Report: UPS to pay settlement of $25 million for false delivery claims

Various media outlets reported this week that UPS will pay $25 million to settle allegations that it filed false claims to the federal government over guarantees it made related to delivery of Next Day air overnight packages.

The Atlanta Business Journal, cited a prepared statement by the United States Department of Justice noting that UPS provides delivery services to hundreds of federal agencies though contracts with the U.S. General Services Administration (GSA) and U.S. Transportation Command, which provides support to Department of Defense agencies.

The report added that a UPS representative telling Reuters that the company negotiated the settlement to avoid lengthy and costly litigation, although it did not acknowledge liability.

According to unsealed court documents released by the Department of Justice, UPS “engaged in practices that concealed its failure to comply with its delivery guarantees, thereby depriving federal customers of the ability to request refunds for the late delivery of packages, the Atlanta Business Journal report explained, adding that the federal government alleged that “UPS knowingly recorded inaccurate delivery times on packages to make it appear that the packages were delivered on time, applied inapplicable ‘exception codes’ to excuse late delivery (such as ‘security delay,” “customer not in,” or “business closed”) and provided inaccurate ‘on time’ performance data under the federal contracts.”

Jerry Hempstead, president of Hempstead Consulting, said one of the notable outcomes of this development is that UPS settled and admitted no guilt in the matter.

“They just paid off the lawyers and the plaintiffs and made the issue go away,” he said. “The crux of the suit was that UPS took liberties with its delivery exception codes to “stop the clock’ and this preempted the payer from filing a service failure claim.”

The parcel expert also explained that he does not believe there was any type of institutional order from above at UPS to abuse the delivery exception codes, while adding that he has observed that some line supervisors at parcel delivery firms have done so in an effort to meet their service metrics numbers, which are sometimes tied to performance bonuses.

In those situations, he explained that line supervisors put pressure on drivers “to make service, no matter what it takes,” noting that the numbers can be changed by entering delivery exception codes that may be inappropriate.

“The unintended consequence of this is that the payer can’t file a service failure claim, or if they do it’s denied because of the exception in the system that stopped the clock,” Hempstead said. “Unfortunately, it also causes a bit of hubris on the part of senior management about the level of service the carrier is providing to the marketplace. They believe the numbers on the dashboard and never question the validity. Gaming the system is just beyond credulity. This issue is not unique to UPS. It’s an industry issue. When employees are under pressure and performance reviews and promotions and compensation are involved, sometimes poor judgment enters the equation.”

A similar type of allegation settled without an admission of guilt occurred in 2013, when FedEx was ordered to pay a $21.5 million class action suit over the application of residential fees to shipments going to business addresses and in particular government offices.

A Law360 report published in July 2013 said that the lawsuit filing in Tennessee federal court accused FedEx of charging more than $5 billion in bogus residential delivery surcharges for packages sent to businesses and federal buildings and accusing FedEx of committing mail and wire fraud and breaching its contract with customers by charging more than $5 million in bogus surcharges.