The Service has a long history of contracting for mail transportation dating back to the beginning of the Post Office in 1775. Since then, the Service has contracted for mail to be carried by steamship, stagecoach, horse, rail, airplane, motor vehicle, boat, snowmobile, and even mule train into the Grand Canyon. In 1845, Congress passed legislation to reduce mail transportation costs by moving from contracts with stagecoach companies to contracts with individuals to transport mail by horseback. The routes these individuals took became known as star routes. Most star route carriers had 4-year contracts and traveled by horse or horse-drawn vehicle until the early 20th century. In 1948, Congress allowed the Postmaster General to renew 4-year contracts to star route carriers with satisfactory service rather than requiring the contracts to be competitively bid. Between 1960 and 1970, star route miles more than doubled. In the 1970s, star routes officially became known as highway contract routes. There are three different types of highway contract routes: Transportation routes: Contractors transport mail between postal facilities. Contract delivery service (CDS) (commonly referred to as box routes): Contractors deliver mail and provide services similar to those provided by postal rural carriers. Combination routes: Contractors provide a combination of mail transportation between postal facilities and mail delivery services to individual addresses along their routes. In 2007, the Service had nearly 17,000 highway contract routes, including 8,968 transportation routes, 6,708 CDS delivery routes, and 1,218 combination routes. The Service also contracts for air mail transportation services with private contractors, including FedEx and seven commercial airlines. In addition, it contracts for mail to be transported by rail and boat. The Service’s outsourcing of mail transportation and some delivery services predates the ability of postal employee unions to collectively bargain. The Service established city delivery services provided by postal letter carriers on designated city routes in 1863, but did not initially extend delivery services to rural areas. Eventually, the Service set up permanent rural routes with postal rural letter carriers in 1902. The 1970 Postal Reorganization Act authorized postal unions to collectively bargain with the Service on employee wages, hours, and other terms and conditions of employment. Subsequently, the unions negotiated for protection from layoffs. The act provided for binding arbitration if an impasse persists 180 days after the start of bargaining, unless parties agree to an alternate process. Four postal unions represent most non-management postal employees and negotiate for them during collective bargaining: The American Postal Workers Union represents various employees including clerks, building and equipment maintenance employees, motor vehicle operators, motor vehicle maintenance employees, and nurses; The National Association of Letter Carriers represents carriers who deliver mail on city routes; The National Rural Letter Carriers’ Association represents carriers who deliver mail on rural routes; and The National Postal Mail Handlers Union represents mail handlers who work in postal processing facilities. The Service has separate bargaining agreements with each union and in 2006 or 2007 signed agreements with all four unions that expire in either 2010 or 2011. The total number of career postal employees, as well as the number of bargaining unit employees, declined 14 percent from 1998 through 2007 through attrition, as shown in table 1. The Service achieved these reductions without layoffs but improved its operational efficiency and productivity through increased automation and other initiatives. These efficiency gains allowed the Service to operate with fewer employees. According to the Service, there are significant cost advantages to contracting for transportation services. For example, although the service provided by the three different types of delivery— city, rural and contract—is generally similar, the Service states that there are significant cost differences between them, primarily due to differences in each of the carriers’ compensation systems. The systems for city and rural carriers are collectively bargained between the Service and its associated unions. Generally speaking, city carriers are compensated on an hourly basis, which can include overtime; rural carriers are compensated on a salary basis; and contract carriers are compensated via a contract. Similarly, there are significant cost differences between transportation provided by Service employees and highway contract routes. According to the Service, its fiscal year 2007 costs for delivery and transportation services provided by postal employees and contractors are shown in table 2. Furthermore, in the retail area, the Service establishes contract postal units because they can provide the same service as a post office but at less cost, since the Service does not incur building and operating expenses associated with maintaining post offices. In 2007, 4,026 of the Service’s 36,721 post offices, stations, and branches—or 11 percent—were contract postal units. The Service has no statutory restrictions on the type of work it may outsource, but union collective bargaining agreements impose some limitations. Additionally, statutes and regulations authorize and guide the Service’s outsourcing process. The Service follows its normal purchasing procedures for all outsourced services but additional procedural steps are required to comply with collective bargaining agreements in some outsourcing cases. Through the collective bargaining process, employee unions have reached agreement with the Service that resulted in changes to its outsourcing decision-making process. However, the unions have also grieved a number of the Service’s decisions to outsource. Overall, we could not determine the extent of the Service’s outsourcing that has impacted bargaining unit work because the Service does not separately track the subset of transportation contracts that impact bargaining unit work. The Service did provide data related to some of its outsourcing, including in its retail, processing, and delivery functions. Since 1996, the Service evaluated 46 national-level outsourcing proposals under the requirements of Article 32 and determined that 5 had a significant impact on bargaining unit work. The Service also provided data showing that outsourced delivery service accounts for approximately 2 percent of all deliveries. Outsourcing is accomplished through the Service’s purchasing function and statutes and regulations that apply to the Service’s purchasing function also apply to outsourcing. Applicable statutes contain no specific restriction on outsourcing, and specifically, 39 U.S.C § 5005 authorizes the Service to enter into contracts for transportation services. Additionally, the Service may negotiate or enter into certain contracts without competition. For example, the Service negotiated and awarded a contract without competition to FedEx for air transportation services and can renew highway transportation contracts without competition. In addition, Congress has applied certain purchasing-related requirements to the Service that apply to other federal government agencies but are not applicable to private entities. For example, the Service Contract Act of 1965 requires some Service contractors to pay minimum prevailing wages and benefits to employees. Collective bargaining agreements with the postal employee unions may impose limitations on outsourcing in certain areas. For example, the most recent City Carrier’s collective bargaining agreement restricts the Service from outsourcing delivery services in areas where only city carriers provide mail delivery. Similarly, APWU’s collective bargaining agreement restricts some contracts for custodial services based on the size of the area to be maintained. The Service’s collective bargaining agreements also each contain a provision, Article 32, which establishes certain procedural requirements to be conducted when making an outsourcing decision, but does not, according to the Service and the unions, restrict the type of work that can be outsourced. For example, Article 32 requires the Service to evaluate how outsourcing proposals would affect bargaining unit employees and, under certain circumstances, to notify the unions of its intent to consider outsourcing and allow the unions to have input into the decision-making process. According to the Service, neither its purchasing regulations nor the collective bargaining agreements restrict or limit a contractor’s ability to subcontract work it is contractually required to perform or provide to the Service. However, the Service may include provisions in a contract that govern subcontracting. For example, a contract may require a contractor to notify the Service of its intent to subcontract, thereby allowing it to assess the qualifications of the proposed subcontractor with the same criteria used to assess the contractor’s qualifications. The Service uses its purchasing process for implementing outsourcing decisions and performs additional steps when required to comply with procedures in Article 32 of the collective bargaining agreements. Outsourcing is formalized through a contractual relationship between the Service and the service provider, whether the provider is a large corporation or an individual. The Service recently changed its purchasing regulations and procedures to streamline its purchasing process and create a more flexible, efficient, businesslike approach to purchasing. The revised process covers all purchasing, including outsourcing, and is divided into six general steps: Identify needs. Evaluate sources. This step includes developing a request for proposals and soliciting bids. Select suppliers. This step includes awarding a contract. Deliver and receive requirements. Measure and manage supply. This step includes managing contract performance. End of life. GAO reviewed these changes in a report issued in December 2005 and found them generally consistent with the principles and practices of leading organizations. Accordingly, in this review, we limit our discussions to portions of the purchasing process that are relevant to outsourcing. In addition to these purchasing steps, to comply with the Article 32 provisions, the Service must conduct two evaluations of outsourcing initiatives under consideration. First, it must address five factors—public interest, cost, efficiency, availability of equipment, and qualification of employees—when evaluating the need to outsource. Second, it must determine whether the outsourcing will have a “significant impact” on work performed by bargaining unit employees. Service officials told us that when making these evaluations, they do not use formal criteria and none of the five factors carries more weight than the others. Further, officials said that the five factor evaluation is similar to the type of analysis performed to make other business decisions and that the collective bargaining agreements do not contain specific guidance for performing the evaluations and do not define the term “significant impact.” However, the Service said that when determining whether a proposal has a significant impact, at a minimum, the initiative must be national in scope.