The Washington Post Sunday

Contractor says USPS’s bad software cost it $110 million

- BY JACOB BOGAGE

A Florida trucking contractor contends the U.S. Postal Service’s reliance on software it knows to be faulty has shorted it $110 million in four years, forcing it to slash hundreds of jobs and opening it up to lawsuits in three states.

St. Augustine-based Postal Fleet Services, which has worked with the agency for nearly two decades, cited the proprietar­y mileage-tracking system in an ongoing payment dispute claim it filed with the agency. PFS’s corporate counsel Paul Waters told The Washington Post that the software is to blame for the driver disputes and subsequent lawsuits seeking class-action status in Oklahoma, Tennessee and Florida. More than 200 drivers — who allege they went unpaid for nearly two weeks in May before being laid off — have already signed on to at least two of the suits, according to attorneys arguing

the cases.

The disputes come as the Postal Service is pivoting most of its mail handling from air to ground transporta­tion, a strategy outlined in Postmaster General Louis DeJoy’s 10-year plan for the agency that will slow delivery rates. It also coincides with the agency’s efforts to fill thousands of truck driving jobs ahead of the peak holiday season.

PFS says problems with “dynamic route optimizati­on,” or DRO, software are well documented by the Postal Service’s inspector general, including flawed mileage and travel time calculatio­ns, and bill payment processes. The 2019 inspector general report also shows errors on both sides of the ledger, with frequent overpaymen­ts that highlight the system’s unreliabil­ity.

The issues, transport contractor­s said in interviews, are especially destabiliz­ing to the small businesses that make up most of the Postal Service’s transporta­tion vendors. Some, including a larger firm like PFS, “factor” their invoices, or sell them to thirdparty financial institutio­ns, to more quickly access funds to pay their drivers, Waters said. Such cash flow disruption­s can snag financing or cost them drivers — at a time when there is a nationwide shortage — and, ultimately, bog down mail service.

“The challenges that the [inspector general] report identified are experience­d by all members who are part of the DRO program,” said Greg Reed, executive director of the National Star Route Mail Contractor­s Associatio­n, a trade group that represents mail transporta­tion vendors. “The challenges faced by Postal Fleet in this instance have been faced and are continuall­y faced by members of the associatio­n elsewhere.”

The Postal Service declined to comment on DRO, citing active litigation. It also has 60 days to respond to vendors’ claims. But in response to the 2019 inspector general report, Robert Cintron, the agency’s vice president of logistics, told auditors that postal officials and area DRO coordinato­rs reviewed weekly lists of supplier payment concerns, and that employees were being enrolled in new training programs to address questions being raised by workers in the field.

“DRO is an extremely complex undertakin­g that will fundamenta­lly change the way the Postal Service plans its transporta­tion,” Cintron wrote. “As with any complex undertakin­g there are many learnings along the way. While the program has been delayed and has had issues, it is imperative that the Postal Service implement the Transporta­tion Management System to both further our business interests and control costs as we support service to our customers.”

The agency has at least one settlement in place with another freight contractor over the program, according to attorneys’ correspond­ence obtained by The Post and a person involved with the claims, who spoke on the condition of anonymity to discuss proprietar­y business arrangemen­ts.

And another payment dispute claim was expected to be filed Friday: Stingray Distributi­ng, a small trucking company in California, is pursuing $2 million from the mail service, according to its president, Lori VonWald.

Though many of PFS’s former drivers have found other work, the lost income — around $2,000 each, lawyers in the cases allege — created pronounced difficulti­es for many of them, said Larry Weisberg, an attorney in the Florida driver suit.

“He lost his paycheck for two weeks. It put him behind on everything,” said William Federman, an attorney for former PFS driver Joshua Pair, one of the Oklahoma plaintiffs. “You know, these aren’t wealthy people. These are truck drivers.”

‘The worst thing we’ve come up with in a long time’

When DRO debuted in 2016, it was supposed to cut transporta­tion costs and make the Postal Service more responsive to fluctuatio­ns in mail volume.

Americans sent nearly 25 billion fewer pieces of first-class mail — letters, cards, bills and most everything that fits in an envelope — in 2020 than they did in 2010, largely because of changing communicat­ion habits. But package more than doubled — from 3.1 billion parcels to 7.3 billion — during that time, fundamenta­lly altering the Postal Service’s mail processing and transporta­tion requiremen­ts.

Instead of working the same route every day or week, those vendors with DRO contracts had their itinerarie­s tethered to evershifti­ng mail volumes at postal facilities, according to inspector general audits. The program would determine contractor­s’ routes, ideally cutting down on “deadhead miles,” or miles driven without a load of mail, and miles where trucks traveled with lessthan-full trailers.

DRO, which also interfaces with invoicing systems, was designed to pay contractor­s through GPS tracking and automated truck manifests.

But significan­t flaws emerged during the pilot program, according to the inspector general report, and VonWald, whose company was enrolled in some of the earliest contracts. The software used to generate weekly truck manifests — the underpinni­ng of the routes necessary and invoice payments — inaccurate­ly recorded trip mileage, travel times, routing, sorting and mail processing times, and equipment requiremen­ts, the inspector general found.

The report found that the projected savings from DRO were overtaken by the $16.4 million the Postal Service spent to repair it over its first two years. That is on top of the $55 million it committed to roll it out nationwide from 2016 to 2019.

VonWald of Stingray Distributi­ng — which she said has fewer than 50 employees and grossed $7.4 million in revenue from the Postal Service in 2020 — said the problems were apparent immediatel­y. The San Diego-based company took a pilot DRO contract in 2016, she said, but the bidding system was based on flawed mileage calculatio­ns. The Postal Service made multiple attempts to fix it but none of the software patches were effective, she added.

The DRO program does not provide a breakdown of the services for which contractor­s are being paid, she said.

“There’s no documentat­ion of pay. There’s still no documentat­ion of pay five years later,” she said. “They deposit it in your account, and you have to figure out what it’s for. It’s just been a nightmare since day one.”

The 2019 inspector general’s report advised the Postal Service to “identify and resolve DRO issues before continuing its implementa­tion” and to develop an automated payment process “to ensure suppliers are paid consistent­ly, accurately, and timely.”

The inspector general also said postal leaders should reevaluate the program’s expected costsaving­s. In fiscal 2017 and 2018, the report said, the agency spent 9.3 percent more per mile with DRO contracts compared with standard contracts.

The program frequently issued overpaymen­ts as well as underpayme­nts, according to vendors and inspector general investigav­olumes tors. In some cases, VonWald said, it was unclear which payments correspond­ed to which routes, making it difficult to reconcile invoicing problems.

Logistics supervisor­s who arrange the mail-transporta­tion schedules are known to go out of their way to avoid DRO routes, according to two agency managers who spoke on the condition of anonymity to avoid retributio­n from higher-ups.

“It’s the worst thing we’ve come up with in a long time,” said a transporta­tion manager in Pennsylvan­ia. “When they first came out with them, I said, ‘This is a lawsuit waiting to happen.’”

Contract terminated

For PFS workers, the company’s DRO problems came on suddenly. The company took in $300 million in revenue from all of its postal contracts in 2020, Waters told The Post. And business was on the upswing the following April, when company brass visited with employees seeking feedback on how to expand the business and attract talent, said Jesse Santana, an assistant manager in northeast Florida.

But in mid-May, the corporate bosses returned and said the Postal Service had canceled their contract and that employees would be out of a job by the end of the month, Santana said. Drivers began dropping shifts with little notice or taking jobs with competing trucking firms. Santana, who normally spent his days managing schedules and handling paperwork, found himself behind the wheel bumping up against federal driving-hour caps to move mail shipments.

“Once they lost the contract, they wouldn’t tell us why, they wouldn’t tell us who to talk to or how to file for unemployme­nt,” he said. “It was like we were all on our own.”

The Postal Service prepaid PFS millions of dollars on future contracts — $22 million from September 2020 to March 2021 — after the contractor warned that the DRO underpayme­nts were driving it toward insolvency, according to correspond­ence obtained by The Post between PFS and agency lawyers.

On April 30, the Postal Service informed PFS that it would terminate its more than 300 contracts with the company on May 28, according to a copy of the terminatio­n letter obtained by The Post.

PFS had raised the issue of underpayme­nts with Postal Service contractin­g officials in years prior, Waters said, but always outside of formal processes out of fear that making an official claim would hurt future contract bids.

“It was all informal. It was all over the phone word of mouth,” Waters said. “It’s a real informal process. It’s a hell of a way to do business, but that’s the way you do business with the post office.”

VonWald said she has exchanged more than 350 emails with postal contractin­g officials since 2016 about the DRO program and has even traveled to see postal officials to discuss fundamenta­l flaws with the system. Though she often left those conversati­ons encouraged, she said, progress was fleeting afterward.

“So many people are like, ‘Why would you wait this long?’ I haven’t been,” she said. “I’ve tried and I’ve tried . . . . And it took me four-and-a-half you-know-what kind of years to finally get to a point where I am confident that I am 100-percent right. And they cannot retaliate on me.”

The lack of business for PFS spelled disaster; it laid off more than 1,200 drivers at the end of May. “They basically closed our doors when they terminated those contracts,” Waters said.

PFS scrambled to address the shortfall. On June 7, David Hendel, an attorney representi­ng PFS, asked the Postal Service if it would provide the money not to PFS but to its payroll provider so its 2,345 employees could get their paychecks on time, according to emails obtained by The Post. The Postal Service did not respond to the company’s request.

On June 14, PFS wrote to employees to tell them their paychecks — which were supposed to arrive the next day — would not be coming. “We are preparing to sue the USPS for nonpayment,” the company wrote. “Unfortunat­ely, it will likely take many months to resolve that claim. We apologize for the hardship we know this will cause.”

 ?? ANDREW CABALLERO-REYNOLDS/AGENCE FRANCE-PRESSE/GETTY IMAGES ?? Disputes over the U.S. Postal Service’s proprietar­y mileage-tracking system come as the Postal Service is pivoting most of its mail handling from air to ground transporta­tion and as it seeks to fill thousands of truck driving jobs ahead of the peak holiday season.
ANDREW CABALLERO-REYNOLDS/AGENCE FRANCE-PRESSE/GETTY IMAGES Disputes over the U.S. Postal Service’s proprietar­y mileage-tracking system come as the Postal Service is pivoting most of its mail handling from air to ground transporta­tion and as it seeks to fill thousands of truck driving jobs ahead of the peak holiday season.

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