Negotiated Service Agreement – Contract #50593050
Objective
Our objective was to determine mailer compliance with Negotiated Service Agreement (NSA) provisions and evaluate the U.S. Postal Service’s oversight of NSA Contract #50593050. We selected the NSA based on the mailer’s 2019 volume and revenue.
An NSA is a contractual agreement between the Postal Service and a mailer, whereby the mailer receives customized pricing in exchange for meeting volume and mail preparation requirements. The goal of using NSAs is to retain price sensitive customers and encourage additional mail volume and revenue. While only a small fraction of Postal Service commercial package customers have NSAs, 40 percent of the Postal Service’s 5.5 billion domestic package volume is mailed under these agreements.
The Postal Regulatory Commission (PRC) must approve all NSAs. The PRC approved Contract #50593050 in fiscal year 2019. This three-year NSA provides special pricing for the mailer’s Priority Mail weight/zone packages, Priority Mail Cubic packages, Priority Mail Flat Rate Envelopes, and Priority Mail Flat Rate Boxes. In return, the mailer agreed to ship [redacted] packages annually. The contract also requires the mailer to use a separate permit number for contract packages and pay using an approved manifest system.
This agreement stipulates that the Postal Service, at its sole discretion, has the right to revert to the most current Priority Mail Commercial Plus pricing for packages mailed in the subsequent contract year if the mailer does not meet the annual volume commitment.
We reviewed mail volume in year one of the NSA ([redacted] 2018 through [redacted] 2019), before the President of the United States issued the national emergency declaration concerning the novel coronavirus disease outbreak on March 13, 2020. The results of this audit do not reflect process and/or operational changes that occurred as a result of the pandemic.
Finding
The mailer was compliant with four of the five key agreement provisions we reviewed, including mail type and zone rates, permit number, and payment system. However, the mailer did not comply with the annual volume commitment. Specifically, in year one of the NSA, the mailer only shipped [redacted] fewer than required. In year two of the NSA (through May 31, 2020), the mailer shipped [redacted] fewer than in the same period the previous year.
The Postal Service provided adequate oversight of the NSA, which included monthly meetings with the mailer to discuss contract performance and expectations, as well as possible contract termination or submission of an exception request. In addition, the Postal Service was attempting to resolve an issue with linking this partner’s marketplace platform volume to the NSA. The Postal Service’s Contract Administration team presented an [redacted] October 1, 2019, [redacted] for the second contract year. Management believed the [redacted] was necessary to maintain the customer’s mail volume and they expected an uptick in volume during the approaching peak season. The committee approved the request on November 21, 2019.
We estimated that the Postal Service’s decision [redacted] 2019 and May 31, 2020. The Postal Service will evaluate mailer compliance with contract terms, including volume requirements for contract years 2 and 3. As such, we will not make a recommendation in this report.
Recommendations
We are making no recommendations in this report.