Flats Litigation System: USPS and Vendor Battling It Out Over Huge FSS Machines

A multimillion-dollar dispute between the U.S. Postal Service and the long-time vendor that built its troubled Flats Sequencing System has landed in court.

Northrop Grumman claims USPS owes it $179 million for work on the $874 million contract. USPS has largely rejected the claims and responded with its own claims for $341 million "because it did not realize certain cost savings it expected from deploying the systems," Northrop Grumman said in an April financial report. The company recently told stock analysts that it had decided "to deemphasize the domestic postal automation business going forward."

The company filed suit against the federal government Friday in the U.S. Court of Federal Claims, appealing the Postal Service's rejections of its claims and asking the court to declare USPS's claims as being without merit. Northrop Grumman's entire filing can be accessed here, while Law360 has a good overview of the case.

The next generation
As Northrop Grumman's lawsuit notes, "the FSS is a massive system of machines" representing "the next generation of automatic delivery point sequencing equipment designed to reduce the processing costs of flat mail," such as magazines and large envelopes. So far, however, the 100 "Flats Shredding System" machines have not performed as planned, though they apparently have led to some decreases in operating costs.

From the time work on the contract started in 2007 through the last machine deployment in mid-2011, the complaint claims, USPS "improperly wrested design control from NGSC [Northrop Grumman Systems Corporation], ignored the performance specifications on which the firm fixed-price Production Contract had been based, persistently and pervasively imposed extra-contractual design requirements on NGSC, and otherwise interfered with NGSC's performance. Contrary to the terms of the Production Contract, the Postal Service treated the Contract as a 'build-to-suit' development enterprise."

Northrop Grumman claims the Postal Service owes it $63 million of the original $874 million in addition to what it owes for changes it requested that were not needed to meet the requirements of the contract.

Evolving and shifting demands
"When responding to the Postal Service's evolving and shifting demands, NGSC was held to and evaluated against indefinite, unpublished, extra-contractual ad hoc design standards," the lawsuit alleges.

It also claims that the USPS decision to put machines in 47 locations rather than the originally planned 32 "precluded NGSC from deploying the machines in a timely and efficient manner" and resulted in added costs for the company. USPS made that change after it realized that the declining volumes of flats mail would otherwise leave some facilities with idle sorting capacity.

One irony of the Northrop Grumman-USPS contract is a Supply Chain Management section stating, "It is the policy of the Postal Service to establish strong, mutually beneficial relations with its suppliers in order to meet its business with competitive objectives."

Related articles:

• FSS Machines Running Far Slower Than Planned 
• FSS Is Increasing USPS's Costs, Expert Says 
• 7 Reasons the Jury Is Still Out on Flats Sequencing