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Contracting Out:

Does Opposition Depend on Who Is Affected?

Burrus Update #12-07, May 3, 2007

Since 1976, when postage discounts were first introduced for business mailers that engaged in “worksharing,” the APWU has consistently opposed misuse of the program: We have objected to any policy or rate that grants excessive discounts — discounts greater than the costs the Postal Service avoids by contracting out the work.

At every opportunity, former APWU President Moe Biller and I have fought USPS policies that reduced rates for large mailers by amounts that were greater than the savings generated by subcontracting mail processing activities and transportation.

In 2002, the APWU submitted testimony to the Postal Rate Commission by Michael Riley, former USPS Chief Financial Officer, which criticized a proposed rate increase because it granted mailers excessive discounts for applying bar codes and presorting mail.

Our arguments — often repeated — have been so compelling that, in 2006, the APWU persuaded the House of Representatives and the Senate to adopt specific limits on workshare discounts.

The APWU was also successful in the recent rate case when the Postal Regulatory Commission rejected an expansion of the excessive discount structure and held the rate for single-piece first-class letters to 41 cents, instead of the 42-cent rate requested by the USPS.

APWU has waged this fight by pointing out the negative consequences excessive discounts have on the American people and on the Postal Service’s ability to provide its vital service.

Throughout the worksharing debate, we have asked that all “postal stakeholders” support a basic principle: Discounts for performing postal activities should not exceed the costs the Postal Service avoids when the work is performed by subcontractors.

Excessive discounts reduce USPS revenues; they hamper the Postal Service ability to serve the public; and leave management with less money to compensate postal employees and operate the postal system.

We have fought this battle alone, with virtually no support from the postal community. In fact, the president of one organization submitted the following testimony to the President’s Commission on the U.S. Postal Service on Feb. 20, 2003:

“It is for this reason that the NALC endorses work sharing and thus work sharing discounts when they are appropriate. But it is important to note that we define work sharing in a far more expansive way than it was conceived of in the 1970s when work sharing discounts began. For the NALC, work sharing includes any and all technological innovations that mailers can deploy to make the processing and delivery of mail more efficient and economical for both mailers and the American public. In fact, the Service’s entire automation program begins with mailers applying bar codes to mail so it can be processed and delivered faster and cheaper. And since mailers have been able to use technology to accomplish some of the functions inherent in getting mail from point A to point B, it is only proper that mailers benefit from taking on costs the Postal Service would otherwise have to shoulder. In fact, if it were not for the deployment of technology at the front end of the process—that is, in the preparation of the mail—mail processing and delivery costs would be much greater today than they are. Obviously postage rates would have spiraled skyward as a consequence. As a result, the Postal Service cannot turn its back on customers who feel that they can reduce mailing costs by taking advantage of work sharing.

“But ultimately, work sharing stops at the ‘last mile.’ As John Campanelli of R.R. Donnelley Logistics has effectively stated, it is essential that postal reform initiatives retain the Postal Service’s ‘economy of scope and economy of scale.’ Mr. Campanelli further pointed out that ‘By maintaining all current services, the Postal Service is able to provide convenience, privacy and security. Protecting its unrivaled “last mile” is essential to its ability to continue to serve the public.’ To put this in more direct terms, the nation’s letter carriers must remain the trusted couriers of the nation’s mail, ensuring its safety and its security—today more important than ever. Work sharing and the full deployment by the mailing community of technology is absolutely necessary to enable letter carriers to complete the essential ‘last mile’ of the postal journey.

“Having expressed my union’s support for work sharing in general, I must add that I hope the commission does not get bogged down trying to determine the appropriate level for work-sharing discounts. As this commission looks at a new governance model for the Postal Service, measuring the appropriate discount for work sharing should be left to whatever rate making process is part of a restructured and reformed Postal Service. [full NALC testimony - PDF]

Workshare discounts are just another form of contracting out. Excessive workshare discounts are contracting out at a loss. The APWU’s fight against excessive workshare discounts protects postal revenues and prevents large mailers from shifting costs to individuals and small businesses.

In this battle, the APWU has focused on the cost to the mailing public. If postal employees performed the work, rates would be cheaper than when the work is contracted at a greater cost.

Unlike other forms of contracting out, which are a mandatory subject for bargaining, excessive discounts are not covered by the National Agreement, and are not subject to the bargaining process. Therefore they are appropriately addressed by Congress as a matter of public policy. The APWU has selected the appropriate forum to contest excessive discounts.

William Burrus
President

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