GAO DRAFT RECOMMENDS TRIMMING REVENUE GUARANTEES FOR FTS 2001

FTS 2001 contracts carry minimum revenue guarantees of $750 million each for Sprint and WorldCom over life of contract, which is for 4 years with 4 one-year extensions. GSA and GAO said earlier that carriers would reach those minimums in 6th year of contract. GSA awarded Sprint and WorldCom FTS 2001 contracts in late 1998 and early 1999, starting transition from previous FTS 2000 contract held by AT&T and Sprint. Several deadlines GSA had set for completing shift of traffic slipped last year, including Dec. 6 target, which is when most recent bridge, or interim, contracts held by Sprint and AT&T expired. GSA then awarded bridge contracts to Sprint for 6 months and AT&T for 18 months, sparking agency-level protest from Qwest. Qwest protest centered on failure of GSA to put most recent bridge contract out for competitive bids, instead of awarding it automatically to AT&T and Sprint, resulting in what company said were higher prices from lack of rival offers. Minimum revenue guarantee that GAO called upon to be reduced has been cited by GSA as needing to be met before federal govt. could open overall FTS 2001 long distance data and voice contract to other competitors, such as carriers holding Metropolitan Area Acquisition contracts for local service.

Draft marks first time that part of federal govt. has suggested minimum revenue levels be trimmed as result of contractors failing to miss contract deadlines. “The sooner the federal government can be assured of satisfying its FTS 2001 minimum revenue guarantees, the sooner GSA can add more long distance options and maximize the ability of federal agencies to achieve basic program objectives,” draft said. Original bridge contracts awarded to AT&T and Sprint in Dec. 1998 were valued at combined level of nearly $1 billion, draft said. It said GSA reports on progress were based on transition orders completed, not completion of disconnect orders required to turn off FTS 2000 services.

Draft also refers to “reported shortcomings” in Sprint and WorldCom customer support in transition, which GAO said “contributed to transition delay.” Steps have been taken under both contracts to bolster resources used for transition, draft said. In some cases, agencies had to focus on incorrect billing information, also “undermining transition progress.” Billing problems emerged “because GSA did not ensure that the FTS 2001 contractors met all billing requirements.” Draft also pointed to role of federal agencies, saying govt. customers of FTS 2001 were slow to order services under new contract, resulting in “significant” delays. House members requesting report include Rep. Horn (R-Cal.), chmn. of Govt. Reform Subcommittee on Govt. Efficiency, and Rep. Davis (R-Va.), chmn. of Subcommittee on Technology & Procurement policy.

Sprint and WorldCom declined to comment on draft, saying changes still could be made by time GAO releases document. GSA spokesman also declined comment, saying that draft was “subject to official use and comment” and that agency didn’t comment on drafts that were subject to change.

Meanwhile, Qwest has drawn up proposed settlement for GSA of its agency-level protest over bridge contracts awarded in Dec. Last week, company spokeswoman said GSA hadn’t yet responded formally to settlement proposal drafted in Jan. In document, Qwest said Donald Duda, agency protest official, had said he had received indications from both sides that settlement was possible. Qwest proposal would keep in place bridge contracts for AT&T and Sprint while allowing federal agencies to choose Qwest for interim services as third option.

Qwest contended in protest that bridge contracts included rates that were 25% higher than those offered to agencies in fiscal 2000 by using price levels that were in effect in 1995. Qwest also alleged that GSA didn’t follow federal procurement laws by seeking bids from other carriers and failing to demonstrate contract prices were “reasonable.” Sprint indicated in Jan. it already had completed transition of most govt. agency traffic from interim bridge contract to FTS 2001 program.

In settlement offer, Qwest proposed GSA award it contract but not conduct broader competitive procurement “because of the constraints imposed by the immediacy of the situation.” As result, federal agencies that haven’t yet transitioned to new contract could acquire FTS 2000 services from AT&T, Qwest or combination of both. Qwest proposed 6 “baskets” of FTS 2000 services, including packet switched offerings, dedicated transmission, managed data, switched voice. Prices would be “significantly lower” than FTS 2000 charged under latest bridge contracts, Qwest said. “In most cases, Qwest’s prices will be lower than even current-year FTS 2001 prices,” it said. As required by federal contract law, Qwest said, settlement would inject competition into acquisition of interim FTS 2000 services “for the first time.”

GSA justification and approval document “for other than full and open competition” outlined why agency made proposed contract change without publishing solicitation for other bidders. Document acknowledged prices proposed by AT&T for bridge contract were “substantially higher” than those in FTS 2001 contract or original bridge contract. But justification document said lower prices of past contracts reflected extent to which they had longer terms and greater certainty about volumes. “Suffice it to say that AT&T’s proposed lifeline pricing and $8 million payment to maintain the necessary network beyond its expected demise were greeted with a less than enthusiastic embrace by the government,” GSA said. It said proposed pricing was similar to “short-term tariff pricing. Based on comparison with similarly situated commercial tariff rates, the prices and payment proposed by AT&T under this lifeline extension are considered to be fair and reasonable.” GSA also said only incumbent FTS 2000 company could meet all requirements of contract. Justification document was signed Dec. 22, nearly 2 weeks after GSA awarded extension contracts.

GSA spokesman declined to comment on settlement proposal, citing agency policy of not commenting on matters under litigation.

In recent interview, former Federal Technology Service Comr. Dennis Fischer, who now is vp at Visa USA, said program didn’t have “as rapid a performance as I would have liked.” He cited steps GSA, federal agency customers and contractors could have taken. “Some of the agencies didn’t move along as quickly as we would have liked” to transition to new contract from old, he said. “In some cases, Sprint and MCI were not as quick to seize the new business as we would have liked. Probably predictably, AT&T was not in as quick of a hurry to give it up.” Still, Fischer declined to single out single stakeholder as responsible for pace of transaction, citing complexity involved in shifting over such huge volume of traffic. On pricing terms that were part of bridge contract, Fischer said AT&T had lowered its interim contract prices for FTS 2000 to FTS 2001 levels after Sprint and WorldCom received new contracts. Reversion of prices in Dec. to earlier levels “was frankly their right to do as an equal party to the contract,” he said. “I'm not sure that there was any way that what happened could have been prevented unless AT&T said ‘we will continue these price reductions,'” Fischer said.

Still, others take exception to language in justification document that cites urgency of situation. GSA documents indicate that as far back as Oct., agency had signs that targets wouldn’t be met for shifting traffic to FTS 2001, said Lisa Crawford, procurement consultant who formerly headed AT&T’s FTS 2000 program. “The statute is pretty clear that an emergency isn’t an emergency because you failed to plan,” Crawford said, referring to federal acquisition regulations. She also noted justification document must be written before contract is awarded. In case of bridge contracts awarded in Dec., justification filing was signed after contract was awarded and after Qwest filed agency-level protest. In absence of competition, contract prices under bridge have gone up on average about 25%, Crawford said. “I think if AT&T had known others were willing to get into the business” prices may have stayed at same level as previous interim contracts or lower, she said.

But higher prices for agencies that haven’t yet made switch aren’t necessarily bad thing, said telecom consultant Warren Suss. “You almost want to create some incentives for the agencies to shift on to the new contract,” he said. “It’s not always all bad to see pricing going up on the bridge contract, sort of as a penalty to the agencies that are still using that contract.” Still, one paradox, said Suss, is that AT&T has limited number of contract vehicles to provide service to govt. agencies. (Among several federal contracts that company holds are metropolitan area acquisition agreements to provide local service to federal agencies). So driving up prices on bridge contract “becomes a strategy that says ‘let’s maximize revenues but in the process, shorten the life cycle'” of bridge contract, Suss said.