U.S. Postal Service:

Data Needed to Assess the Effectiveness of Outsourcing

GAO-08-787: Published: Jul 24, 2008. Publicly Released: Jul 24, 2008.

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Phillip R. Herr
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The U.S. Postal Service (the Service) has a long history of contracting out postal functions, such as mail transportation, mail delivery in rural areas, vehicle and equipment maintenance, and retail postal services. However, postal employees also perform many of these same functions and unions representing these employees have concerns about the scope and impact of outsourcing. The objectives of this requested report are to assess (1) the circumstances under which the Service can outsource postal functions, how it decides to outsource, and the extent to which it has outsourced; (2) how the Service's management processes compare for contractors and postal employees; and (3) the results, including any savings, and key challenges related to the Service's outsourcing activities. GAO reviewed applicable statutes, collective bargaining agreements, postal processes and outsourcing data, and interviewed postal union and management officials.

The Service has no statutory restrictions on the type of work it may outsource, but collective bargaining agreements with its unions impose some process requirements and limitations. When evaluating outsourcing proposals, the Service must consider five factors--public interest, cost, efficiency, availability of equipment, and qualification of employees--and determine whether outsourcing will have a "significant impact" on work performed by postal employees covered by collective bargaining agreements. If so, it must compare the costs of performing proposed work with postal employees and with a contractor, notify the affected union that it is considering outsourcing, and consider union input before making a decision. We could not determine the Service's total outsourcing contracts related to bargaining unit work, because the Service does not separately track these contracts. It did provide data on some outsourcing that has impacted work by employees of its four major unions in the areas of retail, processing, transportation, and delivery. The Service evaluates contractors and postal employees using similar suitability and performance standards, but uses different management processes. The Service recently revised its drug screening procedures so they are now similar for both groups. The Service manages contractors through specific performance requirements, as compared to Service policies and collective bargaining agreements for postal employees. Finally, the Service has mechanisms to evaluate performance and take actions related to performance problems for both, but does not compile performance data to permit comparisons between contractors and postal employees. The Service does not have a comprehensive mechanism for measuring results, including any actual savings; therefore, it could not provide information on the effectiveness of its outsourcing. Without cost-savings data, postal managers, stakeholders and Congress cannot assess the risk and value of outsourcing. Also, accountability for results is limited. The Service has stated that it will explore outsourcing opportunities, and postal unions are concerned that the Service's use of contractors for delivery service is growing as shown below. Proposed legislation to limit the Service's outsourcing is pending in Congress, which the Service says could limit its ability to contain costs. Key challenges include whether the Service and its unions can reach agreement on outsourcing issues through collective bargaining and whether the Service can provide analysis to substantiate the benefits of outsourcing.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Postal officials told us in June 2009 that the Postal Service has taken the initial steps to establish a process to compare the cost assumptions underlying the decision to outsource contained in the final financial comparative analysis with the actual contract award one year after implementation, with an adjustment for any ramp-up period. This data will be sourced through the appropriate contracting officer, a headquarters finance team, and the pertinent sponsoring organization. Such analysis will be completed for national Article 32.1.B. considerations approved after July 2008. The process will be monitored by the Strategic Initiatives Action Group, the cross-functional committee responsible for coordinating the processes involved in reviewing, approving, and monitoring proposed outsourcing initiatives. Findings will be presented to senior management on the outsourcing approval board. The Program Performance Office, Finance and Planning Department, USPS,has initiated the process and conducted preliminary meetings with the responsible contacts from purchasing and the sponsoring organizations so as to be ready to conduct the one-year evaluation described above. The first such analyses will be required in 2010. We will leave this recommendation open until actual results are provided. In August 2010, postal officials told us that the Postal Service has taken steps to establish a process to compare the cost assumptions underlying the decision to outsource contained in the final financial comparative analysis with the actual contract award one year after implementation, with an adjustment for any ramp-up period and that they had completed the one-year analysis of their first project. This response indicates implementation of our recommendation and we will close this recommendation. We will also create an accomplishment report for this recommendation.

    Recommendation: To improve management decision-making and accountability in this area, the Postmaster General should establish a process to measure the results and effectiveness of Service outsourcing activities that are subject to collective bargaining. This process should include tracking actual costs and any savings, and comparing them with estimated costs and savings.

    Agency Affected: United States Postal Service

  2. Status: Closed - Not Implemented

    Comments: Postal officials told us in June 2009 that the Postal Service will retain this information with its headquarters finance department, rather than publish the information in the Comprehensive Statement on Postal Operations. This is the same response officials gave us in their formal comments to the report prior to publication. This action is not responsive to our recommendation to support congressional oversight by making the results of outsourcing activities available in its annual operations report to Congress. In August 2010, postal officials reiterated that their position remained the same as their 2008 formal comments to the report and their 2009 response to us. Considering that the Postal Service's position has not changed in two years and they decline to implement the recommendation, we will close the recommendation as Not Implemented.

    Recommendation: To support congressional oversight, the Postmaster General should include information on the results and effectiveness of these ongoing outsourcing activities in its annual operations report (Comprehensive Statement on Postal Operations) to Congress.

    Agency Affected: United States Postal Service


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