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Northrop Grumman sues USPS in bitter contract dispute

May. 8, 2012 - 06:00AM   |  
By SEAN REILLY   |   Comments
The U.S. Postal Service and one of its largest contractors, Northrop Grumman Corp., are locked in a bitter battle over a runaway modernization contract in which each claims the other owes it hundreds of millions of dollars.
The U.S. Postal Service and one of its largest contractors, Northrop Grumman Corp., are locked in a bitter battle over a runaway modernization contract in which each claims the other owes it hundreds of millions of dollars. (File photo / Getty Images)

The U.S. Postal Service and one of its largest contractors, Northrop Grumman Corp., are locked in a bitter battle over a runaway modernization contract in which each claims the other owes it hundreds of millions of dollars.

Northrop Grumman claims in a new lawsuit that the Postal Service owes it about $180 million. The Postal Service claims the company owes it $341 million.

Northrop Grumman's case, filed May 4 in the Court of Federal Claims, says the mail carrier violated the terms of a 2007 fixed-price contract for automated mail processing equipment called flats sequencing systems. The contract was valued at $874 million when it was awarded, but, after both sides agreed to modifications, it is now worth $902 million.

Specifically, Northrop says USPS imposed numerous after-the-fact changes to the contract, which was for 100 of the systems, designed to sort magazines, large envelopes and other pieces of flat mail. The order changes delayed and disrupted delivery of the systems, adding costs, according to the complaint.

The contract should be restructured to a cost-plus-fixed-fee basis that would allow Northrop to recover all reasonable costs, the company contends. The total amount claimed is $178.9 million, according to a court cover sheet accompanying the complaint.

Northrop's 59-page filing outlines an increasingly tense dispute over the contract, a cornerstone of the Postal Service's modernization efforts. Starting early last year, the suit says, the Postal Service stopped paying Northrop's invoices and later told the company it intended to withhold all further payments under the contract, leaving an outstanding balance of $63.4 million.

Last month, however, a USPS contracting officer ruled that Northrop owed the Postal Service more than $341 million for losses allegedly tied to retesting costs, late delivery and other issues. Those claims have no merit, the company says in the court filing.

For its part, Northrop charges the Postal Service with failing to deliver on a requirement to provide a substantially complete package of technical specifications for the machines within six months of the contract's issuance. Instead, over the next two years, the Postal Service required thousands of changes to pre-production drawings, Northrop alleges. During much of that time, the suit says, USPS officials were requiring an average of 25 meetings per month that often included "unique, build-to-suit demands that [Northrop] was forced to address."

USPS spokesman Dave Partenheimer, citing the litigation, declined comment Tuesday. Last year, Northrop Grumman was the Postal Service's third largest contractor, according to a ranking by law firm Husch Blackwell. A Northrop attorney referred questions to company spokesman Randy Belote, who also had no comment.

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