FedEx to Pay U.S. $8 Million Over Delayed Deliveries It Blamed on Security

FedEx Corp. (FDX), operator of the world’s biggest cargo airline, will pay $8 million to settle allegations the company improperly blamed delayed delivery of packages sent by the federal government on post-9/11 security measures.

The Justice Department said today that FedEx agreed to resolve a whistleblower lawsuit filed in federal court in Washington that accused the company of violating its money-back guarantee for packages it fails to deliver on time.

“Companies that commit to provide services to the United States are expected to meet their commitment and not ‘game the system’ to take advantage of their government customers for the benefit of their own bottom line,” U.S. Attorney Ron Machen in Washington said in an e-mailed statement.

The lawsuit, which couldn’t be verified on the court’s docket, involves “security exception codes” that exempted packages from the money-back guarantee because of increased security measures faced by couriers at federal buildings in the wake of the 2001 terrorist attacks.

The FedEx employee who filed the False Claims Act lawsuit in 2006 alleges the practice continued after “long after security measures at government buildings subsided or became a routine part of making deliveries,” according to a copy of the settlement agreement provided by the U.S.

FedEx denies the allegations and admits no liability, according to the settlement.

‘Protracted Legal Battle’

“We determined it was in the best interest of employees, customers and shareowners to avoid a costly, protracted legal battle with the government,” said Maury Lane, a spokesman for Memphis, Tennessee-based FedEx.

“FedEx has worked hard to strike a balance between the customer’s need for prompt deliveries and the government’s need for the highest security, which is why the government didn’t identify one shipment where a security delay code had been applied and where there wasn’t a security delay.”

As a result of this settlement, the whistleblower, Mary Garofolo, will receive $1.44 million as her share of the government’s recovery, according to the settlement.

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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