Postal Service: Progress in Implementing Supply Chain Management
Initiatives (17-MAY-04, GAO-04-540).
The Postal Service is on the cusp of a major transformation to
improve its fiscal outlook. One part of this transformation
involves procurement. The Postal Service is homing in on supply
chain management, a process that has helped successful
private-sector companies leverage their buying power and identify
more efficient ways to procure goods and services. To assist
congressional efforts to enact fundamental postal reform, GAO was
asked to determine (1) the extent to which the Postal Service has
been successful in implementing and realizing savings from its
supply chain management initiatives and (2) whether these
initiatives have had an effect on small businesses.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-540
ACCNO: A10050
TITLE: Postal Service: Progress in Implementing Supply Chain
Management Initiatives
DATE: 05/17/2004
SUBJECT: Cost control
Federal procurement
Postal service
Postal service contracts
Procurement policy
Procurement practices
Property and supply management
USPS Bulk Fuel Program
USPS National Contract Initiative
USPS Reverse Auctions for Highway
Contracts Initiative
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GAO-04-540
United States General Accounting Office
GAO Report to the Chairman and Ranking Member, Special Panel on Postal Reform &
Oversight, Committee on Government Reform, House of Representatives
May 2004
POSTAL SERVICE
Progress in Implementing Supply Chain Management Initiatives
GAO-04-540
Highlights of GAO-04-540, a report to the Chairman and Ranking Member,
Special Panel on Postal Reform & Oversight, Committee on Government
Reform, House of Representatives
The Postal Service is on the cusp of a major transformation to improve its
fiscal outlook. One part of this transformation involves procurement. The
Postal Service is homing in on supply chain management, a process that has
helped successful private-sector companies leverage their buying power and
identify more efficient ways to procure goods and services.
May 2004
POSTAL SERVICE
Progress in Implementing Supply Chain Management Initiatives
The Postal Service has had mixed success in implementing the supply chain
management initiatives we reviewed: the bulk fuel program; reverse
auctions for transportation contracts; and national contracts for boxes,
custodial supplies, labels, retail packaging, and tires. The Postal
Service reported over $78 million in fiscal year 2003 savings and revenue
from these initiatives. However, the Postal Service has been unable to
recover millions of dollars in potential savings because of implementation
problems with the bulk fuel program. For other savings initiatives,
baseline data used to calculate savings were, in some cases, inaccurate or
could not be validated because the Postal Service lacks a system for
harnessing annual spending data.
Three Major Savings Initiatives Have Encountered Difficulties
Initiative Intended benefit Challenges
Bulk fuel program Leverage Postal Postal Service projected $18 million in
annual Service's buying power savings but reported only $1.1 million in
savings of millions of gallons of for fiscal year 2003; many highway
contractors diesel fuel purchased by have been reluctant to participate in
the program; highway contractors millions of dollars will not be recouped
due to lack who deliver mail to U.S. of automated system to accurately
adjust fuel distribution centers prices.
Reverse auctions Enable highway Over $5.9 million in savings were reported
for contractors to compete fiscal year 2003; $2.1 million of this amount
is for contracts by using questionable because of incorrect baseline data;
Web-based bidding some auction procedures may not elicit best price.
To assist congressional efforts to enact fundamental postal reform, GAO
was asked to determine (1) the extent to which the Postal Service has been
successful in implementing and realizing savings from its supply chain
management initiatives and (2) whether these initiatives have had an
effect on small businesses.
GAO is recommending that the Postal Service improve implementation of its
bulk fuel program, consider adjustments to reverse auction procedures, and
focus more attention on small businesses in carrying out supply chain
management initiatives. In written comments on a draft of this report, the
Postal Service generally agreed with our recommendations and stated that
it will consider reestablishing small business targets if current
achievements begin to slip. GAO believes the Postal Service should have a
mechanism in place to ensure accountability and transparency in its small
business contracting.
www.gao.gov/cgi-bin/getrpt?GAO-04-540.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David Cooper at (202)
512-4841 or [email protected].
National contracts Consolidate smaller $71.1 million in savings and
revenue were reported contracts for goods and for fiscal year 2003 under
the national contracts services into large, GAO reviewed; GAO could not
validate this nationwide contracts amount because the Postal Service has
no
accurate baseline information on how much was spent on these commodities
prior to the supply chain management initiative.
Source: GAO's analysis of Postal Service data.
Since the Postal Service started using the national contracts GAO
reviewed, the number of small business suppliers has dropped dramatically.
Acquisition plans for most of these contracts did not address small
business participation, either at the prime or subcontractor level. GAO
could not determine the effect that the bulk fuel program and reverse
auctions have had on small businesses because Postal Service contracting
officers and contractors have been using incorrect business size
standards, and, as a result, the reported small business accomplishments
are not accurate. Further, the Postal Service's new supplier diversity
policy does not establish targets for contracting with small businesses.
Therefore, the Postal Service will have difficulty gauging the effect of
supply chain management initiatives on these businesses and holding
contracting officers accountable for implementing the policy's objective
of ensuring improvement in the Postal Service's relationships with small
businesses.
Contents
Letter 1
Results in Brief 3
Background 4
Success of Savings Initiatives Has Been Mixed, and Some
Reported
Savings Cannot Be Validated 7
More Attention Needed to Ensure Small Business
Participation in
Supply Chain Management Initiatives 15
Conclusions 19
Recommendations for Executive Action 19
Agency Comments and Our Evaluation 20
Appendix I Scope and Methodology
Appendix II Comments from the U.S. Postal Service
Tables
Table 1: Reported Savings/Revenue for Fiscal Year 2003 from Five National
Contract Initiatives 13 Table 2: Effect of National Contracts on Small
Business Participation 15
Abbreviation
SBA Small Business Administration
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.
United States General Accounting Office Washington, DC 20548
May 17, 2004
The Honorable John M. McHugh
Chairman
The Honorable Danny K. Davis
Ranking Member
Special Panel on Postal Reform & Oversight
Committee on Government Reform
House of Representatives
The United States Postal Service faces formidable financial, operational,
and human capital challenges because of unfunded liabilities, stagnant
revenues, inefficient operations, and a business model that is
unsustainable. The increasing popularity of e-mail, instant messaging, and
wireless technology, to name a few, poses a long-term threat to the Postal
Service's core business-First-Class Mail (primarily letters) and Standard
Mail (primarily advertising). In April 2001, we placed the Postal
Service's
transformation and long-term outlook on our high-risk list,1 and we
recently reported that comprehensive Postal Service reform is urgently
needed. While the Postal Service achieved notable success in fiscal year
2003, this respite is likely to be short-lived because First-Class Mail
continues to decline, key costs are rising, and productivity gains are
likely
2
to slow.
In the face of these challenges, the Postal Service has been under
pressure to cut costs while improving overall performance. Part of its
reform strategy is to find more efficient ways to procure goods and
services. In fiscal year 2003 alone, the Postal Service spent over $11.3
billion on such items as supplies, services, rent, and transportation. To
reduce spending, Postal Service officials have been focusing on supply
chain management, the process used to integrate the flow of goods and
services from the
1 The high-risk list identifies federal programs or operations that are
highly vulnerable to waste, fraud, abuse, and mismanagement or that
require urgent attention to ensure that the government functions in the
most economical, efficient, and effective manner possible.
2 U.S. General Accounting Office, Major Management Challenges and Program
Risks: U.S. Postal Service, GAO-01-262 (Washington, D.C.: Jan. 2001); U.S.
Postal Service: Bold Action Needed to Continue Progress on Postal
Transformation, GAO-04-108T (Washington, D.C.: Nov. 5, 2003); U.S. Postal
Service: Key Elements of Comprehensive Postal Reform, GAO-04-397T
(Washington, D.C.: Jan. 28, 2004).
suppliers to delivery of the end product to the retail customer.
Commercial companies use this management process to help reduce costs and
to do business in the most efficient way possible. Since fiscal year 2000,
with the help of supply chain management initiatives, the Postal Service
reported that it has saved about $866 million by leveraging its buying
power and insisting on continuous improvement.
To assist congressional efforts to enact fundamental postal reform, you
asked us to determine (1) the extent to which the Postal Service has been
successful in implementing and realizing savings from its supply chain
management initiatives and (2) whether these initiatives have had an
effect on small businesses. The Postal Service is an independent
establishment of the government's executive branch that is expected to act
like a business and is not subject to the Small Business Act.3
Nevertheless, the Postal Service has developed a 3-year plan to maintain a
supplier base that includes small, minority-owned, and woman-owned
businesses and tracks contracts awarded to those businesses.4 As agreed,
we focused our work on three major supply chain management initiatives:
o bulk fuel program, an effort to leverage the Postal Service's buying
power for the millions of gallons of fuel purchased by highway contractors
who transport mail;5
o reverse auctions, a Web-based tool that enables highway contractors to
compete for contracts in an electronic bidding format; and
o national contracts, the consolidation of smaller contracts for goods
and services into large, nationwide contracts.6
We conducted our review from July 2003 to April 2004 in accordance with
generally accepted government auditing standards. Details on our scope and
methodology are discussed in appendix I.
3 15 U.S.C. section 632(b).
4 Minority-and woman-owned businesses can be large or small.
5 The bulk fuel program for highway contractors is one component of the
Postal Service's fuel management program. The fuel management program is
intended to provide quality fuel for postal contractors and Postal
Service-owned vehicles and to reduce postal expenses associated with
purchase and delivery of fuel.
6 In an earlier report, we addressed one of those national contracts-an
office supply contract awarded to Boise Corporation. U.S. General
Accounting Office, Contract Management: Postal Service's National Office
Supply Contract Has Not Been Effectively Implemented, GAO-03-230
(Washington, D.C.: Jan. 17, 2003).
Results in Brief
The Postal Service has had mixed success in implementing the supply chain
management initiatives we reviewed, as discussed below. Although the
Postal Service reported over $78 million in fiscal year 2003 savings and
revenue from these initiatives, in some cases the baseline data used to
calculate the savings are inaccurate or unverifiable.
o Bulk fuel program: This savings initiative has gotten off to a slow
start and has been plagued by implementation problems that became apparent
during a pilot program that ended two years ago. The Postal Service
originally projected $18 million in annual savings under this program, but
reported only $1.1 million in savings for fiscal year 2003. The Postal
Service has repeatedly scaled back its projections after realizing that
some highway contractors have a strong preference for buying fuel from
their own suppliers instead of from national suppliers designated by the
Postal Service. The Postal Service has also been unable to increase the
number of fueling locations available for highway contractors under the
bulk fuel program. Further, the Postal Service has not yet implemented an
automated system for adjusting fuel prices, which fluctuate on a weekly
basis and can be significantly higher or lower than the values specified
in highway contracts. Thus, the Postal Service must go through a tedious
manual process to make accurate fuel price adjustments to the contract
prices in order to recoup savings. The process is so labor-intensive and
time-consuming that the Postal Service has thus far been unable to capture
millions of dollars in potential savings.
o Reverse auctions: The Postal Service has had some success with this
bidding tool and has used it increasingly in the past year. In some cases,
however, the Postal Service may not have obtained the lowest prices
possible because only one bid was received or competing contractors may
not have had sufficient time to submit their final bids. Fiscal year 2003
savings were reported as over $5.9 million. We found that $2.1 million of
these savings are questionable, however, due to such factors as inadequate
baseline data and lack of competition during the auctions.
o National contracts: The Postal Service has begun to take steps to
consolidate its spending on selected commodities in an effort to leverage
its buying power, reducing the number of suppliers for the commodities we
reviewed and directing employees to purchase their supplies from national
contracts. It claimed $71.1 million in savings and revenue in fiscal year
2003 from the national contracts we reviewed: boxes, custodial products,
labels, retail packaging, and tires. However, because the Postal Service
lacked accurate baseline data on what it had spent on these commodities
prior to the supply chain management initiative, we were unable to
validate the reported savings and revenue. The lack of accurate
baseline data is not a problem unique to the Postal Service; in our prior
work, we found that commercial companies also struggled to establish
reliable baseline data when their spending on goods and services was
highly decentralized.
According to Postal Service reports, the national contract initiative has
resulted in a decrease in small business prime contracts for the
commodities we reviewed. In planning these purchases, Postal Service
officials did not in most cases proactively explore options for keeping
small businesses involved, either as prime or subcontractors. This
situation runs counter to the intent of the Postal Service's supplier
diversity program, which states that each purchase plan must demonstrate
active efforts to use small, minority-owned, and woman-owned businesses.
We were unable to determine the effect of the bulk fuel and reverse
auction initiatives on small businesses because Postal Service contracting
officers and contractors have consistently used incorrect small business
size standards. Thus, the Postal Service's report that small highway
contractors received $2.3 billion, representing a majority of the Postal
Service's fiscal year 2003 small business contracts, is unreliable. As the
Postal Service continues to implement its supply chain management
initiatives, it will be unable to measure the effect of these initiatives
on small businesses because its new supplier diversity policy no longer
includes targets for contract dollars awarded to these businesses.
We are recommending that the Postmaster General of the United States take
actions to improve implementation of the bulk fuel program, refine reverse
auction savings estimates and procedures, and focus more attention on
small business issues in carrying out supply chain management initiatives.
In written comments on a draft of this report, the Postal Service
generally agreed with our recommendations. While the Postal Service does
not plan to establish small business targets at this time, it stated that
it would consider reestablishing targets for small business contracts if
its current achievements begin to slip.
Background The Postal Service, an independent establishment of the
executive branch of the U.S. government,7 is a $68-billion organization8
consisting of more than 37,000 post offices and 350 major mail-processing
and distribution
7 39 U.S.C. section 201.
8 As reported in the Postal Service's 2003 Annual Report.
facilities. We recently reported that the Postal Service's current
business model is outdated and inflexible and, in April 2001, we placed
the agency's long-term financial outlook and transformation efforts on our
high-risk list. We suggested that the Postal Service work with Congress
and other stakeholders to develop a comprehensive plan that would address
its financial, operational, and human capital challenges. In response, the
Postal Service issued its Transformation Plan in April 2002.
Also in 2002, the President's Commission on the United States Postal
Service was appointed to examine the Postal Service's current operations
and propose recommendations for a more viable future while minimizing the
costs to U.S. taxpayers. The commission's July 2003 report recommended
several fundamental changes, some of which involve procurement reform. The
commission said that the Postal Service could save hundreds of millions of
dollars by adopting practices that have substantially lowered costs for
private-sector retailers. Our prior work has shown that commercial
companies have achieved significant savings by leveraging their buying
power through taking a strategic approach to acquisition.9 The Postal
Service operates more as a business than as a government agency. For
example, it is responsible for generating revenue to cover its operating
expenses and is not subject to the Federal Acquisition Regulation that
guides most federal agencies' procurement practices.
In recent years, the Postal Service has undertaken a number of supply
chain management initiatives intended to streamline acquisitions and save
money. A January 2002 revision to its purchasing manual added a section on
the supply chain management philosophy and its importance to Postal
Service purchasing.10 According to the Postal Service's Comprehensive
Statement on Postal Operations, supply chain management depends on close
interaction among end users, buyers, and suppliers, with a focus on
9 U.S. General Accounting Office, Best Practices: Improved Knowledge of
DOD Service Contracts Could Reveal Significant Savings, GAO-03-661
(Washington, D.C.: June 9, 2003) and Best Practices: Taking a Strategic
Approach Could Improve DOD's Acquisition of Services, GAO-02-230
(Washington, D.C.: Jan. 18, 2002).
10 On March 24, 2004, the Postal Service proposed to amend its purchasing
regulations in order to implement the acquisition portions of its
Transformation Plan and the similar recommendations of the President's
Commission on the United States Postal Service as they relate to the
acquisition of property (except real property) and services. 69 Fed. Reg.
13786 (Mar. 24, 2004).
creating long-term contracts, as well as ongoing analysis and improvement
of operating and administrative processes and costs.
Two of these initiatives, the bulk fuel program and reverse auctions for
highway contracts, are targeted at efforts to save on transportation
costs. Fueling the Postal Service's transportation network is no small
feat. Diesel fuel is a major Postal Service expense, totaling almost $340
million in fiscal year 2003 for the thousands of highway contractors who
consumed about 225 million gallons of fuel.11 With this volume of fuel
purchasing, even a 1-cent difference in price per gallon can result in
millions of dollars in savings for the Postal Service. Recognizing the
potential for savings, the Postal Service launched the bulk fuel pilot
program in the late 1990s. The Postal Service negotiated a discounted fuel
price with a national supplier and directed a small number of highway
contractors to purchase their fuel from this supplier rather than from
various local and regional sources. In fiscal year 2001, the Postal
Service expanded the program to two national suppliers.
In fiscal year 2002, the Postal Service began to use reverse auctions, a
Web-based bidding tool, for emergency highway transportation contracts
(short term, temporary routes during the December holidays, for example).
The Postal Service has hired a firm to conduct the auctions on its
behalf.12 Before this online tool became available, contracting officials
solicited bids from potential contractors by fax and telephone. Utilizing
the Web, the Postal Service can now seek contract bids on a reverse
auction site, where competitors can see one another's bids in real-time
and take this information into account when deciding on the price they
will
11 The Postal Service estimates that it has about 10,000 highway
contractors; however, this number is not precise because each of the 11
district offices uses a unique reporting number to identify their
contractors and, therefore, double-counting is likely to occur. In
addition, we found that the same contractor may be listed under multiple
names, each of which is considered a separate contractor.
12 The Postal Service has used reverse auctions on a limited basis for
other than highway contracts. Our review covered only the reverse auctions
for highway contracts. The Postal Service's Office of Inspector General
recently conducted a review looking at the effectiveness of reverse
auctions for goods and services for other than highway contracts. Office
of Inspector General, U.S. Postal Service, Use of Reverse Auctions,
CA-AR-04-001 (Arlington, VA: Feb. 26, 2004). The Postal Service entered
into a contract with Lean Logistics on November 21, 2002, totaling
$305,000 including contract modifications, to conduct reverse auctions for
emergency highway transportation contracts. The contract was extended by
one year on December 12, 2003, for an additional $240,000.
offer. The Postal Service's intent in using this tool is to obtain the
lowest price possible by garnering increased competition.
A third initiative, national contracts, is intended to consolidate the
Postal Service's spending on certain commodities. Postal Service employees
have typically purchased supplies in a highly decentralized manner, from
local, regional, or national businesses. Millions of dollars are spent
using cash or purchase cards or through contracts. By negotiating
contracts with selected suppliers based on volume discounts and directing
employees to use these contracts, the Postal Service plans to leverage its
buying power and save money.
Success of Savings Initiatives Has Been Mixed, and Some Reported Savings
Cannot Be Validated
The Postal Service has had mixed success in implementing the supply chain
management initiatives we reviewed. The bulk fuel program has been
hampered by implementation difficulties, but the Postal Service has had
some success using reverse auctions and has used this tool increasingly.
The Postal Service has also begun to consolidate its spending on boxes,
custodial products, labels, retail packaging, and tires through the use of
national contracts. However, some of the claimed savings from reverse
auctions were overstated, and we could not validate the $71.1 million in
reported savings and revenue from the national contracts we reviewed
because the Postal Service lacked accurate baseline data on what had been
spent on the commodities before the supply chain management initiative.13
Bulk Fuel Implementation Difficulties Have Prevented Projected Savings from
Being Realized
The bulk fuel program has gotten off to a slow start, beset by a number of
implementation difficulties. Only 600 of the roughly 17,000 highway routes
are involved in the program, although the Postal Service had expected a
much greater level of participation. Consequently, the Postal Service is
far from realizing its originally projected savings of $18 million per
year, capturing only about $1.1 million in savings in fiscal year 2003. It
may forgo collecting over $3 million in potential savings due to the
implementation problems.
The difficulties the Postal Service has encountered are primarily due to
(1) resistance from many highway contractors; (2) setbacks in the Postal
13 The Postal Service recently asked its Inspector General to assess the
methodology used to calculate savings from supply chain management
initiatives.
Service's plans to expand the number of fuel delivery locations under the
program; and (3) lack of an automated system to accurately capture fuel
prices, which means that inaccurate and burdensome manual calculations
must be used.
First, some highway contractors have refused to participate in the bulk
fuel program. A few have gone as far as filing court actions challenging
the Postal Service's right to direct them to certain fueling sites. This
resistance is due to a number of factors. One has to do with profit.
Contractors' fuel costs are intended to be "pass-through" costs, with the
Postal Service reimbursing the contractors for the fuel costs specified in
their contracts. The contract prices are based on an estimated price per
gallon and an estimated number of gallons to be consumed annually. If the
contractors' actual price per gallon paid deviates from the contract's
estimated price per gallon by 5 cents or more, they may submit a request
for a contract price adjustment.14 Updated fuel cost information from the
contractor can be required if the contracting officer suspects that the
contractor is being allowed reimbursement for fuel costs greater than
those actually being incurred. However, given the volume of contracts, it
is difficult and resource intensive to keep up with the fuel price
changes, and therefore contracting officers primarily rely on the
contractors to submit fuel adjustments. In practice, however, according to
Postal Service officials, contractors are typically quick to submit an
adjustment when they are paying more than the contract price, but slow to
do so when they are able to obtain the fuel more cheaply. For highway
contracts not under the bulk fuel program, contractors have been able to
retain the difference between their actual expenditures for fuel and their
contract price. The procedures for contract price adjustments under the
bulk fuel program do not allow contractors this opportunity.
Contractors have cited other reasons for resisting the program. They say
they have built strong business relationships with their local fuel
suppliers and that those suppliers are more responsive than the major
suppliers designated in the bulk fuel program. They also believe that, as
a business decision, they should be able to elect where to purchase their
fuel. Some have shown that they can buy fuel more cheaply from their local
suppliers than under the bulk fuel program. Postal Service officials point
out that, while it is true that in certain cases the bulk fuel price may
not be the
14 The fuel cost reimbursed to the contractors is based on the estimated
annual gallons. This estimate is not adjusted based on actual gallons
consumed.
lowest, the only way that the savings can be achieved is if a large number
of contractors participate in the program. They also note that fuel is
supposed to be a pass-through cost and, therefore, contractors should not
be concerned that the bulk fuel price may be higher than a discount rate
they may be able to obtain on their own.
Second, effective implementation has been hampered by the Postal Service's
lack of success in bringing new fueling locations into the bulk fuel
program. Postal Service officials recognize that, with only 44 locations
available to contractors to buy fuel under the program, the Postal
Service's anticipated savings cannot be achieved. In a solicitation issued
April 8, 2003, the Postal Service requested proposals from fuel suppliers
in an effort to add 22 locations to the program. The intention was to
increase the number of gallons highway contractors purchase at bulk fuel
prices by having these additional suppliers distribute fuel purchased from
the two national bulk fuel companies. However, the Postal Service received
no acceptable offers from suppliers for new fueling sites and is now
considering additional approaches to expand the number of fueling
locations.
Third, the Postal Service does not have an automated system for gathering
information on the number of gallons of fuel highway contractors purchase
and the price they pay under the bulk fuel program. Therefore, manual
procedures must be used to adjust contract prices in order to secure
savings for the Postal Service. During the pilot program, the Postal
Service recognized the need to automate its fuel adjustment system but
expanded the program before the system was in place. We found that manual
price adjustments have been inaccurate. Contrary to Postal Service
procedures, which direct contracting officers to adjust contract prices
based on the quantity of fuel purchased by contractors as well as the
price they pay, contracting officials are simply adjusting the contract
price based on the contractors' average weekly price per gallon paid at
bulk fuel sites-without factoring in the number of gallons purchased. This
approach could result in lost savings for the Postal Service and, in some
cases, contractors being shortchanged. In addition, we found that the
price per gallon under the bulk fuel program did not include a special
sales tax that some states require highway contractors to pay for diesel
fuel. For example, one contractor paid $1,656 to cover this tax in a
3-week period, which the contracting officer's adjustment did not include.
Although the contractor brought the situation to the attention of the
Postal Service contracting officer, the contracting officer took no action
to fix the problem until we called it to the Postal Service's attention.
According to postal officials, because of our finding, they have updated
all of the state
tax information with the information received from a national fuel tax
consultant and are working with the bulk fuel suppliers to obtain reports
that detail taxes charged at each delivery site.
Manual adjustments also pose an administrative burden for Postal Service
contracting personnel and highway contractors. A study conducted for the
Postal Service shows that fuel adjustments can take as long as 30 minutes
per contract. Contractors must submit invoices or other documentation to
show how many gallons of fuel they purchased and at what price. Without
this information, the Postal Service cannot make accurate fuel cost
adjustments and achieve savings. However, one of the primary reasons for
the bulk fuel program was to reduce the administrative burden associated
with manual adjustments. The program's intention was not to require
highway contractors to submit receipts for every single fuel transaction
at the pump or to have Postal Service contracting officers wade through
daily transactions in order to make monthly adjustments in highway
contracts.
Postal Service officials recognize that, until an automated system is
implemented for capturing transaction data at the pump, the bulk fuel
program will not be as successful as they had hoped. They are taking steps
to automate the process. In a pilot effort involving three bulk fueling
locations, the Postal Service created an electronic system that
automatically adjusted contract prices based on the actual gallons
purchased and prices paid at the pump. Because of the success of this
pilot effort, the Postal Service plans to use the system for all contracts
under the bulk fuel program. However, a program official said the system
is behind schedule and will not be even partially available until the end
of fiscal year 2004, and full implementation is not expected until at
least a year later.
These implementation difficulties have resulted in significantly lower
savings than expected and a struggle to recoup millions of dollars from
contractors participating in the program. In 1999, the Postmaster General
told Congress that 75 percent of highway contractors' fuel, about 170
million gallons, would be purchased under the bulk fuel program and would
yield annual savings of over $18 million.15 After further analysis,
15 Hearing before the Subcommittee on the Postal Service, Committee on
Government Reform, House of Representatives, 106th Congress, October 21,
1999. In July 2001, the Postal Service's Inspector General confirmed that
the $18 million in projected annual savings was reasonable, assuming that
the Postal Service was able to expand the program as anticipated and
obtain 12 cents in savings per gallon. Office of Inspector General, U.S.
Postal Service, Bulk Fuel Purchase Plan, TR-AR-01-004 (Arlington, VA: July
27, 2001).
however, the Postal Service lowered its estimate to 95 million gallons of
fuel and annual savings of $8.8 million starting in fiscal year 2004.16
Late in fiscal year 2003, the projected savings were further lowered to
$4.7 million, because highway contractors under the bulk fuel program
purchased only 50 million gallons of fuel. However, Postal Service
officials realized that they had failed to recoup $3.9 million of this
amount because contractors were not initiating fuel price adjustments but,
rather, were retaining the difference between the bulk fuel price and
their contract price. The Postal Service subsequently implemented the
manual, monthly adjustment system discussed earlier, retroactively
attempting to collect overpayments from contractors, and has now reported
fiscal year 2003 savings of about $1.1 million. However, the Postal
Service said that it may decide to forgo an additional $3.5 million in
potential 2003 savings because of the administrative burden of
retroactively adjusting contract prices.
Some Success with Reverse Auctions, but Procedures and Reported Savings
Could Be Improved
The Postal Service has had success with reverse auctions for highway
contracts and has used them increasingly, but some procedures could be
improved to enable it to obtain lower prices. The Postal Service claimed
over $5.9 million in savings from these reverse auctions in fiscal year
2003, but about $2.1 million of these savings are questionable. For some
auctions the reported savings were overstated, and in other cases savings
were claimed for auctions when no bids were received.
Since May 2002, reverse auctions have been conducted for 659 of about
17,000 highway contract routes, and use of the auctions has been
increasing each year; over 400 of these auctions occurred in fiscal year
2004. In implementing the auctions, however, the Postal Service may not be
getting the lowest price possible in some cases. For example, we found
that 181 of the 659 auctions ended with only one bid received. In cases
where there is only one bidder, we believe that the Postal Service may not
be getting the best price because there were no other bidders to drive
down the price. In these cases, contracting officers do not attempt to
negotiate a lower price with the sole bidder. According to one of these
successful bidders, his only bid was high and would not have been his
final offer had there been competing bids. To keep the bids within an
acceptable range, the Postal Service establishes a reserve price, or a
maximum price it is willing to accept, based on market research prior to
starting the auction. Postal Service officials stated that, because they
16 The lowered estimate was based on an estimated savings of 9.3 cents per
gallon.
establish a low reserve price, they are confident that the Postal Service
is obtaining fair and reasonable prices even when only one bid is
received.
Another area of concern is whether the highway contract reverse auction
procedures provide sufficient opportunity for bidders to submit their best
price. The Postal Service uses a practice known as "overtime" for reverse
auctions for certain goods and services, but not for highway contracts.
Typically, just before an auction comes to a close, there is a rush of
activity from bidders. To ensure that the winning bid is the lowest
possible, the Postal Service's reverse auctions for other than highway
contracts provide the option of an overtime process until bidding comes to
a halt. Rather than have every auction automatically close at a given time
and thereby reward the contractor who waited until the very last second to
place its bid,17 the overtime process provides all suppliers with an
additional increment of time to react to last-minute bids if they believe
they can offer a lower price. For example, under the overtime process, if
a final bid is submitted within the last minute, the auction can be
extended by 5 minutes or more to allow other bidders a chance to make a
better offer. Postal Service officials noted that they had considered the
possibility of using overtime procedures, but were concerned that some
suppliers may not be available to participate in an overtime event because
they lack the administrative staff to monitor the bidding.
The Postal Service began claiming savings from reverse auctions in fiscal
year 2003, reporting over $5.9 million in savings from 111 auctions held
that year. For many of these auctions, data were not available for making
direct comparisons with contracts for prior highway routes. Therefore, the
Postal Service used statistical analysis to derive the savings, a common
practice when historical data are unavailable. However, for 6 of these
auctions-for which the Postal Service claimed $800,000 in savings-we could
not substantiate the savings. Based on our analysis of the Postal
Service's methodology, we found no statistical evidence to support its
approach. Another 24 highway contracts awarded through reverse auctions
did have direct comparisons with previously awarded contracts, making it
easier to project savings. We examined the largest of these contracts,
with claimed savings of $1.2 million, and found that the savings were
derived from incorrect baseline data. The baseline used to calculate the
savings was based on an outdated contract rate of $11.65 per mile,
17 Of the 446 highway contract auctions conducted between October 2003 and
February 2004, 75 percent received bids in the final minute.
although a recent modification to the contract had a rate of $4.87. Thus,
the savings from this auction were significantly overstated.
Furthermore, the Postal Service claimed savings from 7 reverse auctions
that expired with no bids received. Subsequently, the Postal Service faxed
the requirements to known suppliers in relevant geographic areas,
requested bids, and eventually awarded contracts. The Postal Service
claimed $108,005 in reverse auction savings for these contracts even
though the contractors did not participate in a reverse auction.
Based on our findings, Postal Service officials agreed to lower their
claimed savings for these reverse auctions.
National Contract Initiative Under Way, but Lack of Accurate Baseline Data
Renders Reported Savings and Revenue Questionable
In turning to national contracts for certain items, the Postal Service has
attempted to reduce costs and improve efficiency in its acquisition
approach by directing employees to make purchases from designated
suppliers. Prior to its use of national contracts, the Postal Service
purchased corrugated boxes, custodial products, labels, retail packaging,
and tires from a large number of suppliers. The Postal Service has
negotiated contracts for these commodities with a smaller number of
suppliers in order to leverage its buying power. For example, prior to the
initiative, the Postal Service estimates it had over 1,000 suppliers for
custodial products and 22 suppliers for labels. It now has 2 contracts for
custodial products and 6 for labels. For fiscal year 2003, the Postal
Service reported $71.12 million in savings and revenue through the
national contracts for the five commodities we reviewed, as shown in table
1.
Table 1: Reported Savings/Revenue for Fiscal Year 2003 from Five National
Contract Initiatives
Dollars in millions
Type of supply Reported savings/revenue
Corrugated boxes $2.96
Custodial products 16.38
Labels 5.70
a
Retail packaging 41.26
Tires for mail delivery trucks 4.82
Total $71.12
Source: U.S. Postal Service.
aUnlike the other initiatives, which are intended to generate savings,
this contract is meant to bring additional revenue to the Postal Service.
The Postal Service purchases such items as wrapping paper and bubble wrap
mailers from the contractor and then offers them for sale in local post
offices. The revenue is reported as part of overall supply chain
management savings.
However, we were not able to validate these reported savings and revenue
because they are based on unreliable baseline data. Given the highly
decentralized nature of its procurements and the fact that many supplies
have traditionally been purchased using cash and purchase cards, the
Postal Service could not determine how much had been spent on these
commodities prior to the supply chain management initiative. Postal
Service contracting officers agreed that solid baseline data were not
available, but stated that they did the best they could with the data they
had, such as using accounts payable data where feasible.
The Postal Service is not the only major organization that has had
difficulty in tracking what it is buying. Our prior work has found that
major commercial companies often do not have a good grasp of how much
their individual business units are spending, where their dollars are
going, and whether their purchases are meeting business needs at the best
overall value. To reduce costs, leading companies have reengineered their
approach to acquisition and changed the way they manage their spending.18
Among other things, they use information systems to get a clearer picture
of what their business units are spending, rather than taking months to
examine individual purchase orders and piece together data from various
financial and management information systems to get at best a rough idea
of what is being spent.
Postal Service officials have been working for a number of years on a new
system-planned for full implementation by the end of fiscal year 2006-that
will enable them to better track contract expenditures, thus providing
them with more accurate data on savings from national contracts. However,
the Postal Service will continue to lack detailed knowledge of what is
being spent outside of contracts, such as through cash and purchase
cards.19 Therefore, it will be difficult for the Postal Service to know
with any degree of certainty whether the consolidated contracts are
producing the desired results and what, if any, additional improvements
are needed to realize the benefits expected from the national contract
initiative.
18 GAO-02-230.
19 We discussed the problems the government has faced in collecting
details on purchase card expenditures in two prior reports. U.S. General
Accounting Office,
Contract Management: Government Faces Challenges in Gathering
Socioeconomic Data on Purchase Card Merchants, GAO-03-56 (Washington,
D.C.: Dec. 13, 2002) and Contract Management: Agencies Can Achieve
Significant Savings on Purchase Card Buys, GAO-04-430 (Washington, D.C.:
Mar. 12, 2004).
More Attention Needed to Ensure Small Business Participation in Supply Chain
Management Initiatives
When the Postal Service consolidated its purchasing under the national
contracts we reviewed, the number of small businesses participating as
prime contractors declined. In planning these acquisitions, Postal Service
officials often did not proactively explore ways in which to make these
contracting dollars available to small businesses, either as prime or
subcontractors. We could not gauge the effect on small businesses as a
result of the other supply chain management initiatives we reviewed-the
bulk fuel program and reverse auctions for highway contracts-because
contracting officers and highway contractors used incorrect small business
size standards and, consequently, the reported small business dollar
amounts are unreliable. As it proceeds with its supply chain management
initiatives, the Postal Service will have difficulty measuring the effect
on small businesses because its new supplier diversity policy, while
indicating a commitment to increasing contracts to small and diverse
businesses, does not establish targets-such as dollar amounts or number of
contracts-to measure success.
Small Business The number of small business suppliers has dropped in four
of the five Participation Has Been commodities we reviewed. Table 2 shows
the effect of the national Reduced as a Result of contract initiative on
small business participation.
National Contracts
Table 2: Effect of National Contracts on Small Business Participation
Reported number of Reported number of
businesses before businesses after
Type of supply consolidation consolidationa
Corrugated boxes 3 large 2 large
2 small
Custodial products Exact number unknown; 1 large
estimate is about 200 1 small
large
and about 800 small
Labels 7 large 3 large
15 small 3 small
Retail packaging Exact number unknown; 1 large
estimate is about 20, many
of which were local
businesses
Tires for mail delivery trucks 4 large 1 large
Source: U.S. Postal Service.
aAs of February 2004.
In planning most of these initiatives, contracting officers and other
Postal Service officials did not consider ways to ensure that small
businesses
would have the chance to compete for contracting dollars, although the
Postal Service's supplier diversity plan states that each purchase plan
must consider the use of small, minority-owned, and woman-owned
businesses. Further, Postal Service regulation requires the contracting
officer to manage supplier diversity as a strategic business initiative.
In only one case-custodial products-was full attention paid to the effect
of the consolidated contract on small businesses. In planning this
acquisition, Postal Service officials recognized that some of these
products were being purchased from local businesses and that there would
be a drop in supplier diversity as a result of the consolidation.
Acquisition planning documents show that market research and outreach were
conducted with the intent of identifying potential small businesses to
compete for the contract. Ultimately, two contracts were awarded-one to a
large business and the other to a small business.
Further, in only one of the five commodities we reviewed was the prime
contractor's intent to subcontract with small businesses considered to any
extent in awarding the contract. For custodial products, small business
subcontracting was one of the evaluation factors in the solicitation. The
large business, when submitting its proposal under the solicitation,
included a supplier diversity plan with a 28.8 percent small business
goal; however, this goal was revised to 2.1 percent after the contract was
awarded.
Our prior work has found that leading commercial companies take several
steps to ensure that small businesses serve some of their acquisition
needs because they believe it makes good business sense, especially in the
communities where they do business.20 These steps include considering
diverse businesses in acquisition planning, ensuring that supplier
diversity is considered in selecting contractors, justifying the reason
when there is a lack of diverse supplier participation, and encouraging
small suppliers who have limited resources to form joint ventures so they
can compete effectively for large contracts.
20 GAO-03-661.
Incorrect Application of Small Business Size Standards Makes It Difficult to
Measure Impact of Other Initiatives
In fiscal year 2003, the Postal Service reported that $2.3 billion, or 59
percent of its small business dollars, went to highway contractors. We
were unable to gauge the effect of the bulk fuel program and reverse
auctions on these contractors because Postal Service contracting officers
and the contractors themselves had not used the correct size standard for
defining a small business. As a result, the reported small business
dollars for highway contractors are unreliable.21
Postal Service regulation directs contracting officers to use the Small
Business Administration's (SBA) regulations to ascertain whether a size
standard other than the 500 employee ceiling should be used to determine
whether a business is small. SBA has defined the size standard for small
bulk mail truck transportation businesses as average annual receipts at or
below $21.5 million, rather than the number of employees.22 However, five
Postal Service contracting officers we spoke with, who together are
responsible for almost 60 percent of all highway contracts, routinely
define a small business as one with 500 or fewer employees. Postal Service
supplier diversity officials told us that the criterion of no more than
500 employees is used virtually without exception.
We also found that the Postal Service has disseminated inaccurate guidance
on small business size standards. Until recently, a form that highway
contractors use to place themselves on the Postal Service mailing list
stated that businesses with 500 or fewer employees are considered small
businesses. Postal Service officials have corrected this form. In
addition, the Postal Service's Web site contains a document, "Supplier
Diversity Terms," that defines a small business as one with no more than
500 employees. Postal Service officials are correcting this document.
21 In 2001, the Postal Service Inspector General found that fiscal year
1999 supplier diversity statistics were incomplete and unreliable and
resulted in the Postal Service's overstating or incorrectly classifying
dollars awarded to small, minority-owned, or womanowned businesses. Office
of Inspector General, U.S. Postal Service, Supplier Diversity Program for
Supplies, Services, and Equipment Purchases, CA-AR-01-005 (Arlington, VA:
Sept. 6, 2001). In 2003, we reported that that the Postal Service provided
documents showing the actions it had taken to address the Inspector
General's recommendations. However, we did not independently determine
whether the actions taken by the Postal Service improved the reliability
of its supplier diversity data. U.S. General Accounting Office, U.S.
Postal Service: Status of Inspector General's Recommendations on the
Supplier Diversity Program, GAO-04-57R (Washington, D.C.: Oct. 6, 2003).
22 13 CFR 121.201 (subsector 484). SBA has recently proposed modifications
to its small business size standards. It plans to use the number of
employees and eliminate the revenue threshold for most industries. 69 Fed.
Reg. 13129 (Mar. 19, 2004).
We selected eight highway contractors who do a substantial amount
of business with the Postal Service-about $390 million in fiscal year
2003-and who were reported as small businesses. We determined that
five of the eight were not small businesses. Each of them had more than
500 employees and average annual receipts exceeding $21.5 million.
When we spoke with these five contractors, we found that they were also
confused about the appropriate small business size standard, believing it
to be 500 employees. Part of the confusion stemmed from the fact that a
form requiring them to self-certify their size when responding to a Postal
Service solicitation states that companies with 500 or fewer employees
are considered small businesses, unless SBA has established a different
size standard.
Further, we found that, in some cases, Postal Service contracting
specialists were filling out the size standard for the contractors rather
than having them self-certify as a large or small business. Two of the
contractors we spoke with had noticed that the Postal Service had
identified their businesses as small when they considered themselves
large. The contractors noted the errors on the form, but the changes were
not made in the Postal Service's records. Postal Service officials have
stated that they have now taken steps to ensure that the forms are not
filled out by the Postal Service for the contractors.
Highway contracts were not the only area where we found
reporting errors. One contractor under the national contract initiative
for corrugated boxes reported that it was a small business and
received the Postal Service's 2002 Quality Supplier Award for "Small
Business-Manufacturing." However, this company is owned by a large
corporation.23 The contractor stated that it identified itself as a small
business because the individual subsidiary has fewer than 500 employees.
New Supplier Diversity Plan Lacks Targets to Measure Small Business
Participation
It will be difficult for the Postal Service to measure progress in small
business contracting because its new 3-year supplier diversity plan,
issued in October 2003, does not specify targets for small business
procurement dollars. The prior supplier diversity plan, which covered the
1999 to 2003 time frame, included such targets, with increasing dollar
amounts for these
23 Where corporations are affiliates (one controls or has the ability to
control the other), both corporations' receipts or employees count in
determining the small business size. 13 CFR 121.103.
Conclusions
Recommendations for Executive Action
businesses over the 5-year period. Without targets in place against which
to measure performance, the Postal Service has no way to determine whether
its supplier diversity policies are being successfully implemented.
Further, there is no mechanism in place to hold Postal Service officials
accountable for implementing the Postal Service's objective of ensuring a
continuing focus on, and improvement in, its relationships with small and
diverse businesses. Our prior work has found that, as part of their
diversity policies, leading commercial companies set specific goals to
measure performance-such as percentage of total contract dollars awarded
to small businesses-and consider gradually increasing the goals on an
annual basis.
Leveraging buying power through the use of supply chain management can
lead to significant savings, and the Postal Service is on the right track
in starting to focus on these opportunities. However, the Postal Service
can improve aspects of the initiatives, such as working out implementation
problems that have plagued its bulk fuel program. While the lack of
accurate baseline information against which to measure savings is, to some
degree, an inherent problem in an environment of decentralized
spending-and a problem not unique to the Postal Service-the Postal Service
can take steps to capture more reliable information on its supply chain
management initiatives so that it knows whether the initiatives are
producing the desired results.
The Postal Service also faces the challenge of achieving necessary savings
while following its own diversity policies. More attention needs to be
paid to the effect of supply chain management initiatives on small
businesses. As the Postal Service moves forward with its supply chain
management initiatives, reliable data and an emphasis on the importance of
small business participation are the key factors needed to make its
supplier diversity policy work. Given the lack of targets for small
business participation in the new supplier diversity policy, however, it
will be difficult to hold contracting officers and other key officials
accountable for improving the Postal Service's relationships with small
businesses.
We recommend that the Postmaster General of the United States take the
following seven actions:
To move toward an accurate and less burdensome method of recouping savings
under the bulk fuel program
o place a high priority on automating the fuel price adjustment system,
and
o develop a time-phased plan for expanding the number of fueling
locations.
To capture accurate savings from its reverse auctions for highway
contracts and ensure that the Postal Service gets the best possible price
o encourage contracting officers to try to negotiate further price
reductions when only one bid is received, and
o conduct an analysis to determine whether reverse auction overtime
procedures would result in the Postal Service's achieving additional
savings.
To improve small business reporting and participation
o train contracting officers on the appropriate size standards for
different types of businesses and direct them to post the proper standard
in the solicitation;
o direct contracting officers and other acquisition personnel to (1)
explore during acquisition planning ways that small business participation
can be addressed in a supply chain management environment and (2) document
their decisions; and finally,
o establish targets for small business participation in Postal Service
Agency Comments
and Our Evaluation
contracts.
In written comments on a draft of this report, the Postal Service
generally agreed with our recommendations. It stated that, while many
improvement plans were in place prior to receiving the results of our
review, it welcomed the additional information and recommendations and
plans to use them to further refine its supply chain management efforts.
The Postal Service agreed with our recommendations on the bulk fuel
program and reverse auctions for highway transportation contracts. The
Postal Service noted that the auctions covered by our report represent a
relatively small amount of total reverse auction spending volume; however,
the highway transportation auctions we reviewed also account for the vast
majority-over 90 percent--of auctions held. On the issue of small business
reporting and participation, the Postal Service stated that it would
conduct random sampling to check small business certifications, provide
training to reinforce existing policies that require supplier diversity to
be addressed in acquisition plans, and focus attention on subcontracting
plans and reporting. It also noted that the more recent acquisition plans
under supply chain management initiatives place stronger emphasis on
addressing supplier diversity issues. The Postal
Service stated that our findings on the national contract initiatives
would help drive further improvement by ensuring that contracting officers
continue to address supplier diversity in their acquisition plans.
The Postal Service stated that, while it understands our recommendation to
establish targets for contracting with small businesses, its current
approach is to establish baselines from achievements obtained in the
previous year so that purchasing units can advance their accomplishments
in successive years. By monitoring results quarterly and tracking small
business participation throughout the process, the Postal Service believes
it can effectively identify and focus its improvement efforts. It stated
that it would consider reestablishing targets for small businesses if
results start to slip. The Postal Service's response implies that the
current achievement level is a baseline against which improvements to
small business contracting will be measured. However, we believe that the
Postal Service needs to have in place a mechanism to ensure that
contracting officers and other key officials are held accountable for
improving small business contracting and to provide transparency into the
Postal Service's improvement efforts.
The Postal Service also provided technical comments, which we incorporated
as appropriate.
We are sending copies of this report to other interested congressional
committees and the Postmaster General of the United States. We will also
make copies available to others upon request. In addition, the report will
be available at no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-4841 or Michele Mackin at (202) 512-4309 if
you have any questions regarding this report. Other major contributors to
this report were Lily Chin, Eric Fisher, Paul Greeley, Judy Lasley,
MacDonald Phillips, Russ Reiter, and Sylvia Schatz.
David E. Cooper Director, Acquisition and Sourcing Management
Appendix I: Scope and Methodology
To determine the extent to which the Postal Service's supply chain
management initiatives have resulted in savings, we reviewed the highway
contractor bulk fuel program and reverse auctions for transportation
services and selected five commodities that have been consolidated into
national contracts: corrugated boxes, custodial products,
pressuresensitive labels, retail packaging, and delivery vehicle tires. We
selected these contracts because they had large projected savings and
represented a range of Postal Service commodities. We reviewed our prior
report on the Postal Service's national office supply contract1 and Postal
Service Inspector General reports on the bulk fuel pilot program and
reverse auctions.
In reviewing the bulk fuel program and reverse auctions, we interviewed
Postal Service officials in headquarters as well as 5 of the Postal
Service's 11 transportation contract managers. We selected these managers
because they were large users of the bulk fuel program and reverse
auctions. We also met with a representative of the National Star Route
Mail Contractors Association, which represents a number of large and small
highway contractors. For the bulk fuel program, we reviewed program
documentation regarding the Postal Service's projected savings per gallon
and program implementation. For the reverse auctions, we obtained Postal
Service May 2003 policy guidance and information on each of the 659
reverse auctions held since May 2002. Drawing data from the Lean Logistics
reverse auction Web site, we analyzed information on when the Postal
Service posted the requirement, the name of the contractors placing bids,
bid amounts, and the dates and times these bids were placed. We did not
compare the information drawn from the Web site with Postal Service
contract files, but we verified the overall number of auctions with Postal
Service officials. We also reviewed the methodology supporting the Postal
Service's reported reverse auction savings. Using Postal Service data, we
performed various statistical analyses, including replicating the Postal
Service's methodology, to determine whether the estimated savings were
reasonable. We also conducted a literature review of studies and research
concerning the benefits of using reverse auctions.
For the national contracts, we interviewed the responsible program
officials and contracting officers in Dallas, Texas; Denver, Colorado;
1 U.S. General Accounting Office, Contract Management: Postal Service's
National Office Supply Contract Has Not Been Effectively Implemented,
GAO-03-230 (Washington, D.C.: Jan. 17, 2003).
Appendix I: Scope and Methodology
Memphis, Tennessee; Philadelphia, Pennsylvania; and Washington, D.C., and
reviewed the contract files. We also obtained the Postal Service's initial
projected savings for these national contracts and their actual claimed
savings from the Postal Service Supply Chain Management Office. We did not
validate these reported savings or determine the extent to which Postal
Service buyers were using the contracts.
To determine whether supply chain management initiatives have had an
effect on small businesses, we compared prior suppliers' business sizes
with those of current suppliers under the national contracts, based on
information from the contracting officers. We did not validate the
reported business sizes. We also reviewed the individual acquisition plans
for each commodity to determine if small business participation was
considered in the acquisition planning. For the bulk fuel program and
reverse auctions, we interviewed Postal Service policy officials, program
officials, and contracting officers. We also discussed with eight highway
contractors their business size, including the number of employees and
average annual receipts. We reviewed the Small Business Administration's
small business size standards and obtained concurrence from a Postal
Service policy official that $21.5 million in total average annual
receipts should be used as the size standard for highway contractors to
qualify as a small business. Because the Postal Service has a commercial
business orientation in many respects, we used our prior work to identify
some of the efforts that leading companies have taken to address the issue
of supplier diversity.2 During that review, we identified leading
commercial companies and discussed with them their policies and procedures
for ensuring that small or minority-owned contractors had the opportunity
to participate in their contracts.
We conducted our review from July 2003 to April 2004 in accordance with
generally accepted government auditing standards.
2 U.S. General Accounting Office, Best Practices: Improved Knowledge of
DOD Service Contracts Could Reveal Significant Savings, GAO-03-661
(Washington, D.C.: June 9, 2003).
Appendix II: Comments from the U.S. Postal Service
Appendix II: Comments from the U.S. Postal Service
Appendix II: Comments from the U.S. Postal Service
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