Who Cares How the Postal Service Spends $12 Billion?

ssue Brief

It’s long been discussed by Postal Service observers that the agency’s penchant for secrets has created a long-standing financial transparency problem. But things may have just gotten a whole lot worse.

Postal Service management recently announced new procurement regulations that effectively close the window on transparency and accountability for the $12 billion it spends each year on supplies. This spring, the Postal Service scrapped volumes of existing procurement regulations and replaced them with a nine-page directive, published in the Federal Register in April.

The new directive increases the Postal Service’s discretion in making purchases and reduces legal protections for suppliers, some of whom are small businesses that rely heavily on postal business. The changes expand the Service’s power to suspend dealings with suppliers and cancel business relationships. They also limit the ability of suppliers to seek redress when contract disputes arise.

This new policy was part of a misguided effort to improve and streamline procurement policy. The President’s Commission on the Postal Service concluded in 2003 that “reforming the Postal Service’s procurement rules to more closely mirror corporate best practices” was one measure that could “enhance the institution’s efficiency and cost savings.”

But shortening the rulebook – which previously included a Purchasing Manual of more than 500 pages – isn’t the same as improving it.

But the changing rules themselves are only part of the problem. A larger issue is the USPS management practice of disclosing as little information to the Public as possible concerning its important decisions. The nondisclosures are to “protect the USPS from competitors”. However, with only about 12 percent of postal revenue subject to competition (i.e., priority and express mail and parcels), this defense does not sit well with the other 88 percent of postal customers. To protect 12 percent of their revenue base, the American public must remain in the dark about spending and accounting practices for the entire operation?

Before scrapping its procurement rulebook, the Postal Service had not historically suffered from a serious inability to procure needed services at reasonable prices. But a 2005 report by the USPS Inspector General described how that office’s investigations of Postal contracts resulted in more than $11 million in fines, restitutions and settlements in FY 2004 alone.

This drastic procurement rule change will do little to save costs and will not make the USPS more efficient. But it will likely further weaken the trust the public has in Postal Service management.

When the USPS first proposed its new, abridged set of rules, the American Bar Association warned that if the regulations were implemented, “there [would] no longer be any rules governing such basic procurement procedures as publicizing procurement opportunities, soliciting proposals, evaluating proposals and awarding and administering contracts.”

The new, minimalist USPS regulations certainly don’t mirror corporate best practices. If the USPS were a private company, the profit motive would encourage money-saving procurement policies like fully competitive bidding.

The annual cost of supplies to the Postal Service, after all, is many times larger than the service’s profit or loss. And when losses at the Postal Service increase, it usually means that a stamp price hike is not far behind. Losses could even portend a request to Congress for a taxpayer bailout.

As Michael Schuyler, an economist at the Institute for Research on the Economics of Taxation, wrote in a paper published earlier this summer, the Postal Service is placing secrecy ahead of its own financial health, the mission Congress gave it, and the interests of postal consumers and taxpayers.”

Instead of scrapping its procurement rules, the Postal Service should have simply taken advantage of flexibility it already had under the 1970 postal reorganization act. That law granted the Postal Service the scope to conduct procurement with fewer regulations than those imposed on other federal agencies. But as the President’s Commission Report noted, “the Postal Service has consistently elected not to take advantage of the flexibility.”

Now, Postal Service management has done away with its rulebook in the name of “greater flexibility.” Unfortunately, flexibility could become an excuse for a lack of oversight, sloppiness and waste. The USPS should bring back the procurement policies it scrapped, and use those as a starting point for reform.

Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.