PRC: NSA could cost $45m

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The Postal Regulatory Commission (PRC) has warned that the US Postal Service could lose between $25 million and $45.8 million if a proposed Negotiated Service Agreement (NSA) between the USPS and Bank of America Corp. (BoA) were implemented. This is a far cry from the $5.5 million in savings that the initial filing had claimed would be generated by the deal.

While the PRC has advanced the NSA along to the next stage, it has asked the USPS Board of Governors to seriously consider the cost when it makes its final decision on the proposed agreement.

NSAs are special service and rate arrangements between the USPS and a mailer or group of mailers. Proponents say NSAs encourage greater volume by rewarding postal customers with discounts and premium services.

The NSA with BoA, which was filed with the PRC in February, would grant the bank discounted postage rates in exchange for its use of the Intelligent Mail Barcode (IMB) system, and other new systems, designed to facilitate mail acceptance and processing.

"If adopted by the Postal Governors, this would be the first NSA proposal promoting the use of IMB," said PRC chairman Dan G. Blair.

"The benefits and the potential financial losses from this proposed agreement will be weighed by the Governors," he said.

The terms of the BoA NSA are unique as it is the first agreement request based purely on cost savings rather than requiring a volume threshold for the incentives. Instead, the discounts awarded to BoA, New York, would be determined quarterly based on actual submitted mail volumes and the measured improvements in address quality, with BoA receiving a percentage of costs saved.

However, the PRC found the claimed $5.5 million in savings produced by this agreement were based on 1999 read/accept rates.

The PRC proceedings uncovered more recent read/accept rates from 2006 and 2007. When the more recent information is used, it shows that the Postal Service stands to lose $25 to $45.8 million should the agreement be implemented.

"The read/accept rates have improved to such an extent that Bank of America will not have to make any improvements in barcode readability to receive all available mail processing performance discounts," said Blair.

Christopher Feeney, SVP of corporate communications for BoA, said, "We are confident the first pay-for-performance NSA will, when implemented, provide tremendous value to both the Postal Service and the bank." Calls to the USPS were not returned by press time.

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