative and has
recognized it really is going to have to focus on cost-cutting
and productivity in order to assure that it can remain
affordable and carry out its mission.
Mr. McHugh. Cost-cutting, productivity, do you agree that
is pretty much--I mean, there are rates.
Mr. Henderson. That is right. If we were a private
business, you can't live forever off of cost-cutting, and that
is how we have lived in the last couple of years. At some point
in time, I will be the first to admit there is always
opportunity for cost-cutting, but you have to, in order to be
viable, be in a business that grows.
As we have said earlier, we view ourselves as a wholly
owned government business. We are a business. We have a profit
and loss use just like a private company has, and we have a
market worth just like anybody else would, and that asset is
going to dwindle, in my opinion, unless we have some sort of
substantive postal reform.
When I go to meet with foreign postal administrations, they
are dumbstruck over the fact that the United States, which is
the leader in most every area in the world, for some reason is
blind to the requirement of postal reform. The Germans will go
private in November, as an example. You talk about alliances,
FedEx just announced an alliance with la Poste, the French
postal service. Deutsche Poste is buying over 70 percent of
DHL; and TPG, the Dutch, they own TNT. So the whole world is
changing, and we sit on a 30-year-old structure, and it makes
it very difficult for us to operate in this environment.
Mr. McHugh. I commend you on this year's--and I commend the
workers particularly--on this year's productivity increases.
I have to wonder, given the structure of your business, how
much you can rely upon productivity increases to fill this gap?
Even under the most rosy of scenarios, technology and such, as
rapidly as it is changing, can only go so far. Rates become a
point of diminishing return. If your rates go too high, then it
affects very dramatically your volume, so it becomes actually a
losing proposition.
Therefore, as you mentioned, I believe, in some comments
you were making a few weeks ago, there are other cost factors
that go to the heart of service, 6-day-a-week delivery, the
question of, do you keep a postal infrastructure that I think
in an ideal world is very beneficial, particularly in rural
communities, where most communities enjoy a postal facility.
Are you looking at those kinds of questions yet as a way by
which to address your dilemma?
Mr. Henderson. Not yet. We are trying to maintain the
obligation of what we define as universal service. That is, we
go by your house every day, 6 days a week, whether you have one
letter or you have 50 letters, but ultimately, down the road,
the issue of universal service and affordability--you know, we
have talked about affordability, growth and reform, but the
issue is affordability. I believe there will be serious
discussion of postal reform based on price increases, that
people, customers, just will not want to tolerate the general
price increase being X amount, and then there will be a hue and
cry for reform.
Unfortunately, that could have been avoided if we had had
postal reform earlier. But it has in the past, and it appears
this country now is going to require a crisis before we have
serious action on reform.
Mr. McHugh. Thank you. I appreciate the members bearing
with me.
Mr. Fattah.
Mr. Fattah. I think that hopefully we will not need a major
crisis before we move forward, and obviously the specter of a
strategic alliance, as it has been termed, between the Postal
Service and FedEx, I assume part of the nature of having such a
discussion in public in some ways suggests that you seek to
entice others to be more forthcoming and engaged in these
discussions. Needless to say, I think that the Congress is
obviously grappling with where we are in the sense that, on one
hand, we want the Postal Service to be an independent agency;
on the other hand, we--at least speaking for myself, and I
think for the majority of the Members of the U.S. Congress--
fully intend that universal service be continued under all
circumstances, irrespective of cost efficiencies associated
there within the most rural areas of these lands. So there are
some stresses and strains as we go forward.
I think I heard you say, that cost containment is the first
prong of your strategy. You think you have reached a point of
diminishing returns relative to how much costs can be cut
within the Postal Service operation, even though, obviously,
just in terms of from a rationale basis, there is always
something more you can cut. But you are getting close to that
point.
The other side of this is revenue growth. I would like to
hear you speak a little more about your view about how you grow
revenues within the context of e-business and all these other
problems that exist, since that is part of the challenge you
are going to have to meet.
Mr. Henderson. Yes. Let me correct something on the cost-
cutting side.
I think there are plenty of costs that can be taken out of
the Postal Service; it just happens to be painful when you do
it. But I think there is a lot of money to be made in cost-
cutting and productivity improvement.
In revenue, it is kind of a mixed image of what the future
holds. Last fiscal year, we lost substantial volumes to the
Internet in advertising mail. The Internet became the darling
of the business world, and a lot of money was diverted from
direct mail advertising to Internet advertising. And it was not
very successful, especially during the fall mailing season.
Last year, a lot of cataloguers used the Internet without a
catalog via direct mail, and the results were disastrous. So to
some degree that mail has returned to the Postal Service. We
are seeing growth in direct mail.
We think there was opportunity prior to the Internet
revolution to continue to grow advertising mail in first class.
Historically, it had been--the fastest growing segment of first
class mail had been ad mail. So we see advertising as still
having a strong future.
I don't think it is ``if,'' but ``when'' bill payment and
presentment migrates to the electronic platform. The reason I
say that, I think the large billers--not necessarily the banks,
but--I think the banks are in here, but the large billers of
America, the AT&Ts and American Expresses and Visa's and
companies like that, there is a real financial advantage for
them to go public. AT&T, it costs them about $1.75 to send you
a bill. That doesn't include the postage you put on to return
it. I think the estimate at AT&T was, $1 billion could go to
the bottom line if they could get all of the bills electronic.
The adoption of that is a whole other bag. There are
varying numbers of opinions. So depending on what happens with
electronic bill payment and presentment, that will determine
the fate of first class mail, and it will have a huge financial
impact on the U.S. Postal Service.
Mr. Fattah. You have in a tentative way moved into that
sector, right?
Mr. Henderson. That is correct.
Mr. Fattah. At least in terms of billing, how is that
coming, or what could you tell the committee about that?
Mr. Henderson. Well, that is just a part of what you have
to do in today's business model. You have to eat your young
every once in a while. We had e-bill payment and presentment.
Mr. Fattah. From polygamy to cannibalism.
Mr. Henderson. It is a vicious world out there. We have
about 15,000 customers now on electronic bill payment. I don't
have the revenue figures off the top of my head. But all of the
e-commerce initiatives are probably, if you total them all up,
somewhere in the neighborhood of $10 million. So really no one
is making a whole lot of money out there on e-commerce today
except for the people that build the infrastructure.
Mr. Fattah. And the last prong is legislative reform, on
which we have heard your views today. Let me yield back to the
chairman.
Mr. McHugh. I thank the gentleman, the gentleman from
Ohio's forbearance. I would like to yield to the vice chair of
the committee, the gentleman from South Carolina, Mr. Sanford,
if he has any questions at this time.
Mr. Sanford. Let's see here.
Mr. McHugh. You could say nice things about me.
Mr. Sanford. That is exactly right.
Mr. LaTourette. I tried that. It didn't work so good.
Mr. Sanford. I will hop in for a minute. I thank the
chairman very much. I would say thanks because this may be one
of the last chances I will get simply to say thank you. It has
been awfully, awfully impressive to see the way that the
chairman has handled this committee, and in particular, the way
he has consistently pushed toward making the Postal Service
more competitive. I admire that, and I just wanted to publicly
say that, since this will be one of the last chances I get.
Mr. McHugh. Thank you, Mr. Sanford.
Mr. Sanford. Just a couple of different thoughts.
I have been awfully impressed during a couple of different
visits, Bill, with your commitment to the Postal Service and to
its employees in making a difference. The one thing, though, I
would take exception with is--one of your comments just as I
walked in, and I apologize for being late, was, we are just a
business wholly owned by the U.S. Government. We are just a
business.
I would actually, unfortunately, have to take great
exception to that. And what is interesting to me about that, if
that was the case, apparently before I got here we were asking
a bunch of questions about this proposed FedEx, Bill, and I
don't think if you were just a business, you would be answering
those questions; you would just be doing it.
Similarly in a business, I think about going out and
dropping a product line, you just drop the product line because
it doesn't make sense and you move on. Your hands are tied;
with universal service, you cannot drop unprofitable routes,
though in a business sense or a business model, you would
certainly do that.
So I think you are somewhere between being just a business
and being something else. I don't know what that something else
is. That is what puts a number of us in a real confusing spot,
because we have agreed very much with the chairman's efforts to
move to making the Postal Service more competitive; and yet had
an internal struggle, as a conservative, with how do you give
this something else--businesslike responsibilities,
businesslike freedoms--but recognize the fact that in essence
it is something else? And it does have some monopolistic powers
and some advantages that nobody in the private business world
has?
So I also wanted to touch on that theme, just because it
has been a very frustrating spot to be in as one who has been
sort of gumming up the works of your very valid efforts, and
your very valid efforts to make this place more competitive.
On that front, I would say this: If you think about what
happened in, let's say, Norway or Germany or Australia or New
Zealand and how they moved toward privatization, what was it
that they did differently, or have they just sort of merged
public with private? What was it that they did differently so
they were able to pull this off politically without private
interests going wild?
Do you have any insight to help me understand that a little
bit?
Mr. Henderson. Let me go back to the business part. I agree
with you that there is ambiguity in the nature of the
definition of the Postal Service. Even though we are forced to,
within our own regulatory environment, operate like a business,
there are things we don't do, you are absolutely correct,
because of our unique status. So I would agree with that
assessment.
Most of the postal services that are going private have
been given broad pricing freedoms, they have reduced the size
of their monopolies, to eventually phase them out, and they
have been allowed, prior to going public, to act just as you
were describing earlier, as a business. But there have been
unique circumstances to each one.
The Dutch post, for example, is a very small entity and it
has gobbled up outside businesses and it is just a part of the
privatization of their government. The German post received an
infusion of money at the consolidation of East and West Germany
in which they had all the property, and I think they testified
at one of the hearings that they received all the property that
the East Germans had and they were able to use that cash to
make acquisitions. They are one of the largest logistics
companies in the world today.
The New Zealand post moved because there was an economic
crisis and they had to change all of government. Australia had
a problem with labor that had to be solved, and in the course
of that, their post was liberalized.
So there are kind of unique reasons. And the private sector
does scream when that occurs. I can understand that; if I were
in the private sector, I wouldn't want a $65 billion giant cut
loose on my market. That is perfectly reasonable to understand
they will do that.
I look at it through postal eyes and say, if we are not
given some freedom, then this Postal Service you enjoy today is
going to be damaged in the future.
It is a difficult position to be in, I understand that. I
have talked with UPS about that, and I have talked with Federal
Express about that, and they have grave concerns about what we
would be allowed to do. But I think all would agree that a
healthy Postal Service is in the best interests of the American
public, and we think you really need to take a close look at
this.
Mr. Sanford. I would say toward that end, I was looking at
the numbers here, which was first class mail accounts for 67
percent of your contribution rate, and yet the rate of growth
of that first class mail is basically somewhere between 1.5 and
2.5 percent, yet you look at cost structure going against you.
It is a trap; unless you change something, you have a math trap
coming your way.
That brings me back to, if you don't grow the revenue
size--Letterman has his Top 10 list. What would be your Top 10
list in terms of expenses that you would look at; in a strictly
hypothetical sense, what would be the Top 10?
Mr. Henderson. We have already targeted that. One would be
administration, just the size of our infrastructure and
overhead. A second one is transportation; we have a $4 billion
transportation budget. We could take eventually--and I am not
saying we are going to do this, but we could take everything
out of the air. We could have only surface transportation in
this country, which is a lot cheaper than air transportation,
which would impact the organization. Finally, we could close
processing centers and consolidate them.
We right now are guided by service requirements. In other
words, we, as all of you know, have very high scores on our
externally measured first class mail service. We prided
ourselves on that and over the last few years, we have shown an
11-point improvement.
We are ranked the highest agency in government in public
approval. We have 94 percent ratings. We are trying not to put
any of that in jeopardy. We don't want to be viewed in a
negative way. But somewhere down the road we are going to have
to raise prices or cut into the quick of the Postal Service, so
to speak.
I will give you an example just one off the top of my head.
If you look at the financials of the Postal Service, our net
income goes like this. It looks like a hump; in the middle of
the year--we make all of our money by the middle of the year
primarily because the infrastructure is full of volume. If
there was some way to incentivize the volume in the last half
of the year to keep that infrastructure full, you are looking
at the difference between making $100 and making $2 billion or
$3 billion, which would be, I guess, very useful for
maintaining the Postal Service.
So it is not like you are just being cut loose in the
private sector to go take packages away from the package
delivery companies. I am talking about improving the pricing
methodology for our own products. Ad mail would be a great
product to reduce the price on in the last half of the year in
order to stimulate the use of direct mail by businesses around
America, so that you could fill up your tank, so to speak, and
make some money.
We don't get inefficient in the last part of the year. We
just can't adjust the infrastructure enough to offset the
decline in the growth of volume.
Mr. Sanford. Thank you.
Mr. Fattah. Could I ask you one quick question? We have
40,000 post offices, right? How many letter carrier routes do
we have?
Mr. Henderson. I am going to say 350,000 city carriers.
Mr. Fattah. How many of those are profitable?
Mr. Henderson. I couldn't give you that information off the
top of my head.
Mr. Fattah. A percentage?
Mr. Henderson. I can tell you that of the 40,000 post
offices, the 26,000 smallest post offices, it costs over $2
bucks to bring in $1. That is just the math.
Mr. Fattah. Essentially what we have is, we have urban post
offices subsidizing rural post offices?
Mr. Henderson. To some degree, that is right.
Mr. Sanford. Now you are getting personal.
Mr. Fattah. I am not trying to be personal, I am just
trying to followup on some of the questions that were asked.
Because, one of the ways to get at some of this--since some
part of what you are doing is a public service, is to try to
isolate what those costs really are and to deal with them as a
public good or a public service and not have them hidden in the
apparatus of the Postal Service.
So I would be--we will have some future discussions about
this. Thank you.
Mr. McHugh. Will the gentleman yield to me?
The ranking member raises an excellent point, and that has
been the point that we have been trying to illustrate for 6
years with respect to this particular aspect.
Let me say to Mr. Sanford and Mr. LaTourette, I have no
problem at all with your concerns. Both of you gentlemen have
dealt openly and honestly with me and with the subcommittee,
and where we have not been able to agree, that is life. But I
do have a concern about some members who are turning their
backs on meeting this challenge because they either don't
recognize or refuse to admit the very point that the ranking
member just made.
If we allow this to continue, there are going to have to be
some extraordinarily painful decisions made, and they will
particularly affect rural areas. Because, you are right, if you
look from a cost and income perspective in general terms, urban
areas are subsidizing those rural post offices.
Now, I happen to think that is perfectly acceptable, but
you cannot enjoy that kind of cross-subsidy, if you will, you
cannot expect high cost, low volume, low revenue routes and
deliveries, i.e., rural areas, to experience the same kinds of
services they enjoy today absent our doing something different.
And I represent rural areas, and it is invaluable both as a
means of communication and as a means of social and economic
fabric in those communities, and I don't want to see them go
away. But that is where we are headed, and that is why the
general issue of postal reform is so very important.
And we have spent 6 years probing it. The Postal Service
does too good a job to say, thanks, see you later. I don't
think our constituents, the American public, will allow us to
do that. I pray to God they will not. But as the Postmaster
General said, and as Mr. Sanford I think rightly underscores,
there are legitimate concerns expressed by the private sector
that that reform should be attended with changes that level
that playing field that Mr. Henderson has admitted time and
time again is skewed in certain aspects to their unfair
benefit.
That is what it is about. That is just an editorialization.
With that, I would go to Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman. I, too, as I
listened to the discussion, have a great deal of concern about
the generalized condition of the Service and the complexity of
tough decisions that are going to have to be made if we are to
keep the system alive, and especially if we are to continue to
guarantee or even provide some semblance of universal service.
I have a need to shift a bit in terms of something that is
currently taking place and ongoing.
Mr. Postmaster, I have recently been made aware of, and I
am greatly concerned about, what appears to be a very
controversial procurement for the Postal Service's direct
marketing sales support advertising contract. I have been told
that an incumbent DraftWorldwide, which is a constituent of
mine, was prohibited from participating in the final
solicitation round of competition due to their refusal to
provide what their attorneys deemed to be confidential
information that would put them in violation of their
contractual relationship with other clients.
My question is, if that was the case, did they bring that
to the attention of the Service and did they provide any
alternative way of the Service getting that information?
Mr. Henderson. They didn't bring it to the attention of the
service during the process. They did later on. In fact, I
talked to the president of DraftWorldwide. The problem is they
should have raised that issue if it were a legitimate issue in
the beginning. There was a guideline that said, and the other
responders to the RFP provided this kind of information, that
if you did have a confidentiality agreement that you could
blank out any references to the organization and you could
submit it just as a case study without naming anyone. That
specific question was in the guidelines.
They have then filed a complaint over the process, and we
will legitimately process that complaint. You have my
assurances on that. If there was any impropriety, we will
correct it. But to my knowledge, and I've had the general
counsel look at this, the IG is now looking at it I think maybe
at your request. If there is, we will get to the bottom of it.
Mr. Davis. Yes, we were so concerned about it that we
actually did, in fact, request a full IG investigation. It just
sort of appeared to me that even--and I guess all of the other
entities did in fact comply. But if you white out the name, I
am not sure to what extent that that really guarantees still
confidentiality. I'm saying, if I'm talking about a person who
might be running for President whose father was President--I
don't have a name but----
Mr. McHugh. Adams.
Mr. Davis [continuing]. A person who is Vice President and
currently running for President or something that wobbles
like--it just seems to me that I don't know how confidential
that might end up being. I would really like to see if I could,
and I don't know if it is possible, the responses from the
others who were in fact in competition.
The other question that I've got, if a company has been
determined the top of the line for 5 years and has been
determined to be No. 1 by the experts in the field, it seems to
me that it would be very difficult for them not to reach the
point of being in the final solicitation based upon their track
record of performance, based upon what they have consistently
done. Do you have any response to that?
Mr. Henderson. Well, it's based on their proposal, the fact
that they were a contractor prior with Postal Service doesn't
necessarily assure they are going to be a contractor in the
future.
I happened to look at the scores, because you had raised
this issue with me, of the six individuals who were cross
functional who reviewed their package, and they were
consistently low and in fact were the lowest rated. So there
was something wrong with that submission. Whether it was they
felt they had the contract because they had done the business--
but in advertising it really is about new ideas and new
thoughts and what you bring to the table in brainstorming. So,
absent some different information from the IG, I just assumed
that they took our business for granted and didn't do as good
of a job as they might have on the submission, because there
was no one source of low grading. It was across the board.
I looked at the notes the folks used, and then I
interviewed one of them--I say interviewed. I had a
conversation with one of them in passing. I said, describe for
me what happened here. And he said it was a very poor
submission. And you can't overlook the hard work of a new
organization because one that you have existing took you for
granted. I think that is what happened. I know they're upset.
But we do this every few years. We have our advertising
agencies up for renewal. We let other agencies have a shot at
it.
Mr. Davis. Let me ask, I understand that the process
suggests that if there is a formal complaint--I understand that
they have actually formalized a complaint--that this stops the
action for the moment. Has the contract now been let or is work
being done?
Mr. Henderson. Yes, it is my understanding--let me go back
to the first point. When a formal complaint is filed, the
process is not stopped unless there is an obvious--unless
everybody sees that there's a real problem. In this case,
before the complaint was filed we had the general counsel
review the entire process. Actually, the IG participated in the
process as kind of a watchdog. So we would not stop the process
as a result of their complaint because we don't think there is
anything to it. And we began negotiations with the successful
folks. I assume that they are either near conclusion or are
concluded and it has just not been pubically announced.
Mr. Davis. So you're saying that that doesn't automatically
stop the process. It stops it if you determine----
Mr. Henderson. If we found a complaint was legitimate, we
would rectify it. As I say, they complained to us informally
first; and since I know the players who are involved here I had
it reviewed by our general counsel.
For example, they had a whistle-blower, so we interviewed
that person and promised no retribution of any type. And there
was just nothing there. And, as I said, I talked with one of
the people who interviewed--who was on that review team, and I
looked at the notes of everybody. And there's no substance to
what they're saying. It would be inappropriate for us to hold
up awarding a contract since we're dark now really. We are out
of a contract. We need to advertise in this period.
Mr. Davis. So the contract is actually awarded? People are
now doing work?
Mr. Henderson. I think it's been assigned. I'm not sure.
Which means it's awarded but not publically announced. There
has been no public announcement on it yet.
Mr. McHugh. Does the gentleman yield?
Mr. Davis. Yes.
Mr. McHugh. I have a Postal Service news release here dated
September 11 entitled, Postal Service Announces New Ad Agency
Contracts, listing one, two, three, four, five, six, seven----
Mr. Henderson. That's the minority based contracts. We had
an Asian, a black and a Hispanic company that we announced out
at the postal forum at the press conference, but that's not
the----
Mr. McHugh. That is not all total?
Mr. Henderson. That's not what our discussion is about.
Mr. McHugh. Well, then I apologize. Some are listed clearly
as minorities; others are not. But if that's what they are,
that's what they are. I yield back.
Mr. Davis. Let me just--am I understanding that this news
release is strictly for minority contracts?
Mr. Henderson. Let me read that news release before I say
that. I know we had a news conference. I apologize. I just did
not attend the news conference out at Anaheim in which we
announced Bravo----
Is this the news release? That one wasn't released.
Mr. McHugh. This one?
Mr. Henderson. Yeah. That's what they're telling me. I
don't know. I haven't read it.
We did not release this news release. This thing
inadvertently went to our Web page. We pulled it off after
about 50 minutes. This is not supposed to be in the public
view. The contracts had not been negotiated as of this point in
time.
It's amazing. You get information I haven't seen.
Mr. Davis. Well, I guess that happens sometimes.
But let me--after the IG investigation, should the
investigation turn up a mis-step or something that might have
occurred, even unintentional or whatever, what happens then? I
mean----
Ms. Corcoran. We would send a report to the appropriate
party--probably in this case it would be the Vice President for
Purchasing--with recommendations as to what should happen. It
is management who then takes whatever action is appropriate,
based on our recommendations. If they disagree with our
recommendations, we would go back and we would talk to
management and we would raise it through the appropriate levels
within Postal Service if we thought it was serious enough.
Mr. Davis. So it's possible that, even though an
investigation might turn up something, the process could take
so long until much of the action would have been completed? Is
that sort of what I am hearing? Kind of like an election, you
know, when you question the outcome. I have never known anybody
to get put back in office even though they--in the outcome they
have turned up that a few votes were lost here, there,
whatever.
Ms. Corcoran. We were called into this about a week or so
ago even before we had gotten the call from your office. Bill
had actually talked to me and said that there were some issues.
So we put some people on it. We have dealt with various parts
of it, and we're still looking at the systemic part. The
systemic view of the overall operation and what happens is
something that would be a longer type review.
You are correct that, in terms of an election, no one gets
put back in office. I mean, we might say that there has been
something done that was incorrect and we would make more
systemic recommendations to Postal as to how they would decide
that they needed to deal with the issues. Your constituent
could decide that they wanted to pursue it further through
court using some of the information that we had in our report--
as evidence to support this claim but that would not be a short
thing.
Mr. Davis. So the only real possibility of serious redress
would seemingly be that the contracts not implemented or not be
implemented without the assurance that everything was
appropriate and was done appropriately.
Ms. Corcoran. Well, it is my understanding that they're
currently in an appeal process and that appeal process should
identify anything that might have been irregular within the
entire process. The Postal Service would have their own process
for dealing with that.
Mr. Henderson. As I say, we have looked at all their
allegations, and there was nothing there. They're dead wrong
from our perspective. We have a financial obligation when we
sign these contracts with these other organizations to begin
doing work with them. So you're almost damned if you do and
damned if you don't kind of deal. We're going to get sued one
way or the other. We know that. We would like to be on the side
of justice here instead of on the other side.
Mr. Davis. So you're saying that your preliminary findings
suggest that there isn't much, but the IG investigation goes
more in depth, and even with that there is an appeals process
that is under way. And if there is no resolution, ultimately,
in all likelihood that would become a case for our judicial
system.
Ms. Corcoran. I really think we're talking about a number
of different issues here. The appeal process is one process,
and it's a Postal Service process. And as we go about doing our
various reviews, we'll take a look at that overall appeals
process; not just for this particular job but, overall, does
that appeal process work appropriately?
Then to meet the request that you have, we're doing some
additional work, and we will see what we can do there. We've
also done some work with what Postal Service had brought to our
attention 2 weeks ago. We've given them some information, and
told them we didn't see any issues on that.
So we're continuing on several different directions. But
the ultimate is that right now, I don't think any of us are
seeing something that's going to bring any immediate relief
based on what we're seeing.
Mr. Davis. Thank you very much.
Mr. Chairman, I understand Mr. Fattah has some questions
that he wanted to submit, written questions for the record that
he would like to get a response to.
Mr. McHugh. As our normal practice we will a have a number
of those to which we'll append Mr. Fattah's questions.
I would say as well Mr. Davis was very forthcoming in his
association with this particular firm as a constituent
organization of his. To my knowledge, I have never heard of
DraftWorldwide prior to this issue. And admitting that a little
knowledge is a dangerous thing and I therefore am a very
dangerous person in this regard, we have their side of the
story. But, in reviewing it, it does raise some concerns, a
logical question about a company who provided this service for
5 years and is not even qualified to submit a bid. We weren't
talking about awarding the bid but submitting it.
The other particular question that I had was relating to a
phase two pre-qualification that was never contemplated
originally. And having had a little experience in municipal
contract negotiations, you do that that buys you a lawsuit no
matter which way you turn. So I think it has some important
ramifications, obviously, for DraftWorldwide, but I think, as
the Inspector General just pointed out, to ensure that the
contract process used across the Postal Service universe is as
appropriate as it can be. I know that the Postmaster General
shares that concern, and it was for that reason that I signed
that letter happily with Mr. Davis. And we're looking forward
to your report, Miss Corcoran.
Mr. LaTourette.
Mr. LaTourette. Thank you, Mr. Chairman. And if I could go
back for a minute I would like to ask unanimous consent to
submit for the record a copy of Judge Reginald Gibson's
decision of August 25th this year in the case of Emery
Worldwide versus the United States.
Mr. McHugh. Without objection, it is so ordered.
[The information referred to follows:]
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Mr. LaTourette. Mr. Postmaster, the questions that I was
asking about that before, I guess the crux of my concern--and I
had a chance to read it while others were engaged in questions,
and I think I was right, and I would invite you maybe to take a
look at the opinion, too, but the question I have with the
strategic alliances is, if Emery Worldwide had been successful,
they not only ask that you go back and pay them money that they
said that you negotiated and should have paid them, but they
also wanted out of the contract, and that for the moment has
not been granted. That's not settled, according to the judge's
decision.
What sort of disruption by going outside of the Postal
Service and contracting with this type of alliance would that
have caused to the delivery of mail in this country if Emery
had been successful in court last month? And here's the context
in which I ask it. Because it's my understanding, for instance,
if FedEx has--its pilots belong to a labor organization, which
is certainly OK. But if you entered into such a strategic
alliance and the FedEx pilots have difficulty, not with you but
with FedEx, and decide to go on strike, I'm wondering how you
factor that into the strategic alliance discussions you have
with these outside entities.
Mr. Henderson. That's a liability that we have with
everyone. We fly mail on United Airlines, for example, and we
have to have contingency plans when that airline goes on
strike. We have a contingency plan. You basically put priority
mail on the surface, and you truck it. To the degree that we
could get space, which is very limited on the commercial
airlines, we would contract it, but you just have alternate
transportation arrangements.
Mr. LaTourette. During the time since I had a chance to ask
you a question as well, I talked to my chief of staff, and
she's a lot smarter than I am, and she said that I was asking
the exclusivity and competition in bidding question improperly,
so let me put it as clearly as she thinks it should be put.
That is, let's say you enter an agreement with FedEx or anybody
else on a strategic alliance along the lines of your
discussions. Are you indicating that if somebody else comes
along and says I want that exact same deal, too, that it's your
position that because it's a moneymaking venture or whatever
the incentives are for the Postal Service that you would enter
into it with that other guy or gal as well or that the first in
sort of has a leg up and others would be excluded from having
the exact same four-cornered deal?
Mr. Henderson. Well, the only part of the deal that you
couldn't do would be to contract with an equal amount of air
transportation. But keep in mind when we put the Emery contract
out for RFP, the one in which Emery was successful, in the end
there was only one qualified bidder because of the size and
scope of it, who was one person in the whole country who was
interested and one person who was qualified. So the answer to
it is, yes, we'd be open to discussions with anybody.
Mr. LaTourette. Mr. Chairman, what do you want to do about
votes?
Mr. McHugh. I don't plan on voting. How about you?
I had contemplated adjourning the hearing. However, Mr.
Davis suggests that he has at least two more questions he
wishes to pose. So I think perhaps we should vote and come
back. It sounds as though you have----
Mr. Davis. My questions can be in writing. They're just two
issues.
Mr. LaTourette. I have two more that aren't related to this
FedEx thing that I can submit in writing and have answered, and
that's fine with me.
Mr. McHugh. If you're comfortable with that.
Mr. LaTourette. I'm more than comfortable.
Mr. McHugh. Well, then, with that let me say we will have,
as we usually do but I really mean it this time, a wide variety
of questions.
I apologize to Miss Corcoran. We really didn't get to her.
She submitted very thorough, comprehensive testimony that made
some I think very important points that need to be pursued; and
we will submit those in writing and also to Mr. Ungar to such
things as the Government Performance Review Act and the
suggestion of some shortcomings that we very much want the
Postmaster General and the USPS to address. They're very
important. That's a very important process. So you will, all of
you, be receiving that; and, as you've done so faithfully in
the past, we'd appreciate your cooperation.
With that, again, a closing word of truly my deepest
appreciation to all of you. It has been a hell of a ride; and,
until we meet again, keep those cards and letters coming out.
The meeting is adjourned.
[Whereupon, at 3 p.m., the subcommittee was adjourned.]
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follows:]
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