Report to the Chairman and Ranking

Member, Committee on Small Business,

House of Representatives

United States General Accounting Office

GAO

January 2003 CONTRACT

MANAGEMENT

Postal Service’s

National Office Supply

Contract Has Not

Been Effectively

Implemented

GAO-03-230
The Postal Service has not been successful in implementing its national-level

contract to purchase most office supplies from Boise. Although the national

contract was intended to be a mandatory source of office supplies, the

Postal Service purchased less than 40 percent of its office supplies from

Boise in 2001. GAO found that the Postal Service did not perform as planned

under the contract because it did not take sufficient actions to ensure that

the contract would be used. As a result, the Postal Service has not been able

to realize its estimated annual savings of $28 million. In fact, it was only able

to provide documentation for $1 million in savings for 2001.

Boise and the Postal Service have not paid sufficient attention to the

subcontracting plan. The plan contains obvious ambiguities, and, in fact,

Postal Service and Boise officials disagree on its goals. The Postal Service

maintains that the goal is 30 percent of Boise’s annual revenue from the

contract. Boise has fallen far short of this goal, reporting that only

2.6 percent of subcontracting dollars were awarded to small, minority-,

and woman-owned businesses in fiscal year 2001. Postal Service and Boise

officials recognize that the performance on the subcontracting plan is not

satisfactory and are taking a number of steps to achieve the plan’s goals.

Nevertheless, it is highly unlikely that the current subcontracting goals will

be met.

The Postal Service reported that its small, minority-, and woman-owned

business achievements have declined from fiscal years 1999 to 2001.

Despite the Postal Service’s reported statistics, we could not determine the

extent to which it is buying directly from these businesses because the data

are unreliable.

Total Office Supply Purchases for Fiscal Year 2001

CONTRACT MANAGEMENT

Postal Service’s National Office

Supply Contract Has Not Been

Effectively Implemented

www.gao.gov/cgi-bin/getrpt?GAO-03-230.

To view the full report, including the scope

and methodology, click on the link above.

For more information, contact David Cooper

at (202) 512-4841 or cooperd@gao.gov.

Highlights of GAO-03-230, a report to

the Chairman and Ranking Member,

Committee on Small Business,

House of Representatives

January 2003

Over the past 2 years, the

Postal Service has experienced

growing financial difficulties.

In an effort to transform the

organization to reduce costs and

increase productivity, the Postal

Service awarded a national-level

office supply contract to Boise

Corporation. In addition, the Postal

Service required Boise to submit a

subcontracting plan, which outlines

how small, minority-, and womanowned businesses will be reached

through the contract. GAO was

asked to assess the status of the

Postal Service’s implementation of

the Boise contract and Boise’s

achievement of its subcontracting

plan. GAO also reviewed the

extent to which the Postal Service

is buying office supplies directly

from small, minority-, and

woman-owned businesses.

GAO is recommending that

the Postal Service reexamine

the national office supply contract

to determine why it is not being

used and whether it is an effective

tool to achieve savings. If the

contract is found to be beneficial,

the Postal Service should track

its employees’ use of the contract.

GAO also recommends the

Postal Service revise its national

contract to reflect realistic

goals for small, minority-, and

woman-owned businesses.

The Postal Service agreed with

GAO’s recommendations.
Page i GAO-03-230 Contract Management

Letter 1

Results in Brief 2

Background 3

National-Level Office Supply Contract Has Not Been

Fully Implemented 6

Boise Is Not Achieving Subcontracting Plan Goals 11

Reports Indicate a Drop in Small Business Dollars, but Data Are

Unreliable 15

Conclusions 18

Recommendations 18

Agency Comments 19

Scope and Methodology 20

Appendix I Comments from the U.S. Postal Service 23

Appendix II Comments from Boise Office Solutions 25

Tables

Table 1: Boise’s Reported Fiscal Year 2001 Subcontracting

Achievements 12

Table 2: Reported Office Supplies Purchased from SMW

Businesses 16

Table 3: Reported Office Supplies Purchased through Contracts 16

Table 4: Reported Office Supplies Purchased Using Purchase Card 17

Figures

Figure 1: Total Office Supply Spending for Fiscal Year 2001 6

Figure 2: Office Supply Spending (Fiscal Years 1999 to 2001) 7

Figure 3: Postal Service Office Supply Spending with Contract

Vendors (Fiscal Years 1999 to 2001) 8

Abbreviations

JWOD Javits-Wagner-O’Day Act

SMW small, minority-owned, and woman-owned

Contents
Page 1 GAO-03-230 Contract Management

January 17, 2003

The Honorable Donald A. Manzullo

Chairman

The Honorable Nydia M. Velázquez

Ranking Democratic Member

Committee on Small Business

House of Representatives

Over the past two years, the United States Postal Service experienced

growing financial difficulties and struggled to fulfill its mission of

providing affordable, high-quality universal service, while remaining

self-supporting. Consequently, GAO reported that the Postal Service’s

current business model was at risk and placed its transformation and

long-term outlook on our high-risk list in April 2001.1

 To transform the

organization, reduce costs, and increase productivity, the Postal Service

is, among other things, redesigning purchasing and material management

functions to capture potential savings through a supply chain management

initiative. The supply chain encompasses marketing, distribution, planning,

manufacturing, and purchasing. One area of focus for this initiative is

office supplies, on which the Postal Service spent $125 million in fiscal

year 2001.2

 To implement supply chain management for office supplies, the

Postal Service awarded a national office supply contract to Boise Office

Solutions (Boise) in January 2000.3

 Under the terms of the contract, Postal

Service buyers are required, with a few exceptions, to purchase all office

supplies from this contract. The Postal Service estimated that this contract

would enable it to save up to $28 million annually.

 1

 The high risk list identifies a federal program or operation that is highly vulnerable to

waste, fraud, abuse, and mismanagement or that requires urgent attention to ensure that

our national government functions in the most economical, efficient, and effective

manner possible. U.S. General Accounting Office, U.S. Postal Service: Major

Management Challenges and Program Risks, GAO-01-262 (Washington, D.C.:

January 2001); U.S. General Accounting Office, U.S. Postal Service: Deteriorating

Financial Outlook Increases Need for Transformation, GAO-02-355 (Washington, D.C.:

Feb. 28, 2002); U.S. General Accounting Office, U.S. Postal Service: Moving Forward

on Financial and Transformation Challenges, GAO-02-694T (Washington, D.C.:

May 13, 2002).

2

 In this report, “fiscal years” are Postal Service fiscal years, which from 1999 through 2001

began in early- to mid-September.

3

 The awardee was formerly known as Boise Cascade Office Products.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-03-230 Contract Management

The Postal Service, which is not subject to the Small Business Act,4 is

not required to establish goals for contract awards to small businesses.

However, the Postal Service has established a supplier diversity program

and tracks dollars awarded to small, minority-owned, and woman-owned

(SMW) businesses (minority- and woman-owned businesses can be large

or small). One of the ways the Postal Service expects to increase the

dollars going to these businesses is through SMW subcontracting. For

example, Boise was required to submit a subcontracting plan to reach

SMW businesses. In light of the potential impact of the Boise contract on

small business vendors, you asked us to assess (1) the status of the Postal

Service’s implementation of its national contract with Boise, (2) Boise’s

achievement of its SMW subcontracting plan goals, and (3) the extent

to which the Postal Service is buying office supplies directly from

SMW businesses.

The Postal Service has not yet been successful in implementing its

national office supply contract. Although the contract was intended, with

a few exceptions, to be a mandatory source of supply, in fiscal year 2001

the Postal Service spent over 60 percent of its office supply dollars on

items purchased outside the Boise contract through purchase cards, other

contracts, money orders, or cash. The lack of success was due in part to

insufficient actions taken by the Postal Service to ensure that office

supplies are purchased from the Boise contract. The Postal Service was

unaware of the extent to which the contract was not being used because

it has not adequately tracked or monitored its employees’ office supply

purchases. For fiscal year 2001, the Postal Service can document only

$1 million in savings from the use of the contract—though it had projected

savings of up to $28 million.

Boise and the Postal Service have not paid sufficient attention to

subcontracting goals. The subcontracting plan was carelessly constructed

and contains ambiguities that should have been resolved prior to the

contract award. However, to date, Boise and the Postal Service have not

taken actions to revise the plan. For example, the categories of SMW

businesses in the plan are inconsistent with the way Boise has been

reporting its achievements and with the way the Postal Service categorizes

its diversity goals. Moreover, Boise and Postal Service officials do not

agree on the goals. According to Postal Service officials, the overall goal

 4

 15 U.S.C. Sect. 637c(2).

Results in Brief
Page 3 GAO-03-230 Contract Management

is 30 percent of annual revenue for the contract—a figure confirmed in a

preaward email from Boise. According to a Boise official, the goal is both

a percentage of annual revenue for the contract as well as a fixed dollar

value. Boise has fallen far short of the 30 percent goal. In fiscal year 2001,

Boise reported that only 2.6 percent of its revenue was subcontracted to

SMW businesses. Both Boise and the Postal Service now acknowledge that

the 30 percent goal may have been unreasonable. Recently, Boise has

begun to take actions to improve its performance. Nevertheless, it is highly

unlikely that Boise will achieve its subcontracting goal.

The extent to which the Postal Service is buying office supplies

directly from SMW vendors is unclear. From fiscal years 1999 through

2001, Postal Service data show that office supply purchases from SMW

businesses through contracts and purchase cards decreased from

50 percent to 18 percent. However, the data are unreliable. The Postal

Service has not tracked SMW business participation in other purchasing

mechanisms, such as money orders and cash, and, like other agencies,

its information on purchase card merchants contains numerous errors.

We are making recommendations to the Postmaster General of the

United States concerning the need to re-assess the Postal Service’s

national office supply strategy and estimated savings and to revise

Boise’s subcontracting plan to accurately and clearly reflect realistic

goals. In written comments on a draft of this report, the Postal Service

agreed with our recommendations. Boise also provided written comments,

offering its perspective on some of the information in the report.

The Postal Service, an independent establishment of the executive branch

of the U.S. government,5

 is the largest federal civilian agency, consisting

of more than 38,000 post offices, branches, and stations and 350 major

mail-processing and distribution facilities. As part of its strategy for better

managing its procurement of goods and services, the Postal Service has

centralized the procurement of commodities that were previously

decentralized. For example, all office supply procurements are now

managed by the Office Products and Utilities Category Management

Center in Windsor, Connecticut, which is responsible for administering

the national contract. Previously, office supply procurement was

decentralized, with each area managing its own procurements.

 5

 39 USC Sec. 201.

Background
Page 4 GAO-03-230 Contract Management

To demonstrate its commitment to reaching SMW businesses, the

Postal Service has developed a 5-year supplier diversity plan. The

plan focuses on maintaining a strong supplier base that includes

SMW businesses. While it does not set specific dollar goals, the plan is

intended to ensure that the Postal Service spends an increasing amount

of its procurement dollars on goods and services from diverse businesses

through fiscal year 2003. To monitor its progress, the Postal Service

measures its prime and subcontracting spending achievements with

SMW businesses.

During fiscal years 1999 through 2001, Postal Service procurement of

goods and services (which includes office supplies) decreased from

$3.5 billion to $2.6 billion. For the same time period, office supply

procurement grew from $107 million to $125 million. Postal Service

officials explained that this increase does not necessarily indicate

an actual increase in office supply spending, but rather it reflects

improvements in the procurement system’s ability to track spending.

The officials indicated that the data provided, while not perfect, are

the best available information.

In October 1999, the Postal Service issued a solicitation for a national-level

office supply contract. Four vendors submitted proposals. The solicitation

provided that the award would be made to the vendor that offered the

best overall value to the government, considering nonprice and price

factors. The proposals were evaluated based on several factors, including

the vendors’ demonstrated understanding of the solicitation’s (1) technical

requirements, including the ability to implement and maintain a

Web-based procurement system, and (2) business requirements. As part

of their business plan, vendors were required to demonstrate their ability

to deliver items within 24 hours of receiving an order, which is considered

industry standard. Other factors on which the proposals were evaluated,

in descending order of importance, were

• the inclusion of a subcontracting plan demonstrating the vendor’s

commitment to use SMW businesses,

• the ability to address environmental and energy conservation efforts.

• An explanation of the price discounts on items offered to the

Postal Service,

• the ability to provide financial and purchasing reports that are integrated

with the Postal Service’s system, and

• the ability to provide Postal Service items, other than office supplies, that

are used in an office setting.
Page 5 GAO-03-230 Contract Management

Additional evaluation factors included past performance and

Javits-Wagner-O’Day Act (JWOD)6

 compliance.

The Postal Service awarded the contract to Boise with a start date

of April 3, 2000. The contract is a firm, fixed-price modified requirements

contract for a 3-year base period, with up to three 2-year options. The

contract requires, with a few exceptions, that the Postal Service order

from Boise all of the approximately 13,000 items in Boise’s Postal Service

office supply catalog. Exceptions to the mandatory requirement are

where (1) the item can be found at a lower price (and it is not a JWOD

item) or (2) the requirement is urgent and the supplier cannot meet the

required delivery date. The Postal Service has since exercised the first

2-year option.7

The JWOD Act requires the Postal Service to comply with its

requirements.8

 According to Postal Service and Boise officials, Boise

has ensured through its ordering process that this compliance occurs.

When Postal Service employees place an order with Boise for an item

that is also on the JWOD procurement list, Boise substitutes the ordered

item with a JWOD item that is essentially the same.

 6

 The Javits-Wagner-O’Day Act established a Committee for Purchase from People who are

Blind or Severely Disabled, which maintains a procurement list of commodities or services

that the government must procure from designated nonprofit agencies. These agencies are

represented by central nonprofit agencies called the National Industries for the Blind and

the National Industries for the Severely Handicapped (41 CFR ch. 51).

7

 The new option period expires on January 6, 2005. According to the contracting officer,

it was necessary to exercise the option in January 2003, rather than April 2003, to prevent

the contract from lapsing.

8

 41 U.S.C. sec. 48b(7).
Page 6 GAO-03-230 Contract Management

The Postal Service has not been successful in implementing its

national-level contract to purchase most office supplies from Boise.

As shown in figure 1, during fiscal year 2001 less than 40 percent of

the $125 million in office supplies was purchased from the contract.

Figure 1: Total Office Supply Spending for Fiscal Year 2001

Note: “Other” is local buys paid by cash, money orders, and district invoices.

The Postal Service has not taken sufficient actions to ensure that the

contract would be used as anticipated. While fiscal year 2001 data show

an improvement over the 6 months that the contract was used in fiscal

year 2000, when about 75 percent of office supplies were purchased

outside the contract, the Postal Service is concerned that its employees

continue to spend a significant percentage of office supply dollars outside

the contract. Anticipated savings were based on the assumption that

almost all supplies would be purchased from the national contract. The

fact that this has not occurred, together with the absence of a benchmark

against which to measure savings, has contributed to the Postal Service’s

failure to realize estimated savings from its supply chain initiative.

National-Level Office

Supply Contract

Has Not Been

Fully Implemented
Page 7 GAO-03-230 Contract Management

Although the Postal Service conducted market research that supported

the implementation of a national-level contract for office supplies, it did

not take sufficient actions to ensure that the contract would be used as

anticipated. Figure 2 shows that Postal Service employees buy office

supplies through three mechanisms: contracts (including Boise and

non-Boise contracts), purchase cards, and other methods such as cash and

money orders.

Figure 2: Office Supply Spending (Fiscal Years 1999 to 2001)

Postal Service officials stated that the increase in contract dollars from

fiscal year 1999 to 2001 indicates that the national contract is being used

more extensively. However, they have not determined why employees

continue to buy their supplies outside the contract. Postal Service officials

did not expect immediate compliance with the contract; they anticipated

that some purchasing would occur outside the national contract during the

implementation period because the cultural environment of the

Postal Service Did Not

Take Sufficient Actions

to Ensure Contract

Would Be Used
Page 8 GAO-03-230 Contract Management

Postal Service has allowed local buyers to make purchases independently.

However, they were unaware of the extent to which the contract is not

being used because they did not sufficiently plan its implementation, nor

have they adequately tracked and monitored office supply purchases.

There are several indications that the Postal Service did not take sufficient

action to ensure that the contract was properly implemented. First, the

Postal Service continues to maintain a number of non-Boise office supply

contracts. Although the number of vendors on these other contracts

declined from 49 to 33 from fiscal years 1999 through 2001, the dollar value

of supplies bought from these contracts has grown, as shown in figure 3.

Figure 3: Postal Service Office Supply Spending with Contract Vendors

(Fiscal Years 1999 to 2001)

Note: Boise spending in fiscal year 1999 represents business from its existing contract with the

Postal Service, prior to the national contract award.
Page 9 GAO-03-230 Contract Management

The Postal Service did not undertake a systematic review of all office

supply contracts when it implemented the national contract. Such an

assessment would have provided an indication of which non-Boise

contracts should have been continued and which phased out. In fact,

some of the items purchased under non-Boise contracts in fiscal year

2001—such as binders, paper, and measuring tape—should have been

purchased from Boise, according to the terms of the national contract.

According to Postal Service officials, other items—such as printed

envelopes and some types of rubber bands—are purchased under separate

contracts because the items are not part of the Boise catalog or they are

unique and purchased in volume. Postal Service officials told us that the

improved oversight they expect as a result of centralized office supply

procurement will allow them to phase out some of the existing office

supply contracts.

Second, Postal Service employees continue to use purchase cards to buy

office supplies outside the contract. Because the purchase card cannot be

used to order from the Boise contract, none of the $16.8 million spent on

office supplies through purchase cards in fiscal year 2001 was spent under

the contract. Postal Service officials have not tracked or monitored

purchase card procurements to determine why these employees are not

using the contract. Postal Service managers indicated that they are

able to use quarterly purchase card spending reports to identify errant

purchases—office supplies that should have been purchased from the

national contract. However, they acknowledge that these reports are not

used consistently to monitor employee purchases of office supplies.

Finally, Postal Service employees continue to use cash and money orders

to buy supplies from local vendors. As with the purchase cards, cash and

money orders cannot be used to buy supplies from the Boise contract.

Because the Postal Service has limited information about cash and money

order purchases, it was unaware that 33 percent of office supply spending

in fiscal year 2001 occurred through these methods. Postal Service

officials remarked that they are encouraged by the decrease (from about

$66 million in fiscal year 1999 to $41 million in fiscal year 2001) in office

supply purchasing using cash and money orders. However, until the Postal

Service is able to better track and monitor local office spending, it will

lack the information it needs to ensure that the national contract is being

used as intended.

Postal Service officials explained that their ability to track office supply

spending—enabling them to better target those employees who are not

using the contract—should improve as Boise contract use increases
Page 10 GAO-03-230 Contract Management

because the contract requires Postal Service employees to use a

Web-based purchasing system referred to as e-buy.9

 The Postal

Service’s expectation is that information about e-buy purchases will

be systematically and consistently collected. However, use of the

contract is not being enforced, and employees continue to use other

methods—such as contracts outside the national contract, purchase

cards, cash, and money orders—to buy office supplies.

The Postal Service’s decision to award a national-level contract to a

single supplier was based, in part, on an expectation of saving up to

$28 million annually. These savings would result from (1) purchasing a

large quantity of items from a single supplier, thereby reducing item costs,

and (2) implementing the e-buy purchasing process, which would reduce

overall transaction costs. To realize the maximum benefits and cost

savings under the Postal Service’s acquisition strategy, almost all office

supplies must be purchased from Boise. However, the fact that employees

continue to buy supplies outside the contract, combined with the lack of

an established benchmark to measure savings, prevents the Postal Service

from determining whether it is achieving its savings goals.

The Postal Service’s reported savings are calculated using a formula

established in 1999. The formula is based on market research, Postal

Service Annual Report data from 1998, and spending on an office supply

contract in existence at that time. This methodology predicted transaction

cost savings of up to 70 percent and item price savings of up to 10 percent

on a $50 million contract. The Postal Service claimed savings of up to

$28 million for fiscal year 2001 using these estimates. However, when we

asked for evidence of actual savings to date, the Postal Service could

provide documentation for only about $1 million. This amount reflects

rebates that Boise agreed to give the Postal Service on all new business

and reduced prices negotiated as part of the contract.

 9

 E-buy requires use of the intranet for placing orders. In the event of a telephone or fax

order, a Boise customer service representative inputs the order.

Postal Service is Unable

to Document Estimated

Savings
Page 11 GAO-03-230 Contract Management

Boise and the Postal Service have not paid sufficient attention to the

subcontracting goals under the national office supply contract. The

subcontracting plan was carelessly constructed, and it contains obvious

ambiguities. In fact, Postal Service and Boise officials do not agree on the

basic subcontracting goals. Notwithstanding this disagreement, for the

purposes of this report we have used the Postal Service’s position that the

goal is to award 30 percent of annual revenues to SMW businesses.

Boise has fallen far short of achieving the 30 percent goal. In fiscal year

2001, Boise reported achievements of only 2.6 percent. Boise has also

fallen short of its specific goals for minority and woman-owned

businesses. Boise and the Postal Service provided several reasons why

Boise is not achieving the subcontracting goals and they have identified

actions that they believe will improve performance. However, these

actions will not be sufficient to enable Boise to reach its subcontracting

plan goals.

When Boise initially submitted its proposal, its subcontracting goal

was to provide 12 percent of its Postal Service business to SMW

subcontractors. This proposed subcontracting plan included 4 percent

goals for minority- and woman-owned businesses. However, after Boise

was selected as the intended awardee—but before the contract was

awarded—the goal for SMW businesses was increased to 30 percent based

on negotiations with the Postal Service. At the same time, Boise increased

its goals for minority- and woman-owned business from 4 to 6 percent.

The subcontracting plan contains obvious ambiguities that should have

been addressed prior to contract award. For example, because the plan

is not clearly written, Postal Service and Boise officials disagree on the

overall SMW subcontracting goal. Postal Service officials maintain that the

goal is 30 percent of overall revenue for the contract, a figure confirmed

in a preaward email from Boise. A Boise official, however, asserts that

there is both an overall 30 percent goal and a fixed dollar value goal of

$3,300,000. Despite this disagreement, neither Boise nor Postal Service

officials have taken steps to revise the plan.

Further, the subcontracting plan misstates two of the three reporting

categories for which there is a contractual goal. The language in the

plan includes goals for “small, disadvantaged businesses” and “small,

woman-owned businesses.” In practice, however, the Postal Service and

Boise report achievements for “minority” and “woman-owned” firms,

which may be small or large. There is no clear linkage between the

Boise Is Not

Achieving

Subcontracting

Plan Goals

Subcontracting Plan

Contains Inconsistencies
Page 12 GAO-03-230 Contract Management

categories of SMW businesses as stated in the plan and the way Boise

is reporting its achievements. A Boise official explained that the

subcontracting plan reflects the categories the firm typically uses when

contracting with federal agencies, and it did not revise the reporting

categories to reflect the Postal Service’s supplier diversity categories. In

responding to our questions, the Postal Service officials acknowledged

that the plan is inconsistent with the way Boise’s achievements are

measured and that it needs to be revised.

Despite its disagreement with the Postal Service about the subcontracting

goals, Boise reports the dollars and percentages that went to SMW

businesses based on the annual total revenues under the contract. Table 1

reflects reported achievements for fiscal year 2001.

Table 1: Boise’s Reported Fiscal Year 2001 Subcontracting Achievements

Percent of

dollars to SMW

businesses

Total dollars to

SMW

businesses

Percent of

dollars to

minority

businesses

Total dollars to

minority

businesses

Percent of

dollars to

woman-owned

businesses

Total dollars to

woman-owned

businesses

Reported

achievements

2.6% $1,245,161 0.7% $345,556 1.9% $899,625

Source: Boise.

Note: Boise’s total sales to the Postal Service on the national contract for fiscal year 2001 were

$47 million.

Postal Service and Boise officials stated that 30 percent was a stretch goal

to demonstrate the Postal Service’s commitment to supplier diversity. A

Boise representative stated that Boise agreed to the 30 percent goal

because Boise understood the goal to be negotiable. Even though the

Postal Service has no plans to renegotiate the goal before the end of the

initial contract performance period of 3 years, Boise and the Postal

Service have started discussions to renegotiate the subcontracting goal in

the event that the Postal Service decides to exercise an option to extend

the contract. Postal Service officials noted that they realize, in hindsight,

that the 30 percent goal may have been unreasonable.

Boise’s Reported

Achievements
Page 13 GAO-03-230 Contract Management

Boise and Postal Service officials provided several reasons why the

subcontracting goals have not been achieved. First, a Boise official said

that Boise agreed to the 30 percent goal based on its earlier achievements

under the General Services Administration’s Federal Supply Schedules

program.10 In fiscal years 1999 and 2000, Boise awarded small businesses

24.6 percent of its Schedules program sales. In retrospect, Boise and

Postal Service officials explained that the Schedules program was not

a reliable source for an estimate because Boise’s contract under the

Schedules program included 1,800 items, compared to about 13,000 items

in the Postal Service contract. Moreover, the total dollar sales in Boise’s

Schedules contract—$14.3 million in fiscal year 2000—were considerably

lower than the total sales on the Postal Service contract—$47 million in

fiscal year 2001.

Second, while Boise has a corporate supplier diversity strategy, a Boise

official stated that the company’s ability to achieve the subcontracting

plan goals has been hampered by the fact that the Postal Service does not

require its employees to target SMW businesses when ordering from the

catalog. In fact, officials at one district we visited had the impression

that by simply purchasing from the contract they were complying with

the Postal Service’s SMW business initiatives. At another district we

visited, employees were not aware that the Postal Service had SMW

subcontracting goals in the contract. All of the district officials we spoke

with stated that they base their purchasing decisions on the lowest

available price and do not search the catalog for SMW businesses.

Third, one of the primary reasons Boise and Postal Service officials

offered for the low subcontracting achievements was that compliance

with the JWOD Act is taking away dollars from small businesses.

However, Boise records show that of the 47 Boise vendors whose items

were replaced with JWOD items in fiscal year 2001, only 7 were small

businesses. These 7 vendors supply 26 out of the 404 Postal Service

office supply items that are subject to the automatic JWOD replacement.

Moreover, financial data from Boise show that in calendar year 2000, while

total sales on JWOD items were just over $3 million, the impact of

JWOD compliance on these 7 vendors was relatively small. These vendors

potentially lost $167,629 in business due to the automatic substitution of

 10 The Schedules program provides federal agencies with a simplified process for

obtaining commonly used commercial supplies and services, ranging from office

supplies to information technology services, at prices associated with volume buying.

Several Reasons

Offered for Failure to

Meet the Goals
Page 14 GAO-03-230 Contract Management

JWOD items for their items. In calendar year 2001 (representing one full

year of contract sales), these 7 vendors potentially lost $297,036 of sales,

while the total sales on JWOD items for the year doubled to almost

$6 million. This trend continued in the first 6 months of 2002.

Finally, Postal Service officials also explained that Boise could not reach

its goal because it had planned to subcontract with a woman-owned

enterprise that provided cash register tapes, a technology that the Postal

Service decided to phase out. They stated that although Boise had relied

on this business to reach its subcontracting goal, a change in technology

resulted in significantly less business with this vendor than was expected.

However, neither Postal Service nor Boise officials could provide us with

specific estimates of expected sales. In fact, sales to this woman-owned

firm increased in 2001 and 2002. Boise records show a growth in sales of

the cash register tapes from this business of approximately $283,000 in

2000 to $455,000 in 2001. Sales for the first half of 2002 indicate a dollar

amount in sales similar to the total sales in 2001. Moreover, Boise was

notified of the changes to the new technology as far back as 1998;

therefore, this was not new information received during the negotiations

regarding the subcontracting goals.

The Postal Service and Boise recognize that the performance on the

subcontracting plan is not satisfactory and have started to take some

actions to improve Boise’s achievements under the current contract. While

Boise is responsible for its contract performance, the coordinated actions

of the Postal Service and Boise can assist Boise’s ability to achieve the

subcontracting plan goals. Although the following steps are being taken to

improve performance, it is highly unlikely that these actions will enable

Boise to reach its 30 percent subcontracting goal.

• Boise is working with the Postal Service to include additional SMW

businesses as subcontractors. For example, Boise continues to work with

the Postal Service to identify small business suppliers of recycled toner

cartridges, who in many cases provide their products at half the price

of new toner cartridges. District officials received a listing of small

businesses supplying recycled toner cartridges in October 2001. However,

neither the Postal Service nor Boise has determined the extent to which

this information will increase Boise’s subcontracting achievements.

• Boise is working with the Postal Service to reflect indirect services

provided to Boise by small businesses in its reporting of subcontracting

plan achievements, as it is allowed to do under the Postal Service contract.

Indirect services include data entry and information management services,

Actions to Improve

Subcontracting

Performance
Page 15 GAO-03-230 Contract Management

such as invoicing and tracking sales information. However, Boise

estimates that including indirect services provided by SMW businesses will

have minimal impact on subcontracting plan achievements. Currently,

there is no time frame for implementing this change in Boise’s reporting of

its subcontracting achievements.

• In October 2001, the Postal Service and Boise teamed up to design a

quarterly report that tracks SMW business purchases at the Postal Service

districts. The Postal Service expects to finalize and distribute these reports

in January 2003.

• The Postal Service and Boise are expanding the education of Postal

Service employees on the benefits of seeking out SMW suppliers when

they order office supplies from the national contract. Since initial office

supply contract training was provided in the fall of 2000, Postal Service

efforts to educate employees about SMW suppliers have been through

informal channels, such as e-mail. Boise’s educational efforts focus on

providing more information to the Boise sales representatives that work

with the Postal Service. While Boise expects some improvements in its

subcontracting achievements as a result of the educational efforts, their

impact is unknown.

Postal Service data show that office supply purchases made directly from

SMW businesses—using contracts and purchase cards—decreased from

about 50 to 18 percent from fiscal year 1999 through 2001. However, the

extent to which the Postal Service is buying office supplies from SMW

businesses is unclear because its purchase card information is unreliable

and because the Postal Service has not tracked purchases by employees

using mechanisms such as money orders and cash. Our review, as well as

a report by the Postal Service Inspector General,11 found that incomplete

and unreliable diversity statistics on suppliers resulted in the Postal

Service overstating or incorrectly classifying dollars awarded to SMW

businesses. The Inspector General’s report made nine recommendations to

correct the reporting of diversity statistics.12

 11 Office of Inspector General, U.S. Postal Service, Supplier Diversity Program

for Supplies, Services, and Equipment Purchases, CA-AR-01-005 (Arlington, VA:

Sept. 6, 2001).

12 The Postal Service has addressed only one of these recommendations, noting in its

April 2002 Purchasing Assessment Report that fiscal year 1999 and 2000 data contained

errors in SMW data.

Reports Indicate

a Drop in Small

Business Dollars, but

Data Are Unreliable
Page 16 GAO-03-230 Contract Management

Table 2 shows the decline in the percentage of SMW purchases from fiscal

years 1999 through 2001, based on Postal Service data.

Table 2: Reported Office Supplies Purchased from SMW Businesses

Office supplies 1999 2000 2001

Total purchases $ 107,181,787 $ 107,392,563 $ 125,047,235

SMW purchases $ 20,207,461 $ 16,939,654 $ 15,002,143

SMW purchases as percent of total purchases 19% 16% 12%

Total purchases using contracts and purchase cards only $41,211,956 $49,714,964 $83,748,545

SMW as percent of total purchases using contracts and purchase cards 49% 34% 18%

Source: GAO analysis of U.S. Postal Service data.

Note: “Total purchases” reflects contracts, purchase cards and other purchasing mechanisms such as

money orders and cash.

During the same 3-year period, SMW business participation has decreased

as a percentage of contract spending (excluding spending through

purchase cards, cash, and money orders), while the overall dollar value of

office supplies purchased through contracts increased from $14.5 million

to almost $67 million. In addition, the number of SMW vendors selling

office supplies to the Postal Service decreased during this period. Postal

Service district officials told us that they are no longer attempting

outreach to local SMW businesses—such as participating in small business

conferences or trade shows to attract new vendors—because of the

emphasis on buying office supplies only through the Boise contract.

Table 3 shows the decline in contract activity with small businesses from

fiscal years 1999 through 2001.

Table 3: Reported Office Supplies Purchased through Contracts

1999 2000 2001

Purchase of office supplies using contracts $ 14,500,475 $ 25,148,837 $ 66,930,690

Contract purchases from SMW businesses $ 5,440,943 $ 9,150,457 $ 9,938,844

SMW businesses as percent of total contract spending 38% 36% 15%

SMW vendors 27 29 17

Source: GAO analysis of U.S. Postal Service data.
Page 17 GAO-03-230 Contract Management

Similarly, the Postal Service reports that office supply procurements

from SMW businesses through purchase cards decreased from fiscal years

1999 through 2001. Table 4 shows the decline in the percentage of

purchases from SMW businesses using purchase cards from fiscal year

1999 through 2001.

Table 4: Reported Office Supplies Purchased Using Purchase Card

1999 2000 2001

Total purchase card spending $26,711,481 $24,566,126 $16,817,855

Purchase card purchases from SMW businesses $14,766,518 $7,789,198 $5,063,299

SMW businesses as percent of total purchase card spending 55% 32% 30%

Source: GAO analysis of U.S. Postal Service data.

Despite the Postal Service’s reported statistics, we could not determine

the extent to which the Postal Service is buying from SMW businesses.

First, because the Postal Service does not track or report socioeconomic

data when payments are made to vendors using cash or money orders, it is

not possible to assess SMW business achievements when those payment

methods are used.

Second, the Postal Service, like other federal agencies, relies on reports

from banks for annual purchase card transaction and vendor information.

This information is ambiguous and contains numerous errors because

socioeconomic categories are often inaccurate. For example, the Postal

Service’s purchase card data for fiscal years 1999 through 2001 included

over $40 million dollars in office supply purchases from businesses that

were identified as both small and large.

The Postal Service is aware of the problems with the purchase card

transaction information and has been working with Visa Corporation to

improve the data. Because banks and payment card associations, such as

Visa, control the transaction databases, the Postal Service must rely on the

information provided by these institutions. We recently reported on the

issue of unreliable and incomplete socioeconomic data on purchase card

merchants.13

 13 U.S. General Accounting Office, Contract Management: Government Faces

Challenges in Gathering Socioeconomic Data on Purchase Card Merchants, GAO-03-56

(Washington, D.C.: Dec. 13, 2002).
Page 18 GAO-03-230 Contract Management

The Postal Service has not achieved its goal of using a single supplier for

office supplies and, as a result, has not achieved its anticipated savings.

Because the Postal Service has not analyzed how its employees buy office

supplies, it does not know why the national contract is not being used as

extensively as planned. In fact, the Postal Service has no assurance that

the national strategy is effective because it has not adequately tracked its

employees’ office supply purchases.

Implementing a national-level office supply contract through a single

supplier makes the realistic development and measurement of Boise’s

subcontracting goals and achievements critical to the Postal Service’s

efforts to achieve its supplier diversity objectives. The failure to

establish an effective subcontracting plan and the lack of oversight and

enforcement has created an environment where participation by SMW

businesses is minimal. The fact that the Postal Service and Boise cannot

agree on the levels of SMW participation established in the contract is

evidence of the lack of attention Boise and the Postal Service have paid to

this issue. While Boise and the Postal Service have taken some actions to

address SMW achievement, it is highly unlikely that Boise will be able to

reach its subcontracting goal.

We recommend that the Postmaster General of the United States

• determine why the national contract is not being used as a mandatory

source of office supplies;

• reassess the cost effectiveness of a national office supply contract and

measure actual savings from using the contract rather than applying the

outdated estimating formulas initially established;

• develop mechanisms to track employees’ compliance with the mandatory

use of the contract, if analysis indicates that the national-level contract is

beneficial; and

• direct that the contract be modified to include a revised subcontracting

plan that accurately and clearly reflects realistic goals for small, minority,

and woman-owned businesses, consistent with the Postal Service’s

supplier diversity program.

Conclusions

Recommendations
Page 19 GAO-03-230 Contract Management

In written comments on a draft of this report, the Postal Service agreed

with our recommendations and indicated that our report will help it

develop and enforce policies aimed at improving performance under the

national office supply contract. Recognizing that the success of a contract

such as this requires continuous management, the Postal Service has

established a new supply management organization that will use our

findings and recommendations to determine why the contract is not being

used as fully as anticipated. The Postal Service indicated that it will

continue to seek cost-effective ways to expand its oversight efforts and

expects that increased use of the Web-based purchasing system will assist

in these efforts. Regarding the savings from the contract, the Postal

Service stated that its internal analysis has validated $5.3 million in cost

reductions during fiscal year 2002. This analysis was not shared with us

during our review. Finally, the Postal Service stated that it has corrected

the ambiguities in the subcontracting plan and is working with Boise to

establish more realistic subcontracting goals. The Postal Service’s letter

appears in appendix I.

We also received a written statement from Boise expressing its opinion

on federal subcontracting involving SMW businesses and offering several

comments on our findings. Boise stated that actual sales under the

contract (approximately $50 million) far exceeded its expected contract

amount of $11 million. Boise uses this information as a rationale for its

failure to achieve its subcontracting goals, which it asserts were based on

the $11 million expected contract amount. However, the contract did not

guarantee a minimum or maximum level of sales to Boise and, as noted in

our report, a 30 percent goal was confirmed by Boise in a pre-award

e-mail. Further, the Postal Service based its projected savings on an

estimated contract amount of $50 million. Boise also noted that sales to

SMW businesses with the Postal Service increased from fiscal year 1999 to

fiscal year 2001. However, Boise’s analysis relies on a comparison of sales

data from a previously existing Postal Service office supply contract, for

200 high-use items, to the sales data from the current contract, which

covers almost 13,000 items. Because Boise is comparing sales data from

two different contracts, we do not believe that this is a legitimate

comparison. Boise indicated that it is working with the Postal Service to

correct the inconsistencies we noted in the subcontracting plan.

In addition, Boise believes that JWOD items block sales to SMW

businesses; however, Boise did not provide sufficient evidence to

support this claim. As noted in our report, the potential lost sales to

SMW businesses due to JWOD item replacements were relatively small.

Agency Comments
Page 20 GAO-03-230 Contract Management

Boise also commented that because sales of a cash register tape made by a

woman-owned business did not increase at the expected rate, its SMW

achievements were affected. However, as discussed in our report, neither

Boise nor the Postal Service could provide us with documentation on the

expected sales of the IRT tapes.

Finally, Boise was concerned about our selection of field sites because it

was not based on a random sample. We targeted locations that, according

to Boise’s data, were low users of the contract. The objective of our field

visits was not to identify overall awareness of the contract. Rather, our

intent was to gain an understanding of why certain locations were not

using the contract as a mandatory source of office supplies. Boise’s letter

appears in appendix II.

To meet our objectives, we reviewed the Postal Service’s office supply

spending and the related SMW achievements during fiscal years 1999

through 2001.

To examine the status of the Postal Service’s implementation of its

national office supply contract with Boise, we reviewed the acquisition

planning, contract formation, and contract administration documentation,

including market research results, the solicitation, and the contract.

Total office supply spending was identified using information from the

Postal Service purchasing and materials data warehouse. We determined

office supply spending for fiscal years 1999 through 2001 by using the

same account codes that the Postal Service used to conduct its market

research to justify the national office supply contract. We reviewed

the Postal Service’s total office supply spending details for all

contract, purchase card, money order, and cash transactions. We did

not independently verify the accuracy of the reported spending. We

interviewed and obtained information from the Postal Service’s

contracting officer and contract administrator. In addition, we interviewed

and obtained information from three area offices and three district offices

based on data that indicated these locations were not using the national

office supply contract. We interviewed purchasing specialists,

administrative services managers, financial system coordinators, and

administrative personnel with office supply purchasing responsibility.

We also held discussions with and acquired information from Boise’s

federal business manager.

To determine Boise’s achievement of its SMW subcontracting plan, we

reviewed the contract’s subcontracting plan and Boise’s quarterly

Scope and

Methodology
Page 21 GAO-03-230 Contract Management

reports on its SMW achievements. We interviewed and obtained

information from the Postal Service’s contracting officer, area finance

officials, and district finance and purchasing officials. We also held

discussions with and acquired information from Boise’s federal business

manager, its minority- and woman-owned business development and

supplier diversity manager, and two minority-owned subcontractors.

To assess the extent to which the Postal Service is buying office supplies

directly from SMW businesses, we reviewed Postal Service supplier

diversity policy and guidance. We examined the Postal Service’s reported

socioeconomic statistics, including the dollar amount and type of vendor

for fiscal years 1999 through 2001. We interviewed and obtained

information from Postal Service officials in the offices of supplier

development and diversity, purchasing and materials, and the Postal

Service Inspector General. We determined that the reported purchase card

data were unreliable; however, we did not attempt to correct the errors in

the data provided.

Additionally, we met with representatives from the National Office

Products Association and a small, woman-owned business to gain a better

understanding of their views with regard to the national contract.

We conducted our review from March 2002 to November 2002 in

accordance with generally accepted government auditing standards.

We are sending copies of this report to other interested congressional

committees; the Postmaster General of the United States; and the Senior

Vice President and Federal Business Manager, Boise Office Solutions.

We will also make copies available to others upon request. In addition,

the report will be available at no charge on the GAO Web site at

http://www.gao.gov.
Page 22 GAO-03-230 Contract Management

Please contact me at (202) 512-4841 or Michele Mackin at (202) 512-4309

if you have any questions regarding this report. Other major contributors

to this report were Penny Berrier, Art L. James Jr., Judy T. Lasley,

Sylvia Schatz, and Tatiana Winger.

David E. Cooper

Director, Acquisition and

 Sourcing Management
Appendix I: Comments from the U.S. Postal

Service

Page 23 GAO-03-230 Contract Management

Appendix I: Comments from the U.S. Postal

Service
Appendix I: Comments from the U.S. Postal

Service

Page 24 GAO-03-230 Contract Management
Appendix II: Comments from Boise Office

Solutions

Page 25 GAO-03-230 Contract Management

Appendix II: Comments from Boise Office

Solutions
Appendix II: Comments from Boise Office

Solutions

Page 26 GAO-03-230 Contract Management
Appendix II: Comments from Boise Office

Solutions

Page 27 GAO-03-230 Contract Management
Appendix II: Comments from Boise Office

Solutions

Page 28 GAO-03-230 Contract Management
Appendix II: Comments from Boise Office

Solutions

Page 29 GAO-03-230 Contract Management
Appendix II: Comments from Boise Office

Solutions

Page 30 GAO-03-230 Contract Management (120129)
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