Inspector General Looking Into FedEx-USPS Deal

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Auditors are looking into whether U.S. Postal Service managers misinformed their governing board by claiming that a contract with Federal Express will save the debt-ridden agency more than $1 billion.

A spokesman for the postal service's Office of Inspector General, an independent agency that reports to the presidentially appointed USPS Board of Governors, said this week that it is reviewing the $6.3 billion, no-bid contract with FedEx.

Sandra Harding, a spokeswoman for the inspector general's office, said, "We've undertaken a review of postal service operations, including the FedEx contract."

Harding said she could not release any other information, including a time line for the review.

The USPS and FedEx entered into an agreement in January for FedEx to transport the USPS' Express Mail, Priority Mail and First-Class mail.

Under terms of the agreement, FedEx will provide air transportation for certain postal services. The air transportation agreement is expected to take effect in late August. The USPS will pay FedEx $6.3 billion over the next seven years for shared access to the FedEx Express national air transportation network.

The USPS claims the alliance is expected to save it more than $1 billion over the length of the contract.

A second agreement, worth an estimated $900 million, would place FedEx drop boxes at 10,000 post offices over the next 18 months. That deal is not included in the USPS' $1 billion savings estimate.

According to a source familiar with the situation, the board asked the inspector general's office last month to look into the contract after it was approached by Emery Worldwide Airlines, a unit of trucking company CNF Inc., Palo Alto, CA, which complained that the board was "materially misinformed" before approving the deal in January.

According to the source, Emery said the FedEx contract would cost the USPS much more, both now and in the future, and would lead to reduced service levels.

The source said Emery estimated that the FedEx deal would add $433 million to $1.17 billion to the USPS' costs. In addition, Emery said the USPS used "grossly inaccurate data" to show cost advantages of the deal and ignored a proposal by another shipper that would have reduced expenses, according to the source.

What's more, the source said, the USPS' and FedEx's claimed cost savings are based on contract details that are being withheld as confidential, proprietary information. The only person in Congress permitted to see all provisions of the contract is Rep. Dan Burton, R-IN, who is chairman of the House Government Reform Committee.

The source said Emery also complained that the USPS did not open the contract to public bid.

Emery carries Express Mail for the USPS under a separate, 10-year pact that was supposed to end in 2004. However, the USPS recently notified Emery and another carrier that their postal contracts will be terminated, with FedEx replacing both.

Emery challenged the FedEx contract in the U.S. Court of Federal Claims in Washington and tried to block the contract but lost in March. Emery is appealing the ruling. Insiders said oral arguments will take place in July.

The Justice Department also said it continues to look at possible antitrust implications of the FedEx contract.

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