Menlo Awarded Contract Extension from DOD for Outsourcing Military Freight Shipments

This story appears in the Oct. 22 print edition of Transport Topics.

The U.S. Transportation Command said it has awarded Menlo Worldwide Logistics a one-year extension on its contract to outsource military freight shipments nationwide.

“We’re very happy that they extended the option,” said Randy Mullett, vice president of government relations and public affairs for Menlo’s parent firm Con-way Inc. “We look forward to continuing to provide the kind of service that we’ve been providing that allowed them to make that decision.”

The contract extension announcement was made weeks after a Department of Defense Inspector General audit raised questions whether the third-party logistics contract, known as the Defense Transportation Coordination Initiative, has reaped the anticipated cost savings for the military (9-10, p. 6).

In announcing the contract extension, DOD said it was still working to respond to a number of concerns identified in a recent critical IG audit report.

The IG office, which declined comment last week, had recommended that the commander of the U.S. Transportation Command “not exercise future options on the DTCI contract until he can certify that there are cost reductions.”

A spokeswoman for U.S. Transportation Command said in a statement that the IG report “did not require discontinuation of our contract or options for DTCI.”

Con-way’s Mullett said the extension was “solely based on the fact that we met or exceeded every one of the criteria and metrics that they had in the existing contract.”

The DTCI contract is estimated to be worth $1.7 billion over the seven-year life of the contract. It was first awarded to Menlo in 2007 and calls for overseeing nearly one-third of all military freight movements within the continental United States. It is believed to be the largest military logistics outsource contract in history.

After an initial three-year period, the contract included four one-year extensions.

DOD officials had boasted that the contract would cut costs by at least 19%, and Menlo has said the program has saved the military millions of dollars in shipping costs.

However, the DOD IG report concluded that the program was not closely scrutinized, and as a result, shipping costs may have been higher than reported.

“As DOD works with the IG and takes the report under advisement, there’s no indication that they won’t use that to help make the contract stronger or perhaps change the way they do some of the measurements,” Mullett said. “But we’re really not feeling threatened at all by that.”

Not everyone was pleased with the decision to extend the contract.

For example, Nancy O’Liddy, director of government affairs for the Transportation Intermediaries Association, said the contract has long been controversial among carriers and brokers who have said they do not have access to participate in the program.

“I’m not sure who’s getting the freight, but there’s a lot of people who aren’t getting the freight,” she told Transport Topics.

“I think a lot of people after that report thought that there would at least be an open discussion about it. But I would say there was not open discussion about it,” she said.

Jeff Tucker, CEO of third-party logistics provider Tucker Co. Worldwide, Cherry Hill, N.J., also has been critical of the program.

“It’s not about Con-way as a truckload carrier,” Tucker said. “I just think it’s about the design.”

“I’m in offices within the government and I listen to what the generals say. They’re saying they need partnerships with carriers, they need to communicate directly with carriers to anticipate when they need capacity during troop draw-downs or ramp-ups.”

Tucker said that DTCI is not functionally designed in a way to respond quickly.

“I just think there’s a better model,” he said.