Audit Reports

Objective

Our objective was to determine whether Postal Service Contracting Officers (CO) are properly managing Highway Contract Route (HCR) contracts — specifically liability insurance requirements — in accordance with policies and procedures.

The Postal Service contracts with supplier-operated HCRs to transport mail and equipment between plants, post offices, or other designated points that receive or dispatch mail. Per the Postal Service’s Supplying Principles and Practices (SP&P), the supplier must maintain automobile liability insurance with a comprehensive policy that provides bodily injury and property damage liability covering the operation of all automobiles used in contract performance. Evidence of supplier insurance must be maintained in Postal Service’s electronic or paper format repositories.

As of March 31, 2018, there were 13,603 active HCR contracts, with a contract spend valued at over $6.6 billion. We reviewed a statistical sample of 205 contracts, with a contract spend valued at about $129 million.

What the OIG Found

COs did not consistently manage HCR contracts’ liability insurance requirements in accordance with policies and procedures. HCR contract files lacked documentation of meeting liability insurance requirements. Specifically, based on file documentation we reviewed, the Postal Service had no documentation that 19 (9 percent) of the 205 HCR contracts met liability insurance requirements. Exceptions identified were:

• Seven contracts (3 percent) did not have documentation of supplier insurance policies on file, with a potential total of 9,040 days without coverage.

• Seven contracts (3 percent) did not have an active insurance policy at the award or renewal date, with a potential total of 8,474 days without coverage.

• Five contracts (2 percent) had expired insurance policies on file, with a potential total of 5,768 days without coverage.

• Five contracts (2 percent) did not carry the required minimum liability limits, with a potential total of 6,760 days of inadequate coverage.

• Three contracts (1 percent) were missing key insurance information, such as coverage dates and liability limits, with a potential total of 3,075 days of undocumented coverage.

These exceptions occurred because insurance documentation was not being consistently stored in a central location, and COs were unable to locate evidence that insurance requirements were met. As such, we estimated an average of $307 million of annual unsupported questioned costs due to the lack of required insurance documentation.

In addition, COs did not include mandatory SP&P Clause 7-4, Insurance in the Terms and Conditions in 119 (58 percent) contracts, which requires that suppliers furnish evidence of insurance to include all required terms and provisions. Nor did COs include Clause B-39, Indemnification in 47 (23 percent) of the 205 contracts reviewed, which indemnifies the Postal Service, from responsibility for all claims, losses, damage, actions, expenses, and liability due to omissions of the supplier.

Terms and conditions were not appropriately included in contracts because COs were using an outdated Terms and Conditions template as guidance which did not align with current SP&P guidance.

What the OIG Recommended

We recommended management revise Supply Management policies and procedures to:

• Incorporate HCR contract insurance compliance reviews into the Supply Management and Infrastructure periodic review process.

• Require Clause 7-4, Insurance in the Terms and Conditions of all HCR contracts.

• Require Clause B-39, Indemnification in all HCR contracts.

We also recommended management take the following actions:

• Incorporate the indemnification clause into HCR contract negotiations.

• Reinforce through formal communication, and refresher training, the policy for contracting officers to maintain documentation in the Transportation Contracting Support System.

• Develop a process to ensure outdated templates are archived and filed separately from the current Terms and Conditions template.