Postal Service awards $5 million contract to DeJoy’s former company

Postmaster General Louis DeJoy's former company landed a $5 million highway-shipping contract last month with the United States Postal Service.

DeJoy continued to own a multimillion-dollar stake in XPO Logistics as of early October. The $5 million deal is the first regular contract for a postal route that XPO Logistics has signed with the USPS in more than a year. XPO's last highway contract with the USPS was in December and it was temporary. The one before that was in signed in July 2019.

XPO's contract — to move mail for the next 18 months between Norfolk, Virginia, and Evansville, Indiana — has not been previously reported. The contract was negotiated in August and disclosed in mid-October as part of a quarterly update to a database of USPS suppliers.

The Postal Service will pay XPO $3.3 million annually to manage its route between the two cities, which are roughly 700 miles apart. The USPS database shows the contract has one of the highest annual rates of more than 1,600 contracts the Postal Service initiated with outside firms in its most recent quarter, the first full quarter DeJoy has served as head of the agency.

DeJoy was a top executive of XPO before he left the board of the company in 2018. He joined XPO after selling it the logistics company he had founded in a 2014 deal valued at $615 million.

XPO still pays DeJoy about $2.3 million a year in rent and expenses for 220,000 square feet of office space he controls in his home state of North Carolina. The company's lease agreements for DeJoy's properties run through 2025.

Publicly traded XPO reported about $16 billion in revenue last year and some 50,000 corporate customers for its various logistics and supply chain services. DeJoy's personal stake in the company was worth as much as $75 million earlier this year, according to DeJoy's latest financial disclosure filed in June.

DeJoy donated $1.2 million to Donald Trump's 2016 campaign and has been a controversial figure since starting the top job at the post office in June. House Democrats held a hearing in August in which they grilled the new postmaster about operational and labor changes he made in his first months on the job that they said had slowed deliveries and hurt the dependability of the USPS just as millions of Americans were turning to it to deliver their mail-in Election Day votes during a pandemic.

Republicans have long said the sprawling Postal Service needs to be shrunk or privatized. The agency, though, is on track this year to generate nearly $5 billion in cash, its best performance since 2015, in large part because of its package delivery services for Amazon.com and other growing online retailers.

Democrats also raised concerns in the August hearing about DeJoy's ties to his former company and what they called potential conflicts of interest. In early September, the New York Times found that XPO's revenue from the Postal Service had surged since June by $14 million during just 10 weeks. The Postal Service's inspector general opened an inquiry into DeJoy's personal finances and his ties to XPO, as well as the changes he has made while at the post office.

The inspector general said in a report issued Wednesday that the widespread service changes DeJoy had implemented, nearly all of which have since been reversed following public criticisms, were responsible for a drop in the "timeliness and quality" of mail service this summer.

DeJoy could not be reached for comment about the new contract, also known as an HCR.

An XPO spokesperson told CBS MoneyWatch in a statement: "Public records show the U.S. Postal Service has awarded more than 1,600 HCR contracts since June 15 through the government's open, competitive bidding process. XPO bid on several of those contracts, and was awarded one. More than three dozen HCR contracts awarded to other companies during this timeframe are higher than XPO's contract, according to these public records."

In August, amid the congressional hearings, the company put out a statement that said DeJoy no longer had any role at the company, and that XPO's postal contracts make up a small portion of the company's overall revenue. Whatever contracts it does have, the company said, were awarded based on merit and by "career USPS procurement officers."

A spokesperson for USPS told CBS MoneyWatch that DeJoy has not been involved with any dealings or contracts related to XPO. "The Postal Service is confident that the office of inspector general's ongoing review of this process will confirm the postmaster's full compliance with ethics laws and regulations," the spokesperson said in a statement.

The Postal Service maintains a spreadsheet of regular highway routes it has contracted to outside shippers on its website, which is updated quarterly. David Hendel, a partner at Washington, D.C., law firm Culhane Meadows who specializes in government contracts, says the patchwork of highway contracts make up about $3 billion of the annual $12 billion the Postal Service doles out to outside contractors each year.

New Breed Logistics, the company that DeJoy ran and was bought by XPO in 2014, has been a postal contractor for two decades. XPO generates most of its post office revenue from on-demand services, such as the $2.5 million it was paid in the past year to deliver Census Bureau forms, as well as $2.3 million in pandemic-related services.

The Postal Service's highway service contracts have been growing in the past few years mostly due to the explosion in online retailing, observers told CBS MoneyWatch.

"I know talking to leadership that the demand for ground transport is up," said John Sheehy, head of the National Star Route Mail Contractors Association. "They have been trying to rightsize some of it, but the amount of ground transportation going to contractors seems to have grown."