Gov. Josh Shapiro sued a vendor for failing to deliver 3.4 million letters from state agencies, calling it ‘unacceptable’

HARRISBURG — Gov. Josh Shapiro’s administration has sued a former vendor for failing to deliver 3.4 million pieces of state agency mail to residents, resulting in a statewide debacle with some residents losing access to their public benefits.

Shapiro called the situation “absolutely unacceptable” in his first public remarks on the matter during a Wednesday appearance at the Pennsylvania Farm Show.

The Pennsylvania Department of General Services earlier this month filed suit in Dauphin County Court against the Harrisburg-based Capitol Presort Services, a mail presort company, for damages totaling more than $220,000 for its failure to deliver critical state agency communications from the Department of Human Services, Department of Transportation, and more.

The lawsuit alleges that the owner of Capitol Presort Services told the state he had been forced to reduce staff due to the 135-day state budget impasse, during which outside vendors were not paid. But the owner, Phil Gray, never told the state his company could not fulfill its contractual obligations, according to the state’s filing.

Gray “systematically reviewed the mail entering his facility and elected to process the mail that was most easily traced, to hide that he was falling behind,” according to a letter sent to lawmakers last week by DGS Secretary Reggie McNeil.

The unsent mail went undetected by the state for one month before it was discovered, and Capitol Presort Services was swiftly fired. The state found another vendor through an emergency contract with technology solution company Pitney Bowes for $1 million.

Shapiro said his administration has been “working overtime” to ensure no benefits were lost, and if they were, “we’re going to make it right.”

“The vendor failed. It was caught, it was addressed, we’re suing them, and we’re going to do everything we can to recover for the people of Pennsylvania,” Shapiro said. “It’s not OK.”

The mail delay has become an early point of attack against Shapiro as he runs for reelection and is likely to face Treasurer Stacy Garrity, the Pennsylvania Republican Party’s endorsed candidate. Following Shapiro’s reelection campaign announcement last week, the state GOP claimed that Shapiro has “even failed at the easy stuff, like sending out millions of letters from state agencies, causing vulnerable residents to lose their healthcare without notice.”

The state hired Capitol Presort in 2021 to tray and sort some of the state’s mail, in order to save money on postage. Its latest purchase order for 2024-25, according to the suit, totaled nearly $5.3 million to deliver millions of state agency communications to residents.

The state alleges in the suit that the vendor continued to deliver trackable mail while not delivering untracked mail, arguing that this was evidence of an “active and fraudulent concealment and an affirmative misrepresentation that it was performing its obligations under the contract.”

Capitol Presort Services allegedly continued to pick up mail daily throughout the month of November, and Gray did not communicate to the state when asked on Dec. 4 that he could not meet his contractual obligations, McNeil said in his letter to lawmakers.

However, Gray allegedly told the state that he had reduced his staff since July due to the impact of the budget impasse, which lasted 135 days, or nearly five months. Outside vendors are not paid during budget impasses but are expected to meet their contractual obligations.

“Many critical contractors continued to provide services to the commonwealth, without payment, throughout the lengthy budget delay, but this vendor hid the problem and at no point advised DGS or worked cooperatively to resolve it,” McNeil told the lawmakers.

Gray could not be reached for comment Thursday and did not have an attorney listed on the lawsuit.

Community Legal Services reported last month that the failure to deliver state agency mail, which went undetected from Nov. 3 to Dec. 3, had resulted in approximately two dozen clients losing access to their benefits. The total number of residents affected by the mail delay remains unclear.

The Pennsylvania Department of Human Services has said it is extending its appeal deadlines by 45 days, while any Medicaid, CHIP, or TANF cash assistance recipients whose benefits were reduced or ended are getting their cases reopened.

SNAP recipients who lost access to their food assistance due to the mail delay must file an appeal, submit missing documents, or reapply to become eligible again under federal rules.

PennDot, for its part, has received few reports of issues due to the mail delay and does not anticipate much of an impact on residents, Transportation Secretary Mike Carroll said in a letter to legislators sent last week. All of its legal and time-sensitive mailings, like suspension notices, were not affected.

The state will likely ask for more than $220,000 in damages, adding in the suit that the full cost for the failure to deliver a month’s worth of agency mail cannot yet be determined. As of last week, DHS alone has spent that much on unplanned communications and mailing costs to notify affected Pennsylvanians, according to a letter from DHS Secretary Val Arkoosh to state lawmakers.