VERIFIED SOLUTION i

MailStream Plus - For Periodicals, where does the DMM say that flats in flats trays do not get bundled (in some cases) including FSS?

A USPS’s FSS (Flats Sequencing System) FAQ is here-
https://ribbs.usps.gov/flat/documents/FSS_FAQs/FSS_FAQs.pdf
and says-
Q: Can flat mail be prepared in flat trays (tubs)? 

A: The large scale use of trays by mailers is problematic from a space and cost perspective. Stacks of trays are not particularly stable on a pallet and weigh considerably more than bundles. Current guidelines require tray preparation for First-Class Mail presorted and automation flats (see DMM 335), and Periodicals mailers have an option to prepare flats in trays instead of sacks (see DMM 707.22.7 and 25.5). The USPS is exploring allowing additional flats to be prepared in trays rather than sacks.

 
DMM (Domestic Mail Manual) 707 for Periodicals is now DMM 207)-
DMM 207.22.7 Optional Tray Preparation—Flat-Size Nonbarcoded Pieces
... Bundling is not permitted unless a bundle is more finely presorted than the tray’s presort destination.

 
DMM 207.25.5 Optional Tray Preparation—Flat-Size Barcoded Pieces
... Bundling is not permitted unless it achieves a finer presort than the presort destination of the tray.

===============================

In fact, speaking about 'Automation flats' prepared under 207 25.5, a USPS clerk said that although the wording above says 'not permitted...", that the USPS actually prefers no bundling of these pieces in the Flats trays.  That actual bundling is optional.
And that does seem to agree with the DMM.
DMM 207 
25.0 Preparing Flat-Size Barcoded (Automation) Periodicals
25.1.4 Bundle Preparation
"All pieces must be prepared in bundles (except under 25.5) and meet the following requirements..."

and then 25.5 is the option about using flats trays, where it says-

"Mailers must group together all pieces for each 5-digit scheme, 5-digit, 3-digit scheme, 3-digit, SCF, and ADC destination. Bundling is not permitted unless it achieves a finer presort than the presort destination of the tray."  
'Group' does not mean bundling, it just means putting the pieces for similar destinations/levels all together in the tray.

(All references are as of March 2016)
UPDATED:  April 11, 2017