Summary

In April 1992, the U.S. Postal Service solicited bids for air cargo service for its Eagle Network, which transports Express Mail and Priority Mail, the Service's expedited mail classes. At the time of the solicitation, Emery Worldwide Airlines was providing air service under a contract scheduled to expire in January 1993. The Postal Service received four offers and in September 1992 awarded a contract to the lowest bidder--Postal Air Inc. Emery, the second lowest bidder, and Express One Inc., another offeror, challenged the award to Postal Air. The court later set aside that award because of a conflict of interest on the part of an individual who had evaluated the contract proposals. Under a court-approved settlement, Emery was awarded the contract and Express One was designated a principal subcontractor to Emery. The Postal Service and Emery agreed to pay Postal Air $10 million and $8.5 million respectively, and Postal Air waived any claims it might have as a result of the contract award. This report answers the following questions: What work was done by Postal Air that should receive multi-million dollar payments from the Postal Service, the postal ratepayer, and the American public in light of changing conditions in the air freight industry? Was it proper contracting procedure for the Postal Service to award the contract without resoliciting when the court found the contract evaluation process to be flawed? What are the specifics of the agreements among the parties?

GAO found that: (1) the awardee's settlement payments represented the full settlement costs that might be due it under the contract's termination provisions and did not reflect any real work completed by the awardee; (2) the awardee used the settlement payments to cover its bid preparation and start-up costs, attorneys' fees, and commitment to purchase 23 Boeing 727 aircraft; (3) the awardee agreed to release the remaining litigants from any claims because one of the litigants agreed to purchase most of the aircraft; (4) USPS reasonably determined that the settlement would be less costly and quicker than resoliciting the procurement; (5) the financial benefits expected from the settlement were overstated because start-up operations after settlement took longer than expected; (6) no significant changes occurred between the time of the original award and the settlement that would have made resolicitation preferable; (7) the decision to resolve the procurement through litigation and a court-approved settlement was reasonable and in accordance with procurement regulations, and enabled USPS to satisfy its own needs and the interests of the litigants and the court; and (8) USPS would have been required to resolicit the procurement if it had not reached a settlement with the parties.