Postal Service: Conditions Leading to Problems in Some Major Purchases
(Letter Report, 01/18/96, GAO/GGD-96-59).

Pursuant to a congressional request, GAO reviewed whether changes are
needed in the Postal Service's purchasing program, focusing on whether:
(1) certain problem purchases were due to some underlying causes that
should be addressed through legislation; and (2) the Service should
implement additional procedural safeguards to minimize future
occurrences of such problems.

GAO found that: (1) the problems encountered during the seven purchases
reviewed were due to Postal officials' poor judgment, circumventions of
existing internal controls, and failure to resolve conflicts of
interest; (2) many contracting officers could not exercise independent
judgment, since they reported directly to those officials who required
the products or services; (3) the Service has taken action to increase
oversight and accountability over its purchasing process and to
safeguard against such future occurrences; (4) in response to
recommendations by the Office of Government Ethics, the Service has
outlined actions it is taking to improve its ethics program which should
help prevent the recurrence of such purchasing problems; (5) a formal
ethics education and training program for contracting officers and
personnel is underway; (6) the Service has established one purchasing
executive with management authority over the three separate Postal
purchasing groups; and (7) the Service plans to adopt a requirement for
more explicit documentation of and rationale for contracting officers'
business and policy actions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-96-59
     TITLE:  Postal Service: Conditions Leading to Problems in Some 
             Major Purchases
      DATE:  01/18/96
   SUBJECT:  Mail transportation operations
             Real estate purchases
             Federal procurement
             Postal service contracts
             Conflict of interest
             Internal controls
             Procurement practices
             Procurement procedures
IDENTIFIER:  Queens (NY)
             St. Louis (MO)
             Bronx (NY)
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on the Postal Service, Committee
on Government Reform and Oversight, House of Representatives

January 1996

POSTAL SERVICE - CONDITIONS
LEADING TO PROBLEMS IN SOME MAJOR
PURCHASES

GAO/GGD-96-59

Major Postal Purchases

(240155)


Abbreviations
=============================================================== ABBREV


Letter
=============================================================== LETTER


B-260011

January 18, 1996

The Honorable John M.  McHugh
Chairman, Subcommittee on the Postal Service
Committee on Government Reform and Oversight
House of Representatives

Dear Mr.  Chairman: 

As agreed with the Subcommittee, this report provides information to
you that the Chairman of the former House Post Office and Civil
Service Committee requested about whether changes were needed in the
Postal Service's purchasing program.  The Committee cited five
purchases that, because of problems that occurred, it said did not
reflect favorably on the Service's procurement policy or the wisdom
of exempting the Service from many of the purchasing rules that apply
to other federal agencies. 

Four of these purchases were the subject of earlier reports we issued
in response to requests from the Postal Service oversight committees. 
These purchasing problems involved the following: 

  the purchase of a site in Queens, NY, that is unusable because of
     toxic contamination;

  the purchase of an air transportation hub that was flawed because
     the selection of the location was not in accordance with the
     criteria in the solicitation;

  ethics violations in an automation contract; and

  an award for air transportation service, which was set aside by the
     courts because of a conflict of interest that existed when the
     award was made. 

In the fifth case the Investigations Subcommittee of the former
Committee reported that the Postal Service, because of a number of
failures in its procurement process, paid an excessive amount for a
building in St.  Louis.  During our work, the Committee added a sixth
case involving a building that was purchased in the Bronx, NY, but is
not usable for its intended purpose.  We added a seventh case
involving the purchase of automation equipment because, as in the
award for air transportation, an arbitrator determined that a
conflict of interest existed when the award was made, which resulted
in costly damages being levied against the Postal Service.  Appendix
I includes additional information on each purchase and citations to
our applicable reports. 

Although these problem purchases were a small percentage of the
total, and occurred over several years, each involved significant
dollar outlays and resulted in excessive cost, delay, and adverse
publicity for the Postal Service. 

Our objectives were to determine (1) if the problems were
attributable to some underlying cause or causes that should be
addressed through a legislative solution and, if not, (2) whether
additional procedural safeguards could be employed by the Postal
Service to minimize future occurrences of such problems. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Postal Reorganization Act of 1970 granted the Postal Service its
independent status and allowed the Service to develop its own
purchasing rules and regulations.  Although it had the authority for
greater flexibility, the Service followed prevailing federal
practices until 1988 when it adopted a new procurement manual
designed to take advantage of the best public and private purchasing
practices.  Compared to federal purchasing requirements, the
Service's rules were designed to give contracting officers more
discretion in meeting the needs of operating customers.  For example,
the federal policy of "full and open competition," as required for
most federal contracts by the Competition in Contracting Act of 1984
[41 USC 253(a)(1)(A)] was replaced with a policy of "adequate
competition," and postal contracting officers may limit competition
to selected or prequalified offerors.  In 1991, we reported\1 that
there had been no problems from the adoption of the new purchasing
rules but that they also had not been used enough to be declared a
success. 

After a 1986 conviction of one of the Postal Board of Governors for
fraud in a major purchase of automation equipment, the Senate and
House postal oversight committees requested that we examine Postal
Service purchasing practices.  We reported\2 that while the Postal
Service routinely applied accepted internal controls to deter fraud,
this did not guarantee that purchases could not be compromised by
collusion or errors in judgment. 

Total purchases by the Postal Service in 1994 amounted to $4.6
billion, including $2.4 billion for facilities and equipment, and
$2.2 billion for transportation.  The proposed purchase of a capital
and expense (i.e., noncapital) item costing $7.5 million or more is
to be reviewed by a Capital Investment Committee, made up of Service
executives and the Postmaster General.  The Postal Board of Governors
must also review proposed capital purchases costing $10 million or
more.  Board of Governors' approval is not required for purchases of
expense items, including supplies or services such as transportation. 
However, if the expense item purchase exceeds $10 million, the Board
of Governors is to receive an "information letter" on the purchase. 
Service officials said that the Board of Governors may review certain
purchases because of their significance or unusual nature, regardless
of the amount.  In 1994, the Board of Governors reviewed 16 projects. 

Three of the seven purchases we reviewed involved ethics problems. 
The Postal Service is covered by the Ethics in Government Act of
1978.  Under this act, the Service is required to provide an ethics
program to implement the act and related governmentwide regulations. 
The Office of Government Ethics periodically reviews the adequacy of
executive agency ethics programs, including the Service. 


--------------------
\1 PROCUREMENT REFORM:  New Concepts Being Cautiously Applied at the
Postal Service (GAO/GGD-91-103, Aug.  6, 1991). 

\2 POSTAL PROCUREMENT:  An Assessment of Postal Purchasing Practices
(GAO/GGD-88-65, May 12, 1988). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Given the circumstances of the seven purchases, we do not believe
that the problems were due to causes that should be addressed through
legislation.  The problems were due to poor judgment and decisions to
circumvent existing internal controls to meet perceived operational
exigencies.  Nevertheless, the Postal Service can improve its
purchasing organization and methods to help safeguard against such
future occurrences, and the Service has actions under way to do so. 

After most of the problem purchases occurred, the Postal Service took
an important step to increase oversight and accountability over the
purchasing process.  It combined separate transportation, facilities,
and general procurement offices under one purchasing executive.  This
executive is undertaking an overall assessment of the purchasing
program, emphasizing results achieved, and plans to build quality
into the process.  The purchasing office also plans to review
solicitations and contracts, including a requirement for more
explicit documentation of and rationale for contracting officers'
business and policy actions.  Other initiatives are also under way or
planned to improve the education, training, certification, and ethics
awareness of contracting officers and personnel.  The Office of
Government Ethics has also recently recommended the correction of a
number of continuing deficiencies in the Postal Service's ethics
program.  The recommendations are designed to ensure that improvement
in the program continues through more consistent oversight and strong
management support.  In an October 3, 1995, letter to the Office of
Government Ethics, the Postal Service's General Counsel expressed
overall agreement with the recommendations and outlined actions taken
to improve the Service's ethics program. 

We believe the changes planned by the Postal Service and recommended
by the Office of Government Ethics, if fully implemented, can help
prevent the recurrence of such purchasing problems.  But because many
of these problems were caused by a combination of poor judgment,
managers agreeing to shortcut or circumvent controls, or contracting
officers not fully resolving known conflicts of interest, no
initiative can guarantee the elimination of these problems.  Top
postal management can reduce the risk of such problems happening
again if they demonstrate commitment to completing, in a reasonable
time, the various initiatives under way. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Concerned about the adequacy of the Postal Service's procurement
program, the Chairman of the former House Post Office and Civil
Service Committee asked us to determine (1) if previously reported
problems with several Postal Service purchases were due to any
underlying causes that should be addressed through a legislative
solution, and if not, (2) whether additional procedural safeguards
could be employed by the Service to minimize future occurrences of
such problems.  Following the 1995 congressional reorganization and
the elimination of the House Post Office and Civil Service Committee,
we agreed to report to the newly formed Subcommittee on the Postal
Service of the House Government Reform and Oversight Committee. 

To address the objectives, we reviewed our and other published
reports on these purchases, as well as contract files and associated
records.  We discussed the purchases with the Service's purchasing
personnel and executives and collected general purchasing and
performance data.  To understand the oversight process for major
purchases, we obtained information from and interviewed responsible
officials at the Board of Governors, the Capital Investment
Committee, and the Postal Inspection Service.  We also discussed
recent developments in federal purchasing reform and contract
oversight and compliance with the former Assistant Administrator for
Acquisition Policy of the General Services Administration.  Because
three of the seven purchases involved ethics problems, we reviewed
recent Office of Government Ethics reports on the Service's ethics
program and discussed the program with Office of Government Ethics
officials. 

The Postmaster General provided written comments on a draft of this
report.  His comments are discussed on page 11 and reprinted in
appendix II.  Our work was done between August 1994 and May 1995 in
accordance with generally accepted government auditing standards. 


   INSUFFICIENT ATTENTION TO SOME
   PRACTICES CONTRIBUTED TO RISK
   OF CONTRACTUAL PROBLEMS
------------------------------------------------------------ Letter :4

The problems encountered in the seven purchases we reviewed had
various causes, but certain practices recurred.  These included
officials agreeing to forgo required checks and reviews in the
purchase process and failing to resolve conflict-of-interest
situations, both real and apparent. 


      INTERNAL CONTROLS
      SIDESTEPPED
---------------------------------------------------------- Letter :4.1

Problems with real estate transactions were apparently due to
shortcutting important integrity safeguards through a mistaken sense
of urgency.  Contributing factors were the belief, not always
correct, that other parties were interested in the properties or that
offers to sell in areas where suitable sites were scarce were good
opportunities. 

For example, in the St.  Louis case, space was needed to house a data
processing center that was being displaced from the main post office
to make room for automation equipment.  Because of an internal
breakdown in communication, the facilities officials responsible for
finding a new site were not aware of the moving date until a few
months beforehand.  Outright purchase would normally have been used;
however, because capital funds were not available at the time, field
real estate specialists arranged to acquire the building through a
lease/purchase agreement.  The Capital Investment Committee approved
the project, which was then canceled by the Chairman of that
Committee because of the General Counsel concerns about the financing
arrangements between the Service and the building's seller. 

The next day the real estate specialists were directed to
immediately, and without time to prepare, renegotiate the purchase
from lease/purchase to an outright purchase.  Congressional and
Postal Inspection Service reports on this purchase further disclosed
the following: 

  The Capital Investment Committee was not given an opportunity to
     approve the purchase. 

  The purchase was seriously misrepresented before the Board of
     Governors, including erroneous information that the Service
     needed to close the deal quickly because another party was
     anxious to buy the building. 

  The Postal Service paid $12.5 million to the seller who had
     acquired the building for $4 million earlier the same day. 

In another case, the Postal Service accepted an unsolicited offer for
purchase of a building in the Bronx, NY, on the basis that suitable
sites in the area were hard to find, and the building presumably
could be used as a general mail facility to solve severe mail
processing capacity limitations in the area.  However, the building
was acquired before complete suitability assessments were made.  The
building was later determined to be unusable for its intended purpose
because it did not have sufficient room for automated mail processing
equipment.  The building is used for Priority Mail and other mail
processing from the main post office.  In December 1995, when
commenting on our proposed report, Service officials said that the
Capital Investment Committee had approved $5 million for design work
on the building and that the Postmaster General's and Board of
Governors' approval will also be requested. 

When most of the seven purchases occurred, the purchasing function
was not organized in a way that fostered contracting officers'
independence.  This was according to a 1993 study by the Logistics
Management Institute entitled "Consolidating Postal Contracting,"
which was commissioned by the Postal Service.  At the time, the
contracting function was fragmented into independent groups for
purchasing, transportation, and facilities.  This structure,
according to the study, led to inconsistent accountability over the
performance and integrity of the contracting process. 

The study also found that contracting officers were not sufficiently
independent because many of them reported directly to those officials
who required the contracted products or services.  Not only did this
make it extremely difficult for contracting officers to exercise
independent judgment and follow Postal Service policies, but the
soundness of contracting decisions could be subordinated to their
timeliness.  No compliance or contract file reviews of major pending
purchases were being made in any of the three groups, and contracting
personnel in facilities and transportation were inadequately trained
to handle their responsibilities.  In some cases, contracting was a
secondary duty assigned to individuals with other program
responsibilities. 

The study recommended that the Postal Service establish a single
purchasing executive, reporting to the Postmaster General, with
management authority over the three separate purchasing groups.  The
study also stated that the new purchasing executive could resolve
other weaknesses, such as training and the independence of the
contracting workforce. 


      ETHICS VIOLATIONS
---------------------------------------------------------- Letter :4.2

Three of the seven purchases involved ethics violations.  The most
severe, discussed below, were two similar instances in which the
contracting officer failed to correct situations where individuals
had financial relationships with the Postal Service and with certain
offerors. 

In the 1992 award of a 10-year contract for air transportation, a
consultant, who was helping the Postal Service review the proposals,
informed the Service that he had a job offer that he might accept
from one of the offerors to the solicitation.  The Service's General
Counsel advised the contracting officer that the consultant should
either decline the job offer or be removed from the evaluation team. 
The contracting officer instead approved an arrangement whereby the
consultant should merely remain out of contact with the offeror until
after the contract was awarded.  The offeror won the contract, which
was then challenged by a losing offeror.  The court set aside the
contract because of the conflict of interest that existed when the
proposals were evaluated.  The Service incurred extra costs of $10
million, paid to the original winning offeror for start-up costs
incurred, and $8 million annually for a more costly replacement
contract. 

In another case, during the development and purchase of automated
barcode sorting systems, the Postal Service first retained a
consultant in 1990 for software development.  Shortly thereafter, the
consultant sought permission from the Service to offer related
support to the barcode system supplier.  The Service responded by
inserting conflict-of-interest clauses into its contract with the
consultant that prohibited him from entering into contracts with the
system supplier.  However, the Service did not enforce the clauses,
and the consultant was retained under contract by the supplier. 
Despite advice from the Service's General Counsel that the contract
with the consultant should not be renewed, the arrangement continued
while the Service tested and solicited proposals for upgraded barcode
sorters.  A contract was awarded to the same supplier in March 1993. 
The losing offeror claimed it had been put at a competitive
disadvantage and damaged by the dual relationship of the consultant
with the Service and the supplier.  An arbitration panel agreed and
ordered the Service to pay $22.2 million to the losing firm. 

According to the Office of Government Ethics, the Postal Service's
control of its ethics environment has been of concern.  Since 1991,
the Office has made three reviews of the Service's program because of
the Service's persistent problems; typically, executive branch
agencies are reviewed once every 5 years.  In 1991, the Office
reported that its recommendations from a 1987 report had not been
implemented although the Service reported that actions had been taken
to resolve those deficiencies.  Improvements needed were timely
collection and review of public financial disclosure statements,
revisions to the confidential reporting system, development of a
formal ethics education and training program, establishment of a
program monitoring system, and additional staff resources.  The
long-standing problems in the Service's ethics program were primarily
attributed to a lack of strong support by top management and
inadequate staff resources.  The Office requested that the Service
report its progress in correcting the deficiencies by March 1991 and
every 60 days until the recommendations were implemented. 

In 1993, the Office reported that many of its earlier recommendations
remained to be acted upon and that, while some progress was being
made by ethics officials, overall the Postal Service did not have an
effective ethics program.  The General Counsel advised the Office in
April 1993 that the Service had been unable to devote sufficient
resources to the ethics program.  As part of an overall downsizing of
the Service, headquarters staffing dropped by about 30 percent from
August 1992 through April 1993. 

On August 9, 1995, the Office reported that some improvements had
been made but that more work was needed to develop an effective
program.  The Postal Service still had difficulty in administering a
program that complied with applicable laws and regulations.  All
areas of the program were found to require improvement.  The Office
recommended that the Service ensure that

  written procedures for administering the public and private
     financial disclosure systems are prepared as required by the
     Ethics in Government Act of 1978,

  disclosure reports are filed in a timely manner,

  late filing fees are collected or that late filers request waivers
     from the Office,

  ethics orientation for new employees be improved to comply with the
     Office's governmentwide ethics regulations,

  ethics officials improve their coordination with the Postal
     Inspection Service about the resolution of conflict-of-interest
     situations, and

  the Office is notified about conflict-of-interest violations that
     are referred to the Department of Justice. 

In an October 3, 1995, letter to the Office of Government Ethics, the
Postal Service's General Counsel expressed overall agreement with the
recommendations and outlined actions taken or planned to address each
of the Office's recommendations to improve the Service's ethics
programs.  According to the General Counsel, the preparation of
written procedures for financial disclosure was a top priority and
would be finished in early 1996.  The General Counsel said that a
backlog of unreviewed public financial disclosure reports had been
eliminated, late-filed reports had been investigated, and procedures
for ensuring timely filing of future reports and handling of late
filing fees and related waivers were being considered.  Other actions
taken included an increase in ethics program staff resources by (1)
adding two ethics positions under the General Counsel, (2)
designating an ethics coordinator for each headquarters department
whose duties include administering training and financial disclosure
requirements, and (3) designating 170 ethics resource individuals in
field units to handle routine questions. 

The General Counsel said actions were also taken to improve ethics
awareness.  These actions included (1) development of an introductory
ethics orientation video, which was shown to about 700,000 employees
nationwide in 1993 and 1994; (2) distribution of a letter from the
Postmaster General to all postal employees in 1993, providing the
names and telephone numbers of ethics advisors; and (3) training of
up to 7,000 employees who filed financial disclosure reports each
year in 1993, 1994, and 1995 to meet Office of Government Ethics
regulations.  The actions included steps to improve ethics awareness
of contracting officers and other employees with significant
procurement responsibilities, such as mandatory all-day ethics
training for 1,100 such employees in 1993, and 2-1/2 hours of ethics
training for the same number in 1994.  Regarding the resolution of
apparent conflict-of-interest cases, the General Counsel's office and
the Postal Inspection Service agreed to quarterly coordination
meetings, and the Postal Service set up an ethics advisory council to
help resolve possible conflict-of-interest situations.  The General
Counsel was not aware of any referrals of conflict-of-interest cases
to Justice in the past 3 years. 


   PURCHASING PROBLEMS HAVE BEEN
   COSTLY
------------------------------------------------------------ Letter :5

The seven purchases totaled about $1.33 billion.  We estimate that
the Postal Service expended about $89 million for penalties or
unusable and marginally used property, portions of which could be
recovered if the properties were leased or sold.  The expended amount
consists of

  $32 million in penalties to injured parties to compensate them for
     damages caused by the conflicts of interest during the awards
     for air transportation and automation equipment;

  $12.5 million for the St.  Louis building, which as of August 1995,
     the Postal Service was in the process of trying to lease or
     sell;

  $14.7 million for a site in Queens, which is unusable due to
     contamination; and

  $29.5 million for the Bronx building, which is essentially unusable
     for its intended purpose. 


   ADMINISTRATIVE CHANGES TAKEN
   AND PLANNED TO REDUCE THE RISK
   OF PROBLEM PURCHASES
------------------------------------------------------------ Letter :6

In November 1993, in response to the previously mentioned 1993 study
of purchasing practices, the Postal Service placed the three
independent procurement groups under one purchasing executive to
ensure more consistent control over purchasing operations.  This
official has established goals to better train, qualify, and educate
contracting professionals to handle more abstract decisionmaking
under the more flexible discretion they are allowed.  Recognizing the
need for additional review and other processes to reduce errors, the
purchasing office plans to adopt additional higher levels of review,
including requirements for contracting officers to document the
policy and business rationales for the particular purchasing
decisions. 

In keeping with presidential initiatives emphasizing performance
reviews that focus more on results rather than conformance to
regulations, the Postal Service's purchasing office hopes to build
better quality into its purchasing cycle.  The purchasing office also
recognizes the need for additional self-assessments within its
purchasing office.  Details of this approach are still under study,
as is how the independence of contracting officers from those with
program responsibility will ultimately be defined. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

Problems occurred in the purchasing function for the purchases we
reviewed mainly because Postal Service officials circumvented
internal controls to speed up the purchasing process and failed to
adequately deal with known or potential ethics violations.  We
believe that the changes that the Service has made to improve major
acquisition integrity are steps in the right direction.  The
consolidation of the three independent purchasing units under a
single responsible purchasing executive should help ensure more
consistent management of major purchases, as should the other plans
to improve the purchasing process and the training and ethics
awareness of purchasing personnel.  The Office of Government Ethics'
recommendations, concurred in by the Service, are designed to ensure
that improvement in the program continues through more consistent
oversight and strong management support.  If implemented, the
Service's actions should complement its other initiatives. 

The most well-designed purchase program can be compromised if
officials choose to avoid controls to satisfy perceived operational
exigencies, as occurred with many of the purchases that we reviewed. 
However, we believe that top management's continued support of these
reform initiatives could help improve procurement integrity and help
prevent the recurrence of such problems. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

Responding to our report, the Postmaster General said that the
consolidation of purchasing activities in 1993 was a significant step
forward.  He said that the Service is continuing with a number of
improvements, including contracting officer qualification standards,
enhanced training programs, improved methods of monitoring major
purchases, and renewed emphasis on ethics awareness.  He believes
that the separation of contracting officers from operational
organizations will result in an enhanced awareness of contractual and
legal issues, as well as better overall decisionmaking. 

The Postmaster General recognized that the purchasing process had
been compromised, not because of fundamental defects in the Postal
Service's purchasing policies, but because officials chose to deviate
from those policies.  He emphasized the need for the Service to have
the purchasing flexibility envisioned in the Postal Reorganization
Act of 1970 and that if errors in judgment or flaws in the purchasing
methods are discovered, the Service will move rapidly to correct them
and prevent any recurrence.  A copy of the Postmaster General's
letter of December 18, 1995, is included as appendix II. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Postmaster General, the
Postal Service Board of Governors, and other congressional committees
that have responsibilities for Postal Service issues.  Copies will
also be made available to others upon request. 

The major contributors to this report are listed in appendix III.  If
you have any questions about this report, please call me on (202)
512-8387. 

Sincerely yours,

J.  William Gadsby
Director, Government Business
 Operations Issues


SUMMARY OF SEVEN POSTAL SERVICE
PROBLEM PROCUREMENTS
=========================================================== Appendix I

Item/service    Award date    Our analysis of problems and their  Status as of August
purchased       and amount    principal causes                    1995
--------------  ------------  ----------------------------------  -----------------------
Site in         August 13,    The desire to secure a site for a   Cleanup of the site was
Queens,         1986,         general mail facility to resolve    suspended in 1987 when
NY, for a       $14.7         long-standing mail processing       contamination was found
general mail    million       problems overrode environmental     to be more widespread
facility                      concerns and prudent financial      than expected. The
                              management. Two sites were          Postal Service was in
                              purchased when one was needed. The  litigation to get the
                              Phelps-Dodge site proved unusable   seller to clean up the
                              because of hazardous waste          site so that it can be
                              contamination, and a provision      sold.
                              requiring the seller to clean up
                              the site before transfer of title
                              was removed from the final
                              purchase agreement. This left the
                              Postal Service with a site that it
                              cannot use or sell without
                              additional costs or concessions.\a

Building in     August 10,    The Postal Service accepted an      The building housed
the Bronx, NY,  1989, $29.5   unsolicited offer for this          Priority Mail
for a general   million       building before fully assessing     processing and other
mail facility                 its suitability and performing a    operations from the
                              cash flow analysis. A building was  main post office.
                              needed to alleviate severe mail
                              processing problems in the area,
                              and reportedly no other such sites
                              or buildings were on the market.
                              The building was subsequently
                              deemed unusable as a general mail
                              facility because it did not have
                              enough room for automated sorting
                              equipment.\a

Image           February 25,  As a courtesy, Postal Service       Equipment delivery
processing      1991,         officials accepted meals and        under the contract was
equipment for   $95 million   travel from a German firm           scheduled to be
the mail                      affiliated with the successful      completed by the end of
barcoding and                 offeror. These actions violated     fiscal year 1997.
automation                    the law and governmentwide and
program                       postal standards of conduct. While
                              the actions created the appearance
                              of a conflict of interest, they
                              were not sufficient to invalidate
                              the award.\b

Air transpor-   November 8,   In selecting the location for this  Air hub was in service.
tation hub      1991,         hub, the Postal Service did not
for             $105 million  give the same weight to the
expedited mail                selection criteria that it stated
                              in the solicitation. While the
                              winning location (Indianapolis)
                              was a top competitor for the
                              award, because of this and other
                              deficiencies in the evaluation
                              process, we were unable to
                              determine which competitor would
                              have won if the evaluation had
                              been consistent with the request
                              for proposal.\c

Building in     December 16,  A breakdown in the review and       The building
St.             1991,         approval process for this real      temporarily housed the
Louis, MO,      $12.5         estate purchase caused procurement  data processing center.
for             million       safeguards to be circumvented and   The Service planned to
a data                        many failures to occur. The most    rent or sell the
processing                    notable was that the Postal         building.
center                        Service paid a real estate
                              development firm $12.5 million for
                              a building that the firm had
                              acquired earlier the same day for
                              $4 million.\d

Air             September     Contrary to the advice of the       Air service was in
transporta-     16, 1992,     Postal Service's legal department,  operation.
tion service    $107.8        the contracting officer failed to
for expedited   million       resolve a conflict of interest on
mail            annually      the part of an individual who
                              helped evaluate the contract
                              proposals and at the same time had
                              a job offer pending from the
                              successful offeror. As a result of
                              the conflict of interest, the
                              award was set aside by the courts
                              and a replacement contract was
                              awarded to one of the unsuccessful
                              offerors. The Service paid $10
                              million to the original winning
                              offeror to settle its claim under
                              the contract, which was then set
                              aside. Also, the new contract cost
                              $8 million more annually than the
                              old contract (both were for 10
                              years).\e

Barcode         March 10,     The contracting officer failed to   Final delivery under
sorting         1993, $250    correct an apparent conflict-of-    the contract was
equipment       million       interest situation involving an     scheduled for 1996.
                              individual who was a technical
                              consultant on this equipment to
                              both the Service and the winning
                              offeror. The dispute was submitted
                              to an arbitration panel, which
                              awarded $22.2 million in damages
                              to the unsuccessful offeror.
-----------------------------------------------------------------------------------------
\a POSTAL SERVICE:  Decisions to Purchase Two Properties in Queens,
New York (GAO/GGD-92-107BR, July 17, 1992). 

\b POSTAL PROCUREMENT:  Ethics Violations Did Not Invalidate an
Automation Contract (GAO/GGD-92-119, Aug.  13, 1992). 

\c POSTAL PROCUREMENT:  Eagle Air Hub Selection Not in Accordance
With Solicitation (GAO/GGD-92-127, Aug.  12, 1992). 

\d SYSTEM FAILURE:  USPS PURCHASE OF 555 WASHINGTON AVENUE, ST. 
LOUIS, MO (Committee Print 102-8, Aug.  10, 1992, report prepared by
the Subcommittee on Investigations, Committee on Post Office and
Civil Service, House of Representatives). 

\e POSTAL SERVICE:  Issues Related to Settling a Disputed Contract
for Air Transportation (GAO/GGD-94-92, Mar.  24, 1994). 

Source:  GAO analysis of U.S.  Postal Service data. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE U.  S.  POSTAL
SERVICE
=========================================================== Appendix I


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix III:1

James Campbell, Assistant Director
Leonard Hoglan, Senior Evaluator
John VanLonkhuyzen, Senior Evaluator


   OFFICE OF THE GENERAL COUNSEL,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix III:2

V.  Bruce Goddard, Senior Attorney


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