CONGRESSIONAL PANEL QUIZZES GSA ON MAA DELAYS, OVERHEAD RATES

“If this program is successful, the federal government will be at the cutting edge of procurement for these types of services,” said Subcommittee Chmn. Davis (R-Va.), who held related hearing in April on repeated delays in long distance FTS 2001 contract. “Early evidence suggests that this will not be the case.” GSA began awarding MAA contracts in 1999 and now has 37 agreements in 20 cities. Govt. agencies had 9 months to switch from existing GSA agreements to new MAA program. GAO figures released at hearing indicated that aside from low implementation rate in N.Y., rate in Chicago was 42.9% and in San Francisco 65.8%. Other cities that haven’t shifted to MAA contract more than 9 months after implementation include L.A. at 13.5%, St. Louis at 16.5%, Boston at 5.4%. Buffalo, Cincinnati and Washington are complete. Davis asked what delays would mean for $1.1 billion in projected cost savings over 8-year life of contract. Bates said she couldn’t provide precise figure, but said existing MAA programs were saving govt. about $4 million per month. Oversight hearing was first by congressional panel on MAA program.

Davis withheld judgment on whether overhead rates charged by GSA were too high, but said: “I strongly disagree with keeping the amount of these fees hidden from user agencies.” Agency charges administrative fees that vary by metro area and level of administrative support. GAO indicated those figures range from 28% to 84%, which telecom carriers have said compares with 8% for similar GSA fees added to FTS 2001 contract. GAO Dir.-Information Management Issues Linda Koontz testified that percentages “appear substantial” but are “substantially lower” than prices under other GSA local services contracts. GSA doesn’t disclose those fees separately but requires contractors to embed them in prices. “As a result, agencies do not have complete information to help them determine whether using GSA’s services is their most economical option,” she said. Representatives of 2 federal agencies -- Justice Dept. and Coast Guard -- said they weren’t given exact dollar figure for those add-ons but were aware of approximate percentage.

Management fees that GSA tacks on to contracts was one of thorniest issues to emerge during hearing and several officials said they effectively wipe out cost savings for agencies in some cases. “GSA routinely quotes savings in the billions of dollars associated with the MAAs,” Qwest’s Payne said. “But the quoted savings are those only GSA is experiencing. These savings are obliterated by the addition of steep contract management and value-added fees that MAA contractors are obligated to pass on to the agencies.” Payne said that meant that end-user agencies weren’t seeing deep price reductions that were part of original bid agreements for MAA contracts and “allows GSA to pocket the difference.” He accused GSA of “gouging” agencies with overhead rates, which can result in fees of 40% to 75% beyond prices for telecom services offered by contractors. Payne recommended that GSA “immediately” reduce management fees for MAA’s to no more than 8%. GSA also should set “meaningful” schedule to deliver long distance service through MAA contracts, he said. “The marketplace cannot afford to wait on GSA to fix its internal problems.” He also cautioned that GSA had to stop “inserting itself between vendors and agencies.”

Bates defended management fees, telling panel they have fallen 30% in last 5 years. She also told lawmakers that as per- line costs of local telecom services have dropped, percentage of administrative rates charged by GSA appeared larger in comparison and “presents a distorted picture.” Bates said: “We are continuing to look at it.” Services that customer agencies receive under rates include “day-to-day operations of switches and services,” troubleshooting, providing billing services.

One issue repeatedly raised by telecom carriers that won MAA contracts was when GSA would allow MAA vendors to offer FTS 2001 services. That cross-competition was built into original bidding for awards but GSA hasn’t yet fully allowed MAA winners to begin vying for long distance business of federal govt. GAO’s Koontz said agency was starting to head in that direction. GSA drafted paper to “clarify its position” on allowing additional competition in FTS 2001 program, she said. “This paper states that with the transition to FTS 2001 nearing completion, GSA has concluded that it is appropriate to proceed with determining when to allow additional competition for FTS 2001 services,” she said. GSA will present those ideas to industry for comment June 28, she said. MAA contractors that would be in line to compete for FTS business of Sprint and WorldCom include AT&T, BellSouth, Qwest, SBC, Verizon, Winstar. Timing of when FTS contracts will be open to carriers that offer services under MAA program repeatedly surfaced as concern by AT&T, Qwest, others. Expectation had been that FTS contractors would be given one year of lead time to establish long distance service and then MAA contractors could begin competing for those services, Qwest Senior Vp James Payne testified. He cited confusion between regional GSA operations and Washington hq on MAA implementation and confusion within GSA on how to handle MAA contract awards that were awarded to 2 carriers.

GSA should implement telecom services schedules under which vendors would disclose terms, conditions and locations where specific services would be provided, AT&T Govt. Markets Vp John Doherty said. Such schedules would ensure program was implemented fairly, he said. AT&T also recommended that: (1) GSA should allow vendors to “freely market” MAA services to agencies, which would educate end users about offerings and provide more level playing field for new market entrants against Bell companies in those markets. (2) MAA customers should have financial assistance to transition to program through fund similar to Information Technology Fund that GSA used to offset FTS 2001 transition costs. (3) Overhead rates must be reduced because current fees have “diminished agencies’ incentive to transition to competitive vendors.”

Several panelists told subcommittee that complex reasons behind MAA problems lie with regulatory hurdles. “The labyrinth of rules associated with ownership of wiring inside the building has provided ample opportunities for protracted delays between incumbent LEC providers and MAA competitive LEC providers,” Bates said in written testimony. “Our experience has shown that carriers will continue to contest the last-mile issue down to the last inch.” Some delays are caused by spats among MAA contractor, ILEC and building owners, others are result of implementing local number portability or technical problems, Bates said. GAO’s Koontz testified that in N.Y., more than half of business lines covered under contract were affected by regulatory interpretation of access rights to building’s cable under recent FCC decision that ILEC would retain ownership of insider wiring. That decision said carrier couldn’t impose fees on use of wiring. MAA contracts were based on assumption that MAA contractor, which is AT&T, would have free access to riser cable. But N.Y. PSC has ruled Verizon can require payment from AT&T, Koontz said. “As a result, GSA and AT&T have had to delay implementation efforts in the affected buildings until they can determine a mutually acceptable strategy for dealing with this problem,” he said. Elsewhere on regulatory front, Verizon Federal Vp Randy Lucas cautioned that upcoming GSA guidelines that will allow MAA contractors to vie for FTS 2001 services shouldn’t require vendors to have to be able to provide long distance to every state. If this is case, “Verizon will be locked out,” he said, noting that company can compete where it has been approved to provide long distance services.