- The Washington Times - Sunday, July 18, 2010

When the U.S. Postal Service’s top marketing officer agreed to hire Goldman Sachs nearly two years ago without a written contract, top executives inside postal headquarters scrambled to make the unauthorized deal square with postal procurement rules.

But the no-bid contract they eventually awarded to Goldman Sachs was backdated and was for the wrong kinds of services: The company was hired under a banking services agreement, but Goldman Sachs‘ postal work didn’t have anything to do with banking, records show. And the idea to hire the banking giant came from a top former postal executive who also served on the board of directors for a company where Goldman Sachs was a big investor.

In trying to fix a $1.5 million deal that already generated misgivings, officials may have only added to the list of problems that remain under review by the Postal Service’s office of inspector general even after the contract’s expiration.

While officials at the inspector general’s office declined to discuss the pending inquiry, a spokeswoman confirmed last week that the office is conducting a post-audit contract review of the Goldman Sachs deal.

Key details about the arrangement have surfaced through the inspector general’s recently released report on the tenure of the Postal Service’s former president of shipping and mailing services, Robert Bernstock.

Mr. Bernstock resigned before a report last month cited his failure to disclose his outside financial relationships and his handling of contracts to former business associates. Hired nearly two years ago, Mr. Bernstock has declined to comment on the report’s findings. Postal officials also have declined to respond to specific findings in the report, noting only that new contract reforms have been enacted.

The report suggests that even in the top reaches of postal headquarters, some were privately questioning Mr. Bernstock’s methods at a time when the former corporate chief executive was being praised for bringing a businessman’s mentality to the Postal Service.

But these same officials rarely openly challenged Mr. Bernstock.

“I don’t think I had the political capital to tell Bernstock he should come to me first,” the inspectors quoted the Postal Service’s treasurer, Robert Pedersen, as saying during an interview about the Goldman Sachs deal in March.

Mr. Pedersen said he became involved in the Goldman Sachs contract at the request of the Postal Service’s chief financial officer, Joseph Corbett, who appeared to have misgivings about the deal.

“When Corbett asked Pedersen to help assist Bernstock, he said that it was ‘not a good situation’ and that ‘they needed some contract language in place,’ ” inspectors wrote in the Bernstock report.

Mr. Pedersen told investigators that he awarded a formal contract to Goldman Sachs on behalf of the Postal Service in February 2009 - months after Mr. Bernstock hired the company.

Investigators said Mr. Pedersen had authority to award only banking services contracts. Yet Mr. Bernstock hired Goldman Sachs to perform unrelated work, including consulting on the Postal Service’s so-called “Mover’s Guide,” a program that helps customers with change-of-address and mail-forwarding services.

Mr. Pedersen acknowledged that the contract dates preceded the contract award and added that Mr. Bernstock “was in a hurry and not familiar with the Postal Service’s way of going about things.” According to the Bernstock report, “The Goldman Sachs contract was back-dated to cover the time period when the work actually commenced.”

According to contracting records obtained by The Washington Times, the contract also included a provision that in the event of a change in Mr. Bernstock’s job, both the Postal Service and Goldman Sachs had the right to “redefine” their relationship.

“The provision was apparently included so that a successor to the president of mailing and shipping would not necessarily be bound by the terms agreed to by the predecessor president,” said Joanne Veto, a spokeswoman for the Postal Service.

“Since the contract expired prior to Mr. Bernstock’s resignation, this provision no longer has any force or effect.”

Anthony Anikeeff, a contracting lawyer in Washington who examined the provision at the request of The Times, said such language typically isn’t found in government contracts, though he also noted that the Postal Service operates under a set of rules that are different from the federal government’s.

“It’s an escape clause that lets everybody out,” he said.

The contract brokered by Mr. Bernstock with Goldman Sachs gave the company indefinite royalties for ideas they helped develop - a provision killed by Mr. Pedersen and Mr. Corbett. One official familiar with the Goldman Sachs contract in the Postal Service’s law department, whose name was redacted from the Bernstock report, told investigators that Mr. Bernstock was involved in the contract through former business associates at Goldman Sachs.

In an April 16 interview with investigators, Mr. Bernstock said he did award no-bid contracts to business friends, but added that he needed to bring in outside talent if he was going to be a successful “change agent.” He also said he consulted on his contracts with Susan Brownell, the Postal Service’s vice president for supply management.

The inspector general’s office also noted in its report on Mr. Bernstock that Goldman Sachs was a major investor of a publicly traded company where Mr. Bernstock served on the board of directors called Pantry Inc.

Mr. Bernstock was allowed to retain his corporate director positions on two publicly traded companies after he was hired - jobs that paid more than $250,000 combined in salary and other compensation. When questioned by The Times about the arrangement in December, postal officials said they approved it as a condition of Mr. Bernstock’s hiring.