FSS Contractor Defrauded USPS, Whistleblower Says

A whistleblower is claiming that his former employer, Northrop Grumman, defrauded the U.S. Postal Service by providing it false information about the Flats Sequencing System.

The ex-employee “alleges that the company violated the False Claims Act in a number of ways with respect to the FSS contract [and] alleges damage to the USPS in an amount of at least approximately $179 million annually,” Northrop Grumman stated in its recent quarterly financial report to the U.S. Securities and Exchange Commission. The ex-employee also “alleges he or she was improperly discharged in retaliation.”

Magazines accidentally ejected from an FSS machine.

Northrop Grumman was the lead contractor for the FSS – 100 football-field-sized machines designed to sort catalogs, magazines, and other flat mail. The company has sued USPS for non-payment, and the Postal Service has counter-sued with a claim that Northrop’s late and substandard work prevented the FSS from realizing its expected cost savings.

So far, the FSS has resulted in higher mail-handling costs that have outweighed the Postal Service’s decreased delivery costs. But postal officials expect productivity to rise early next year when flats mailers will be required to present mail for FSS ZIP codes in a manner that is optimized for FSS.

The Washington Post has identified the whistleblower as Beau Michaud and says his complaint charges that Northrop Grumman and a subcontractor “repeatedly made false certifications about the machines’ speed, reliability and accuracy” and that they “provided the Postal Service with a fraudulent handbook for the machines.” (Update: Michaud's complaint was posted online by Save the Post Office on Nov. 10, 2013.

An FSS machine tore the cover of this mail piece.

A LinkedIn profile indicates Michaud was a technical trainer and engineer for Northrop. Someone identifying himself as Beau Michaud has reportedly been contacting postal experts to get photographs of mail that was damaged by FSS machines.

USPS has made a number of adjustments to its procedures and to the machines themselves to minimize torn covers, “foldovers,” and other damage that resulted in employees nicknaming the billion-dollar investment the "Flats Shredding System."

Northrop “intends vigorously to pursue and defend” both the whistle-blower case and the USPS litigation, its says in the SEC filing.

Related articles:

• Flats Litigation System: USPS and Vendor Battling It Out Over Huge FSS Machines 
• FSS Postage Rates Will Raise Issues for Cataloguers, Publications, Printers, and USPS  
• FSS Machines Running Far Slower Than Planned 
• USPS Admits FSS Is Losing Money