The U.S. Postal Service uses supplier-operated highway contract (HCR) routes to transport mail and equipment between plants, post offices, or other designated points that receive or dispatch mail. In fiscal year (FY) 2016, the Postal Service spent about $524 million on fuel for HCR suppliers.

Transportation Category Management Teams (TCMT) are required to negotiate and evaluate in writing with the HCR suppliers to establish the contract’s baseline fuel price per gallon (ppg). The negotiations and evaluations are intended to establish the HCR supplier’s market cost of fuel at the time of contract negotiations.

We selected the Eastern TCMT in Largo, MD, because it manages about 3,000 of the 13,800 HCR contracts under the Fuel Price Index (FPI) program. We examined HCR contracts administered between October 2014 and September 2016. Our objective was to assess the effectiveness of the Postal Service’s FPI program at the Eastern TCMT. This is the second project in a series.

What the OIG Found

We found that the Eastern TCMT did not effectively establish the contract baseline fuel ppg. Specifically, 163 of the 195 Eastern TCMT contracts we reviewed, or 84 percent, did not have documentation to support the contract baseline fuel ppg. We also found that 189 of the 195 contracts, or 97 percent, did not have sufficient justification and documentation for evaluating and ensuring that contract baseline fuel ppg reflected local market conditions.

This occurred because management did not develop contract fuel baseline ppg policies and procedures for negotiating with HCR suppliers or evaluating the fuel baseline ppg.

We found that 62 of the 189 contracts, or 33 percent, that lacked sufficient justification and documentation had a fuel ppg that exceeded either the Department of Energy’s (DOE) fuel price or the local market fuel price. We noted that the DOE’s regional fuel index prices were comparable to local market fuel prices. Therefore, for Eastern TCMT HCR contracts administered between October 2014 and September 2016, the Postal Service could be overpaying HCR suppliers about $3.97 million annually based on using a monthly contract fuel ppg that is higher than the DOE’s regional fuel index.

We are not making policy recommendations related to establishing the contract baseline fuel ppg or ensuring the ppg reflects the lowest market price unless justified by the contracting officer as being the best value. A previous OIG report covering only the Southern TCMT still has open recommendations concerning these issues and management stated they would develop and implement interim guidance to cover these recommendations by March 2017.

What the OIG Recommended

We recommended management ensure the planned interim fuel guidance is implemented for all HCR contracts scheduled for March 2017.

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