[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
FTS 2001: HOW AND WHY TRANSITION DELAYS HAVE DECREASED COMPETITION AND
INCREASED PRICES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
APRIL 26, 2001
__________
Serial No. 107-21
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
_______
U.S. GOVERNMENT PRINTING OFFICE
76-250 WASHINGTON : 2001
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida DANNY K. DAVIS, Illinois
DOUG OSE, California JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky JIM TURNER, Texas
JO ANN DAVIS, Virginia THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida WM. LACY CLAY, Missouri
CHRIS CANNON, Utah ------ ------
ADAM H. PUTNAM, Florida ------ ------
C.L. ``BUTCH'' OTTER, Idaho ------
EDWARD L. SCHROCK, Virginia BERNARD SANDERS, Vermont
------ ------ (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on Technology and Procurement Policy
THOMAS M. DAVIS, Virginia, Chairman
JO ANN DAVIS, Virginia JIM TURNER, Texas
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California PATSY T. MINK, Hawaii
EDWARD L. SCHROCK, Virginia
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Melissa Wojciak, Staff Director
Victoria Proctor, Professional Staff Member
James DeChene, Clerk
Trey Henderson, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on April 26, 2001................................... 1
Statement of:
Bates, Sandra N., Commissioner, Federal Technology Service,
U.S. General Services Administration, accompanied by Frank
Lalley, Assistant Commissioner for Service Delivery........ 21
D'Agata, Anthony, vice president and general manager,
Sprint's government services division...................... 112
Doherty, John J., vice president, AT&T government markets.... 129
Edgerton, Jerry A., senior vice president, Worldcom
government markets......................................... 100
Flyzik, James, Acting Assistant Secretary for Management, and
Chief Information Officer, U.S. Department of the Treasury. 73
Koontz, Linda D., Director, Information Management Issues,
U.S. General Accounting Office, accompanied by Kevin
Conway, Assistant Director................................. 6
Payne, James F.X., senior vice president, Qwest
Communications International Inc........................... 146
Premo, Brigadier General Gregory, Deputy Director for
Operations, Defense Information Systems Agency............. 58
Letters, statements, etc., submitted for the record by:
Bates, Sandra N., Commissioner, Federal Technology Service,
U.S. General Services Administration, prepared statement of 23
D'Agata, Anthony, vice president and general manager,
Sprint's government services division, prepared statement
of......................................................... 114
Doherty, John J., vice president, AT&T government markets,
prepared statement of...................................... 131
Edgerton, Jerry A., senior vice president, Worldcom
government markets, prepared statement of.................. 103
Flyzik, James, Acting Assistant Secretary for Management, and
Chief Information Officer, U.S. Department of the Treasury,
prepared statement of...................................... 76
Koontz, Linda D., Director, Information Management Issues,
U.S. General Accounting Office, prepared statement of...... 8
Payne, James F.X., senior vice president, Qwest
Communications International Inc., prepared statement of... 148
Premo, Brigadier General Gregory, Deputy Director for
Operations, Defense Information Systems Agency, prepared
statement of............................................... 61
FTS 2001: HOW AND WHY TRANSITION DELAYS HAVE DECREASED COMPETITION AND
INCREASED PRICES
----------
THURSDAY, APRIL 26, 2001
House of Representatives,
Subcommittee on Technology and Procurement Policy,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis, Turner, Schrock, Cummings,
and Burton [ex officio].
Staff present: Melissa Wojciak, staff director; Amy Herink,
chief counsel; David Marin, communications director; Victoria
Proctor, professional staff member; James DeChene, clerk; Trey
Henderson, minority counsel; and Jean Gosa, minority chief
clerk.
Mr. Davis. We have a formal voting on the House floor in
just a few minutes, so if I can get through the opening
statements here, we'll try to get that out of the way, go over
and vote and come back hear testimony.
I also have a committee markup in Commerce right around the
corner. And if I have to leave urgently it will be for final
passage of a very controversial bill out of there on
telecommunications. I will hand the gavel to someone for that
interim period.
But let me just call the meeting to order. I want to
welcome everyone to today's oversight hearing on the FTS 2001
program. As many of you know, FTS 2001 is the program through
which the Federal Government buys long distance
telecommunications services. FTS 2001 is the follow-on contract
to the FTS 2000 program and was intended to build on the
changes in the telecommunications marketplace. Specifically,
this program is supposed to create a Government marketplace
that replicates the intentions of the Telecommunications Act of
1996.
Today the subcommittee will analyze whether these goals
have been realized. Additionally, the subcommittee will review
the need for changes, if any, to the FTS 2001 program to
increase competition in the program and ensure delivery of the
most up-to-date services to Federal customers.
When the FTS 2001 contracts were originally awarded, the
primary objectives of the program were to ensure the best
service and price for the Government and to maximize
competition for services. But, according to a report issued by
the General Accounting Office today, these two goals may be in
jeopardy because of the delays in transition.
Let me be clear at this point. The GAO now considers the
FTS 2001 program goals in jeopardy because of transition
delays. It's clear to me that the goal of competition in the
program has, at least to date, not been realized. The ongoing
delays also appear close to ending the Government-wide buying
power envisioned in the program, as agencies frustrated by the
delays and cost opt out of the program.
FTS 2001 contracts were awarded to Sprint in December 1998
and to WorldCom in January 1999. At that time, GSA had allowed
for a 1-year transition period of telecommunications services
from the FTS 2000 providers, who were AT&T and Sprint, to 2001.
GSA had anticipated some transition delays, and did plan for up
to another year of transition.
Unfortunately, it's now April 2001, and transition is not
complete for many Federal agencies. In December 2000, GSA
announced the extension of the transition contracts for FTS
2000 services for 6 months for Sprint and an additional year
for AT&T. This time delay is now causing agencies that have not
transitioned to incur significantly higher long distance costs.
And of course, those costs go back to the American taxpayer.
The GAO has estimated some agencies will spend at least 10
cents a minute on long distance under the extension contracts,
with rates continuing to rise to a potential high of $1 a
minute as the last agencies transition to FTS 2001.
I'm greatly concerned that agencies did not receive
adequate information on transition in order to prepare for
these cost increases. Moreover, these costs will substantially
impact on agencies' budgets as Congress and the administration
are requesting the agencies update their information security
systems and move to e-government solutions.
Will the increased costs hinder these important goals? The
FTS 2001 program strategy also included contract awards for
local telecommunications services to ultimately allow those
contractors to offer both local and FTS 2001 long distance
services. Over 20 of those contract awards have been made in
localities across the United States under the Metropolitan Area
Acquisition program, that's the MAA program.
The MAA program allows contract awardees to apply for
crossover to compete in other local markets or the FTS 2001
long distance contracts once a year if service has been
successfully completed in the local market. To date, crossover
has not been issued to any contract awardees through the
ongoing transition delays in the FTS 2001 contract.
The delay in crossover is based largely on the delays in
reaching the minimum revenue guarantees in the FTS 2001
program. The long distance contracts run for 4 base years with
four 1 year options, and each contractor is guaranteed minimum
revenues of $750 million over the life of the contract. The
delay in transition has significantly slowed meeting the
minimum revenue guarantees of both Sprint and MCI WorldCom.
According to the most recent numbers from the GAO, MCI WorldCom
is not scheduled to meet the MRG until late 2005. And Sprint
won't meet it until some time in 2006.
While these MRGs are now delayed and have hindered the
overall program goals, the FTS 2000 transition contractors have
not had nearly the same difficulty in earning revenue. The GAO
estimates that AT&T has made over $800 million during the
transition, and Sprint has earned over $300 million that does
not count toward their MRG. Yet Federal agencies are having
difficulty in acquiring the most up to date telecommunications
services.
A significant ongoing part of the Federal Government's
mission is enhanced service delivery to citizens, agencies,
State and local governments. Delays in agency acquisitions of
end to end network services could impede progress to delivering
more information and services electronically. Insufficient
contract management appears to have slowed this goal.
As the manager of FTS 2001, GAO is responsible for overall
contract management administration, coordination and
procurement of services, planning, engineering and performance
support to agencies and customer service. Today's hearing is
going to examine how GSA can do better in this role, or if they
should. If Federal agencies are unable or reluctant to allow
GSA to assist with the FTS 2001 program, maybe we should make
Federal agencies responsible for purchasing their own
telecommunications services. Maybe we should create a
telecommunications services schedule. These are options we can
explore.
Transition delays have been blamed on a number of different
problems: the year 2000 rollover, the Verizon strike in August
2000 and vendor staffing, just to name a few. I'm sure there's
plenty of blame to go around for transition delays, but it's
critically important we move away from the blame game to
solutions that will salvage the future of this program, allow
us to build on lessons learned.
FTS 2001 is a Government-wide contract for services. We
have increasingly asked the Federal Government to coordinate
across agencies and achieve appropriate economies of scale in
the acquisition of services. Did the FTS 2001 achieve these
goals? We have to also ask the GSA how overall contract
management and agency coordination was handled. For instance,
why did GSA and the Interagency Management Council, the
coordinating body for all the FTS 2001 participating agencies,
consistently offer conflicting information on the progress made
in transition?
GSA predicted that transition would be completed much
earlier on, whereas the IMC predicted transition wouldn't be
completed by the December 2000 deadline. And they predicted
that as early as last July. Who were the agencies to believe?
I'm also unclear on other aspects of GSA's contract
management. GSA awarded FTS 2001 contracts but then waived
performance requirements for the vendors during the transition
period. What leveraging authority did the individual agencies
have when they were disappointed with contract performance
during transition? If GSA didn't agree on the format at the
delivery of critical transition information, did they remove
any incentives for vendors to comply?
The GSA states that the transition data base is still not
in place for providing weekly updates on progress to GSA and
the agencies. Since January of this year, WorldCom has been
providing GSA with the correct information, Sprint is scheduled
to begin providing this information in May 2001. I hate to ask
the obvious question, but isn't that a little late?
GSA seemed reluctant to negotiate on the format of the
information. At what programmatic cost did this unwillingness
to reach agreement impact agencies in their planning efforts?
Another significant delay factor was caused by the agencies
themselves. The GAO cites several agencies that had
tremendously difficult time inventorying their
telecommunications services and infrastructure. While I'm
concerned about the delay these factors caused, I hope they
provided the agencies and GSA with important information that
will be the building blocks for any upgrades or future
transitions.
This is a lesson that should not be lost, and I'm anxious
to hear from the Department of Defense and Treasury how they
collected this information and how they are managing it in the
future.
Last, I have a serious concern about the MAA program, the
status of that transition, the fees charged by GSA and the
impact on crossover. I've deliberately not focused on those
issues during this hearing, because I have requested a GAO
audit of that program and I'll be holding a followup hearing on
the MAA program June 13th. It's my hope that the June hearing
will not reveal the same contract management difficulties.
The subcommittee will hear testimony from GAO, GSA,
Department of Defense, Department of Treasury. On our second
panel we'll hear from Jerry Edgerton from WorldCom, Tony
D'Agata from Sprint, John Doherty of AT&T and James Payne of
Qwest.
I now yield to Congressman Turner.
Mr. Turner. Thank you, Mr. Chairman.
I want to commend you for holding this hearing. It's my
understanding that we have not had an oversight hearing on this
subject for over 4 years. And a program such as this, with the
delays that you've mentioned in transition, certainly deserves
our attention, our study and our oversight. The difference in
doing it right and not doing it right literally can mean
hundreds of millions of dollars in costs to the taxpayer. So
I'm very pleased that you have chosen this opportunity to have
this hearing on this very important subject.
There are two goals that I understand are critical to the
FTS program. That is ensuring the very best service and price
to the Government while maximizing competition. Those goals are
at the heart of what this hearing is all about, and I look
forward to hearing from all of our witnesses today.
Thank you, Mr. Chairman.
Mr. Burton [assuming Chair]. We have a lot of the Members
who've gone to vote. They're going to come right back. If you
want to stay, you can, or you can go vote. I will stay until
the last minute, then I'll run and vote and they can come back
and take over the chair once again.
But in the interim, and I don't want to be redundant, I was
chairman of this committee when we first held a hearing on the
FTS 2001 contract 4 years ago. And the entire program was being
redesigned. And I can remember a lot of controversy about that
contract.
It finally all worked out. It was supposed to be
implemented in a timely fashion. As I understand it, GSA
awarded the new contract over 2 years ago to Sprint and MCI
WorldCom. It was supposed to be a 1-year transition period.
That wasn't enough time. So they extended it 6 months. And that
wasn't enough time. So they extended it another 6 months. And
that wasn't enough time. And they extended it another 6 months.
You know, we're supposed to run Government efficiently
around this place. I cannot for the life of me figure out why
all these extensions. We have an Accountability in Government
Act which I co-authored and I just don't understand why these
things just--anyhow, it's a very complex job and we understand
that. And we understand a lot of progress has been made.
But in other areas, according to the GAO, there's still a
long way to go before the job's finished. Under this latest
extension, some agencies are paying extremely high prices for
phone service. I've been told that under the new contract,
agencies were supposed to get long distance service for under 4
cents a minute. But according to that GAO report, agencies that
haven't been switched over are paying about four to five times
that much.
So the taxpayers are getting shortchanged. And the longer
they wait for transition, the more it's going to cost. And on
top of that, the GSA had to make a one time payment of $8
million for the previous contractor, AT&T, just to keep the
phones on. So there are a lot of problems, and that's why
you're here to try to explain those to the subcommittee
chairman. I'll try to stay here as long as I can, I've got
another meeting to go to. But I'm going to monitor this very
closely as well as the chairman of the subcommittee.
So I'd like to ask a couple of questions here that can be
added to your opening statements or in the question and answer
period. First of all, when is the work finally going to be
done? When is it going to be done? How long is it going to
take?
How much are these delays going to cost the taxpayers? I
don't know if anybody can give us that, but we want to know.
Because we're supposed to be accountable to them. And we want
to find out who's to blame. Is it the GSA? The agencies? The
new contractors? The old contractors? We want to know where the
responsibility lies, so that we can take a fork and stick them
in the right place so they help get this job done. That's an
Indiana cliche. Only we're a little more graphic in Indiana.
[Laughter.]
I think there's probably enough blame to go around. All the
people here today who are going to testify can hopefully give
us the answers. And maybe by working together, we can get some
of these problems solved a little more efficiently and quickly
than we have in the past.
With that, the chairman of the subcommittee will be back in
just a minute. And I'll be back just as fast as my fat little
legs will get me back. And with that, we stand in recess until
the fall of the gavel.
[Recess.]
Mr. Davis [resuming Chair]. Ms. Linda Koontz of the GAO,
Sandra Bates of the General Services Administration, Kevin
Conway, also with GAO, Brigadier General Gregory Premo, Frank
Lalley with GSA and Jim Flyzik of the Department of Treasury.
As you know, it's the policy of this subcommittee all
witnesses be sworn before they may testify. If you would rise
with me and raise your right hands.
[Witnesses sworn.]
Mr. Davis. Thank you very much.
To support sufficient time for questioning, I have read
everybody's testimony. And my staff certainly has, and I think
the other Members' staff. If you could try to limit yourself to
about 5 minutes on your opening and then we'll get into the
questions. Your full written statement is in the record, so
that will be made part of the permanent hearing record.
Why don't we begin with Ms. Koontz, followed by Ms. Bates,
Brigadier General Premo and Mr. Flyzik. Let me just ask, Mrs.
Davis, did you want to make any opening statement?
Mrs. Davis. No.
Mr. Davis. Thank you.
Thank you all for being with us today. I hope this will be
a productive hearing.
STATEMENT OF LINDA D. KOONTZ, DIRECTOR, INFORMATION MANAGEMENT
ISSUES, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY KEVIN
CONWAY, ASSISTANT DIRECTOR
Ms. Koontz. Mr. Chairman, thank you for inviting us to
participate in today's hearing on the FTS 2001 long distance
telecommunications program. Kevin Conway is with me today. He's
the Assistant Director who's responsible for this study.
My testimony will focus on the findings in our report which
is being released today on the Government's transition from FTS
2000 to FTS 2001. Although GSA has clearly made progress in
completing this very complex transition, the Government did not
meet its deadline of December 6, 2000, and this effort is not
yet complete. As of April 11th, the overall transition was 92
percent complete.
According to its schedule, Sprint expects to complete most
of its transition by June 30th, although there are nine
requirements for which completion dates have yet to be
determined. WorldCom expects to substantially complete
transition during June, with two additional requirements
scheduled for completion in August and October.
The reasons for delay are many and involve all the key
players in the program. First, while GSA developed an automated
system to track transition progress, the FTS 2001 contractors
did not provide GSA with the necessary management data so that
the system could be used to accurately measure and effectively
manage the transition.
Second, the inability of GSA and the long distance
contractors to rapidly add transition critical services to the
FTS 2001 contracts impeded agency efforts to order services.
Third, customer agencies were slow to make orders for
transition services, due in part to year 2000 computing
concerns and in part to a lack of staff resources dedicated to
managing their transition efforts.
Fourth, problems with staffing shortages and turnover,
billing and procedural problems impaired the efforts of FTS
2001 contractors to support agencies' transition activities.
Fifth, some local service providers outside the FTS 2001
program did not provide services and facilities as scheduled
that were needed to deliver services to discrete locations.
Although GSA has made progress in resolving these issues,
these delays have jeopardized the timely achievement of two
program goals of FTS 2001, ensuring best service and price to
the Government and maximizing competition.
First, the delays have increased the cost of services.
Discounts on FTS 2000 services ended; costs rose as the volume
of calls decreased, and GSA imposed a surcharge to recover a
one time payment to AT&T of $8 million negotiated as part of
the most recent extension of FTS 2000. Second, the Government
cannot ensure that the service provided by the contractors
meets expectations, because performance requirements are waived
until the transition is complete.
Last, delays slow the accumulation of revenues needed to
meet the minimum revenue guarantees to the current contractors,
and as a result, GSA has not added competition to the program.
In our report, we recommended GSA expeditiously resolve
billing concerns, process contract modification proposals and
obtain the management information that is required under the
contract. GSA agrees with these recommendations and is taking
action to implement them. For example, GSA has received
management information from WorldCom and is working with Sprint
to obtain acceptable information.
When GSA and Federal agencies conceived the FTS strategy,
they envisioned an environment of robust competition where
agencies would have greater choice of contractors and services
and have flexibility in how they would acquire those services.
Completing the actions we have recommended and bringing the
transition to a successful conclusion is crucial if GSA is to
realize its vision and to fully achieve FTS 2001 goals.
That concludes my statement, and I'd be happy to answer any
questions you may have at the conclusion of the panel.
[Note.--The GAO report entitled, ``FTS 2001, Transition
Challenges Jeopardize Program Goals,'' GAO-01-289, may be found
in subcommittee files, or by calling GAO at (202) 512-6000.]
[The prepared statement of Ms. Koontz follows:]
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Mr. Davis. Thank you very much.
Ms. Bates.
STATEMENT OF SANDRA N. BATES, COMMISSIONER, FEDERAL TECHNOLOGY
SERVICE, U.S. GENERAL SERVICES ADMINISTRATION, ACCOMPANIED BY
FRANK LALLEY, ASSISTANT COMMISSIONER FOR SERVICE DELIVERY
Ms. Bates. Thank you. Mr. Chairman, thank you for the
opportunity to appear before you today to continue to discuss
the challenge of provisioning telecommunications services for
the agencies and departments of the Federal Government.
In your invitation to me, you addressed several important
questions to GSA regarding the FTS 2001 program strategy and
the transition experience. I have provided detailed responses
to each of these questions in my written testimony submitted
for the record.
You last heard from one of my predecessors in a setting
like this in the spring of 1997. At that time, you, many other
members and staff, helped us create the strategy under which
the FTS 2001 program has been conducted. That strategy gave us
a solid framework for bringing Government's use of
telecommunications technology forward into this new century.
I have included as part of my testimony the statement of
principles drafted in 1997. We recognized then that maximizing
competition should be our hallmark principle, and to achieve
this, we called for separate local and long distance
competitions with mutual crossover options for additional
competition.
Your invitation asked whether or not the program has
accomplished its primary goals of first ensuring the best
service and price to the Government and second, maximizing
competition for services. The results of the competition have
been astounding. The services offered by the winning
contractors are advanced, state-of-the-art, commercial grade
services. And these services will continue to be enhanced with
the latest commercial offerings.
On the cost side, costs are the lowest in our business. Our
agencies and departments will save billions of dollars and are
guaranteed declining prices each year. For example, the price
of an average domestic long distance call made between
Government locations will eventually fall to below 1 penny per
minute. When you consider these results, there can be no
question we maximized competition during the acquisition.
Having the contracts with state-of-the-art services and
unparalleled low prices is only step one. Transitioning
services to those contracts, a massive undertaking, is step
two. The Federal Technology Service has overall responsibility
for the FTS 2001 program. This includes program management,
contract administration, performance monitoring, customer
support to agencies, billing and the procurement of new service
offerings.
With regard to the transition, we have provided a
comprehensive array of planning, engineering, pricing and
customer support services during that period of time. We've
used every available mechanism to inform and support our
customers in their decisionmaking processes and then to
expedite the transition activities. We've worked closely with
our customer agencies through the Interagency Management
Council and the transition task force.
Nevertheless, despite these considerable efforts, we have
been behind where we want to be with the overall transition. It
has taken longer than we expected. And as GAO indicated, we
face challenges in all of these areas. We agree with the GAO's
recommendations to address our shortcomings and are
implementing all of them.
But the good news is that today, we are 95 percent complete
with our efforts to transition more than 51,000 customer
locations. We expect transition to be complete by this summer.
When transition is complete, we will be assured of meeting
the Government's commitment to the minimum revenue guarantees.
As you recall, industry informed us during the strategy
formation process that substantial minimum revenue guarantees
would provide the greatest possible incentives to competition.
We agreed with that assertion, based on our analysis of the
largest telecommunications contracts being negotiated at that
time.
The completion of transition also means that we will be
able to add even more competition to FTS 2001. One of the
contract mechanisms we established as part of the strategy
allows competitors to offer long distance services. When
transition is complete this summer, we will move ahead on
implementing that portion of the strategy.
Mr. Chairman, in conclusion, I believe the strategy we
jointly crafted is as sound today as it was when it was
developed 4 years ago. The acquisition was a great success in
terms of services and prices. The transition has posed
significant challenges for GSA that require us to take steps to
improve our ability to manage and coordinate the program.
While there are two capable contractors competing
continuously in this program, we are committed to adding
additional competitors when transition is complete this summer.
Mr. Chairman, we appreciate your leadership and that of the
committee. I look forward to your continuing support.
With me today is Mr. Frank Lalley, Assistant Commissioner
for Service Delivery. Frank will assist me in answering any
questions you or the other members may have.
Thank you.
[The prepared statement of Ms. Bates follows:]
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Mr. Davis. Than you very much, and congratulations, Mr.
Lalley. I know you are looking forward to our questions later
on. [Laughter.]
So it's bring your daughter to work day, and your daughters
are here, too?
Ms. Bates. They are.
Mr. Davis. They get to see you in action in a few minutes.
Ms. Bates. They're our good luck charm.
Mr. Davis. Excellent. You're going to need them.
[Laughter.]
General, you're on.
STATEMENT OF BRIGADIER GENERAL GREGORY PREMO, DEPUTY DIRECTOR
FOR OPERATIONS, DEFENSE INFORMATION SYSTEMS AGENCY
General Premo. Thank you, Mr. Chairman, for this
opportunity to testify before your committee on the Department
of Defense's [DOD] role in the transition of FTS 2000 to FTS
2001. I'm Brigadier General Greg Premo, Deputy Director for
Operations at the Defense Information Systems Agency [DISA].
DISA was designated as the lead for the transition, and the
DOD transition team was formed within DISA's operational
directorate, of which I am the director. To appropriately frame
the discussion, please let me describe first how DOD's
telecommunications requirements are satisfied.
DOD's requirements for video, voice, and data services
between bases, facilities, locations, and operating elements
around the world are satisfied through the Defense Information
Systems Network [DISN]. The DISN is a warfighter's global
interoperable command and control services backbone. The DISN
has military readiness features which are not present in
commercial offerings such as FTS 2001.
These special military features include interoperability,
assured connectivity, security, multilevel precedence and
preemption, surge capacity, and survivability. Through an
innovative acquisition strategy that exploits the commodity
nature of commercially available telecommunications, DISA has
been able to accommodate the substantial growth in demand while
at the same time significantly reducing costs for service. For
example, the cost for 1 minute of DISN voice in 1997 was 10
cents per minute. Today it's less than 4 cents per minute.
That, coupled with unique military features, is better or equal
to many commercial offerings.
Although the DISN is the department's primary network for
command and control, the DOD has a long history of using FTS
services. It should be noted that even though our primary
command and control network is the DISN, DOD was still the
largest single user of FTS 2000, spending over $100 million per
year.
As the FTS 2001 transition process got underway, DOD, as a
member of the Interagency Management Council, partnered with
other Federal agencies in the recompetition of the contract and
worked actively with GSA, the vendors, to make the FTS 2001
transition successful. In November 1998, DISA established a DOD
transition management office. The DOD transition management
office coordinated the establishment of a DOD-wide transition
team, which was made up of representatives from all DOD
services and agencies and reported to the transition management
office.
For a number of reasons, some smaller DOD agencies,
including the Corps of Engineers, Army National Guard and Navy
Exchange Services, chose not to transition under the management
of the DOD team. However, as of today, I understand the
National Guard is transitioned and the Corps of Engineers is
about 60 percent complete.
A key factor in our success was the existence of the FTS
2000 data base, which we used as the baseline for everything we
did. The other factor in DOD's success was our expertise in two
previous major transitions, FTS 2000 and the DISN transition in
1996 and 1998. Using our baseline data base, DOD completed its
known FTS 2000 switched voice and data service requirements
with the FTS 2001 vendors.
The DOD team conducted a best value assessment and awarded
its switched voice services to MCI, and switched data services
to Sprint. It became obvious, as we got this effort underway,
that a rapid transition would lead to a greater cost avoidance
in the Department, potentially $365 million over the life of
the contract. Therefore, we augmented the DOD transition team
with representatives from GSA, Sprint, MCI WorldCom and
established an aggressive target of June 2000 for our
completion.
To fund this transition, we made an up-front investment of
almost $8 million. And of this figure, almost $3 million was
borrowed from GSA and subsequently repaid. The transition from
FTS 2000 to 2001 has been extremely complex. Since AT&T is not
an FTS 2001 provider, our transition required the physical
removal and replacement of every single AT&T-provided service.
Each circuit termination and reconnection had to be
coordinated with the incumbent vendor, the new vendor, the
local exchange carrier and each end user. The timing and
coordination involved in any given transition was extensive. In
many cases, successful cutover of service required that
transition activities be performed simultaneously; this is also
very intense.
The Department's transition team established a centralized
transition operations center to track and coordinate on a
daily, weekly and monthly basis the transition of every single
circuit throughout the 50 United States, Guam, and Puerto Rico.
The transition management office held monthly DOD transition
meetings to discuss progress, major obstacles and lessons
learned.
The team also held weekly meetings with the operations
center and vendors to review similar topics. A DOD Web site was
established to post information bulletins and the detailed
information required to keep customers up to date on the
progress of the transition effort. The transition management
office and MCI WorldCom developed and delivered a transition
training program to over 175 local base personnel at 6 separate
sites across the United States. The transition management
office's objectives were to keep open communications with the
field and support them during transition.
Were there tough issues? You bet. Other than the sheer
number of actions that had to be tracked, DOD's major issues
were in provisioning, otherwise known as circuit acquisition
process. One of the major provisioning issues involved the
local exchange carriers. The local exchange carriers are not
part of the contract, but are critical to success of the
provisioning process. The FTS 2001 vendors depend on the local
exchange carriers to connect the backbone to the customer
locations. In many cases, there was a different local exchange
carrier at the end of each circuit.
Further complicating the local access issue was the Verizon
strike. The strike delayed transition of approximately 40
percent of our services for up to 120 days. Although we have
now transitioned the majority of services in Verizon territory,
approximately 40 out of more than 1,500 remain.
We continue to work two major outstanding issues,
accommodation of our switched video service and some billing
process issues. DOD immediately and aggressively attacked this
transition strategy. We started as we would any other military
operation. This approach and our historical data helped us get
a head start on the other departments and agencies in the
transition process.
In the light of our initial experiences, we recommended to
the Interagency Council the formation of a transition task
force. The transition task force, we believe, resulted in a
smoother transition.
DOD has finished 95 percent of its transition and as of
April, we have issued a total of over 100,000 orders,
transitioned more than 50,000 switched voice services, 1,400
dedicated point to point services, 1,400 frame relay services
and a host of others. In summary, the DISN continues to provide
military-ready, best value global service, video and data and
transport services that assure interoperability and security.
However, DOD will continue to use FTS 2001 to satisfy
unique, non-command and control requirements when they make
operational and economic sense. We feel our aggressive efforts
to complete the transition helped realize significant cost
avoidance which, regardless of the complexities of the
transition process, has made this transition well worth the
effort for our services and agencies.
DOD is still policing up the transition's loose ends, but
we're proud of the entire team's effort in this transition
success.
Mr. Chairman, that concludes my statement. At this time,
I'd be happy to respond to any questions.
[The prepared statement of General Premo follows:]
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Mr. Davis. Thank you.
Mr. Flyzik.
STATEMENT OF JAMES FLYZIK, ACTING ASSISTANT SECRETARY FOR
MANAGEMENT, AND CHIEF INFORMATION OFFICER, U.S. DEPARTMENT OF
THE TREASURY
Mr. Flyzik. Mr. Chairman, members of the subcommittee, I
appreciate the opportunity to appear today to discuss the FTS
2001 transition. I would like to thank the chairman and other
members of the subcommittee for your continued support and
interest in the improvement of information technology
performance and accountability in the Government.
I serve as the Acting Assistant Secretary for Management
and the Chief Information Officer for the Treasury Department.
Since February 1998, I have also served as the vice chair of
the Federal CIO Council, where I play a key role in the
direction of information technology for the Federal Government.
In performing these jobs, I've witnessed the growth of
online services changing the way customers expect to interact
with their Government. I would like to preface my remarks with
an overall statement about transition.
In any business, a large scale investment must make
business sense. Information technology is a business investment
and should be treated as such. Today we buy solutions and
services, not pieces and parts. We need to carefully consider
the impact to agencies and services when they have to
transition over 100,000 employees in thousands of locations.
Treasury transitioned from a commercial AT&T infrastructure
to FTS 2000 network B Sprint in 1989 and 1990 time period, from
network B back to Network A in 1996 and 1997 during the price
redetermination and service reallocation. In year 2000 and
2001, we again transitioned back to Sprint to meet requirements
for FTS 2001.
Each of these transitions was time consuming, complex and
costly. Two of the transitions were never completed due to
problems. One resulted in significant litigation.
I am a big proponent of Government-wide approaches to IT
programs. However, we need to look at details of each program
in light of changing market dynamics and business sense. The
new regulations for procurement, the ability to negotiate
performance based contracts, shared savings contracts and the
competitive telecommunications marketplace allow us to build
new models for partnerships with the private sector. We need to
take advantage of the opportunities at hand and make choices
that make business sense for Government.
Knowing that my time is limited, I would like to address
the specific questions in Representative Davis' letter. I will
submit for the record my comments on the Treasury Department
transition during price redetermination and transitions in
general.
You asked about specific steps Treasury took. In March
1998, the acting director of my Office of Corporate Systems
Management prepared a memorandum to all bureau chief
information officers, advising them of the transition. We then
created a Treasury working group to lead the transition. We
held meetings beginning in April, monthly thereafter, until
award. Each bureau had separate bureau specific meetings on an
as-needed basis. Most bureaus held weekly or bi-weekly meetings
during the transition. I had representation at all the
meetings. Milestones were set and monitored.
Did we take a comprehensive inventory? General Services
Administration provided us with a baseline inventory for Sprint
and AT&T as of October 1998. Each bureau identified those,
verified and looked at ways we may consolidate or better
engineer the service. This was an ongoing process that became
part of our Y2K effort.
Did the Interagency Management Council provide us timely
information? The IMC did form a transition subcommittee. A
member of my staff was the chairperson. It was the committee's
role as stated in their charter to serve as the communication
vehicle. They kept us apprised as best as possible.
Did the IMC and GSA operate in concert? As best they could.
The challenges with transition are substantial and many are
unforeseen. The IMC did its best to manage the complex process.
Did Treasury have concerns regarding transitioning to FTS
2001 during the same time as Y2K? Yes. In a memorandum dated
July 2, 1999, I stated that no transition activity should take
place that would impact the year 2000 work efforts. I also
worked with the Administrator of GSA and the Commissioner of
the IRS to put in place a 3-year agreement to preclude IRS from
transitioning its customer 800 services. I did not believe then
nor do I believe now that it is possible to transition the IRS
infrastructure concurrent with modernizing its computer system.
In your view, have delays in allowing competition impacted
Treasury? Treasury has many options to acquire
telecommunications services. Delays in ordering and
transitioning in the first year after award forced us to look
and find other alternative solutions.
Are we concerned that the lack of competition adds cost? As
I mentioned, Treasury has many options for acquiring services.
However, in a highly competitive telecommunications
marketplace, we need to encourage as much competition as
possible. Advances in the wireless industry, satellite
communications, digital cable services and other deregulated
markets will continually change the telecommunications
landscape. We need to position the Government to quickly seize
those opportunities as they arise.
In summary, we have been one of the largest civilian users
of GSA FTS services since its inception in 1989, generating
over 15 percent of the annual revenue. Our department has
always been a supporter of FTS, participating in the executive
and managerial aspects of the program. We use the
telecommunications of FTS 2000 to support the largest local and
nationwide enterprise networks in the civilian government. The
Treasury network provides mission critical voice and data
communications to both internal and external customers.
Treasury staff also chaired the Interagency Management
Council subcommittee, which advised the IMC, Federal agencies
and GSA on the intergovernmental aspects of the program. We
were the first agency to select an FTS 2001 vendor in January
1999. We did commit to transition all FTS 2000 services to FTS
2001 with the exception of IRS 800 services.
I will submit for the record details of all of our prior
Treasury experiences with transitions. At this point, I'll be
happy to address any questions the subcommittee wishes to
raise. Thank you for inviting me to testify on this important
matter.
[The prepared statement of Mr. Flyzik follows:]
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Mr. Davis. Thank you, and I want to thank everybody for
testifying.
I'm going to start the questioning with Chairman Burton,
and we'll do 5 minute increments and go to Mr. Turner and come
back.
Mr. Burton. Thank you, Chairman Davis.
Ms. Bates, I'm glad you've got your kids here. Do you want
to bring them up to the table with a bullet proof vest?
[Laughter.]
I'm kidding.
You said that you were 95 percent switched on voice
service. But you neglected to say that you're only 55 percent
switched on data service. Why didn't you mention that?
Ms. Bates. Mr. Chairman, my remarks that we are 95 percent
complete of the transition was an overall completion rate
number.
Mr. Burton. So overall everything's 95 percent?
Ms. Bates. Overall. There are varying percentages within
the different service elements. But overall, we are 95 percent
complete as of today. And we are targeting a summer timeframe
for total completion.
Mr. Burton. What percentage of the voice service is
completed right now?
Ms. Bates. 99 percent.
Mr. Burton. And what percentage of the data service frame
relay, what percentage of that is completed?
Ms. Bates. Better than 80, but the exact figures I will be
glad to submit to you for the record.
Mr. Burton. These figures, I believe my staff said, are
about a month old, is that right? It's a month old and it says
55 percent. You had that kind of a quantum leap in the last
month?
Ms. Bates. We are moving ahead very rapidly on some of the
services. The services that are left to transition are very
well known and identified and are being worked very, very hard
by the agencies, and our FTS 2001 contractors. And I'll be glad
to submit to you the specifics on that.
Mr. Burton. We'd like to have the specifics. I'm sure
Chairman Davis would like to have them, I'd like to have them.
Ms. Bates. I will submit those.
Mr. Burton. Because it seems that's a tremendous amount of
progress that's been made since this report was issued. There
were three 6 month delays past the 1-year deadline where there
wasn't that kind of progress. That just seems interesting.
Ms. Bates. I will do so.
Mr. Burton. The cost for long distance per minute I
understand ranges from 15 cents per minute to $2.10 per minute,
depending on the volume of calls made. The average cost, if the
transition had been completed, would be 3.8 cents per minute.
Can you tell us how much it's cost the Government and the
taxpayers of this country because of these delays?
Ms. Bates. Yes, sir. The delay period that I assume you're
speaking about is from December 6, 2000 to the targeted
completion date.
Mr. Burton. It's supposed to be 1 year it was supposed to
be completed. And you had three 6 month extensions. So from the
date of the completion target, yes.
Ms. Bates. As you recall, right after contract award and
right before transition actually began, both of the incumbent
contractors on FTS 2000 lowered, Sprint and AT&T, lowered their
prices to those of the FTS 2001 contract and continued to track
those prices through late last year.
Mr. Burton. You don't need to go into a big long
dissertation. How much additional cost did the taxpayers incur
because of the delays?
Ms. Bates. The delay, the number that I have, sir, is the
delay from December 6, 2000 to the projected completion date,
and that number is $74 million.
Mr. Burton. $74 million?
Ms. Bates. Yes, sir, from December 6, 2000 through the
projected completion date of this summer.
Mr. Burton. How does GSA justify allowing this to happen?
How do you justify that? I can understand, you know, a slight
delay, 3 months, 6 months. But 6 months and then another 6
months and then another 6 months, why? How do you justify that?
Ms. Bates. The transition planning originally included 2
years. The transition was targeted to be completed on December
6, 2000. Such, as I said in my opening statement, did not
occur. A lot of good work went on. There were a lot of
mitigating circumstances with the agencies, as well as the
industry, as well as GSA and certainly, as Ms. Koontz said in
her statement, there's certainly a lot of reasons to go around.
Where we found ourselves on December 6th, or the end of last
year, was the need to extend the bridge contracts to
accommodate the people that had not transitioned. Basically at
that time we had two choices, either terminate service or
extend the bridge contracts.
We entered into negotiation with the two incumbent
contractors, AT&T and Sprint.
Mr. Burton. If I might ask one additional question, Mr.
Chairman.
Did you not see these problems beforehand, when they were
coming down the pike, as far as the delays and the costs that
were going to be involved, the $78 million? Couldn't you see
those well in advance so that you could have taken the fork I
talked about earlier and stuck it where it needed to be stuck
to get them to get the job done?
Ms. Bates. I think we all had the fork stuck out, plenty of
times. I'm not being facetious. I think everybody was moving
ahead. We had anticipated that we would be completed. It became
to our knowledge and others late last year that the target
completion date was not going to be met by some of our
agencies. We were about 82 percent complete at that time, and
we saw that it was not going to be done, and it was not through
lack of effort on the part of anyone.
At that time, we realized that we needed to extend the
bridge contracts.
Mr. Burton. Let me just say one final thing and then I'll
yield back to the Chair. That is that, I was in the private
sector before, and I know this is a much larger endeavor. But I
was in the private sector, and when a contractor or a contract
was negotiated, if it was not going to meet the time
requirements in the contract, we would police it, and we would
jump on it, and we would try to make sure that it got
completed. If there was an extension required in a subdivision
or something we were working on, we would grant that.
But we pushed and pushed and pushed. And it just seems like
to me, especially since $78 million has been lost because of
the time delay, that GSA could have been a little bit more
diligent in getting this thing done.
Ms. Bates. I believe we did push and push and push, and I
think we took many actions to try and complete the transition,
as did our customers, as did our industry, through the
Interagency Management Council, the transition task force, the
tremendous coordination effort, the support of all the
industry. It was not through lack of effort on the part of any
of the parties.
Unfortunately, it did not occur. The good news is, though,
that many people had transitioned by that time and were
achieving the savings afforded by FTS 2001.
Mr. Burton. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much. I will recognize my ranking
member, but before that, let me just ask a quick question.
You've given us incurred costs as of today. But it is possible,
looking at the GAO report, that long distance rates are going
to rise under this during the transition. Ten cents a minute
could be as bad as $1 a minute under the worst scenario, isn't
that correct?
Ms. Bates. Yes, sir.
Mr. Davis. So the losses could mount even more until we get
into the FTS 2001 transition service?
Ms. Bates. The $74 million figure that I've provided you
today includes all anticipated costs through the end of
transition this summer.
Mr. Davis. So that's our goal, to hold the losses there?
Ms. Bates. Pardon me?
Mr. Davis. Our goal is to hold the losses to $74 million?
Ms. Bates. Yes, sir.
Mr. Davis. OK. Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
One issue, Ms. Bates, I want to ask you about the payment
that was made to AT&T under the bridge contract, that initial
$8 million payment, could you tell the committee what that
payment was for?
Ms. Bates. The $8 million payment is a part of the bridge
contract, as a part of the overall negotiation of that
contract. AT&T provides FTS 2000 services today via a private
network. AT&T in its proposal had stated that to keep the
entire network up at that time did cause them to incur
additional costs.
In addition, the $8 million payment, and perhaps in the
second panel, AT&T would be best to answer this for the
specifics, better than I. But it was essentially to keep that
private network up and going in some of its business systems.
At the time we were negotiating these contracts, Mr.
Turner, you must realize that the Government was in a position
where we were negotiating a short term contract with declining
revenues, no guarantees, could be terminated at any time. We
were not in the best position. GSA, at that time, in reviewing
the contract and doing the negotiations, did make the
determination that in a case or circumstances such as this, the
overall costs were fair and reasonable.
We checked the marketplace for contracts of similar nature
as well as the cost for tariff services and satisfied ourselves
that such action was appropriate.
Mr. Turner. When it was apparent that you needed to have a
bridge contract, did you make efforts to try to secure
competitors at that point for the bridge contract?
Ms. Bates. No, sir, we did not. The reason being is the
problem that was at hand was that people were remaining, were
still obtaining service off of the FTS 2000 contracts. They had
to continue that service until they could transition to the
2001 contract, so they could get there. So not extending those
contracts would mean termination of service. Adding additional
companies to select from at that time would not have solved the
problem. The problem was, they needed to continue their service
until they could move to something different.
Mr. Turner. Was it a viable option for an individual
agency, since the FTS is not mandatory, to go to another
competitor at that point in time, rather than going with the
bridge contract?
Ms. Bates. You are very correct in stating that the FTS
2001 program is not mandatory. Agencies were free to select all
along the way and still are. People were faced with the dilemma
that they needed to continue the current service until they
could transition to something else, whether it be the FTS 2001
contract or other companies selected through their own
acquisition vehicles. So they needed to continue the service
until they could do something else.
Mr. Turner. Ms. Koontz, what's the General Accounting
Office perspective on the questions that I just asked about the
$8 million and the lack of competition on the bridge contract?
Ms. Koontz. First of all, on the $8 million one-time
payment to AT&T, I think we have to recognize it was a
negotiation. There may be legitimate reasons why AT&T has
certain fixed costs associated with them continuing to operate
their dedicated network for the Government in this extension
period. However, our view is that actually none of that would
have been necessary had the transition been completed on time.
I think that's perhaps the perspective to keep in mind at this
point.
Your second question had to do with seeking additional
competition at the time.
Mr. Turner. Yes, whether the agencies themselves could have
done better on their own at that point in time.
Ms. Koontz. The agencies were certainly permitted to seek
other competitive means of getting telecommunications. The
problem is, I think, that doing that in a very short-term
environment in terms of running a competition and awarding a
contract may have not been all that reasonable or realistic,
pragmatic, at that point in time.
Mr. Turner. Is it the burden that the agencies have with
regard to seeking such alternatives, what prohibits them? In
other words, if it had been a private business, I would think
that a private business could have handled it and moved to
something else and saved the money.
Ms. Koontz. Perhaps.
Mr. Turner. Perhaps because it's Government, somehow we
have constrained the agencies to the degree that they can't
move that quickly? Is that the problem?
Ms. Koontz. Well, they have to follow the procurement
system in order to procure additional telecommunications
services. And exactly what the lead time would be in any one
situation, I certainly couldn't tell you. But it would be
something that they would have to take into consideration in
terms of trying to move very quickly to another solution.
Mr. Turner. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much.
I want to go back to the $74 million figure again and ask
GAO, do you have any estimate in terms of how much money you
lost because of the lateness in transition?
Ms. Koontz. I just heard today, as you did, the number of
over $70 million associated with the delays in transition. We
haven't had a chance yet to independently verify this or to
come up with an independent number at this point.
Mr. Davis. I think rather than beat a dead horse here, what
I'd like you to do is to get together with them and do an
addendum to the hearing, where we can get some agreement on
what the numbers are. Let me just ask you, what do you base it
on? If you could tell us how you get to that number.
Ms. Bates. What we did was based on the current schedule
for transition of the remaining people that are left. We priced
out that schedule transition according to the current bridge
extension.
Mr. Davis. Under the old versus what they'd be paying under
the new, is that the difference?
Ms. Bates. Right. Yes, sir.
Mr. Davis. OK. Let me ask, was there any thought given to,
for example, to Sprint, that maybe you could have put this
against their minimum when you were giving them an extension on
the old contract?
Ms. Bates. Certainly----
Mr. Davis. See, these minimum guarantees are driving, for
better or for worse, great idea when you started. But when you
go to a late transition, it just throws sand in the gears. The
thing is, as you were looking at this and trying to deal with
the delays and stuff, I just wondered, when did you realize
that the minimum guarantees were all of a sudden giving you a
problem?
Ms. Bates. Well, let me spend a few minutes here, not too
long, talking about the MRGs and where we are. We've had GAO
with us several times helping us determine, with the use of our
tools, when the minimum revenue guarantees will be achieved.
And we are fairly consistent in our projections now that once
the transition is complete and that traffic is moved over that
the minimum revenue guarantees will be achieved in year 5 and 6
of the contracts. I believe Ms. Koontz testified to that or I
read it in your report, but that is our projection at this
time.
That precipitated and certainly validated our decision to
move ahead this summer and open up the contracts to further
competition. Relative to your original question, if we
considered traffic moving and additional adjustments to the
MRG, that has been part of a consideration. It's never been
ruled out. It's not something that we are actively pursuing at
this time.
Mr. Davis. Ms. Koontz, you testified that GSA couldn't
obtain usable and complete transition management information
from the contractors, so that they could input into their
automated status tracking system. For instance, in January
2000, Sprint didn't have complete information in its data base
regarding the status of the transition.
How feasible would it be to build into future contracts an
accountability mechanism which may include penalties that GSA
could apply against the contractor's guaranteed minimum revenue
over the life of the contract? What's the feasibility of
renegotiating the current contracts? In this case the
contractors had some culpability in that snowball end. Does GAO
have suggestions for addressing problems created in large part
by contractors? Although it wasn't exclusively contractors in
this instance, but there's some culpability there.
Ms. Koontz. I would agree with that. I think the
suggestions that you raised aren't things that we have
specifically studied right now. But those are all things that
would be worth looking at in the future, not only for this
contract, but for future procurements as well.
Mr. Davis. Let me go to the report. At one point, they say
long distance rates could rise to over $1 a minute. That's more
than I pay in a hotel when I call out. How do you get to that
point? How did we get there? And is it likely to happen, or is
that just a theoretical possibility?
Ms. Koontz. My understanding for GSA is that it's not very
likely to happen. It has to do with the fact that----
Mr. Davis. You'd be crazy as an agency to pay $1 a minute.
You'd be better off going down to a phone booth and putting
coins in.
Ms. Koontz. The pay phone would be better, you're right.
From my understanding, as the revenue comes off the old FTS
2000 contracts and you look at the volume discounts and the
volume banding that's offered under those contracts, the cost
of an individual cost can rise pretty high. But, the likelihood
of that happening is not very high.
Mr. Davis. But it will go over 10 cents a minute,
certainly?
Ms. Koontz. I don't have the exact figure. We can get that
for the record, if you like.
Mr. Davis. You would concede that it will go to 10 cents a
minute under this?
Ms. Bates. Oh, yes. Yes, the current FTS 2001, the average
rate is about 3.8 cents. Today on the bridge contracts it's a
little over 10, around the 10 to 12 range, depending on the
company.
Mr. Davis. If you didn't have the delays in transition,
this would be a great contract. We wouldn't be here, isn't that
fair to say?
Ms. Bates. I agree. I think, as I said in my statement,
that the program is sound. I think the contracts are good, and
transition, as Mr. Flyzik said in his statement, and General
Premo, and all of us agree, is a difficult thing. It's
something that none of us have mastered.
Mr. Davis. My time is up. I'm going to ask a question
later, you might be thinking about it, about what if you just
had a schedule where people could buy telecom off the schedule
and would that be more efficient and what are the ramifications
of that. I'll ask everybody to think about that. I'll ask all
of you that, but my time's up right now, and I'm going to yield
to my colleague from York County.
Mrs. Davis. Thank you, Mr. Chairman.
Ms. Bates, you stated in your testimony that GSA will allow
local service providers that currently participate in the
Metropolitan Area Acquisition program to compete for long
distance under the FTS 2001 program in the near future. What's
your understanding on the MAA contract holders' eligibility to
provide long distance service in compliance with the 1996
Telecommunications Act?
Ms. Bates. Certainly the ability for companies to come into
the FTS 2001 long distance market is predicated on FCC
approval. If they have not yet received FCC approval to do so,
they must do that. It is predicated upon all of those
approvals.
Currently with the MAA program, we have awarded contracts
in over 20 cities to date, and they have been for the most part
multiple award contracts. Some of the companies that have been
awarded contracts in the local services area have expressed
interest in coming into the long distance market. So I would
assume when we open that up this summer that they will continue
with that interest.
Mrs. Davis. I have to apologize, I wasn't here before, and
I wasn't here for the 1996 Telecommunications Act, either. But
my understanding--don't we have to have an act of Congress to
allow some of these guys that you're talking about as
competition to come in and be the competition? I might have to
ask one of my colleagues that.
Mr. Davis. I think contracting out, you have discretion,
don't you?
Ms. Bates. Some of the contract holders of our MAA
contracts are such as the AT&T company and Qwest Communications
that would be our long distance providers today, and I'm sure
they would be interested in coming into the long distance
market.
Where it comes into play relative to the act of 1996 is the
regional Bell operating companies do have to receive approval
from the Federal Communications Commission and other approvals
to enter into long distance markets. Certainly us awarding a
contract to them would be predicated on receiving the
appropriate approvals.
Mrs. Davis. I'd like to go back to the minimum revenue
guarantees, just to get a clarification myself. As I understood
someone to say, it was not mandatory to do the transitioning
and go into the FTS 2001. But yet we had a very high minimum
revenue guarantee.
What would happen with that contract if most of the people
opted out of FTS 2001? Then what kind of cost would it be to
the taxpayer?
Ms. Bates. I referenced in my testimony the Interagency
Management Council, as did Mr. Flyzik and General Premo. The
Interagency Management Council consists of senior
representatives from the 14 Cabinet agencies, 4 large
independent agencies, as well as a representative from the
small agency council. The IMC has served as the FTS program
board of directors over the last 10 or so years. They also
participated actively in the development of this strategy.
At that time, the IMC believed that the Government, by
combining its requirements and maximizing its buying power
could get the best deal for the Government, both in technical
services and price. In so doing, the IMC committed in a letter
to the Administrator of the General Services Administration, to
transition their current traffic and to stay with the FTS 2001
program. They did not waive their choice to do other things,
but they committed to the program.
Therefore, and as it has played out, the major agencies
have stayed with the program. So I have every reason to
believe, based on the facts and the figures, and the
projections, that those minimum revenue guarantees will be
achieved in year 5 and 6 of the contract.
Mrs. Davis. Would it be safe to say if a lot of the
agencies opted out, we'd be in trouble?
Ms. Bates. If a lot of agencies opted out, we would be in
trouble. But I'm confident that the current service providers
will rise to the occasion and provide the service in accordance
with the terms and conditions of the contract, not only to keep
the service that has transitioned to them, but also to compete
actively for gaining the new requirements and the requirements
of the telecommunications industry are ever-increasing.
Mrs. Davis. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much. Chairman Burton.
Mr. Burton. Yes, I have to leave, but I did have one more
question. I was interested in the Treasury Department's
comments. You froze its transition to the FTS 2001 program and
set up your own contract. And can you elaborate a little bit
more and just tell us why you felt that was absolutely
necessary?
Mr. Flyzik. Yes, sir. What I froze in transition was during
the price redetermination of the FTS 2000. Treasury was
selected in year 7, the transition at that time from Sprint to
AT&T. Following transitioning of our IRS and our voice
services, we had a lot of delays and a lot of problems. The
delays were substantial.
At that point in time, I chose to stop transition and not
transition any data. In retrospect, it turned out to be to
Treasury's advantage, because we were within a year of awarding
FTS 2001, and AT&T did not win. Had I transitioned during that
year, I would have transitioned again the following year.
So we chose at that point in time to stop that particular
transition. We also negotiated in the late 1980's a separate
contract with an integrator, which provides telecommunications
services to the Treasury Department.
I also chose during the FTS 2001 transition to not
transition AT&T 800 services. I did not believe it was possible
to transition IRS 800 services again while at the same time
trying to modernize the IRS where some of their very first
applications to the modernization dealt with automatic call
routing and better customer service to paying taxpayers.
So consequently, Treasury winds up in a situation where we
have IRS 800 services via AT&T, we have access to Sprint and
MCI WorldCom under FTS 2001, and I have access to Qwest and
Sprint under my own Treasury communications system contract. In
all cases, we negotiated these agreements to be prices equal to
or better than the FTS 2001 prices.
This has allowed me to position Treasury to be in a very
favorable position to constantly have forces. I believe our
program and GSA's complement each other quite well, because
we've added a pool of competitiveness in the Government market.
Even though we put all this in place, I still contribute, or
we, Treasury, contribute over 15 percent of the revenue to the
FTS 2000 program. I am one of the largest programs there. Yet
we do have a mix of services that allows me to pretty much get
to whichever provider that I need do.
Mr. Burton. Do you think the competitiveness that you've
been able to utilize has been to the benefit of your
department?
Mr. Flyzik. Absolutely.
Mr. Burton. And do you think that should be the case with
every other department in Government?
Mr. Flyzik. I can't speak to the other departments.
Mr. Burton. Let me phrase that question a little
differently. Do you think if every other Government agency
adopted the policy that you did, it would save money and be
more efficient?
Mr. Flyzik. Yes.
Mr. Burton. Mr. Chairman, I think that answers any
questions I have. Thank you very much.
Mr. Davis. Thank you. Let me just continue on that for a
minute, and then I'll recognize Mr. Turner.
Mr. Flyzik, go ahead on that. With all the economies of
scale that GSA gets in trying to put together a very complex
telecommunications contract for the Government, and here you
have one agency undercutting you, it just goes back to the
question I was going to pose earlier, and that is something you
noted in your testimony, Mr. Flyzik, that we need to look at
the details of each program in light of changing market
dynamics and business sense.
The new regulations for procurement, the ability to
negotiate performance based contracts, shared savings
contracts, the competitive telecommunications marketplace, all
allow us to build new models for partnerships with the private
sector. We need to take advantage of the opportunities at hand,
make choices that make business sense for Government. That's
what you said, and I think you've got a great reputation across
the Government for what you do.
In your view, what changes could be made to the FTS 2001
contract vehicle to reflect the changing marketplace now? And
do you believe the FTS contract vehicles are too lengthy in
time?
Mr. Flyzik. As I mentioned, I think that the FTS program
2001 has benefited Treasury greatly, and Government in general.
It has been a great tool to leverage, and the prices are, you
can't argue that the prices, taking out transition, the prices
have been absolutely phenomenal in terms of savings to the
Government.
Mr. Davis. But that sets a ceiling for you when you go and
negotiate with somebody else, right?
Mr. Flyzik. That's right. And I think, though, if you look
at it, it's complementary. GSA and Treasury are complementary
in bringing forces to nature. The only thing that I'm concerned
about in a new model is we need to think down the road where
the industry's going. Clearly, wireless Internet and advances
in digital cable and everything else are going to offer
tremendous opportunities to the Government and to the country
in general in terms of productivity improvements. We just need
to be positioned in the mainstream to move quickly to take
advantage of those.
I think it's very possible that the FTS 2001 can position
itself to offer these services. And I think by keeping some
other competitive forces in the community, like people like
Treasury are doing, it's going to encourage creativity and
innovation in the FTS 2001 contracts to be flexible, to make
sure that we can capture these services when they become
available.
Mr. Davis. Thank you.
Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
Ms. Bates, now you've heard Mr. Flyzik, how he is able to
leverage against your FTS 2001 contractors to get a better
deal. Why did you decide to select only two vendors for the FTS
2000 contract, rather than three or four or whatever?
Ms. Bates. I did hear Mr. Flyzik, and I want to say that I
do agree with Jim's position. I think we have complementary
services, and I appreciate the fact that because of FTS 2001,
he was able to achieve the prices he has. I think that's an
example of good Government.
Why we selected two contractors on the initial round, I'm
going to make the point that we selected two at the initial.
The strategy does call, as I stated earlier, for opening of
competition and addition of new entrants, which we will be
doing this summer.
At the time we were doing this acquisition, there were
three companies in the industry that were vying for this
business. In order to maximize our principles of robust
competition, in achieving a competition to the level that we
wanted to see in technical services and price, we felt it was
in the Government's best interest to have some winners and
perhaps some losers. The strategy called for one contractor and
perhaps two.
And through the acquisition process, which by some
acquisition officials would be considered sporting, we
conducted the first round of competition. We awarded one
contract which turned out to be Sprint. Then we gave all
additional offerors, including Sprint, a chance to bid again
and better those prices to see if we would make a second award.
Indeed, as we know now, MCI WorldCom did do that and they
were granted the second award. If that had not been the case,
there would have only been one award.
So our goal is to achieve maximum competition while also
getting the very excellent prices for the Government. And also
offering our customers choice. We really wanted to, because we
do have robust competition within the contract today. These two
contractors are constantly fighting it out for each agency's
business and their new business. We're gone from the days of
where an agency was assigned to a contractor or that our
contracts were mandatory.
So we're seeing competition, I think pretty strong
competition today. And certainly after this summer we'll see
even more.
Mr. Turner. How many additional vendors do you expect to be
competitive for the contract?
Ms. Bates. Well, you know, in this marketplace, sometimes
I'm reluctant to say, because the companies change. But
certainly we have the two incumbents, Sprint and MCI WorldCom.
I have heard from other companies such as AT&T and Qwest that
they are certainly interested in learning more about the
program. Perhaps some of the regional Bell operating companies,
as they receive approval from the FCC in accordance with the
Telecom Reform Act, may be interested. It's an evolving
process, as people are in different stages of their business.
Mr. Turner. Ms. Koontz, from your perspective, would you
say, be able to say or have an opinion as to whether or not as
a result of FTS 2001 competition that the Government's
receiving the best service and the best price that's possible?
Ms. Koontz. We haven't really examined the prices or
compared them to the market at this point in time. I think the
thing that's critical to remember about FTS 2001, and it's
something that was alluded to earlier, is the fact that it's
not mandatory. It's a very powerful incentive for the current
contractors to provide competitive prices. Because agencies can
go elsewhere if they find the services are non-appealing or if
they find out that the prices are too high. When more
competition is added, I think that will put the pressures on
even more.
So I think that it will be agencies that ultimately tell us
whether the services are good or whether the prices are good
and whether they stay with the program.
Mr. Turner. Do you make any evaluation of the choices
available to the individual agencies to determine how
aggressive agencies are in selecting the best provider?
Ms. Koontz. We haven't done that kind of evaluation. I will
say, though, that with the FTS 2001 awards, the agencies had to
select their vendor this time. Under the prior program, they
were just assigned to a vendor by GSA. But during this time
period, they had to make an analysis and had to determine which
vendor they thought they wanted maybe for all of their services
or part of their services. Some agencies decided to take both
vendors for different kinds of services.
This was a new experience in many agencies, to say the
least. And obviously, those agencies who had a lot of capacity,
who are very sophisticated buyers like DOD and Treasury, had a
lot easier time of it perhaps than some smaller agencies who
don't have those kinds of telecommunications resources
available. Although GSA certainly did help them with making
those decisions.
Mr. Turner. Thank you, Mr. Chairman.
Mr. Davis. I just have a few more questions. General, let
me ask you a few questions. Agencies, including DOD, have
raised a number of problems during transitions, including
inaccurate, inconsistent late notification of service order
acceptance and completion from the contractors, a variety of
billing issues that impair DOD's efforts to properly charge
back users for services, as well as problems with pre-
transition and post-transition customer support, including the
timely resolution of the preceding problems as they've come up.
Defense personnel had a particular problem trying to verify
and accurately bill out millions of dollars worth of invoices.
What do you view as the most difficult transition support
issues that the Department faced, and how were you able to
resolve those issues?
General Premo. I think the most difficult issue of the
transition at the beginning was the fact that the 2000 contract
and the 2001 contract caused us to change every service and
unplug and then replug operations. That presented a challenge,
because there was no rollover of service through the old
contract. But we got that under control through our operations
center and our aggressive approach to that.
The outstanding problem right now is the resolution of
these billing issues that are based on our data base and the
issues with the vendor's data bases. I think we're going to get
these under control. They were painful. We're still working our
way through that, but I believe that ultimately this last
problem will be resolved. I think the fact that it was an
unplug and then a replug and then every single service had to
be reattached was the biggest issue.
Mr. Davis. Were there problems that seemed to be unique to
FTS 2001 transition, or do you think they were problems that
might have been encountered in any project of that magnitude?
General Premo. Well, they're similar to problems we had in
our own recompete of our DISN contract where we had a new
contractor and had to unplug and replug. So we'd been through
that before.
Mr. Davis. As you look ahead to the future, what lessons,
if you're doing this again, what perspectives could you offer
GSA, and even yourself, as you're looking ahead to this next
time?
General Premo. I guess the data base. An accurate data base
of your current holdings and how that would be used to
transition your future holdings. We're fortunate in DISA, and
we were the agent for DOD in this process, that this is what we
do. So we have our own data base based on FTS 2000. That helped
us immeasurably in getting the process underway.
So if I had one recommendation, it's that all agencies have
access to an accurate, current data base that you can use to
spring to the next transition should that occur.
Mr. Davis. That would be the next question which I'll ask
Ms. Bates. Ms. Bates, in your testimony, you state that
customers estimated that the contractor maintained inventories
were no better than 60 percent accurate. If inventories were
inaccurate in vendor data bases, why did GSA, or what did GSA
do to ensure that the contracts were properly modified to
reflect that lack of service?
Ms. Bates. As I stated in my opening remarks, I think the
entire Government as well as the industry, finds maintaining
inventories is difficult. It's not something that people like
to do. And configuration control and configuration management
was a problem, even in Y2K. I think that we now know, both GSA,
our customer agencies and the industry, that we need to do a
better job in the future of maintaining these inventories so we
are more flexible.
We in FTS have put in place and have decided, at the
recommendation of GAO, will maintain an inventory that will be
accurate and up to date, of these assets as they move forward,
we will pay stronger attention, both our customers as well as
ourselves.
Mr. Davis. GAO notes that the $8 million fee paid to AT&T
was passed on to agencies as a 20 percent service fee over a 2-
month period. Now, I want to understand why the fee was passed
on to the agencies that were already handling sharp price
increases. I guess maybe you had nowhere else to get it. Some
agencies could face increases up to, as we said before, $1 a
minute on the long distance.
Have agencies complained to you regarding the overall
budgetary impact?
Ms. Bates. Certainly agencies complained. The worst thing,
having been a customer and been in NASA for many years, the
Government for many years, for that matter, the worst thing
that can happen to a program manager in an agency is to have a
budget increase, or a cost increase in the current budget year.
No one greets that with a smile. It's very, very difficult.
So when the agencies did realize that there was going to be
an increase, they really had a difficult time. I credit very
much the strength of the Interagency Management Council in this
case. The IMC came together, addressed the issue, decided how
they wanted us to bill it to them and in what fashion. And it
was clearly, I think, representative of teamwork and collegial
effort, of recognizing there's a problem and dealing with it.
Mr. Davis. Has GSA considered renegotiating this contract
now?
Ms. Bates. Renegotiating the current FTS 2001 contract?
Mr. Davis. And the MRGs or anything else.
Ms. Bates. We have not closed out any options at this time.
Mr. Davis. I think that's really all I wanted to get on the
record. I think I'll ask one other.
You note in your testimony that agencies are free to leave
the FTS 2001 program. The subcommittee has gotten some
information that may not be the case always. We've been told
that IMC has been used to keep agencies in the contract, and
also Qwest testified that Energy had a punitive clause in their
contract that states fees would go up at any part of the
department unless the FTS 2000 transitioned, which would be a
barrier to competition. Are you aware of any of this?
Ms. Bates. I certainly can't speak to the Department of
Energy. But as I stated earlier, the IMC is the governing body
and the board of directors for FTS. On behalf of their
departments, as well as thinking Government-wide, this was
their decision that we bring together the buying power of the
Government and pool our requirements to achieve the highest
technical solutions at the lowest costs.
In order to do that, you have to stay with the program. And
the IMC, in a commitment to the then-administrator, Dave
Barram, of GSA, made that commitment. Certainly that does not
in any way affect the fact that they do have a choice. I think
the challenge is FTS and our FTS 2001 contractors now to keep
those agencies on the contract by providing them with the
highest level of service, new technology and low costs. The
challenge is ours.
Mr. Davis. If you could go back a couple years, what would
you do different? If you could wave a wand, I know putting a
contract together like this is very complex, what would you do
differently to avert transition problems?
Ms. Bates. Well, you know, and I have to tell you, I'm
always one that's quoted as saying it's OK to look back, as
long as you don't stare. I'm really not one----
Mr. Davis. You can just blink here. [Laughter.]
Ms. Bates. I quite frankly, as being one that participated,
I think our strategy is sound. I think the strategy is as sound
today as it was when we were here discussing it in 1997. I
think at the time, where the industry was, where the Government
was, we broke new ground.
So I really feel that all the actions to date and where
we're going in the future are the right things to do. We've
learned some lessons with the transition. As General Premo and
Mr. Flyzik have stated, transitions of this magnitude are very,
very difficult. Any transition is difficult. And this is
difficult. We've learned lessons.
I think what we need to do is to make sure to capitalize on
those lessons learned, we document them and as we move ahead
and define the strategy for the future and what comes next,
that those lessons aren't lost.
Mr. Davis. I don't think they are lost, but could you go
back 2 years, and you saw you were having this transition, you
would have made some changes in the contract, right?
Ms. Bates. You said I wouldn't change the acquisition at
all, and I wouldn't change anything having to do with the
strategy. On the transition, I think that I would have tried to
encourage and facilitated to a greater degree more up front
planning. Planning, which includes getting your inventories up
to date, planning, deciding whether or not you want to do a
like for like transition, or do you want to do a major upgrade
and reconfiguration. That type of planning is something I think
that would have facilitated the process, and something I
probably would have done differently.
Mr. Davis. But if you'd known the transition was going to
be delayed like this and you were going to be paying all this
money to existing contractors, wouldn't you have constructed it
differently?
Ms. Bates. Yes.
Mr. Davis. That's all I'm trying to get. I thought I heard
you saying no.
Any other questions any panelists have? Anyone here want to
add anything? I understand, Ms. Bates, you'll be here for the
second panel, if you want to say anything at that point.
Ms. Bates. I'll save my closing remarks for then.
Mr. Davis. That will be fine. I'm going to give you ample
opportunity.
Let me thank all of you for coming. If you think of
anything when you get back that you want to rebut or add, the
record will be kept open for a couple of weeks. We'd appreciate
hearing from you and building as complete a record as we can.
So thank you very much, and we'll move on to the next
panel.
We're going to now welcome our second panel, Mr. Jerry
Edgerton of WorldCom, Mr. Anthony D'Agata of Sprint, Mr. John
Doherty of AT&T and Mr. James Payne of Qwest.
Ms. Bates, you can sit at the table or you can sit back
there and take a break. Whatever you'd like. You did fine.
Gentlemen, it's the policy of this committee that we swear
all witnesses. If you would rise with me and raise your right
hands.
[Witnesses sworn.]
Mr. Davis. Thank you.
To afford sufficient time for questions, if you would just
limit yourself to 5 minutes in the opening remarks. All written
statements from witnesses will be made part of the permanent
record. Why don't we start with Mr. Edgerton and go down. Thank
you for being here.
STATEMENT OF JERRY A. EDGERTON, SENIOR VICE PRESIDENT, WORLDCOM
GOVERNMENT MARKETS
Mr. Edgerton. Thank you. My name is Jerry Edgerton. I'm a
senior vice president for WorldCom Government Markets. WorldCom
is the second largest provider of long distance services in the
United States, and a leader in all distance communications
services with operations in more than 65 countries.
WorldCom now proudly serves more than 75 Federal agencies
and organizations through the FTS 2001 program, the largest,
most diverse telecommunications program ever attempted. I'm
proud that WorldCom has taken such a key role in bringing
advanced technologies and competitive pricing to the Federal
Government at such significant savings over the previous
contract.
Members of the subcommittee may remember a time when there
was little or no competition in the telecommunications
industry. Thankfully, those days are behind us. I commend the
General Services Administration and Congress for creating a
framework that has harvested the benefits of competition for
the Government and ultimately for the taxpayer.
GSA estimates that last year alone the FTS 2001 contract
saved the Federal Government $150 million. It will save another
$250 million this year over the previous contract. As a result
of FTS 2001 competition, savings to the Government will
continue to grow, even as new and enhanced services are added.
Despite this success, I recognize the subcommittee members
have concerns regarding the pace of transition. We share those
concerns for one simple reason: delayed transition means
delayed revenue for us. We estimate the transition delay has
cost us more than $100 million in lost revenue.
In anticipation of the FTS 2001 contract, we began putting
tools into place and resources to make our transition to the
service a success. For example, we established a program
management and business office. We initiated the systems
development for the FTS unique requirements before being
awarded the contract. We implemented switch augmentation and a
build-out program to ensure our success.
When we were awarded the contract, we immediately began the
following actions. We increased our staff to assure we had
adequate resources. We implemented intensive training for our
staffs as well as the Government agencies. We put processes in
place for pricing an order and implementation. We established a
dedicated order entry and provisioning hub for FTS 2001.
We worked with the local exchange carriers to establish
focused FTS 2001 teams. We expanded our use of small business
subcontractors to help with implementation. We also conducted
high level reviews of the program within our own WorldCom
organization, and we conducted extensive executive agency
visits to assure and encourage rapid transition.
Unfortunately, the factors affecting the majority of
transition delays were beyond our control. They've been
referenced here, I'll repeat them again: the agency selection
process in choosing its vendor, Y2K concerns, incomplete or
inaccurate records or agency records, delayed orders, certainly
local phone company delays in implementation, and occasionally
upgrades and redesigns that went beyond a like for like
transition.
Let me address some of these issues specifically. The first
agency to choose WorldCom was the Department of Interior in
March 1999, 2 months after we were awarded the contract. The
last major agency to select WorldCom did so in April 2000, 16
months after contract was awarded, and only 8 months prior to
the end of the FTS 2000 bridge contract.
Understandably, some agencies were distracted by potential
Y2K concerns and delayed their FTS 2001 decisionmaking process.
Once agencies made their choices, some were delayed from
placing orders for services to WorldCom. This was often caused
by out-of-date agency or incumbent vendor records.
By April 30, 2000, which was the date we told agencies we
needed their orders to be able to complete transition on time,
we had received only 35 percent of expected orders. Many
agencies did not place their orders until last summer. That
said, I must commend agencies like the Department of
Agriculture, the Department of Defense, which has already
testified here, and the Social Security Administration, for
putting the processes in place to assure a timely transition.
The local phone companies contributed significantly to
these delays. As already has been mentioned, the largest
company, Verizon, faced a strike last year that produced delays
that we're still contending with. Currently we have 78
outstanding FTS orders with Verizon that are more than 100 days
old.
Verizon is not the only culprit, as the volume of FTS 2001
transition orders has overwhelmed many of the local phone
companies. Qwest, for example, has 32 outstanding FTS orders
that are now over 100 days old.
We've heard a lot of debate about the minimum revenue
guarantee. Let me put the MRG in perspective from a WorldCom
point of view. FTS 2001 presents a tremendous opportunity. It
also presents a tremendous risk. To ensure that WorldCom and
our competitors would respond to the unique requirements of the
solicitation and propose the best possible prices and services,
GSA provided a minimum revenue guarantee to the eventual
winners, again with congressional review.
The amount of the MRG was a fundamental issue in our
business case. That is exactly why the prices continue to
decline and as a consequence of the MRG, will allow us to
continue to make the necessary investments to ensure that the
Government stays in front from a competitive price and a
technology perspective. As has already been mentioned, we
anticipate reaching the minimum revenue level in year 6 despite
decreasing prices and competition on many fronts.
WorldCom is pleased with the progress of transition. We and
our customers consider FTS 2001 to be a success. As of today,
more than 95 percent of the transition has been completed, and
we will be at 100 percent by summer. We have modified the
contract with more than 50 enhancements such as advanced
Internet services and managed data network services. We've also
looked at adding electronic Government services that will
further improve services to the citizen and reduce cost.
We believe that the FTS 2001 contract has lived up to its
promises and delivered to the Federal Government great
innovations in telecommunications technology, exceptional
services, all at truly competitive prices. The contract marks a
new era in Government telecommunications, an era of which we
all should be proud. We will continue to work closely with this
subcommittee, GSA, the Interagency Management Council and our
customers to ensure continued success of this contract
throughout its life.
Thank you. I will answer any questions you have.
[The prepared statement of Mr. Edgerton follows:]
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Mr. Davis. Thank you very much.
Mr. D'Agata.
STATEMENT OF ANTHONY D'AGATA, VICE PRESIDENT AND GENERAL
MANAGER, SPRINT'S GOVERNMENT SERVICES DIVISION
Mr. D'Agata. Good afternoon, Mr. Chairman, members of the
committee. My name is Tony D'Agata, vice president and general
manager of Sprint's government systems division.
I would like to thank the committee for inviting me to
speak today. Sprint's position as an FTS 2000 and 2001 program
provider is a matter of great pride to the entire corporation.
The award of FTS 2000 in December 1988 brought Sprint the
recognition and credibility it needed to become a leader in the
industry.
My testimony makes three points. First, Sprint's FTS 2001
transition is substantially completed. Second, Sprint ensured
that all of its customers were eligible for FTS 2001 prices
independent of their actual stage of transition. And three,
Sprint urges the committee to stay the course and continue to
support FTS 2001.
First, the FTS 2001 transition was by all measures a
massive and complex undertaking. To put it in perspective, the
voice traffic that Sprint had to transition to FTS 2001 was
about three times that transitioned to FTS 2000 in 1990. And
more importantly, the FTS 2001 traffic now represents less than
half the network that we had to transition. The remainder was
made up of complex data transmission services, most of which
did not even exist in 1990.
In spite of the fact that one, the transition did not
really begin until Y2K, two, that there were shortages of
agency resources necessary to assess the needs of the agency
and make vendor selections, three, that the parties had to add
modifications to the contract to complete transition, and four,
that there were shortages of local access services due to
unprecedented demand for bandwidth, and a labor stoppage, this
monumental task was substantially finished in less than 18
months after Y2K.
Did the transition of every circuit at each of the 26,000
locations go perfectly? No. However, this task was accomplished
in about the same time required for the much smaller FTS 2000
voice transition 10 years ago.
As shown in exhibit 1, 92 percent of the transition is
complete. The balance of all Sprint's FTS 2000 bridge contract
customers will be transitioned to FTS 2001 contract rates by
May 1. Second, Sprint has always been a responsible partner to
the Government. In September 1999, Sprint reduced its prices
for all of its existing bridge contract customers to FTS 2001
levels. It was the right thing to do. That price promotion
saved the Government more than $62 million.
However, the unintended impact of that price promotion was
that it removed the financial incentive to participate
vigorously in the transition process. As shown in exhibit 2,
Sprint did not begin to receive a significant amount of
transition orders until the end of the first quarter of 2000.
Exhibit 3 shows that in October 2000, Sprint still had not
received approximately 3,000 transition orders. The expiration
of the promotion on October 1, 2000 encouraged participation in
the transition. Outstanding transition orders fell from about
3,000 on October 1, 2000 to 345 by the end of the first quarter
of 2001.
Notably, the extension of the transition period beyond 2000
did not increase the cost of the FTS 2001 transition. Our price
promotion meant that Sprint's customers paid bridge contract
prices for only 10 months. That is shorter than any period
contemplated by any customer at contract award.
Finally, Sprint urges that you stay the course. No one can
dispute that the FTS 2001 competition was fair and vigorous.
The FTS 2001 award prices reset the price of telecommunications
services in the marketplace. By contract, those prices decrease
about 20 percent each year. Competition exists on a day to day
basis. Agencies continue to have competitive choices.
When the arduous and complex FTS 2001 transition is
completed, Sprint will have invested approximately $100 million
in preparing to deliver FTS 2001 services to the Government.
This investment was predicated upon representations by the
Government that we would have the time and the opportunity to
recover this expense within a program valued at $5 billion.
We are almost through that challenging transition period,
and with your support, we can make this program even more
successful than FTS 2000. Though the program is in its infancy,
it has saved the Government $150 million in fiscal year 2000
and will save the Government an additional $250 million in
fiscal year 2001. To weaken the program now would be at a
significant cost to the taxpayers, the agencies and the
vendors.
I'd be happy to answer any questions that you may have.
[The prepared statement of Mr. D'Agata follows:]
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Mr. Davis. Thank you very much.
Mr. Doherty.
STATEMENT OF JOHN J. DOHERTY, VICE PRESIDENT, AT&T GOVERNMENT
MARKETS
Mr. Doherty. Chairman Davis, ranking Member Turner, and
members of the subcommittee, I'm John Doherty, vice president
of AT&T government markets. AT&T appreciates the opportunity to
appear here before you today to discuss the FTS 2000 program.
You have asked questions regarding the impact of the lack
of competition in the Federal telecommunications market. What I
plan to do this afternoon is address that issue. I have a more
complete discussion of AT&T's position in our written
testimony.
AT&T appears before you today as a major provider of
telecommunications services to the Federal Government. We have
provided a vast array of voice and data services to numerous
agencies under the predecessor contract to FTS 2001, FTS 2000.
FTS 2000 was a highly successful program and we are proud to
have had a hand in saving taxpayers billions of dollars over
its 10 year life and providing the Government state-of-the-art
telecommunications services.
FTS 2001 replaces the FTS 2001 contract in December 1998.
We supported the concept of open, end to end competition for
telecommunications services. And thus, AT&T was a willing
competitor for this procurement.
The program envisioned utilizing multiple contracts of
overlapping scope and duration. Indeed, for this reason, under
the terms of the FTS 2001 contract, and MAA contracts,
contractors are permitted by modification to provide services
under the other contract after a 1-year forbearance period.
That 1 year forbearance period ended for FTS 2001 services in
December 1999.
Although the program awardees were WorldCom and Sprint,
because the program envisioned utilizing multiple contracts,
AT&T remained enthusiastic to provide competitive services to
the Government. We competed for and won the first three and
seven other MAAs. Despite the presence of several MAA
competitors, however, GSA had not modified the MAAs to provide
FTS 2001 services, citing the need to fulfil the FTS 2001
minimum revenue guarantees.
Mr. Chairman, the delay of increased competition has
deprived agencies of access to multiple vendors, new service
offerings and innovation directed toward each agency's mission.
Moreover, under the current model, agencies have been
effectively discouraged from entertaining offers from the
marketplace. Throughout the process, Mr. Chairman, AT&T has
supported the agencies. Specifically, we have submitted a
modification proposal in December 1999 to the GSA to permit us
to bring competitive telecommunications services to agencies
under our MAA contracts.
We've executed extensions to the FTS 2000 contract, first
in December 1998, with a base period of 1 year and two 6 month
options, saving the Government a total of $130 million. At a
request of GSA and because the transition was delayed, we
executed another extension contract that terminates in December
of this year. Because of the greatly reduced volumes on our
current FTS 2000 network, we were unable to continue the
discounts offered in the previous extension contracts.
Mr. Chairman, we have heard today about the challenges
associated with the FTS 2001 program. The question is, where do
we go from here. The dynamics of this marketplace are such that
familiar solutions are no longer sufficient to address the
needs of agencies today.
For this reason, AT&T is not here to say simply, give us an
MAA modification to allow us to offer FTS 2001 services, and
the program will be competitive. No, instead, we believe the
Government should take a broad view of the agencies'
telecommunications needs. The market is offering new commercial
technologies and services that offer the agencies the benefit
of savings and the timely delivery of services.
In light of the availability of alternatives to the FTS
2001 contracts, and the changes in the telecommunications
marketplace, GSA should open the programs to competition.
Indeed, GSA should maximize commercial offerings from the
market and open its supply schedules to include
telecommunications services. In this way, agencies will receive
the benefits of competition, and being able to select the
services they need and customize those services to fill their
respective missions.
Mr. Chairman, AT&T also believes that GSA should eliminate
the minimum revenue guarantees, or at the very least, offset
those minimum revenue guarantees by the revenue that was
available to those contractors during the period of transition
but delayed, and they did not receive because the consequence
of their own failure to perform under the 2001 contract.
Moreover, agencies should have the freedom to execute a range
of market focused options to permit competitive forces to bring
savings and state-of-the-art technology to the agencies.
Mr. Chairman, AT&T stands ready to assist the agencies, the
GSA and this committee in these efforts. We appreciate the
opportunity to testify today, and look forward to answering any
questions the committee may have.
[The prepared statement of Mr. Doherty follows:]
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Mr. Davis. Thank you very much.
Mr. Payne.
STATEMENT OF JAMES F.X. PAYNE, SENIOR VICE PRESIDENT, QWEST
COMMUNICATIONS INTERNATIONAL INC.
Mr. Payne. Good afternoon, Mr. Chairman, members of the
subcommittee. My name is Jim Payne.
Thank you for the opportunity to testify today. I'm proud
of my long history with the FTS, starting with the original FTS
in the mid-1980's, and also as a key player in Sprint's FTS
2000 and 2001 contracts. Over the last 18 months, I've been
senior vice president for the government division of Qwest. In
fact, from 1995 to the award of the contracts, I was intimately
involved in the negotiation of guiding principles as you can
see on chart one that is supposed to govern the FTS program.
These principles were carefully negotiated with this committee
and most of the vendors present in this room today.
Qwest is the Nation's fourth largest long distance provider
and a recognized leader in new and emerging IT based complex
data and broad band technologies. Qwest is also a facility
based provider with networks in the Untied States, Europe and
the Pacific Rim.
Qwest is also a stakeholder in the FTS program. We have
four MAA contracts, which were awarded to us last year, for
local services.
If you take a look at graph No. 2, we have taken the
principles and we have put them in a depiction. As indicated in
the graphic, you will see before you the MAA contracts were
central to the group of multiple, overlapping and staggered
contracts. This is language pulled from the principles. They
were established to inject intense competition into the FTS
marketplace.
The competition created by the MAAs was to be augmented
also by niche contracts, a tool for the GSA to focus
competition where and when needed. In fact, the GSA
characterized its environment as ruthless in many public
declarations.
Under the FTS program strategy, GSA was to aggressively
pursue MAAs, niche contracts and other opportunities to
maximize competition. It was intended that this new world order
would replace the old world order, with mandatory use with only
two FTS providers. The new FTS program was to mirror the
Telecom Act of 1996.
Mr. Chairman, I'm here to report that simply hasn't
happened. Qwest absolutely endorses the FTS goals of maximizing
competition and to achieve the best service and prices for the
Government as expressed in the FTS guiding principles.
As depicted on graph No. 3, however, there's a different
reality model we believe that's happening. We like to explain
that the GSA has been able to essentially execute the plan.
After almost 3 years from the expiration of FTS 2000, there
simply is not enough competition. Agencies still have choices
that are limited to Sprint, MCI and AT&T. The sole source, FTS
2000 bridge contracts, prove this point. The Federal agencies
will be paying as much as $1.10 per minute.
I believe everyone in this room has aunts and grandmothers
living in single room apartments that pay 5 cents per minute.
Plus the GSA paid AT&T $8 million for what we feel is a signing
bonus. So I ask the panel, where is the buyer's market and
where is the ruthless competition we looked for starting back
in 1995 when the principles were established?
Some may expect Qwest to challenge the FTS 2001 program. In
fact, as you can see from my statement, we fully support the
principles as established in 1995. The problem has been
execution. GSA's transition and the MRG issues have precluded
an openly competitive marketplace. As a result, the GSA has
delayed the opening of the MAA contracts for long distance
marketplace providers.
At the GSA FTS conference in Las Vegas last month, we also
learned that the GSA additionally has hired a Government sales
force and sent it to sell Sprint and MCI services. Presumably
this is related to the MRG. Under FTS 2000, vendors, not the
GSA, sold these services. Given the exploding demand for
bandwidth that Qwest sees every day, why can't the current
vendors achieve these goals by themselves?
Federal agencies are feeling the effects of GSA's
deliberate MRG driven policy every day. The FTS 2000 services
are taking up to 6 months as indicated in today's GAO report
released this morning, for simple private line services, and
the lack of many technical innovations which could make them
more efficient and responsive to the Government. The taxpayer
is losing. For the record, Qwest is provisioning the same
bandwidth of services under Treasury and related contracts in
approximately 36 days.
The solution is simple. Let's get back to the plan. It
should not take a vendor to protest to get there. Competition
must rule.
Qwest recommends that the GSA open the MAA contracts to FTS
2001 immediately. Don't let an obsession with retiring the FTS
2001 minimum revenue guarantees distort the overriding goals of
the program. Qwest has another recommendation. Since this MRG
issue is central to FTS 2001, the GSA should report publicly
and monthly on all bridge contracts, revenue and FTS 2000
revenue by vendor and by month. This issue needs more sunshine.
Mr. Chairman and members of the subcommittee, the
marketplace can work wonders. I invite you to give us a chance.
Let's get back to the plan and let's give competition an
opportunity to work.
Thank you for this opportunity to share Qwest's views. I am
prepared to answer your questions.
[The prepared statement of Mr. Payne follows:]
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Mr. Davis. Well, thank you all very much. That was very
interesting.
Let me start with WorldCom. Jerry, two of the five reasons
you cite for unexpected transition delays is the time taken by
agencies to select their FTS 2001 service providers and the
slow pace of agency ordering. You mentioned the examples of
Interior as having selected you just 2 months after you were
awarded an FTS 2001 contract. Although according to GSA's
current transition status report, Interior now is about 82
percent complete in its transition.
If the timing of agency selection was a critical factor in
delay, why hasn't the Interior Department's transition been
completed? Any idea?
Mr. Edgerton. Mr. Chairman, the Department of Interior has
eight bureaus, all of which have different telecommunications
needs. We worked with each of those individual bureaus, and in
effect have achieved the level of implementation that we have
now. So just the mere selection by the agency did not create an
order flow. We had to go out and again deal with the problem of
inadequate records. In the situation with Interior and some of
the bureaus, we actually participated in the order entry
process, created orders on behalf of the individual bureaus,
and subsequently have achieved the level of implementation
success that we have.
Mr. Davis. One of the risks you cite in satisfying the FTS
2001 contracts MRG's concerns the MAA contractors cherry
picking customers by failing to offer the complete range of FTS
2001 services. What's your suggestion for mitigating that risk?
Will you mandate a range of services that need to be offered?
Aren't these mandatory services stipulated to some degree in
the contract? What's your feel for that?
Mr. Edgerton. I'm not familiar with the details of the MAA
contracts. I certainly would not be opposed to it if they meet
the same terms and conditions of the contract obligations that
we have. We have extensive obligations from the point of view
of pricing, in terms of billing, in terms of ubiquity. If
anybody can meet those same things, then they certainly should
be allowed to participate in accordance with the program that's
been laid out.
Mr. Davis. The GSA does allow the FTS 2001 contractors like
yourself to submit proposals to offer local services in select
MAA markets. Should a similar stipulation be established to
guard against cherry picking on your behalf as well?
Mr. Edgerton. Oh, absolutely.
Mr. Davis. So do you think----
Mr. Edgerton. If we chose to participate in the MAAs, we
would expect to offer the same services that the current MAA
providers offer.
Mr. Davis. This contract, the FTS 2001, requires the
contractors to review at least semiannually all network and
access service arrangements and identify opportunities to
reduce the Government's costs through optimization of these
services. Presumably, that optimization and analysis would have
been done as part of the transition planning. How much of that
access optimization was completed during transition and how did
the compression of transition timeframes affect your ability to
complete that?
Mr. Edgerton. Because of the issue with the records and the
knowledge of the service that's available, we basically have
not done any of the access consolidation at this time. We
intend to do that. In many situations, the Government
facilities are shared tenant facilities, with agencies using
different providers and so forth. We've begun that process to
make sure that the appropriate and the most cost efficient
access is utilized. That process is underway now.
Mr. Davis. Let me move to Sprint, Mr. D'Agata. In your
testimony, you indicated that none of your customers suffered
any financial consequences from the extension of transition
activities beyond December 2000, is that right? Now, Sprint's
own bridge contract prices increased as of October rather than
December, so there was no additional increase in December for
those customers, but those AT&T network A customers
transitioning to Sprint were not transitioned by December 6th,
and they would have received a substantial increase, wouldn't
they, in the cost of the bridge services?
Mr. D'Agata. Yes, the point of my testimony, Mr. Chairman,
is that the normal transition period for an undertaking of this
nature would require perhaps 24 months to complete. So one
could argue that from, say, June 1999 to June 2001, that would
be the normal transition period. Our customers, so our
customers would be paying premium prices from anywhere from
zero to 24 months under the old bridge contracts.
Sprint chose to pass on a promotion to our existing
customer base to the tune of about $62 million. That equated to
them only having to pay these premium prices for about 10
months. So significantly less than they would have normally
under normal circumstances.
Mr. Davis. You also indicate that transitioning Sprint to
existing FTS 2000 customers to FTS 2001 was challenging because
it required orders be manually shepherded through your billing
and ordering system to ensure that the provisioning systems
didn't automatically discount existing local access. Despite
these measures, there were instances in which those automatic
disconnects did occur, correct?
Mr. D'Agata. That is true, sir. However, I will point out
that our record of performance is very good, if not excellent.
In fact, we've had fewer FCC troubles of any carrier for the
last 5 years.
Mr. Davis. When can GSA count on having an accurate and
complete transition management information data base from
Sprint?
Mr. D'Agata. We've delivered the data base already. We are
enhancing that and the enhanced version of that data base is
expected to be delivered in the May timeframe.
Mr. Davis. OK. Although you've indicated Sprint's
transition network is substantially complete, we understand
that there are about 2,000 more orders still to be completed,
most of which are now expected to be completed by the end of
May, is that true?
Mr. D'Agata. Yes, sir. In fact, what we have decided to do
is to provide FTS 2001 rates to our bridge contract customers
by May 1st. So in effect, our bridge contract will go away on
May 1st.
Mr. Davis. Thank you very much. I've got more questions for
this side, but let me turn it over to Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
I'm a little bit curious, Mr. Doherty, you seem to place a
lot of the blame on the additional costs the Government has
experienced on the failure of the two contractees to implement
FTS 2000 properly. Specifically, I noticed in your written
testimony you were critical of Sprint for delaying
implementation. Would you tell us why you feel that is the
case, and how do you evaluate that cost and separate it from
all of the other multiple reasons that apparently there were
additional costs experienced by the Government?
Mr. Doherty. Certainly, that's an excellent question, Mr.
Turner. As AT&T participated in the actual procurement, the FTS
2001 procurement, all of the vendors were evaluated against the
same set of requirements, which as testified earlier, Ms. Bates
indicated the transition schedule and data bases and billing
capabilities, provisioning capabilities, etc.
And two points I'd like to make. First is, throughout that
process, we made it very clear to the Government that we didn't
think the transition schedule that they had in the procurement
was realistic. We had been through, Mr. Flyzik testified
earlier this afternoon, with the difficulty of transitions. We
pointed that out numerous times to the GSA, that we thought the
schedule wasn't realistic, based on our experience, not only in
the Federal marketplace, but quite frankly, in the commercial
marketplace.
Second, when we were debriefed after being told we did not
receive a contract, we were told that our scores for some of
our capabilities as far as systems had been downgraded compared
to our competitors. When we sought to understand why, they
indicated that our competitors had actually said they could
meet those timetables that were in the RFP. We actually said
we'd need additional time to actually have all those
capabilities.
So it's our opinion that they were awarded these contracts
indicating to the Government they had these capabilities, and
in fact, when the Government went to transition, those
capabilities did not exist. And therefore, the savings that the
agencies would have received if in fact they would have
transitioned on time were not received.
The only savings that the Government got actually in most
of 1999 were the discounts that AT&T announced in the spring of
1999 to bring our prices in line with the two contracts that
were awarded.
Mr. Turner. Mr. D'Agata, I guess I have to ask you to
respond to that.
Mr. D'Agata. Well, Sprint also provided a promotion to our
existing customers, sir, in September 1999, which carried forth
for 13 months. So our customers enjoyed the benefits of FTS
2001 rates in 1999 and through 2000.
Mr. Turner. But I think Mr. Doherty is saying that Sprint
made misrepresentations regarding its ability to meet the
transition dates that the GSA was expecting.
Mr. D'Agata. We delivered the system capabilities that were
required to complete transition. Any limitations that we had in
system capabilities did not affect transition at all. GSA
alluded to some management documentation that was not provided
adequately or in the format that they were seeking. However,
that had nothing to do with transition. That data was provided,
but in a manual format, and had no effect on transition at all.
Mr. Turner. Mr. Doherty, your comments, were they also
directed toward WorldCom, or were your comments primarily
directed toward the delay experienced by Sprint?
Mr. Doherty. Well, Mr. Turner, actually, I'm a little
surprised by my colleague here to my right's response. Most
obviously, we are not privileged to see how the contracts are
being administered. But I do recall in the press there was an
announcement by Sprint that they had not staffed up
appropriately for the procurement and that they would need to
invest an additional, I believe, up to $100 million to bring
their systems in line with what the RFP called for.
So my source of understanding is public knowledge. I am not
aware of issues with WorldCom as it pertains to systems,
although there's been quite a bit of debate recently about the
last mile in getting access. Quite frankly, we all were aware
when we did the RFP that getting access was a significant
issue, and you were to be prepared, in the several years that
we spent responding to the RFP with GSA, to be prepared to have
those negotiations with the RBOCs and the CLECTs and everybody
else that would provide the last mile, so you could transition
customers.
Mr. Turner. I might ask you, Mr. Doherty and Mr. Payne,
whether AT&T and Qwest have been able to secure any of the
agencies' contracts through trying to compete with the two
providers, WorldCom and Sprint. Have you all been successful in
achieving any of those contracts, even though you were not
awarded the contract by GSA?
Mr. Doherty. Certainly there are competitions that we're
participating in on a regular basis that are for services where
the bandwidth and the technology is not included in FTS 2001.
To my understanding, the bandwidth in FTS 2001 only goes up to
OC3. Qwest is regularly provisioning networks at capacities
well beyond that.
What I'd like to focus on, however, is agencies that have
come to us with requirements, asking to get off the bridge
contract. Perhaps one of the agencies being charged $1.10, and
being told they've waited 2 years for a transition plan. This
is actually a live example, in Oak Ridge, TN, I happened to
manage that PBX. I was in the building with the contracting
officer, and I literally had the ability to go down to that
basement area and make the transition on the spot. That agency
sought permission through their IMC member and received a very
prompt letter that said no.
So part of our frustration is when agencies see the lower
prices and see the better bandwidth and technology, they do go
back to their IMC members, and that's where the enforcement
process becomes problematic. Frankly, many agencies believe
that this is a mandatory use contract. Many agencies believe
that this commitment that was signed by IFC members is
contractually binding or legally binding. Of course, we don't
accept the position at all. In fact, I think the GSA openly has
said it's not mandatory. Many agencies still believe this is
mandatory.
Mr. Doherty. Mr. Turner, if I may. To Mr. Payne's comments,
it's been mentioned quite a bit about this being a non-
mandatory contract. And I can tell you personally that Ms.
Bates' predecessor, Mr. Fisher, called me and shared the news
that AT&T was not awarded the contract in January 1999, but
indicated that AT&T would go ahead and win an MAA contract and
``you're right back in it.'' We then went out and won the first
three MAA contracts and submitted a proposal to the GSA, the 1-
year forbearance period, in the fall of 1999. That proposal has
never been acted upon.
In addition to the point of non-mandatory, the letter
signed by agencies indicating they would help to fulfill the
minimum revenue guarantee, there were many senior people within
Government at the time that felt that they were signing up to
fulfill those requirements over the 8 year period of the
contract. It's my understanding to Mr. Payne's point, some of
the agencies have been told that if they did not transition,
they would not have access to funds in the revolving IT fund to
help with transition if they did not choose a vendor who they
were going to transition to.
Mr. Payne. Mr. Turner, if I could add another example. It
was recently discovered through a GAO protest that the Social
Security Administration data network had been evaluated and all
of us that were bidding, you have to understand, don't know the
FTS prices. The Department of Justice has asked that the GSA
release them, but it's apparently a legal dispute. At BAFO, all
the bidders submitted network costs. We attempted to first
guess what FTS rates were, then we had them decide what to
discount off.
It was apparently discovered in the evaluation that the
Social Security Administration evaluated for the MCI offering
at zero. So I discovered that I'm actually expected to beat
zero. All of us that were expected to compete had to come up
with a price and then discount. That's pretty alarming.
This was ostensibly an open competition which had really
nothing to do with FTS 2000. And we believe it was probably an
agency misfocusing. Perhaps this will help retire the minimum
revenue guarantee. The Government thought they were saving $13
million, and upon a hearing at the GAO, it was discovered they
probably picked the highest priced solution.
Now, that's still in play, and we're anxious to get more
clarification, but those are the facts that have been discussed
at the GAO.
Mr. Turner. Thank you, Mr. Chairman. I've been told if you
can stir up a good argument, there is certainly the potential
for competition. [Laughter.]
Mr. Davis. We certainly seem to have two sides to this one.
Let me go on to AT&T now. Mr. Doherty, over the last 5 months,
I've noticed an increased in your revenues provided under the
bridge contract for the FTS 2000 program. Will you explain the
basis for the dramatic rate increase?
Mr. Doherty. Yes, Mr. Chairman. Let me start with, at the
time of the award, AT&T never envisioned actually entering into
a 3rd year bridge contract. If you look at the requirements, of
the 2001 contract, the transition was to be completed much
earlier than that. In addition, we offered discounts on our
previous extension contracts. But as we came down to the end of
the second contract, roughly 75 percent of the volume had been
transitioned to other contracts.
And as Ms. Bates testified earlier, AT&T has a dedicated
network supporting FTS 2000 with dedicated systems to do that.
And at the Government's request, to enter in another extension
period, we were simply not able to offer those discounts any
longer.
Mr. Davis. You didn't have any incentive to, did you? You
were out on FTS 2001, you were sitting there, they needed you,
why would you?
Mr. Doherty. Well, incentive obviously is a piece of that.
But as anyone in industry will tell you, without a volume
commitment, without a time commitment, as I think Ms. Bates
testified, there was no reason to continue those discounts. The
future was, quite frankly, very uncertain.
Mr. Davis. OK. That's an honest answer.
Given the sharp increases in prices per minute charged to
agencies under the latest extension of the FTS 2000 bridge
contracts, as the GAO states, our rate could go up to more than
$1 a minute. Does AT&T have concerns this could hurt their
competitive future in the Federal marketplace, or you would
look at each new, you would price differently just on future
vehicles?
Mr. Doherty. Yes. Mr. Chairman, we have attempted to enter
into other contracts, to the question asked earlier, with other
agencies. In my testimony, my oral testimony, I mentioned how
the agencies have been discouraged to do that. That has been
quite frustrating, not only to us but to agencies. Because we
have offered them other contract vehicles where they could move
some of their services and we would actually extend those
discounts. At every opportunity, again, they have been
discouraged from doing that.
Let me turn to the $8 million payment. The reason that
number wasn't much higher is we are concerned about, we have a
long term commitment to this marketplace. Actually our costs to
maintain these systems was much higher. We looked at the
balance of upsetting the agencies and their budgets, etc. So
the number was much lower than it would have been. And we
continue to want to work with the GSA to figure out ways to
enter into a long term contract so we can have rates that are
just that, long term and lower than a short term bridge
contract, which was discussed earlier this afternoon.
Mr. Davis. I had mentioned earlier, to the earlier panel,
and I'll ask you, you had discussed in your testimony moving to
a telecommunications services schedule, kind of like a GSA
schedule and then you could shop from there. Do you want to
give me a further comment on that concept? By the way, I've
heard that going out in the industry, into some agencies and
contractors, those same kinds of comments. I just want to flesh
it out a little.
Mr. Doherty. OK, well, I'd like to expand it somewhat, just
a little, going back to the question you asked Mr. Edgerton
earlier. It's our position that any modification to the MAA
contract should be for whatever service any industry player can
bring, whether it's one particular service, data service, a
voice service. These are non-mandatory, these are optional
services. We believe that GSA should allow all industry players
to bring to bear whatever those capabilities are.
I also believe that the GSA and other agencies ought to
think very broadly about how they allow industry to bring new
emerging services to bear. For example, the schedules. There's
no reason why some of the services that are currently offered
by industry in fact could be put on a schedule. And agencies
could go out with task orders and look at the different
offerings from different vendors, and make decisions
independent of the FTS 2001 program.
Quite frankly, and it's my understanding that the overhead
that's on the schedules is much different from what is the
overhead that's currently being applied to FTS 2000. Again,
competition within the GSA would be good for the agencies,
forcing not only industry but Government to look at how they
recoup their costs.
Mr. Davis. To what extent has AT&T had to work with the
RBOCs during the transition and did you have any delays in
transition working with that, the same delays working with the
RBOCs?
Mr. Doherty. Our experience in the transition, you're
referring to, Mr. Chairman? Our experience has been actually on
the other side, where we were scheduled to disconnect services,
but for whatever reason the new service provider was not
prepared, we got to come back in and work with the RBOC because
they don't turn off that circuit, because the income vendor was
not prepared to transition the service.
But on the other side, we clearly have many years of
working with the RBOCs and CLECs to make sure that access is
provided in a timely manner.
Mr. Davis. I want to followup. Mr. Turner asked earlier of
GSA, but AT&T did receive that one time payment of $8 million.
What was the reason for that? Isn't this an outmoded
infrastructure that the Federal Government already paid for?
Mr. Doherty. Mr. Chairman, actually no. Over the life of
the contract, we have added, as I think you've heard today, a
number of new services throughout the life of FTS 2000. And as
we added new services, we needed to add new capabilities to all
of our systems, and quite frankly, invest dramatically in the
infrastructure that supports this private network.
So at the time, when the Government said they'd like to go
into a third extension contract, we simply, with the volumes
that had left the network and the expenses associated with
those private, dedicated systems, we had to somehow have some
type of up front payment to cover that.
Mr. Davis. OK. Let me move to Qwest. In your written
testimony, you comment on Qwest's protest of a Social Security
Administration decision in which MCI had an advantage because
of pricing information it obtained through its involvement with
FTS 2001. As a result of this experience, do you think that
limits should be placed on a company's contracting and
subcontracting activities to avoid the appearance of
impropriety, and what if any suggestions does Qwest have for
preventing future incidents like this?
Mr. Payne. The SSA bid was very important, this was last
summer, this was the first large complex procurement that was
conducted after the award of FTS 2001. There was a lot of
confusion about the ability to use FTS 2001. Because you did
have a choice to use it as a vendor. The team that I was
subcontracted to decided to beat the FTS 2001 prices, and we
were prepared to beat them dramatically.
We did, as I was saying earlier, we were not able to know
what the FTS rates were, but I think there was enough market
force competition that we made a reasonable guess, then we took
a dramatic discount lower. Frankly, we were all stunned to see
that the team that we were on didn't win.
Now, my team did not raise the protest. It was the Rockwell
team. And Rockwell carried forward the protest, and it was just
recently disclosed that there was an evaluation mistake made.
Someone thought that it was FTS 2001, it should be three,
evaluated at zero. It ties my arms behind my back. Not only did
I not know the price points, but the evaluation model was given
virtually free.
If this is the carry forward of FAA, FTI contract, and
other contracts, how is competition to reign here? Exactly
where does a competitor go?
Mr. Davis. I'm going to give everybody a chance to respond.
I just have a couple more questions for you, then I'll give you
all a chance, if there's anything you want to add, and then
allow Ms. Bates to sum up.
Again, Mr. Payne, in your testimony you suggest that niche
contracts be used for very specific services as part of the FTS
program as originally planned. What kind of service needs would
they address? How would they be best used? Only during a
transition period?
Mr. Payne. Certainly. The technology is moving, I mean,
this is a bit of a cliche, but technology is moving very
rapidly. New technology is being brought forward at all times.
And you can't expect the complex modification process on FTS
2001 to keep up with it. You could have simple niche contracts
where cybercenters, Web hosting, total care where you can,
there's actually technology now that you can leave networks in
place and change out the management of those networks. Qwest is
capable of managing AT&T, Sprint or MCI's network any time
through products that have come forward in technology.
So transitions are not the same as they used to be. These
are the types of technology that should be coming forward
forcefully, either in niche contracts----
Mr. Davis. Could MCI manage a Qwest network?
Mr. Payne. If the technology that we have exists on theirs,
sure. But the question is, this should come forward.
Mr. Davis. Just trying to be fair. [Laughter.]
Mr. Payne. Mr. Doherty mentioned a beneficiary. He used to
regularly preach to us that the technology would come into the
FTS 2001, or the MAAs would go into a niche contract, and then
once stabilized and more generally available, it would move
into the FSS side. So there would be this wonderful cycle of
competition. It just simply hasn't happened.
Mr. Davis. In your testimony, you state, moreover, the
current FTS 2001 contracts are even unable to provide some of
the most basic components of existing FTS 2000 service
offerings. Do you want to elaborate on that?
Mr. Payne. Yes. I think a good example is the Department of
Justice. There's new information I heard this morning, so I
don't presume to be an expert here. But right after the
contract was awarded, up to the last year, Justice was put in
the position, and they were not the only agency, that the
contract, as it expired on FTS 2000, comparable to 1995
technology, was not available in 2001. So there was a long
period of time before these contract mods were completed so
they'd have parity, at 1995 technology.
Many of those agencies had to wait for features such as
this before they could complete the transition. That process is
not available to us outside vendors. We don't know the status
of contract mods. We only can presume when we talk to the
agencies. But it has prevented, I think largely, the Justice
Consolidated Network, from moving very quickly forward into the
new FTS 2001 environment.
Mr. Davis. Let me ask if anybody wants to add anything.
Mr. Edgerton. Mr. Chairman, I'd like to comment on the
suggestions that there was something improper about the Social
Security Administration procurement. That procurement was for
equipment, lots of equipment and software. And I have no idea
how the communications or 800 service was evaluated.
Mr. Davis. You don't do that? That's not your job, right?
Mr. Edgerton. Absolutely not. But we offered superior
technology and a superior solution to the request for proposal.
Mr. Davis. And that was in a bid protest?
Mr. Payne. Yes, the redacted version was released about 3
weeks ago, as an appropriate forum where all that will be
resolved.
Mr. Davis. Anything else anybody wants to add? Ms. Bates,
do you want to add anything?
Ms. Bates. I certainly feel I'm in good company sitting at
this table, having worked----
Mr. Davis. You can referee here in between them.
[Laughter.]
Ms. Bates. Well, you know, that thought did come to mind, I
did stay back there until the appropriate time. I have worked
with all of these gentlemen over the past many years and many
positions. I'm encouraged from what I've seen here today. I
think competition is flourishing, as we imagined it would.
There's more competition between the incumbents in our program
than there has been in the past. And the potential new entrants
are already beginning to emerge.
I think our customers are already benefiting from lower
prices, more influence on program matters, more choices of
technology and suppliers and a wider range of commercial
services. Transition to FTS 2001 is essentially complete, and
we will have it complete this summer. I would like at this
time, and at that time, too, to close the book on transition
and really focus all of our efforts, at this table, the
customers, and with the help of your committee, to look forward
as to how we can bring new and enhanced services to the
Government and how we can always do our business better.
For me personally, within the Federal Technology Service,
as the Commissioner, I intend to push ahead and not look back
but continue to push ahead in implementing the recommendations
of the General Accounting Office and any other thing that I can
do to make this program more robust. And I thank you for your
time.
Mr. Davis. Thank you. I want to thank everybody for your
time.
Mr. Turner, did you have any more questions?
Mr. Turner. Yes, a couple of questions and one comment,
which we might want to ask Ms. Bates to announce very loudly
that FTS 2001 is not mandatory. That seems to be the question.
Ms. Bates. FTS 2001 is not mandatory. [Laughter.]
Mr. Turner. We've got her under oath here.
And one of the things that I was kind of curious about in
terms of the comments I believe Mr. Payne made about that, is
it not true that those who win that competition do in effect
receive the stamp of approval of the GSA and, from an agency
perspective, it's just easier to go that way? I mean, isn't it
really the advantage that it represents to those who win that
competition?
Ms. Bates. Well, I think you're correct. It's not only just
easier to go that way, but we have the integrity of the
acquisition process in play, the competitive forces, the way
the Government does its business. We've had streamlined
acquisition over the last several years. But I think getting
back to our strategy and our principles as well, of the IMC
coming together, bringing together the buying power of the
Government and as such, in exchange for getting high technology
and low prices, the commitment to stay with the program,
although it is not mandatory.
However, we are going to, in keeping with the principle of
maximizing competition, as I've stated before, we have it
today, we're going to continue by this summer opening up to
additional new entrants. And I'm pleased to see that there's
already interest in that.
Mr. Turner. After listening to the testimony today, I was
going to suggest to you that you might remind our friends at
AT&T that they spend millions of dollars on public relations
when they could have taken a little bit of that budget and
eliminated that $1.10 per minute phone charge. [Laughter.]
Ms. Bates. I thank you for doing that for me.
Mr. Davis. Thank you very much.
Mr. Turner. I have just one other question. I wanted to
inquire, and this may require a bit more lengthy discussion and
time than we have now, but I'd really like each of your
responses to my thought on whether or minimum revenue
guarantees really promote competition. Or are they even
necessary in today's competitive environment? Ms. Bates, you
can respond to that if you'd like and any others on the panel.
Ms. Bates. Thank you, I will. Because it is a fairly
complex subject, I will also submit written comments for the
record. I think the MRGs, at the time we were doing this back
in the 1997 timeframe, were absolutely appropriate. We were
advised by the industry, which many of the familiar faces in
this room were in this room then, advised us that the non-
mandatory program, the industry, with the sizable commitment
that we were asking them to make and the high expectation of
extremely low prices and high technology, that a high minimum
revenue guarantee was what it would take to bring them to the
table to meet the Government's expectations. We validated this
through other contracts of this nature that were being let in
the industry. So I think it was appropriate at the time.
In today's environment, I think we need to take another
look. Things have changed, competition is robust, clearly, as
can be seen here today. Perhaps we don't need the enticement of
such a large minimum revenue guarantee, nor do we want one. So
this is something that we in FTS are looking at already. Within
the metropolitan area access, the MAA program, we have reduced
to a very minimum level the minimum revenue guarantees. For
that program, anyway, we are still seeing robust competition,
high technology and low prices. So certainly, we're trying to
test and look and see.
But I think it's a valid question and one we should take
seriously and study as we move ahead.
Mr. Payne. Mr. Turner, I'd like to offer a comment. I think
it's still being said, in light of all the changes
economically, the Internet is still doubling every 90 days. The
IDG group estimates that the Federal Government spends $40
billion every year. My question is, why can't the vendors get
these minimums?
My other question is, the scope of the FTS 2001 contract
has been enormously broadened. It includes international
services, unlimited bandwidth, any technology, any hardware can
be brought to that contract. What is wrong with the economic
model that this much effort has to be devoted to fill up their
buckets?
I say go back and look at the incentives in these bridge
contracts. I want to ask a question. I thought I heard that the
transition with Sprint won't be finished until June 30th. Their
bridge contract expires on June 6th. Where does this end?
I think the economic model, someone said this to me years
ago, the best contracts manage themselves. You don't need
Government to get involved in pushing things around the table.
I'd like to see an environment where we have that.
Mr. Doherty. Yes, Mr. Turner, I'd like to respond as well.
First of all, I assure you, I'll spend the next several days
looking for the $1.10 minute. I was briefed earlier this week,
and I understand our average cost right now is just under 10
cents, which I think is consistent with Ms. Bates' testimony
earlier.
As far as the minimum revenue guarantees, I think to a
certain degree it doesn't entice industry to offer potentially
a lower price, knowing there is some guarantee of business.
However, when it gets to the point where it's an impediment and
you're now running a program based on these commitments and you
no longer can do things you normally would have liked to have
done, add new competitors, because you now are so concerned
about meeting this, I think it's a problem.
I also believe that once, when the Government puts that
out, it's also tied to industry performing like they said they
would do when they responded to the RFP. The fact that there's
been delays has impacted the Government's ability to meet that
minimum revenue guarantee, and in fact is the reason why
there's not new competitors coming in under this program today.
Mr. Turner. I probably ought to let our other two panelists
take the fifth amendment on that one right now. If you'd like
to comment, I know you probably have a little different view on
it.
Mr. D'Agata. Just to make a couple of comments, one in
particular on your suggestion of a schedule situation. The
minimum revenue guarantee does help contractors to propose
better prices. It helps them to assure themselves that they're
going to retire their system investment that's required on a
contract such as FTS 2001. We had to expend significant moneys,
I think we pointed that out in our testimony. So it does
provide some assurance that we would be able to retire that
investment.
The schedule in itself may not provide the best prices to
all the agencies. A contract such as FTS 2001 assures that
every agency, whether it's a small agency like a PBGC or an
American Indian tribe to enjoy the benefits of a large buy like
FTS 2001.
So individual agencies certainly can take advantage of
having their own programs or their own contracts. But it's for
the smaller agencies that we would have a challenge in assuring
that they would receive the best price as possible.
Mr. Edgerton. Mr. Chairman, I'd like to make a comment. I
brought a prop here so that you could get some feeling for what
the commitments are and the requirements are for this contract.
I'd like to share with you, this bill for 1 month that amounts
to $5,000 that we make specifically because of the billing
requirements for the Government. So that's a fairly unique
requirement that we had to plan for that was not a commercial
requirement and so forth. So that is----
Mr. Davis. A $5,000 bill?
Mr. Edgerton. This is a $5,000 bill. So it almost weighs
that much. [Laughter.]
I'd also like to make one comment. I spent 10 years at the
left end of the table down here--[laughter]--and I'm beginning
to smell the fragrance of sour apples. Thank you.
Mr. Payne. I think the difference is that MCI was not in
the FTS 2000 contract, but Qwest is. We are an FTS 2001
provider, as an MAA. We're in that overlapping contract.
Mr. Davis. Anybody else want the last word? [Laughter.]
We appreciate everybody getting everything on the record.
It's been very, very helpful to us, very articulate
spokespeople all the way around. We appreciate your being here.
Before we close, I want to take a moment to thank everybody
for attending the subcommittee's hearing today. I want to thank
the witnesses, Chairman Burton, Congressman Turner and other
Members for participating. I want to thank my staff for
organizing it, I think it's been a very productive hearing.
I'm now entering into the record the briefing memo
distributed to subcommittee members.
We will hold the record open for 2 weeks from this date for
those who may want to forward submissions for possible
inclusions. And these proceedings are closed. Thank you.
[Whereupon, at 5 p.m., the subcommittee was adjourned, to
reconvene at the call of the Chair.]
[Additional information submitted for the hearing record
follows:]
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