FedEx Ground Contract Termination and OTCs
Before we jump into how you could lose your FedEx Ground contract, let’s be clear: FedEx Ground does not want to terminate a CSP’s agreement or contract.
Terminating a contract can provide serious service interruptions for FedEx Ground customers and is a critical issue. FedEx Ground aims to provide seamless delivery service for all areas of operation.
It is uncommon for a contractor to lose their FedEx Ground contract. Further, contractors almost always receive opportunities to resolve issues before a contract termination.
However, contract termination is still a real possibility. You may occasionally hear about a contractor losing their contract, or you may be interested in buying an operation from a contractor who is at risk of losing their contract.
Let’s look carefully at why a contractor may be at risk of losing their FedEx Ground contract. We’ll also look at the communication process with FedEx Ground.
“The surest way to lose your contract is to operate a team that struggles with safety.”
How FedEx Ground Escalates Issues with CSPs
Contractors may lose their FedEx Ground contract due to safety concerns or repeat customer service issues.
The surest way to lose your contract is to operate a team that struggles with safety. If you have members of your delivery team repeatedly engaged in vehicle or property accidents, your contract is at risk. The risk is even greater if one or more of those safety accidents is severe.
FedEx Ground monitors safety results closely using a Safety Results Indicator (SRI). The SRI gives FedEx Ground a mathematical way to evaluate your safety record. Contractors receive a report with their SRI number every quarter and can ask to see it at any other time to understand if they are within acceptable boundaries.
Your contract with FedEx Ground may also be at risk if you and/or your team has recurring customer service complaints. These day-to-day operational blunders may include poor vehicle appearance or failure to obtain package signatures. Your ISP agreement outlines service expectations, and you can contact our team to understand those expectations better or learn more about creating a service-oriented team.
If FedEx Ground wishes to address issues, there are levels of escalation for their concerns.
Business Discussion: As an ISP, you will have many officially logged business discussions with FedEx Ground. You may have a business discussion with any FedEx employee, but most often, you will find yourself conversing with the P&D terminal manager or with the senior manager directly. These are the primary ways FedEx Ground will communicate with you and your team, and the conversations will review both large and small issues. If there are safety or customer service concerns, this is likely the first way you will hear about them. All communications in a business discussion are part of your permanent record.
Letter of Assurance: When FedEx Ground needs to escalate an issue beyond a business discussion, the senior terminal manager may ask CSPs to generate a Letter of Assurance. This letter will cover areas of concern to FedEx Ground and will be your attempt to put concerns at ease by letting them know you are handling issues appropriately. FedEx Ground may skip this step entirely if the issue is more serious or requires more immediate action.
Opportunity to Cure Letter: When FedEx Ground believes you are in serious breach of your agreement, the senior terminal manager will send you an Opportunity to Cure Letter that gives you 7 to 30 days (FedEx Ground sets the time frame) to resolve the breach of contract. At the end of the allotted time, FedEx Ground will evaluate your progress to determine if you did, in fact, cure the breach. If FedEx Ground feels your actions are insufficient, they further escalate the issue.
Contract Termination Review: The senior manager of every US-based FedEx Ground terminal has the power to recommend contracts for termination to a review board. This recommendation will come if you did not cure a breach of your contract or if the manager believes you did something illegal and/or violated your integrity clause.
The recommendation from the senior terminal manager goes to a district manager, who then decides whether or not to send it to a legal review at FedEx Ground’s corporate offices. The legal review generates a recommendation, and the district manager makes the final decision about whether or not to terminate a contract.
The termination review board meets twice a month to deliberate the legal exposure of each contract termination. Only about 20% of all recommended contracts are actually approved for termination by the review board.
“Contractors who commit integrity violations or illegal activities within their business practices will immediately face contract termination without escalating through the other steps. ”
As you can imagine, even if your contract does not receive termination, your future relationship with your terminal manager can suffer serious damage. Because of the lasting effects of this process, we would still recommend you consider selling and moving on from that particular terminal even if your contract was not terminated in the end.
If FedEx Ground elects to terminate a contract, they will typically give the contractor up to 30 days to sell the business. They are likely to extend this time frame if the contractor makes good faith efforts to reassign the routes.
The upside here is that nearly every contractor has an opportunity to recover their investment even if they face contract termination.
Exceptions to The Process
Contractors who commit integrity violations or illegal activities within their business practices will immediately face contract termination without escalating through the other steps.
Integrity violations may include owners allowing drivers not approved by FedEx Ground to drive your routes or instructing drivers to forge package signatures. Illegal activities may include anything that breaks state or federal laws, such as tax fraud or drug smuggling.
Conclusion
In general, you should be aware that it is rare for FedEx Ground to proceed to contract termination, and contractors have many ways to resolve issues before reaching that point. We would characterize an Opportunity to Cure Letter as something that results from sustained failure. This is not something most FedEx Ground route businesses face.
It’s also important to know that if you do face contract termination, there is an opportunity to recover your investment. We encourage all contractors to engage with our team if you have an OTC or think you may receive one soon based on operational issues or an audit.
Route Consultant can teach you best practices to stay out of contractual trouble. If an exit strategy is the best choice for you, we can help you get the best return on your investment if given enough notice before you find yourself in real trouble.
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