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Did top postal exec break contracting rules?

Jan. 10, 2010 - 06:00AM   |  
By STEPHEN LOSEY   |   Comments
According to documents obtained by Federal Times, the U.S. Postal Service's top marketing executive directed more than $1.3 million in sole-source contracts to former business associates. He is now under investigation.
According to documents obtained by Federal Times, the U.S. Postal Service's top marketing executive directed more than $1.3 million in sole-source contracts to former business associates. He is now under investigation. (Scott Olson / Getty Images)

The U.S. Postal Service's top marketing executive directed more than $1.3 million in sole-source contracts to former business associates since July 2008, according to documents obtained by Federal Times.

Robert Bernstock, president of the Postal Service's Mailing and Shipping Services division, approved $600,000 to consultant Lynne Alvarez, $412,500 to consultant Richard Sorota, and $324,975 to consultant Kimberly Wolfson, all of whom Bernstock worked with in the private sector prior to joining the agency in June 2008.

The case is now under investigation, said David Williams, the Postal Service's inspector general.

The Postal Service's general counsel also began reviewing the contracts last week in response to Federal Times inquiries.

According to the contracts, which Federal Times obtained through a Freedom of Information Act request, the three consultants provide a variety of marketing services:

Alvarez' $600,000 contract which was made out to the consulting firm she started in 1990, LA Associates is to create a strategic revenue and marketing plan to help the Postal Service find ways to increase its revenue online, in package and retail services and in commercial mail products and services. Her contract runs from July 2008 to July 2010. She worked with Bernstock at Vlasic Foods International Inc. from 1998 to 2000, when she was a vice president and Bernstock was the company's president and chief executive officer.

Wolfson's $324,975 contract, which runs from December 2008 to September 2010, says she is to conduct financial analysis on potential Postal Service business partners and customers, conduct market research and help develop presentations to support business cases. She met Bernstock in 2005, when she was a senior associate at the investment firm Thomas Weisel Partners. Weisel did contracting work for Nutrisystem, where Bernstock was and remains a board member.

Sorota's $412,500 contract, which runs from March 2009 to March 2010, calls on him to put together a marketing plan and find ways to grow the division's revenue. He worked with Bernstock at Scotts Miracle-Gro Co. from 2004 to 2006, when he was a senior vice president and Bernstock was president.

Bernstock declined numerous requests for an interview. Sorota also declined to talk when contacted by phone at his desk at Postal Service headquarters in Washington. Wolfson and Alvarez did not return several calls.

Postal Service spokesman Gerry McKiernan said Bernstock ordered his division to hire the three consultants because "he needed people of proven capabilities, who knew him and who he understood so there was no learning curve." Bernstock came to the Postal Service in June 2008 to set up the new Mailing and Shipping Services division, and McKiernan said he needed to bring people on quickly.

But despite that apparent urgency, Bernstock was willing to wait for Sorota's and Wolfson's schedules to open up. Alvarez was brought on board in July 2008, about a month after Bernstock came to the Postal Service. But McKiernan said Bernstock told him that Wolfson wasn't available before December 2008 and Sorota wasn't available before March 2009.

Through McKiernan, Bernstock said Sorota, Wolfson and Alvarez are "truly exceptional people" whom he has worked with over the years.

Consultants idle employees

But one employee working in Bernstock's division, who asked not to be named for fear of retaliation, said contracting with those consultants is wasteful and unnecessary. Some postal employees are sitting idle because the consultants are doing what previously were their jobs, the employee said.

"All through this organization, there's analytical people in every department," the employee said. "Our own marketing staff can do that. This is what headquarters is for. It's absolutely wasteful, and there are many other people who feel the same way. It's demoralizing and a waste of time."

The employee said postal employees who could do this work earn roughly $90,000 per year far less than the hundreds of thousands of dollars the consultants are earning.

McKiernan said the consultants are a good investment, and have already done great work for the Postal Service. He credited them with helping put together a commercial campaign advertising Priority Mail flat-rate box services that helped increase revenue by 5 percent to almost $1.3 billion in the last quarter of fiscal 2009, as compared with the previous quarter. He also credited the consultants' role in arranging to sell greeting cards in post offices, reorganizing the division's sales staff, and launching an effort to overhaul the agency's Web site.

Bernstock wanted to bring on "people who thought differently," McKiernan said. Bernstock believed the Postal Service's marketing staff needed fresh ideas and should operate more like a private-sector marketing firm and less like a government firm.

The Mailing and Shipping Services employee who asked to remain unnamed said the Postal Service already had employees on board with extensive experience at private-sector firms such as Accenture and Deloitte.

Routine contracts

McKiernan said these types of consulting contracts are routine and did not violate Postal Service procurement rules.

Those procurement rules allow for contracts to be awarded without competition if a supplier "can meet Postal Service needs quickly and efficiently, and the benefits of doing so outweigh those that may be realized through competition."

But the Postal Service's procurement handbook says "the Postal Service will attempt to avoid situations in which a supplier has an unfair competitive advantage."

By comparison, the Federal Acquisition Regulation (FAR), which does not cover the Postal Service, allows an agency to issue a sole-source contract only if there is one supplier who can do the job, if there is unusual urgency or an emergency such as a disaster or war, or for national security reasons.

Some contracting experts say Bernstock's decision to order his division to hire former business associates is concerning.

"As a contracting officer, I would have raised red flags that an agency director was directing me to issue any type of sole-source contract, especially with someone who he had a relationship with in the past," said Neal Couture, executive director of the National Contract Management Association. "The fact that the person is familiar with the capabilities of a company [or person] is not a justification. That's how the good-old-boy network works."

Couture said FAR does not allow agencies to award sole-source contracts to someone just because an executive is familiar with that person's work.

Steven Schooner, co-director of George Washington University Law School's government procurement law program, said the consulting services Alvarez, Wolfson and Sorota provide appear to be the kind that should have been competed, and he said the Postal Service may have gotten a better deal if their contracts had been competed.

The Postal Service is in dire financial straits, largely due to declining mail volume. It finished fiscal 2009 with a $3.8 billion deficit and is expected to lose another $5 billion this year.

"There is no question you have the appearance of a conflict [of interest]," Schooner said. "Any time there is a pre-existing relationship between a senior government official and the consultant, we would hope that the agency would go the extra mile to avoid this type of appearance of a conflict, or the appearance of impropriety. It's a shame they didn't do so here."

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