Congressman Darrell Issa (R-CA) asks the OIG to review savings if USPS did not have to comply with McNamara-O’Hara Service Contract Act (SCA) of 1965.
WHY THE OIG DID THE AUDIT:
The report responds to a request from Representative Darrell E. Issa. Our objective was to review Postal Service’s market research to determine if potential savings could be realized if they did not have to comply with the SCA. In addition, we identified positions for which Postal Service labor rates exceeded the SCA rates and barriers to outsourcing those positions.
Title 39 of the U.S.C. requires the Postal Service to follow the requirements of the SCA.2 The SCA requires general contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees no less than the wage rates and fringe benefits found prevailing in the locality as determined by the U.S. Department of Labor (DOL) or the rates contained in a predecessor contractor’s collective bargaining agreement. The SCA applies to every contract the U.S. or the District of Columbia enters into with the principal purpose of furnishing services to the U.S. through the use of service employees.3
Postal Service market research indicated that opportunities exist for cost savings if the agency did not have to comply with the SCA. In addition, our analysis showed that Postal Service wages for cleaning/janitorial and postal vehicle service (PVS) driver positions were higher than SCA rates. We estimate the Postal Service could save approximately $675 million annually if it outsourced cleaning/janitorial and PVS driver positions. Barriers to outsourcing the positions include labor union agreements, concerns that new unions will be formed, workforce retention issues, fluctuations in market or economic conditions, and the potential for congressional constituency concerns.
We recommended the Postal Service seek exemption from the SCA to allow flexibility to negotiate contract rates closer to market rates. We also recommended the Postal Service review the benefits of outsourcing cleaning/janitorial service positions and Postal Service vehicle driver positions and restructure those positions to achieve the most cost effective solution. Lastly, we recommended that the Postal Service ensure that appropriate financial data is collected to aid in making in-sourcing/outsourcing decisions.
Management did not agree or disagree with recommendation 1 but stated Supply Management believes that removing the Postal Service from the requirements of the Davis Bacon Act and SCA should allow for more efficient and cost effective contracting. Management also stated that recommendation 2 accurately describes what the Postal Service has already done and what it is continuing to do. Specifically, management stated the report and associated calculation of monetary impact fail to consider the impact of the Postal Service’s labor agreement with the American Postal Workers Union (APWU) that became effective May 23, 2011. They stated the new agreement provides for the establishment and use of non-career employees on a much wider scale than previously permitted and new employees will be paid at rates much lower than current career rates and, in some cases, lower than SCA rates. In addition, management stated the new APWU career employees will be paid less than career employees. Management stated the new provisions impact the report in two fundamental and significant ways:
Management needs to develop and fully implement plans to work with Congress to seek exemption from the SCA, for reviewing the benefits of outsourcing cleaning/janitorial and PVS driver positions, and to collect the financial data needed for insourcing/outsourcing decisions.