Postal Service closing Toledo processing center

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Mail from ZIP codes beginning with “458” will no longer be processed in Toledo, but rather in Columbus beginning July 8, the U.S. Postal Service said. Several years ago, the Postal Service closed its Lima processing center, sending mail from the region …  Read more.

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Brands at risk: The OIG looks at the USPS-CBRE contract

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The USPS Office of Inspector General has just issued an audit report about the Postal Service’s contract with CB Richard Ellis.  CBRE became the Postal Service's exclusive real estate agent in June 2011.  Considering that the Postal Service leases 24,000 properties and owns 9,000, that's a big portfolio to manage, and outsourcing to CBRE was a big step.  

The OIG's report, “Contracting of Real Estate Management Services,” identifies three areas of concern in the relationship with CBRE: conflicts of interest, no maximum contract value, and a lack of oversight.  “As a result,” writes the OIG, “it is difficult for the Postal Service to determine whether the outsourcing effort has been or will be effective in reducing costs.” And it's not just about costs.  “Ineffective contract oversight," says the OIG, "poses an increased risk to the Postal Service’s finances, brand, and reputation.”

(The OIG also issued a report recommending that the Postal Service stop contracting work to Accenture, an information technology and consulting firm that's one of the Postal Service's largest contractors, because of the risk of fraud.  More on that another day.)

The Postal Service’s contract with CBRE has become the subject of considerable controversy.  Postal lessors — the people who own the 24,000 properties housing post offices — have complained about various aspects of the new arrangement, including the commission they must pay CBRE when leases are renewed.  CBRE is also the Postal Service’s real estate agent for the sale of postal facilities, so it’s been targeted by critics for its role in the sale of historic post office buildings.  The fact that the Chairman of CBRE’s Board of Directors is Richard Blum, husband of California Senator Dianne Feinstein, has fueled the controversy.

The OIG report is fairly critical of the USPS-CBRE contract, but the Postal Service and CBRE get off easy.  The OIG doesn’t get into the lessors’ complaints, the sale of historic post offices, or the Blum-Feinstein connection.  The report could have been a lot worse.  Here’s a summary of what’s in it — and what’s not.

 

The wrong incentive

The OIG identifies two aspects to the conflict-of-interest issue.  The first is the fact that CBRE gets a commission when it negotiates a lease renewal on behalf of the Postal Service.  The commission is a percentage of the amount of the lease, so CBRE has an incentive to negotiate a higher rent — good for the lessor, bad for the Postal Service. 

Because of the Postal Service’s financial situation and the changing landscape in the commercial real estate market over the past few years, the Postal Service has been pushing for lower rents.  The OIG notes that the Postal Service established a target for reduced lease rates, but in the first year of the contract CBRE did not meet the target.  The implication is that CBRE had little incentive to meet the target because it benefited by higher rents.

It’s hard to know what to make of this criticism.  The lessors have been complaining that the Postal Service has been pushing too hard for lower rents when negotiating lease renewals.  Sometimes the Postal Service wants a reduction of 20 or 30 percent or even more, and there are often other demands, like an early termination clause or making the lessor responsible for maintenance costs or building improvements that the Postal Service had previously paid for. 

In response to a draft of the OIG report, Mr. Tom Samra, USPS Vice President of Facilities, explains that there’s nothing to this conflict-of-interest criticism.  CBRE provides the market data used to determine the value of the rental property, and Postal Service real estate specialists review the data.

The OIG’s point is still valid, and one wonders why the Postal Service thought it was a good idea to turn lease negotiations over to an outside contractor who benefits from having the Postal Service pay higher rents.  Mr. Samra’s letter does not respond directly to this concern.

 

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Glenoaks post office in Burbank to close

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After two years of hand-wringing by residents, the Glenoaks post office in Burbank will be closed and its two employees will be reassigned, the U.S. Postal Service confirmed Friday. The news comes less than two months after Rep. Adam Schiff (D-Burbank) …   Read more.

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Wainwright, Alaska, Post Office may close on July 1

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Following an unsuccessful attempt to replace its retiring Postmaster Kenneth Tagarook, the North Slope village of Wainwright is in danger of losing its post office in just 10 short days. "They've been trying to find someone to work here," Tagarook said.  Read more.

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