[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
   ENSURING PROGRAM GOALS ARE MET: A REVIEW OF THE METROPOLITAN AREA 
                          ACQUISITION PROGRAM
=======================================================================


                                HEARING

                               before the

           SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 13, 2001
                               __________

                           Serial No. 107-41
                               __________

       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
                                WASHINGTON : 2002
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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 
JOHN J. DUNCAN, Tennessee                (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
                 Amy Hearink, Professional Staff Member
                          James DeChene, Clerk
          Mark Stephenson, Minority Professional Staff Member












                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 13, 2001....................................     1
Statement of:
    Doherty, John, vice president, AT&T government markets; James 
      F.X. Payne, senior vice president, government systems, 
      Qwest Communications; Randall L. Lucas, vice president, 
      sales, Federal market, Verizon Federal Inc.; Jerry Hogge, 
      vice president, government solutions and enhanced service 
      providers, Winstar; and David Page, vice president, Federal 
      systems, BellSouth Business Systems........................    91
    Koontz, Linda, Associate Director, Government-wide and 
      Defense System Information Systems, GAO; Sandra Bates, 
      Commissioner, Federal Technology Service, General 
      Accounting Office; Louis DeFalaise, acting director, 
      executive office, U.S. attorney's office; and Commander 
      Robert Day, Commanding Officer, Coast Guard Electronic 
      Support....................................................     7
Letters, statements, etc., submitted for the record by:
    Bates, Sandra, Commissioner, Federal Technology Service, 
      General Accounting Office, prepared statement of...........    29
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia, prepared statement of...................     4
    Day, Commander Robert, Commanding Officer, Coast Guard 
      Electronic Support, prepared statement of..................    75
    DeFalaise, Louis, acting director, executive office, U.S. 
      attorney's office, prepared statement of...................    65
    Doherty, John, vice president, AT&T government markets, 
      prepared statement of......................................    94
    Hogge, Jerry, vice president, government solutions and 
      enhanced service providers, Winstar, prepared statement of.   148
    Koontz, Linda, Associate Director, Government-wide and 
      Defense System Information Systems, GAO, prepared statement 
      of.........................................................     9
    Lucas, Randall L., vice president, sales, Federal market, 
      Verizon Federal Inc., prepared statement of................   138
    Page, David, vice president, Federal systems, BellSouth 
      Business Systems, prepared statement of....................   167
    Payne, James F.X., senior vice president, government systems, 
      Qwest Communications, prepared statement of................   117












   ENSURING PROGRAM GOALS ARE MET: A REVIEW OF THE METROPOLITAN AREA 
                          ACQUISITION PROGRAM

                              ----------                              


                        WEDNESDAY, JUNE 13, 2001

                  House of Representatives,
 Subcommittee on Technology and Procurement Policy,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Tom Davis of Virginia, Turner, 
Mink, Jo Ann Davis of Virginia, and Horn.
    Staff present: Melissa Wojciak, staff director; Amy 
Hearink, chief counsel; Victoria Proctor, professional staff 
member; David Marin, communications director; James DeChene, 
clerk; Mark Stephenson, minority professional staff member; and 
Jean Gosa, minority assistant clerk.
    Mr. Tom Davis of Virginia. Good afternoon.
    I would like to welcome everyone to today's oversight 
hearing on the Metropolitan Area Acquisition Program. As many 
of you know, this program is the local telecommunications 
component of the FTS2001 Program.
    As a result of the delays and cost overruns discovered at 
the committee's April 26 hearing on the FTS2001 Long Distance 
Program, we decided to undertake a review of the MAA Program 
and the progress of the transition in local user cities.
    Unfortunately, preliminary results indicate many of the 
same contract management administration issues that plagued the 
2001 Program exist in the MAA Program. Today's hearing is going 
to examine the problems in user cities and explore potential 
solutions to bring this ambitious program back on track.
    To date, the GSA has awarded 37 MAA contracts in 20 user 
cities. The total value of these contracts is estimated to be 
$4 billion. The program is being implemented in three phases. 
Phase 1 and 2 contract awards are now complete and GSA is 
preparing to begin phase 3 awards.
    We are concerned that GSA is moving into phase 3 without 
evaluating the progress of the program, the delivery of 
services to the Federal agencies and the overall cost savings 
to the Government. The MAA Program was designed to capitalize 
on the goals of the 1996 Telecommunications Program. That act 
was intended to foster greater competition in the 
telecommunications marketplace and to accelerate the deployment 
of new telecommunications technologies.
    The MAA Program grew out of several meetings between 
industry, GSA and Congress. It was intended to bring 
competition to the local telecommunications marketplace by 
providing Federal agencies in high density population cities a 
choice of contractors using multiple award contract vehicles.
    If this program is successful, the Federal Government will 
be at the cutting edge of procurement for these types of 
services. Early evidence suggests this will not be the case. 
Instead of reviewing program problems and working to update 
strategies, it appears that GSA has not tried to understand the 
rapidly changing marketplace, nor to realize the competitive 
landscape envisioned for the MAA cities.
    GSA states that the MAA Program is estimated to save the 
Government $1.1 billion over 8 years. This figure does not 
account for transition delays or for additional charges 
agencies may face and the new equipment costs for upfront 
cutover fees. Transition numbers seem to indicate that actual 
cost savings are likely to be markedly lower as GSA has missed 
its transition deadline in all but two cities.
    The MAA Program set a 9-month transition phase for each 
city once notice to proceed was issued to a vendor. Nearly 2 
years after phase 1 contract awards in New York, Chicago and 
San Francisco, transition is only at 11 percent, 42 percent and 
65 percent respectively.
    While I think it is important that we don't judge the 
success or failure of the MAA Program by these cities alone, we 
have to assess what is occurring in each city to generate these 
delays and immediately utilize this knowledge to update the MAA 
Program to bring about real cost savings for taxpayers.
    Moreover, phase 2 transition numbers indicate similar 
problems exist. For instance, significant regulatory delays in 
New York have hindered transition progress and service cutover 
fees have slowed progress in Dallas. I could offer anecdotal 
evidence for delays in each of the awarded cities but clearly 
each city has its own soap opera but no attempt at redrafting 
has been made.
    Similar to the FTS2000 Program, I have no doubt that a 
healthy blend of issues has contributed to ongoing programmatic 
problems but I am concerned with the lack of solutions. Once 
again, it is as if performance goals have no place within a 
large Government program.
    As we discuss next step in acquisition reform, we often 
talk about moving toward horizontal acquisition to achieve 
greater economies of scale and government efficiencies. GSA is 
uniquely positioned to move government in that direction but 
the continued failures in the FTS2001 Program suggests that 
contract management administration presents serious challenges 
for the Government's procurement agencies.
    In particular, agency communications appears to be an 
obstacle for GSA between regions, the headquarters and the 
services. GSA's Office of Inspector General cited communication 
difficulties as having a significant impact on the MAA Program 
in its April 2001 Consulting Services Report.
    I also looked at the contract management fees and the full 
service fees that GSA charges user agencies in MAA cities. It 
is too early to judge whether Federal agencies are being 
charged too much for services but I strongly disagree with 
keeping the amount of these fees hidden from user agencies.
    GSA has made it clear that it is not a mandatory provider 
of local or long distance telecommunications services. Agencies 
are consumers in this program and they should be able to make 
informed decisions with their limited budgets. Moreover, 
agencies seem to have been denied important information about 
upfront transition and equipment costs that further impact its 
severely constrained budgets and diverted valuable resources 
away from mission goals.
    I am told the U.S. Coast Guard had to grapple with 
disconnected search and rescue telephone lines on Staten 
Island. I can only speculate but I imagine they would have 
profited from a better understanding of the services that the 
contract fees provided at the time.
    Once again, I am concerned that taxpayers continue to pay 
for failures in the program. Impediments to acquiring end to 
end telecommunications services means the Government continues 
to lag behind the private sector in service delivery to 
citizens.
    Today, the subcommittee is going to hear testimony from the 
GAO, from the GSA, U.S. Coast Guard and the U.S. Department of 
Justice. On our second panel, we will be hearing from John 
Doherty of AT&T James Payne of Qwest; Randall Lucas of 
Verizon; Jerry Hogge of Winstar; and David Page of BellSouth.
    I will now yield to Congressman Turner.
    [The prepared statement of Hon. Thomas M. Davis follows:]
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    Mr. Turner. Thank you, Mr. Chairman.
    I appreciate the fact that you have chosen to have a 
hearing on this subject. As you stated, it has been estimated 
that we can save upwards of $1 billion if we fully implement 
the Metropolitan Area Acquisition Program, so we are talking 
about real money.
    It does seem to me that a hearing on the subject is 
critical because with the changing technology, clearly 
government, not only within the GSA but the agencies 
themselves, need to be much more aggressive in taking advantage 
of the lower prices now being offered in this industry, the 
ultimate beneficiary being the taxpayer.
    I understand that GSA has awarded 37 contracts for services 
in 20 cities with a potential value of more than $4 billion. 
However, in many of these instances, the implementation time 
has been much longer and slower than was provided for in the 
agreement between the agency and the GSA.
    Unfortunately, the promised savings cannot be realized if 
the contracts are not fully implemented and the purpose of this 
hearing today is to get to the bottom of the reasons for the 
delays that have occurred.
    I am also going to join the chairman in expressing an 
interest in the issue of the disclosure of fees by the GSA. It 
seems to me, as it did to the chairman, that the agency should 
have the right to know what the contract management fee and 
full service fee charge by GSA is so they can make an 
evaluation as to whether or not they want to participate in the 
GSA-sponsored contract program.
    I look forward to hearing from our witnesses today and 
hopefully this will be another step forward in what I think has 
overall been a very positive move on the part of the Government 
to try to save in the cost of local services to our Federal 
agencies.
    Thank you.
    Mr. Tom Davis of Virginia. Thank you.
    Does anyone else wish to make an opening statement? Hearing 
none, I would like to call our first panel of witnesses: Linda 
Koontz of the GAO; Sandra Bates of the General Services 
Administration; Commander Robert Day of the U.S. Coast Guard; 
and Louis DeFalaise of the Department of Justice. We appreciate 
your being here.
    I would like to have everyone rise because it is the policy 
of this committee that all witnesses be sworn before they 
testify.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. To afford sufficient time for 
questions, we would like you to limit your statements to not 
more than 5 minutes. We have the total statements here and will 
be asking questions based on the total statement which will be 
entered into the record.
    We also may undergo a vote before everyone has testified. 
What I will try to do is maybe if one of my colleagues can go 
vote as soon as the bell sounds and get back here, we can have 
a brief recess and then they will reconvene the meeting but we 
will keep going for about 10 minutes into it and as soon as 
they get back, we will reconvene it so we can get all the 
testimony and then get to questions as quickly as possible.
    Linda, why don't we start with you? Thanks for being with 
us.

STATEMENTS OF LINDA KOONTZ, ASSOCIATE DIRECTOR, GOVERNMENT-WIDE 
  AND DEFENSE SYSTEM INFORMATION SYSTEMS, GAO; SANDRA BATES, 
 COMMISSIONER, FEDERAL TECHNOLOGY SERVICE, GENERAL ACCOUNTING 
 OFFICE; LOUIS DE FALAISE, ACTING DIRECTOR, EXECUTIVE OFFICE, 
 U.S. ATTORNEY'S OFFICE; AND COMMANDER ROBERT DAY, COMMANDING 
            OFFICER, COAST GUARD ELECTRONIC SUPPORT

    Ms. Koontz. Mr. Chairman and members of the subcommittee, 
thank you for inviting us to participate in today's hearing on 
the implementation of GSA's Metropolitan Area Acquisition 
Program.
    As you know, GSA initiated the MAA Program to achieve 
immediate and substantial price reductions for 
telecommunications in selected metropolitan areas. It further 
envisioned that as part of its overall FTS strategy, 
contractors under the MAA Program would eventually be allowed 
to compete for FTS2001 long distance service so that agencies 
could procure telecommunications end-to-end from one source.
    At this subcommittee's request, we have been reviewing the 
MAA Program and specifically we have focused on three issues: 
the status of the MAA implementation; the fees GSA charges to 
customer agencies for managing and administering these 
contracts; and the steps taken by GSA to enable the MAA and the 
FTS2001 contractors to crossover between these programs and 
offer both long distance and local service.
    My testimony this afternoon provides the interim results of 
our review which is largely focused on the New York City MAA. 
This work is continuing and should be completed sometime later 
this year.
    In brief, GSA has awarded 37 MAA contracts for 20 
metropolitan areas. Although the contracts require transition 
to the MAA contracts within 9 months after the contractors have 
been given authorization to begin implementation, this 
transition has not occurred as quickly as anticipated. For 
example, MAA transitions in New York, Chicago and San Francisco 
are not yet complete almost 2 years after contractors were 
given notice to proceed.
    GSA and the MAA contractors have faced significant 
challenges in implementing this program. First, in New York the 
newly deregulated telecommunications environment has produced 
unexpected barriers to implementation that are taking time to 
resolve. In addition, both GSA and the contractors have raised 
numerous issues they believe contributed to implementation 
delays. These include contractor performance issues, inadequate 
customer budgets and the length of the process used by GSA to 
allocate business among contractors in multiple award cities.
    We have not yet begun to completely unravel these issues 
but we will continue our work both on implementation barriers 
and on GSA's efforts to address them.
    With regard to fees, GSA charges customer agencies two 
types of fees to recover the cost of contract administration 
and management. These fees, in total, range from about 28 to 84 
percent. According to GSA, while these percentages appear 
substantial, the total cost of services including these fees is 
substantially lower than the prices under other GSA local 
service contracts. GSA, however, does not separately disclose 
these fees but requires contractors to embed them in the 
prices.
    We believe agencies would benefit from having specific 
information on fee amounts. It is a key input to agency 
decisionmaking on whether to use MAA contracts which are not 
mandatory and it makes GSA accountable to the agencies for the 
amounts of fees they charge. In the coming months we will be 
performing a more complete assessment of the fees to determine 
what costs are included in the fees as well as the support GSA 
provides to agencies.
    Last, in regard to crossover, GSA has not yet allowed MAA 
contractors to offer FTS2001 services. However, in December 
2000, GSA permitted FTS2001 and MAA contractors to offer local 
services in three of the MAA markets. In addition, GSA has 
drafted a paper stating it now believes it is appropriate to 
proceed with determining when to allow additional competition 
for FTS2001. One of the first steps will be to share this draft 
with industry representatives at the end of this month.
    Mr. Chairman, that concludes my statement. Kevin Conway, 
the Assistant Director responsible for our MAA study, will be 
assisting me in answering any questions you might have.
    [The prepared statement of Ms. Koontz follows:]
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    Mr. Tom Davis of Virginia. Thank you very much.
    Ms. Bates.
    Ms. Bates. Mr. Chairman, thank you again for this 
opportunity to appear before you today to discuss the 
Metropolitan Acquisitions Program. In my remarks this 
afternoon, I will briefly address the strategy, the results of 
the competitions, the implementation status and our fees.
    The collaborative effort that led to the development of the 
FTS program strategy in the spring of 1997 occurred in the 
context of the newly enacted Telecommunications Act of 1996. 
That strategy gave us the framework for bringing the 
Government's use of telecommunications technology forward into 
this new century. The MAAs were conceived for three purposes. 
First, they fulfilled the MAA program goals of maximizing 
competition to provide the best services and prices to 
Government users. Second, the MAAs were the first ever 
competitions designed specifically for the deregulated local 
markets. They provided an opportunity for public policy 
leadership by FTS. We stimulated the development of competition 
by offering government requirements to emerging metropolitan 
markets. Third, the program crossover provisions anticipated 
the introduction of additional future competition to incumbent 
MAA providers.
    Since 1999, we have awarded 38 contracts in 21 metropolitan 
areas across the Nation with price reductions ranging from 30 
to 70 percent. By the end of this year, we will have completed 
28 cities. At that time, two-thirds of the Federal work force 
will be within reach of an MAA with attractive prices and 
state-of-the-art service offerings. Following on the heels of 
the acquisitions have come the many significant challenges 
associated with implementation. MAA implementation progress to 
date reflects the regulatory environment under which the local 
services industry operates. This environment has been 
characterized by the need for labor intensive, time consuming, 
site by site negotiations and problem-solving causing 
implementation delays.
    The local competitive environment today has developed more 
slowly than expected and is far from mature. The aspects of 
deregulation that have proved especially challenging for the 
MAA Program include building access rights, resale of 
facilities, local number portability and customer issues. 
Challenges associated with contract initiation, contractor 
planning and customer-related activities have required more 
time than we anticipated. In August 2000, we asked the GSA 
Inspector General to review the program implementation. The IG 
recently issued their findings and suggestions. We agree with 
their overall findings and will incorporate their suggestions 
to improve our program.
    Finally, let me comment on our fee structure. Local service 
is a labor intensive operation, whether managed by FTS or a 
large private business. Over the past 5 years, we have reduced 
our fees by about 30 percent. In fact, MAA fees are lower than 
pre-MAA fees in every city but one. Mr. Chairman, I believe the 
strategy that we jointly crafted is as sound today as it was 
when we developed it 4 years ago. The MAA acquisitions continue 
to be successful in terms of new providers, services and 
prices. We have brought explicit competition to the local 
market through multiple award contract vehicles. We have 
brought agencies real choice of providers and we have state-of-
the-art service offerings. We have taken the lead in 
stimulating competition in the local arena and have gained 
unparalleled and unique expertise as a result.
    It is taking longer than we expected to achieve the 
benefits of local services competition. We have more work to 
do. We are committed to staying the course with the MAA Program 
and to realizing the benefits the program has to offer.
    Mr. Chairman, I look forward to your continued leadership 
and support and I am happy to address any questions you have at 
this time. With me today is Ms. Margaret Binns, Assistant 
Commissioner for Regional Services. In that capacity, Margaret 
is the GSA executive responsible for the MAA Program. She will 
assist me in addressing questions you and the other Members may 
have.
    [The prepared statement of Ms. Bates follows:]
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    Mr. Tom Davis of Virginia. Thank you. Ms. Bates is welcome. 
I also want to recognize Steve Perry, the new head of the 
General Services Administration who is in the audience. 
Congratulations on your appointment and your confirmation. We 
look forward to working with you. Your staff is doing a good 
job.
    Louis, you are on.
    Mr. DeFalaise. Thank you.
    Members of the subcommittee, I appreciate the opportunity 
to be here on behalf of the Executive Office of the U.S. 
Attorney's Office and for the 93 U.S. attorneys.
    We are very concerned as a consumer with telephone 
operations for our several hundred locations, our offices and 
connected locations throughout the country, all the way to Guam 
where we have to usually call at 6 p.m. because it is 8 a.m. 
there.
    Our concern to our personnel, the approximately 5,000 
Federal prosecutors and litigators, is that they primarily be 
free to do what they are being paid to do and that is 
prosecuting cases and litigating on behalf of the Government. 
Their only concern when they pick up the phone is that there be 
a dial tone and reliable service.
    From the central operation point, since we have a very 
deliberate policy of keeping our headquarters personnel very 
low so that we can put more people into the field, we are 
concerned about being able to get a turn key operation where we 
can buy the service and expertise so that our staff doesn't 
have to deal with it and the price. Obviously the more 
resources we can save from an operational side is more money we 
can spend doing what we are intending to do, protect the public 
weal.
    We have had a number of offices that have completed the 
transition to the MAA carriers. In our experience, we have had 
a few technical difficulties in a couple of instances where 
there have been delays and my staff advises me in terms of the 
types of infrastructure and regulatory questions that existed, 
that this is not unusual in terms of what we experienced in the 
past. We are constantly updating our systems, doing it all over 
the country so we seem to be in a constant process of change 
and we encounter these things quite often.
    The one good thing we can say about this program in the one 
location where we now have sufficient data to analyze the cost 
impact is that it has been highly successful. That is in the 
Islip location in New York where I am informed we had been 
paying $35 a month a line and now we are down to about $10 to 
$12 a line. So while we are interested in the issue of what GSA 
is charging us, the savings has been so great in that location 
that we are very pleased by the results and the outcome. By the 
fact we can take it as a turn key operation, we don't have to 
have additional numbers of staff to deal with these issues 
directly but all of these services are provided to us by the 
GSA.
    We have had some difficulties in a couple of locations, but 
I have been informed by our staff we think those are manageable 
ones. With the request that the longer statement be included in 
the record, I would be happy to answer any questions.
    [The prepared statement of Mr. DeFalaise follows:]
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    Mr. Tom Davis of Virginia. Thank you.
    Commander Day, thank you for being with us.
    Commander Day. Mr. Chairman, distinguished members of the 
subcommittee, the Coast Guard took advantage of the GSA MAA 
Program when we learned of its existence through GSA, region II 
in New York in July 1999. A thorough review by my staff, which 
is responsible for the telecommunications services in the New 
England Region, basically found the pricing was extremely 
attractive compared to the services we had before. On average 
we acheived a 76.5 percent savings on our analog telephone 
lines.
    Based on those indicated recurring savings, I initiated 
action to move with our MAA Program with region II. We started 
in the October 1999 timeframe and started moving forward with 
the contractors in cutting over Coast Guard lines. Our 
extensive command post in Staten Island, NY, has roughly 751 
lines servicing that area.
    We did have some problems. There were problems during the 
initial transition and recurring problems over a period of 4 or 
5 months we had minor outages here and there but then we did 
have one major outage in April 2000 which required some 
attention by both GSA personnel as well as the contractor at 
the time. I had a joint meeting with these personnel, and 
requested understanding of the severity of the potential impact 
on Coast Guard operations. We requested rapid resolution. We 
had very good communication between all three parties. I was 
able to get things cleared up in terms of a pathway to make 
sure we no longer had these types of issues. Within a 2-day 
period, all the problems had been resolved. Since that time 
period, we have experienced essentially 18 months of very good 
service under the MAA Program and are experiencing savings of 
$150,000 per year recurring, which is why I started this 
initiative.
    That is all I have. I appreciate the opportunity to speak 
before the subcommittee and I would be happy to answer any 
questions.
    [The prepared statement of Commander Day follows:]
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    Mr. Tom Davis of Virginia. Mr. DeFalaise, I understand you 
have a time issue, so let me ask you a few questions.
    Can you comment further on the situation in which you have 
asked transition to be reversed and what are the service 
problems you have had in that instance?
    Mr. DeFalaise. I understand those included such issues as 
dropped lines where we didn't get a dial tone or the 
connections failed; there was some crossing of lines and a 
number of other technical difficulties. This was in one section 
of an office. This was a particular location so we stopped the 
conversion for the larger part of the office and asked for a 
reversal on that particular setup until the problems were 
solved. It seems it is more a matter of technical difficulties 
that need to be resolved.
    Mr. Tom Davis of Virginia. Do you think it would be helpful 
if we allowed vendors to market directly to your regional 
facilities?
    Mr. DeFalaise. The way the U.S. attorneys offices are set 
up, because the telecommunications expertise is mostly in our 
Washington office, I think the results would be pretty much as 
they are today. Either we find there is something new to be 
done or some cost savings at the Washington end and go out to 
our offices or they get offers and come to us asking us to 
evaluate them so I don't know that procedure would change that 
much. It is pretty much a cooperative effort between our 
technical people in our Washington office and our field 
offices. For presentations, I suspect at some point the field 
offices would call in and ask our Washington people to come and 
help evaluate them anyway.
    Mr. Tom Davis of Virginia. Do you think the lack of cost 
comparison data made it difficult for you to encourage regional 
offices to transition?
    Mr. DeFalaise. It certainly would be much easier to 
encourage the regional offices if we could tell them up front 
what the cost comparisons were and what they might save in 
overall operations, so yes, that would be a very attractive 
feature if it could be done.
    Mr. Tom Davis of Virginia. It is a new program and 
obviously it is going to have its problems getting started and 
getting the bugs out but I think that sheds some light.
    Let me turn to GAO for a minute. Estimated cost savings in 
the MAA cities is actually quite high. They set a pretty high 
goal for themselves, do you agree with that?
    Ms. Koontz. Yes.
    Mr. Tom Davis of Virginia. You note in your testimony total 
cost savings is an estimated $1.1 billion over 8 years. What 
impact have significant transition delays had on the actual 
cost savings to agencies or do you think they are just delayed?
    Ms. Koontz. It is difficult, at this time, to project what 
the impact is going to be on total MAA savings. The GSA 
originally projected $1.1 billion. To the extent you have 
delays it limits the amount of savings you can realize within 
an 8-year period. However, the estimate GSA put together was 
based on existing business they have under contract. The 
potential for business may actually be much greater than that 
and if the program is able to exploit this larger amount of 
business, it could be that savings would be greater over the 8 
year period. We haven't yet been able to quantify what the 
impact has been thus far.
    Mr. Tom Davis of Virginia. Clearly if it started faster, 
you would get more savings?
    Ms. Koontz. Yes, you can only get savings after people are 
on the program.
    Mr. Tom Davis of Virginia. Given some of the difficulties 
that have been encountered, if you would move ahead and not be 
ready for it, then you are better off waiting, so I guess the 
chapter is unwritten.
    The up-front cost of transitioning along with the often 
unanticipated cost of provisioning of new telecommunications 
equipment is cited as a barrier to transition. Do you follow 
me? In your view, should GSA have better prepared agencies for 
these costs? Aren't these additional costs likely to lower 
overall cost savings?
    Ms. Koontz. It is true that the savings estimate does not 
include one-time transition related costs like service 
initiation charges, any termination fees you have on other 
contracts, and equipment modifications that need to be done. 
For that reason, that will reduce the amount of potential 
savings available over the 8 years.
    Under the FTS2001 contracts, GSA was able to plan in 
advance and collect money from the agencies in order to cover 
these kinds of transition fees. This did not happen this time 
and as we understand it, some of the agencies have cited this 
as a barrier to quicker implementation because they do not have 
the money budgeted to take care of these one-time transition 
fees.
    Mr. Tom Davis of Virginia. GSA has stated it is moving 
forward to phase 3 contract awards this year. In your view, are 
there steps GSA ought to be doing to improve the MAA Program 
before it moves to phase 3 and what would those be?
    Ms. Koontz. As you know, our work is continuing, we are not 
done yet but I think we do have one observation that is based 
largely on what we did in New York. This is not rocket science 
by any stretch of the imagination but what we saw there was a 
real need for improved communications particularly between the 
MAA contractors and GSA. When you talk to each of the parties, 
you get quite a different impression of what is going on and I 
think that indicates there is a need for increased quantity and 
quality of communications.
    One thing we noted in New York was that the GSA region 
there does not conduct routine scheduled meetings with the 
contractors to identify, discuss, and track problems that come 
up, although this is done in other regions. That might be one 
thing the GSA region could do.
    Mr. Tom Davis of Virginia. Thank you.
    Mr. Turner.
    Mr. Turner. Ms. Koontz, the GSA is providing basically 
management consulting services. Would an agency have an option 
to secure that kind of assistance from some other source and 
perhaps be able to have another option in terms of their local 
service?
    Ms. Koontz. Built into the MAA Program are two types of 
services that you can get from GSA, that is why there are two 
different fees. One of these fees, the full service fee, is for 
GSA assistance in ordering and billing. Agencies can decide if 
they prefer to deal more directly with the contractor on those 
issues, and they can do so more economically, they can do that 
and avoid the fee. That is one possible option they can pursue.
    The other option may be that because MAA is not mandatory, 
agencies can use any other contract vehicle if any are 
available but also they can choose to procure their own 
services, buy tariff services, or to run their own procurement 
if they believe the services provided under the MAA contracts 
are not as economical as if they did it on their own.
    Mr. Turner. I noticed today we have raised a lot of issues 
regarding the GSA's implementation of this program but has your 
investigation in this area allowed you to take a look at how 
aggressive individual Federal agencies have been with regard to 
pursuing options or dealing with the GSA? It seems to me it 
could be that part of the problem we are seeing here is not 
solely on the GSA shoulders but perhaps on the shoulders of 
agency personnel who don't put this as a great priority in 
terms of what they are doing at their particular agency.
    Ms. Koontz. Because we have only focused on the New York 
MAA at this point, I don't think I could generalize on that 
point at this juncture.
    Mr. Turner. What kind of activities do we have to really 
encourage the agencies to move aggressively with regard to 
taking advantage of the services provided by GSA or, in the 
alternative, to pursue other alternatives on their own? What is 
it that builds a fire under them to say this is something that 
is going to save some money, you need to move on it, get with 
it and spend some time on it, that this needs to be a priority 
in your agency?
    Ms. Koontz. One of the things is already present in the MAA 
contracts. I think you heard the agency people testify to the 
fact that the prices are quite good under those contracts. The 
data we have seen, even inclusive of the fees, it is much more 
favorable in many cases than any other existing vehicle.
    It seems to me if that isn't sufficient to entice Federal 
agencies into the MAA Program, I don't know what would be.
    Mr. Turner. As a percentage, what percentage of the Federal 
agencies do we know have pursued participation in the MAA 
Program?
    Ms. Koontz. I don't know.
    Mr. Turner. Ms. Bates, do you know?
    Ms. Bates. I don't know the specific percentage.
    Mr. Turner. Can you give me some indication? Do we have the 
vast majority of our agencies trying to participate or working 
with you or do we have the vast majority of them still out 
there not worried too much about utilizing the services you are 
providing?
    Ms. Bates. I will try and set the stage for you, sir, by 
example. Within the Washington metropolitan area our WITS 
Program, which is the MAA in Washington, we have significant 
participation by the Federal agencies, including the Department 
of Defense. I would say within Washington, which I might 
mention the WITS Program, the transition is complete, we have 
significant participation.
    In the other areas, because of the nature of this program, 
it is local service and it is managed locally in many cases 
much as my colleagues here at the table have stated, so the 
decisions are made locally and in small unit levels. To date, 
as a rough order including the Washington area, we have 215,000 
lines converted to MAA and most of that is in Washington.
    I think our challenge in the future is getting out the word 
by talking to the Interagency Management Council, the local 
Federal executive boards, really spreading the word on this 
program because as I stated in my oral testimony, by the end of 
phase 3, we will have an MAA program within the grasp of the 
majority of the Federal agencies and it is the responsibility 
of FTS/GSA to make sure that awareness is out there so people 
can take advantage of that opportunity.
    Mr. Turner. Thank you.
    Mrs. Jo Ann Davis of Virginia [assuming Chair]. Ms. Bates, 
I have a question for you. Can you tell us about the fair 
consideration process, what qualifications does GSA consider 
during the process, and is this process clearly defined to the 
vendors?
    Ms. Bates. Fair consideration is a process used to 
determine in a multiple award contract, which we have several 
within the Metropolitan Area Acquisition Program to determine 
which of the awardees would receive a specific set of business. 
The criteria is contained in the request for proposals and in 
the contract which says that fair consideration can be 
conducted one of three ways. The first way is to assess, after 
the requirement has been defined, take that requirement and 
match it against the price tables assuming the technical 
qualifications are met, and that is the case most of the time, 
and look at the price tables in the MAA. I need to remind you 
that we do have out year pricing so that we do have price 
tables, so one can easily assess the total price of that 
specific requirement. That is one way.
    A second way is to take the requirement and form it into a 
task order and ask each of the multiple awardees to respond 
with a technical and cost proposal. The third is for any of the 
companies at any time to come in and lower their prices and 
enter. No. 1 and No. 2 are the methods we are using. I believe 
the process is very well defined to the industry.
    With regard to our customer agencies, I think this is a new 
process to the telecommunications environment coming off a 
monopoly environment into a deregulated environment and 
multiple award contracts. This is a new process for our 
customers and we have had to spend time working with them to 
ensure them that we go through this process and that it is 
completed.
    Mrs. Jo Ann Davis of Virginia. I think I have time to ask 
you one other question.
    Back to the fees. I believe Ms. Koontz said the fees are on 
several levels, so the agency could determine if they could 
save more money and wanted to do the work themselves. I think I 
understood in the testimony that you don't disclose your fees? 
How would the agency know if they could afford to do it better 
themselves or how much money they would save? How can they know 
how to make an informed decision if you don't disclose your 
fees to them?
    Ms. Bates. Let me state that our fees are embedded in the 
bills the customers receive. We have never made an attempt to 
my knowledge to in any way not disclose those fees to customers 
as we sit down and talk with them in terms of evaluating 
alternatives.
    Mrs. Jo Ann Davis of Virginia. Let me butt in there just a 
second. If your fees are embedded in the bills, that is after 
the fact, they have already made the decisions?
    Ms. Bates. Right.
    Mrs. Jo Ann Davis of Virginia. So are they told what the 
fees are up front before they make their decision?
    Ms. Bates. Yes.
    Mrs. Jo Ann Davis of Virginia. I guess that is not what I 
was hearing in the testimony. Maybe I should go to Commander 
Day. Were the fees disclosed to you by GSA when you made your 
decisions?
    Commander Day. They were embedded in the bill.
    Mrs. Jo Ann Davis of Virginia. By embedded in the bill, are 
they spelled out.
    Commander Day. This is before and we know they are there 
before we enter the agreement.
    Mrs. Jo Ann Davis of Virginia. Are they spelled out 
dollarwise or percentagewise so you do know exactly before you 
make your decisions what you are going to be paying?
    Commander Day. The exact dollar amount, I have not been 
shown. I do know a percentage of the recurring fee for phone 
service is related to GSA overhead which we consider as the 
management portion of our fee, so I don't have to manage the 
billing, I don't have to manage the vendor. It is sort of 
expected that is the amount they utilize for the personnel 
necessary to oversee these contracts. We know they are in 
there. The exact amount, I have not been shown.
    Mrs. Jo Ann Davis of Virginia. Not the exact dollar amount, 
but do you know the percentage?
    Commander Day. Yes, ma'am.
    Mrs. Jo Ann Davis of Virginia. You do know the percentage 
in advance?
    Commander Day. The exact percentage, I have not been privy 
to either.
    Mrs. Jo Ann Davis of Virginia. Mr. DeFalaise.
    Mr. DeFalaise. I will double check and get back to you on 
this but my general understanding is we are aware there is an 
embedded fee, we do not know in advance and it would be nice to 
know in advance the specific overall cost of GSA fees, but we 
will nearly always eventually learn what the actual costs of 
these fees are is after the fact. I will double check and if I 
am wrong, I will get back to you but that is my understanding 
at this time.
    Mrs. Jo Ann Davis of Virginia. Ms. Bates, if they choose to 
let you do the managing and go with your fee and after the fact 
get the bill and find out what your fee is and decide they can 
do it cheaper themselves, can they drop you and do theirs at 
that point?
    Ms. Bates. Yes. I would like to add that in my previous 
answer to your question, while I stated yes, the fees are 
known, it is not our intent to hide the fees and if we are not 
being as forthright in every case with our customers as we 
should, we will definitely take that as a corrective measure.
    Mr. Tom Davis of Virginia [resuming Chair]. One of the 
cited factors that seems to be impairing MAA implementation 
progress has been contractor performance which has resulted in 
untimely service delivery and service outages in some cases. In 
some cases it is not even the contractor's fault, it is just 
transition through other things they have to do.
    What steps have we taken to try to hold the contractors 
accountable for their performance and prevent the recurrence of 
these problems and are there other context issues where you 
have to hook up with other lines and so on, building access as 
you mentioned? What role is that playing?
    Ms. Bates. You are right when you state that each issue is 
difficult. I think we have to keep in mind here that we really 
are plowing new ground. The competition in the local market is 
new, it is new to everyone. We have broken the price barriers 
in the market and we are plowing new ground. It is local. Each 
situation stands on its own and can be quite lengthy. I won't 
attempt to go into any of that.
    Our first goal has been to really get the barriers, the 
problems, whatever it is cleared up so we can all get on with 
the implementation. As we get into these situations, there are 
very few, if any, that we can ever say this is a problem with 
you that you are totally accountable for, there is no one else 
involved in that. Many times, it is very entwined in a lot of 
issues as you have acknowledged.
    I believe our contractors are doing their best. They are a 
good set of contractors and they too are plowing ground. We are 
making it. As far as contractor performance issues in the true 
legal and contractual area, at this time, we have not chosen to 
pursue them. However, the door is always open for that.
    Mr. Tom Davis of Virginia. What is the relationship between 
GSA's current local service contracts and the rate 
stabilization agreements and the MAA contracts for local 
services? Are these being allowed to expire and those 
requirements moved to your MAA contracts or are you exercising 
contract options or otherwise extending those agreements?
    Ms. Bates. The Rate Stabilization Program was put into 
place several years ago prior to deregulation when in our 
attempt to manage the program and bring lowest prices to the 
government, we negotiated with the local services provider at 
that time to stabilize the rates over a given period. Those are 
with the traditional provider and are single award by 
definition.
    It was our program intent to have the MAAs in place to let 
the rate stabilization programs expire and move over. We have 
had to extend some of those because of the delays in the MAA 
implementation. That is the program goal.
    Mr. Tom Davis of Virginia. The MAA contracts are awarded 
out of GSA's national headquarters office but they are 
administered and implemented regionally?
    Ms. Bates. Correct.
    Mr. Tom Davis of Virginia. What guidelines have you 
established for the regional contract administrators to ensure 
some uniformity in the process or are they given great 
flexibility and are their particular management or 
administrative practices used by one region with greater 
success that you have promoted for use elsewhere?
    Ms. Bates. This is one of the areas of centralized 
management with decentralized operation, a lesson we have 
learned since the beginning of the MAA Program where we have 
made significant changes since the beginning to where we are 
now. While the service is delivered locally, we have learned it 
is very critical to the program to have centralized program and 
project management. We have instituted that and Ms. Binns here 
is responsible for the program nationwide. She has people on 
her staff dedicated to managing and operating this program. 
Within our regions, we also have people identified for the 
implementation, the specifics, the day to day implementation of 
that program.
    Our contracting people have a similar structure in place 
where we have centralized contract oversight and administration 
at our headquarters level led by Mr. Al Olson, our Assistant 
Commissioner for Acquisition; we have contracting officers in 
the regions to carry out the necessary day to day contracting 
activities. This has evolved over the last 2 years. I think we 
are well positioned at this time to do that.
    Communications as alluded to earlier is always a challenge 
even though we are in the communications business, 
telecommunications or communicating with one another. We have 
taken steps to improve that communications so that we can 
freely identify problems, make sure they are known to everyone 
in a timely manner, have far more communications with our 
industry partners and our customers in terms of the day to day 
implementation as well as making the decisions in order to 
proceed with the program.
    In this particular area, I think we have implemented 
significant change since the beginning for a very positive 
effect on the program.
    Mr. Tom Davis of Virginia. In your view, how is the 
marketing of the MAA contract supposed to work? What are GSA's 
responsibilities and what do you view as the responsibility of 
the MAA contractor? How does the fair consideration process 
factor into marketing to customers and the processing of 
customer service orders and if an MAA contractor were to commit 
the time and resources to develop a customer and were that 
customer to place orders with GSA for services from that 
customer, could the GSA fair consideration process then preempt 
that customer decision?
    Ms. Bates. That is a lot of questions rolled into one. Let 
me take them one by one.
    The marketing concept, I view marketing as customer 
awareness and getting the information out about the program to 
make sure the agencies can make that choice. I think that is 
the responsibility of the GSA, FTS, as well as our industry 
partners. We need to get out the word about this program, 
particularly because it is local and decisions are made 
locally.
    It is not just good enough to talk to the department level 
of an agency. We have to get and reach the entire customer 
base, very localized in nature and I think this is critical 
that both the industry as well as FTS does that.
    We have to be mindful though of our customer wishes. Some 
customers do not prefer to be contacted locally, some prefer 
the national level, some may be at a mid level, so there is no 
formula. Clearly I think it is all our responsibility to get 
out the word about the program and program awareness.
    Regarding fair consideration, this doesn't extend just to 
the MAA Program. Fair consideration is a very important and 
integral part of a multiple award contract environment. It is 
so integral, it is the law as Linda would remind me. It is our 
responsibility to conduct fair consideration regardless of 
which industry partner will identify the requirement and the 
agency then chooses to bring it to the contract. We conduct 
fair consideration and there is no guarantee or 
predetermination as to which industry partner would get that 
business.
    That is a problem that extends far beyond MAA but really 
goes to the heart of multiple award programs. I think the 
integrity of that process is key to the entire government 
acquisition process.
    Mr. Tom Davis of Virginia. We have had delays in 
implementation and you are a lot smarter now than when you 
started this. We all are. Given all that, do you still think 
you can achieve the $1.1 billion savings originally 
contemplated? If you are not sure, you can get back to us.
    Ms. Bates. I will get back to you.
    Mr. Tom Davis of Virginia. I would like you to go back and 
take a look. I think one of the problems we have had is we have 
set unrealistically high expectations and time periods at the 
very beginning.
    Ms. Bates. I agree.
    Mr. Tom Davis of Virginia. And a lot of unintended 
consequences result, particularly with telecom. We are seeing 
that not only with you but you see this in the private sector. 
Any company moving in has the same kind of thing. For that 
reason, we would like to know where we are.
    Ms. Bates. We will do that.
    Mr. DeFalaise. Mr. Chairman, if there are any other 
questions, I would be happy to answer them but otherwise, could 
I be excused?
    Mr. Tom Davis of Virginia. I am going to yield to Mr. Horn 
for any questions. Otherwise, you can leave with our blessing 
and thank you for being here.
    Mr. Horn. This is a question to all of you. Looking back on 
GSA over the current contract and were your needs met when new 
equipment came on the line and what does that mean in terms of 
the next few years? Would you get the kind of communications 
equipment that you need to get? If you could give me a feeling 
for did you have a problem when new equipment came on board?
    Mr. DeFalaise. In our situation, we are fortunate that our 
telecommunications staff, although very small, is very 
aggressive in looking for ways to improve the services and to 
cut costs. In addition to the roughly 65 percent or more 
savings that we have at Islip in New York, we got a better 
product. We went from analog to digital and we also got voice 
mail that we did not previously have.
    To this point, we have gone to GSA because the perception 
has been that they were meeting our needs, giving us a 
significant savings in cost potentially. As I said, we have 
only been able to evaluate it for one site because we don't 
have the data from the others and the quality and level of 
service we got as a turn key operation, we just went to them 
and said, we want to pay less, pick it up and hear a dial tone 
and we have been favorably impressed so far.
    There have been delays in several locations but they have 
been within expected parameters of infrastructure and 
regulatory concerns.
    Mr. Horn. Thank you.
    GAO is a customer of GSA, I take it, right, despite your 
fine, across the board bluebooks, you are a patient of GSA, 
correct?
    Ms. Koontz. I don't know whether GAO is a customer of GSA 
for the MAA contracts. I am sure Sandy knows but I don't.
    Ms. Bates. They are.
    Mr. Horn. It is nice to know who is doing what but the 
issue of new, innovative technology, does that come on board so 
you have access to it or has that been a problem?
    Ms. Bates. The program is structured and the resulting 
contracts are structured very much to focus and include tech 
refresh. That is what it is all about when we talk about long 
term contracts and flexibility. Definitely the framework is 
there. We have seen it come on, particularly in the case of 
WITS in the Washington metropolitan area.
    Many of the agencies as they transition not only in 
Washington but in other locations have chosen to upgrade their 
service or reconfigure to provide greater technology. That is 
one of the program benefits, to transition and also get 
something more and the low prices we have been able to get 
through competition has allowed that in many cases. Agencies 
have been able to do more with less. I think that is very, very 
positive and often gets lost when we talk about other issues.
    Mr. Horn. Commander, I am curious when you are at sea and 
when you are in port, does that take a different type of 
equipment you need based on salt water or whatever?
    Commander Day. No, sir. This is primarily focused on our 
shore-based facilities. Many of them are just as critical as 
our under way vessels.
    Mr. Horn. Does the Coast Guard have a satellite system so 
they can communicate?
    Commander Day. We are using commercial satellites as well 
as some military satellite but this is not part of the 
offerings coming from this program. We have taken advantage of 
some of the new technology coming available under MAA. It has 
increased service capability, particularly with the digital 
telephone offerings. That is part of the draw for us to go 
there because of not only the prices but it is refreshing 
technology which I would not be able to refresh with my own 
service funds at that time.
    Mr. Horn. Are you responsible for computer security or is 
GSA responsible for that?
    Commander Day. I am responsible for computer security and 
the computer system operations within my region which is New 
England.
    Mr. Horn. Does GSA have a unit that can help you on the 
computer security situation or do you have your own group?
    Commander Day. I have my own group and we have not 
investigated or seen services available from GSA regarding 
that. There are other computer related services I am aware of 
but we are not taking advantage of those at this time, 
telecommunications primarily.
    Mr. Horn. How about GAO, do you have your own unit on 
computer security or does GSA do it for you?
    Ms. Koontz. I don't know.
    Mr. Horn. Let's have a block in the hearing and get a 
letter from GAO on that question.
    Ms. Koontz. OK.
    Mr. Tom Davis of Virginia. Mrs. Mink, any questions?
    Mrs. Mink. The effort on the part of government to try to 
save money and it appears from the testimony of a number of 
witnesses, there is the potential of quite a bit of savings if 
we can get all the Federal agencies into this combined 
cooperative telecommunications effort.
    Up to date, you have been in this thing for 2 years, 1999, 
2000 and this year. What would you estimate to be the total 
cost savings thus far based upon the areas you have been 
successful in congregating into this system?
    Ms. Binns. It is very difficult to quantify with a great 
deal of precision.
    Mrs. Mink. How about a ballpark?
    Ms. Bates. I would say we are saving right now about $1 
million a month which includes the Washington area MAA. That 
consists of about 215,000 lines.
    Mrs. Mink. Aside from the cost factor which must be 
appealing to the agencies, is there any other benefit they 
would derive by participating in the MAA?
    Ms. Bates. I believe there are several other benefits they 
would get. First of all, they would get the benefit of 
competition and we have brought competition in the local market 
for the first time.
    Mrs. Mink. Would you explain how you brought competition 
into the local market?
    Ms. Bates. The MAA Program, one of the driving factors was 
furthering public policy in the area of deregulation in the 
local market. These are the first acquisitions that were 
designed to go out and take advantage of that deregulation and 
see if there was competition in the local market and perhaps to 
stimulate that.
    We offered the government's requirements and put them out 
there. We indeed found that there is competition out there and 
it is very real. So our customers have the benefit of the 
competition and also of choice which they have never had 
before. We have been in a monopoly, regulated environment and 
they have not had the choice. That is very, very positive. I 
think it is a little more than just cost reduction. It is 
breaking the barrier of the cost in the local market that we 
have brought.
    Also, the MAA Program, as GSA regional services has always 
done, has offered the customer total service. Because the 
decisions are locally made many times, the people in our 
customer agencies have many other duties and rely on GSA/FTS to 
make decisions for them or help them make decisions. Our staff 
stands ready to help them make those choices, make technical 
decisions, recommendations and to assist them in any way.
    Another important factor is this isn't one of those 
situations where once the service is installed, FTS walks away 
from the customer. We are there with the customer 
troubleshooting, operations, maintenance, managing our 
contractor, all the way until that customer disconnects that 
service. It really is a life cycle service and management.
    Mrs. Mink. So when you estimate cost savings, do you 
include the additional staff that may be required in order to 
do all the servicing you just described?
    Ms. Bates. When we calculated the cost savings of the $1 
billion, we did not include all of those elements. Basically, 
what we did is looked at what our customer base was paying 
today and what they would be paying in the future under this 
program. Being optimistic people, we also factored in 
significant growth and that growth was factored in on both 
sides of the equation.
    Mrs. Mink. When you assess the management fees, do you 
include these additional costs that are experienced by GSA and 
FTS?
    Ms. Bates. Not directly in computing the savings. I view 
that as our fees and I want to tell you, we are talking about 
fees that range from $2.50 a line to $6 a line. That is just to 
put the framework there. The value that GSA adds is that we are 
doing this so our customer agencies do not have to do it. I 
would pose that we are very good at what we do. We have 
experience, we have learned many times through the school of 
hard knocks so perhaps we are more efficient than others might 
be.
    The truth is, with our customer agencies having gone 
through down sizing and right sizing, many of them are focusing 
on their core agency mission and their acquisition and 
technical people are doing the same. So they rely on us to do 
that.
    Mrs. Mink. Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Mr. Turner.
    Mr. Turner. The MAA Program has been implemented in 30-some 
cities and in 8 of those cities only 1 contractor was announced 
by GSA. Could you tell us why there was only one contractor and 
does this not take away from the idea that there is competition 
inherent in the program you are administering?
    Ms. Bates. In many of those instances, there was 
competition. It was not just one company proposed and one 
company being awarded. There was competition. The results of 
the competition dictated that it was appropriate to award the 
contract to only one provider. The Federal acquisition 
regulations as they relate to multiple awards provide 
guidelines in terms of when it is appropriate and relative to 
technical and cost proposals of each of the bidders. In the 
cases where we made a single award, it was appropriate for only 
one contractor.
    Mr. Turner. Do you have the option of adding the 
contractors later? How does that work?
    Ms. Bates. Yes, sir. If you recall, one of the principles 
of the program is the crossover. While we have focused in past 
hearings on the discussion of crossover between long distance 
and local and local to long distance, part of the crossover 
allows MAA providers to crossover into other locations. I think 
this is a strength of the program because where we did have a 
single award because of the situation at the time, it does not 
preclude our customers from having choices and multiple award 
as we move ahead with crossover.
    Mr. Turner. Ms. Koontz, this kind of hearing is oftentimes 
a little frustrating when we have a story that says contracts 
that were supposed to be implemented over 9 months have taken 
much longer. We are told the problem is the regulatory 
environment makes it difficult. I know in New York there was a 
legal problem; you're looking at potential management problems 
in GSA or whether the agencies are not aggressive enough, or 
whether contractors aren't performing but I have not yet had a 
sense to the apportionment of that blame. Is it primarily the 
contractors that are dragging their feet or is it the GSA? Who 
should this committee point to and say you need to do a better 
job?
    Ms. Koontz. It is probably premature for GAO to say exactly 
where the blame lies in any of this. If it is anything like 
FTS, there will be plenty of blame to go around probably.
    We have not completed our work yet and many of the issues 
we presented today, we have been unable to nail down at this 
point in time. It is not possible for us to really talk about 
what recommendations for the future should be.
    Mr. Turner. I am sure the chairman will be diligent in 
keeping a watchful eye on all those groups.
    Mr. Tom Davis of Virginia. Ms. Davis.
    Mrs. Jo Ann Davis of Virginia. Understanding we are not far 
enough along yet to determine about fees, 84 percent seems 
rather high to me, as a businesswoman, for a fee. I am curious 
what do the agencies get for 84 percent versus 28 percent on 
the low end?
    Ms. Bates. First, I would like to address the percentage. I 
think to characterize the fee in terms of percentage of the 
line charge presents somewhat a distorted picture. If our fee 
is $2 and the line charge is $40, as it was in some cases pre-
MAA, that is a fairly low percentage. If post-MAA the fee 
remains $2 and the line charge is $5, that percentage is 
different and it presents a distorted picture. In many cases, 
that is what we are dealing with where we had a line charge 
that was up here and now is down here.
    By the same token, I don't mean to imply that we are not 
managing the fee or concerned about the makeup of that fee. 
That is why I think through management of our operating 
expenses, our fee has gone down 30 percent in the last 5 years 
and we are continuing to look at it. FTS being a 
nonappropriated fee for service organization, and nonmandatory, 
you can well imagine like any other good business person, I 
need to keep a strict eye on my operating expenses and I am 
doing that actively. We can always look for suggestions to 
improve.
    What value do we get or how do we earn that fee? As I 
stated earlier, we manage the customer through the life cycle 
from the beginning of the requirement all the way to the time 
they disconnected. We provide acquisition support, put the 
contracts in place, do the follow on contract management and 
administration, which in this particular market is always a 
challenge and requires top notch, highly skilled individuals.
    We also provide consulting services to the customer in 
helping them define their requirements and to look at the 
solutions and evaluate those. This requires technical people up 
on the latest technology.
    We also do the day-to-day operations of operating much of 
these switches and services where we are looked to as the 
provider in the case of many Federal buildings where we are 
providing service to all the tenants within that building. We 
are their provider, they look to us.
    We also do the troubleshooting that is required anytime 
there is a system glitch or there is a problem. The 
troubleshooting extends back to the equipment to the long 
distance carrier or whatever. Our customers look to us, when 
they have trouble they call us and ask us to ferret it out. We 
do that, that is why we are there.
    We also provide billing services and a consolidated bill. 
We take in the bills and provide the bill to the customer and 
validate the bill in conjunction with the customer. So we 
really are a total service provider. It takes the 
responsibility and much of the technical burden off the 
customer by doing that. I think my colleagues here have 
indicated they have taken advantage of those services.
    Mrs. Jo Ann Davis of Virginia. If two Federal agencies were 
getting the same service from you, would their fee be the same?
    Ms. Bates. If they were getting identical services, yes.
    Mrs. Jo Ann Davis of Virginia. The percentages are 
different because they may use two different carriers, so their 
line charge may be different but your fee would be the same 
even though the line charge is different?
    Ms. Bates. Right. The fee is not at all related to the 
cost. If a line charge is $2 or $3 in a given city, the fee is 
the same. Within the same city, it is the same. It can vary 
between locations because our cost base is different.
    You recall the fee is intended to recover all of our direct 
and indirect operating costs. I wanted to be accurate and not 
mislead you.
    Mr. Tom Davis of Virginia. The Sprint bridge contract 
expired June 6, I didn't hear what happened to it.
    Ms. Bates. It expired, we did not extend the contract. The 
transition is completed relative to Sprint to Sprint 
transition. The transition period has ended and all of the 
traffic now and services on Sprint is being billed under 
FTS2001.
    Mr. Tom Davis of Virginia. Thank all of you for being here 
today.
    I will let you step down and welcome our second panel to 
the witness table. We have John Doherty of AT&T James Payne of 
Qwest; Randall Lucas of Verizon; Jerry Hogge of Winstar and 
David Page of BellSouth.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. I would ask you to take about 5 
minutes and summarize your comments. We have read your 
statement and have questions based on it.
    We will start with you, Mr. Doherty, and move down the 
line.

  STATEMENTS OF JOHN DOHERTY, VICE PRESIDENT, AT&T GOVERNMENT 
 MARKETS; JAMES F.X. PAYNE, SENIOR VICE PRESIDENT, GOVERNMENT 
     SYSTEMS, QWEST COMMUNICATIONS; RANDALL L. LUCAS, VICE 
 PRESIDENT, SALES, FEDERAL MARKET, VERIZON FEDERAL INC.; JERRY 
   HOGGE, VICE PRESIDENT, GOVERNMENT SOLUTIONS AND ENHANCED 
  SERVICE PROVIDERS, WINSTAR; AND DAVID PAGE, VICE PRESIDENT, 
          FEDERAL SYSTEMS, BELLSOUTH BUSINESS SYSTEMS

    Mr. Doherty. Thank you for holding today's hearings to 
discuss GSA's Metropolitan Area Acquisition Program. AT&T 
appreciates the subcommittee's dedication to the stated goals 
of the MAA Program, end to end competition in the Federal 
telecommunications market and its promise of choice, innovation 
and lower prices to benefit agency users and taxpayers.
    The MAA Program was designed to bring these benefits to the 
local Federal telecommunications market. We believe a program 
that operates more like the private sector will benefit both 
taxpayers and government by reducing barriers to competition 
and the inefficiencies of the present program. We look forward 
to working with the subcommittee, other vendors, GSA and 
interested stakeholders to make this happen.
    I am pleased to respond to questions asked by the chairman 
in his letter of invitation and his request for recommendations 
to improve the MAA Program.
    While the program was launched as part of a tripartite 
agreement between Congress, industry and GSA, AT&T viewed the 
MAA Program as a real opportunity for government customers to 
realize benefits of end to end telecommunication competition. 
We still do.
    AT&T is committed to bringing choice to the local 
telecommunications market. We have demonstrated our corporate 
commitment to providing local service through a multibillion 
dollar investment in local service infrastructure. Today 2 
years after the first MAA contract award, I believe all 
stakeholders remain committed to the success of the MAA 
Program. Indeed, AT&T holds 10 of the 37 MAA contracts and has 
transitioned over 10,000 lines to date.
    However, a number of factors have slowed or prevented 
achievement of the program goals. Based on experience to date, 
we believe changes should be made to the program. These 
recommendations are: adopt the use of telecommunication service 
schedules, level the playing field for local service providers, 
provide financial assistance to agencies for local services 
transition, reduce GSA program administrative fees, and clarify 
program participant roles and responsibilities.
    There are several factors that have hindered the success of 
the MAA Program. These are: counterproductive, noncommercial 
practices; lack of commitment to transition services to the MAA 
Program; uncooperative, incumbent local exchange carriers; and 
untimely and inaccurate information from the government about 
customer telecommunication needs.
    Continuation of often higher priced legacy contracts with 
ILEX and ambiguous roles and responsibilities or stakeholders 
in implementing the program.
    We believe applying commercial practices would streamline 
the program and facilitate more rapid transition. We offer the 
following recommendations to address the impediments to this 
program. These recommendations, if implemented, will more 
closely align the program with commercial practices and realize 
the goals of the program.
    Our first recommendation is that GSA adopt 
telecommunications service schedules to encourage even greater 
competitive choice and eliminate administrative burdens. Under 
the schedule's approach, each vendor would disclose the terms, 
conditions and locations where it is going to provide specific 
services. These schedules would ensure fairness in 
implementation of the program while providing agencies with 
truly competitive prices and the diversity of innovative 
services currently offered in the commercial marketplace.
    The playing field must be level so that everyone can 
compete. Many agencies do not participate in the MAA Program 
because of the one-time charge required to install the 
facilities and equipment necessary for transitioning service. 
Incumbent providers hold an inherent advantage because they 
have existing infrastructure and need only reprice their 
current services which is a paper transition rather than a 
physical transition.
    End user agencies must be educated about the favorable, 
long term savings available under the MAA contracts and should 
be strongly encouraged to make use of these contracts. The best 
means of accomplishing this would be to allow vendors to freely 
market their MAA services to the agencies. If, as GSA officials 
appear to have indicated to GAO, GSA is moving to this 
position, we believe this is a step forward.
    Third, in order to assist end user agencies in their 
transition to an MAA Program, GSA should provide MAA customers 
with financial assistance through the use of a transition fund. 
GSA used an information technology fund to offset agency 
transition costs for the FTS2001 long distance service 
contract. More MAA transitions could be achieved by expanding 
the use of this transition fund to local services in order to 
offset the end user's expenses incurred when a physical 
transition is required.
    GSA's program administrative fee must be reduced. These 
administrative fees have significantly offset vendor offers. 
While the MAA Program has been successful in reducing prices 
from industry, only a fraction of the agencies have taken 
advantage of these lower prices. The current administrative fee 
structure has diminished agency incentive to transition to 
competitive vendors. The administrative fees applicable to 
schedules are significantly lower and would reduce prices paid 
by the end user agencies for local services in MAA cities.
    Clarify responsibilities of MAA Program stakeholders to 
ensure accountability, cooperation among all and more readily 
achieved MAA Program goals. To address this ambiguity of roles 
and responsibilities, AT&T conducted an extensive analysis of 
the MAA provisioning process and documented the specific 
responsibilities of vendors and the government.
    With our full support, this documentation has been 
incorporated into several of AT&T's MAA contracts. Adoption of 
a uniform definition of roles and responsibilities would 
promote greater understanding and accountability among all 
involved and optimize achievement of program goals.
    By adopting telecommunications service schedules, 
replicating practices of the commercial marketplace, and 
implementing the other changes recommended above, local 
exchange competition will be accelerated providing end user 
agencies with a variety of alternatives to meet their 
telecommunication needs and save significant taxpayer dollars.
    With the renewed focus of this subcommittee on the program 
issues associated with the MAA, we have an opportunity to 
change course and improve the speed of the implementation of 
the MAA Program.
    [The prepared statement of Mr. Doherty follows:]
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    Mr. Tom Davis of Virginia. Mr. Payne.
    Mr. Payne. My name is Jim Payne, senior vice president for 
Qwest Government Systems. I am pleased to be here to discuss 
the MAA's which constitute a significant portion of the FTS 
Program.
    Qwest is the fourth largest long distance provider in the 
United States, and we are also an international carrier and 
provide local services.
    This hearing is about the progress of the MAA Program and 
whether the program has accomplished its primary goals, 
ensuring the best services at the best prices for the 
government and maximizing competition for services. To that 
end, I will provide a brief overview of Qwest's perspective on 
three critical MAA questions.
    What was the goal of the MAAs and why are we here? Chart 1 
shows the goals. The goal was to establish a new paradigm 
reflecting the 1996 Telecom Act. It was to be the blueprint for 
the future. The paradigm includes three distinct contract 
vehicles: FTS2001, which we had a hearing about in April; the 
MAAs and the Niche contracts.
    The government would have at its disposal a single, 
integrated program that forces continuous competition, 
innovation and low prices.
    The second question, what is the current status of the MAA 
Program? Many parts of it are broken, but I do believe we can 
fix it. To date Qwest has won MAAs in Albuquerque, Boise, 
Denver, and Minneapolis based virtually on identical RFP 
requirements, yet our experiences in each city have been vastly 
different. With the exception of Minneapolis, in no case has a 
rapid transition been achieved. Further, the guiding principles 
promised that long distance would be in our contracts within 1 
year after the first FTS2000 contract was awarded. It has not 
happened.
    Our MAA experiences have been sobering. We identify the 
questions the committee has provided and we have some concerns. 
I would invite you to look at some of the examples. In every 
city instead of dealing directly with Qwest, the end user 
agencies are forced to deal needlessly and in many cases, 
exclusively through the GSA.
    In Denver, for example, a customer had selected Qwest but 
the GSA redirected the order to a competitor. This certainly 
was not what we had anticipated.
    The GSA contract management fee that applies to MAAs ranges 
from a low of 25 percent, and I heard an even greater high of 
85 percent. When comparing the GSA to itself and other parts of 
GSA, you can see these overhead management fees are 
unprecedented.
    The MAAs are voice centric. New and enhanced services such 
as DSL are not in the contracts that Qwest provides.
    There is a lack of consistent communication between GSA 
here in Washington and their regions, and it has delayed 
transition success. Regional and strategic MAA difficulties are 
not being handled in a timely fashion. It appears to Qwest that 
GSA's focus is largely on FTS2001 problems and not on the MAAs, 
thus competition has not been fully achieved.
    It is clear that the FTS2001 minimum revenue guarantee 
dominates the GSA focus. This issue has had a cascading impact 
on the MAAs by delaying the timely addition of long distance to 
the MAA contracts. This is not the deal that Qwest signed up 
for.
    What are Qwest's recommendations? Making these 
recommendations, Qwest understands the provision of service to 
the government is subject to the requirements of the Telecom 
Act and FCC policies. We believe our recommendations are 
consistent with all these requirements as well as focused on 
the MAA contract principles and the guiding areas.
    Our recommendations are: GSA must adapt a more balanced, 
overall management structure for FTS starting with the same 
management fee across all the FTS programs and they should not 
exceed 8 percent.
    The GSA must stop inserting itself in many cases needlessly 
between the vendors and the agencies. We believe this is a 
waste of tax dollars and does prevent competition.
    The GSA must adopt best practices using tools and methods 
so the agencies can make informed decisions and demonstrate 
accountability.
    We believe the GSA must commit to and publish a meaningful 
schedule to deliver long distance services through the MAAs as 
well as the other suggestions we are making today. We recommend 
that the GSA issue a schedule, and we offer one on the board 
here which clearly demonstrates dates and deliverables to 
introduce long distance services.
    Let me emphasize, the MAA crossover process should be quite 
simple. I emphasize we need clear dates and clear deliverables.
    In summary, these actions and recommendations are critical 
to putting FTS2000 back on track and I believe GSA does add 
value to the process. However, please don't ask me to choose 
between the GSA and my end user agency.
    Thank you for the opportunity for Qwest to present its 
views this afternoon.
    [The prepared statement of Mr. Payne follows:]
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    Mr. Tom Davis of Virginia. Mr. Lucas.
    Mr. Lucas. My name is Randy Lucas and I am the vice 
president, general manager of Verizon's Federal team. Verizon 
Federal is a part of Verizon's Enterprise Solutions Group and 
is specifically organized to serve the information technology 
needs of our Federal customers. Verizon Federal has numerous 
contracts with various Federal agencies that provide a host of 
information technology and telecommunications services.
    From Verizon's perspective, the MAA process has generally 
worked well and been a success but it could be made even better 
if GSA continues to communicate with industry on processes and 
guidelines that dictate how the MAA program will evolve.
    Verizon has been a supporter and active participant in the 
MAA Program since its inception. In fact, Barbara Connor, the 
former president at Bell Atlantic's Federal Government Line of 
Business testified before the Committee on Government Reform 4 
years ago, encouraging Congress to support the separation of 
local service and long distance services in developing the 
government's procurement strategy. A lot has changed in this 
industry since that time and real progress has been made in the 
implementation of the MAA Program.
    The stated goals of the MAA Program have been to sustain 
price reductions for local telecommunications services in 
selected metropolitan areas; provide a flexible, contractual 
vehicle with high quality services; and to create a contractual 
structure that encourages agency cooperation and aggregation of 
requirements. GSA is to be commended on the pursuit of these 
goals and the impact the MAA has had in fostering competition.
    Verizon is in the unique position of having seen the MAA 
from several different views. One of the first cities awarded 
was New York City. We lost. The sole award was made to AT&T. In 
January 2000, we were awarded the WITS 2001 contract which GSA 
considers part of the MAA Program. We won a multiple award 
contract in Buffalo along with AT&T. In Baltimore, where we 
were the incumbent vendor, we lost in a single award decision 
to Winstar. We were awarded a contract in Boston, a multiple 
award city with contracts also going to AT&T, SBC and Winstar. 
Earlier this year, Verizon was awarded the first crossover 
contract to go back to New York City to compete for services 
there.
    As you can see, we have seen multiple awards, single 
awards, we have won, we have lost, we have crossed over, just 
like the program strategy envisioned.
    Though the MAA Program, from our view, has had its 
successes, we believe there are areas for improvement. We would 
suggest that GSA more strictly enforce the post-award 
forbearance timeframes for the awarded cities. While Verizon 
understands and appreciates the need for the fair consideration 
process, we suggest the process needs to be expedited so that 
customers can take advantage of the new services and better 
prices offered in the MAA contract.
    The process for technology refreshment and the ability to 
acquire up to date goods and services are potential areas for 
improvement.
    While the MAA Program offers some limited data services, 
customers cannot currently buy state-of-the-art 
telecommunications technology such as frame relay, ATM or SONET 
services. Federal Government customers want and need these 
technologies to meet the wants and needs of their customers, 
ultimately the taxpayer.
    Industry needs to be allowed to provide these types of 
services as well as voice over IP, gigabit ethernet, and DSL 
based solutions. As voice, data, and video networks converge to 
a common platform, the MAA contract should allow for the rapid 
inclusion of these new technologies.
    Verizon is still prohibited from providing long distance 
services in 11 States and the District of Columbia. This is an 
important regulatory hurdle as we wait for the summer release 
of the crossover guidelines for FTS2001. If GSA requires that 
all potential entrants to that market have to be able to 
provide long distance services to every State, Verizon will be 
locked out. If we will be able to offer long distance services 
as an option on our MAA contract, we can compete where we have 
been approved to provide long distance services. This will mean 
more choices for our customers and a better deal for the 
taxpayer.
    I indicated that we have competed both successfully and 
unsuccessfully against AT&T, SBC and Winstar for local services 
via the MAA Program. In each case, we were the incumbent local 
exchange carrier. The opportunities that the MAA presents would 
be even more attractive if vendor partners knew they could 
bundle voice, data, long distance and Internet services on the 
same contract platform.
    Verizon values our partnership with GSA and our successes 
within the MAA Program. We have found the representatives from 
national GSA, as well as those from the regions, have been more 
than willing to talk through issues seek feedback and discuss 
process improvement. The MAA is a good strategy for achieving 
the primary objectives. Can it be improved? Certainly, it can. 
It is a new process. In my 19 years of serving this market, I 
have found precious few things that cannot be improved.
    I thank the committee for the opportunity to discuss the 
MAA Program. I would be glad to answer any questions you may 
have.
    [The prepared statement of Mr. Lucas follows:]
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    Mr. Tom Davis of Virginia. Mr. Hogge.
    Mr. Hogge. My name is Jerry Hogge, vice president of 
Winstar Government Solutions. I appreciate the opportunity to 
discuss the Metropolitan Area Acquisition Program. I am here to 
request your support in accelerating the pace of its 
implementation.
    As reported in GSA's press statements, this $4 billion-plus 
program has the potential to save taxpayers millions of dollars 
this year and over $1 billion going forward if it is 
implemented expediently.
    Winstar is a broadband services company and is one of only 
two competitive local exchange carriers participating in the 
MAA Program, and is the holder of more MAA contracts than any 
other vendor. Winstar is also the only vendor offering local 
dial tone to its customers primarily using a 38 gigahertz 
wireless technology.
    As a competitive local exchange carrier, Winstar views 
GSA's MAA Program as an ideal business channel offering the 
opportunity to provide substantial and concentrated amounts of 
local voice and data services in major metropolitan areas. 
Winstar has competed for 17 MAA contracts, won 12 and 2 are 
pending decision.
    Our presence in this process has undoubtedly been a key 
factor behind the vigorous competition that has taken place and 
a key part of the dramatic price reductions seen in the MAA 
contract prices.
    As you may have read recently Winstar has voluntarily filed 
for reorganization under Chapter 11 of the Bankruptcy Code. We 
have received our initial funding, continue to provide services 
to our customers, are adding new customers daily and intend to 
emerge from this process with GSA and the Federal agencies as a 
prominent and strategic part of our long run business plan.
    Winstar regards the MAAs as a tremendous success from a 
contract award perspective. However, only a minuscule part of 
the promised savings has been realized because most of the 
business promised in the contracts has yet to be implemented. 
Simply put, Federal customers are not being transitioned to the 
MAAs at an acceptable pace. Processes are lengthy, basic 
paperwork is slow to get done, fair consideration is inherently 
unfair in certain instances and conflicts exist with in-place 
contracts.
    As of today, well over a year into Winstar awarded 
contracts, we have received orders for only 5 percent of the 
promised lines. Further, since most orders have been received 
very recently, only 1.7 percent of the lines forecast by GSA 
for the first year in our 12 cities have been installed. We 
believe these statistics are not uniquely loaded to Winstar but 
instead represent programwide failures. In fact, most of the 
promised MAA business remains with the incumbent RBOCs.
    The drastically slow revenue flow from the MAA contracts 
has had a significant impact on Winstar and will ultimately 
impact our ability and willingness to participate in the 
program. The main impediments we have experienced in 
transitioning MAA business include administrative impediments 
such as slow receipt of notice to proceed, fair consideration 
of requests and responses, and ultimately service orders.
    The average delay between the date we received a notice to 
proceed and our first order is almost 4 months and some cities 
like Indianapolis have yet to place their first order with us, 
resulting in the passage of an entire year where customers 
cannot take advantage of Winstar's reduced MAA prices.
    The fair consideration process is somewhat a misnomer. 
Certain GSA regions apply very rigid guidelines to how vendor 
priced proposals are to be presented and then take months to 
arrive at seemingly simple buying decisions. Other local GSA 
offices specify which technologies can be used to satisfy a 
requirement such as an in-ground fiber deployment. This 
violates the contract as the specifications are to be expressed 
in terms of service requirements, not a definition of a 
specific technology or solution.
    The MAA contracts are purposely uniform in their product 
and service content. All MAA providers are presumed to be equal 
in terms of technical and management merit as a result of the 
RQS process. Thus, post-award buying decisions should be a 
simple matter of comparison shopping and choosing a vendor. To 
date, this is not the case.
    Finally, in certain MAA cities, fair consideration 
decisions do not always appear to be communicated. In several 
instances, we have not yet been notified of the outcome of fair 
consideration proposals we submitted in November 2000. Either 
we lost and haven't been notified as to why or GSA has taken 
more than 8 months to make a simple price comparison. Neither 
reason is acceptable.
    The fair consideration process is further confounded by 
apparent conflicts with existing contracts. In Dallas, for 
example, Winstar's MAA service price must offset a termination 
fee that SBC charges GSA to disconnect its service. This 
external cost works against all nonincumbent MAA winners and 
destroys the level playing field envisioned by the fair 
consideration process.
    Indeed, because of the incumbent's disconnect charge, GSA 
apparently and wrongly concludes that we are not a competitive 
choice since it will take many months just to break even with 
respect to this disconnect fee.
    The MAAs are 8 year contracts and we believe we provide a 
better life cycle value and savings that is not being properly 
considered.
    To the best of our knowledge, less than 10 percent of the 
lines forecast for our 12 cities have been transitioned. We 
propose a few changes to improve these results.
    Simplify the transition process; speed it up; communicate 
the results and track performance. Transition and fair 
consideration are extremely measurable. A scorecard such as the 
one on the display that begins with the baseline circuit 
forecast represented to industry by GSA should be immediately 
implemented and tracked monthly. On the screen is a card which 
shows the percentage of forecast lines that have had orders 
placed with an MAA provider and the percentage of forecast 
lines that have been installed. This sort of scorecard would 
highlight cities that are on target and compare them to those 
that are not, hopefully spurring action, fixing process 
problems and eliminating delays.
    GSA can utilize the IT fund to help defray initial one-time 
transition costs to a nonincumbent's network as well as other 
external and equipment changeout costs that otherwise bias the 
purchase decision in favor of incumbent providers.
    GSA's forecasts of their requirements in each city are the 
basis for the bargain. Millions of dollars were not invested in 
winning these MAA contracts just to share a $100,000 minimum 
revenue guarantee. Instead, we relied on GSA's detailed 
forecast of business and the expectation that GSA would meet 
those forecasts and the savings touted in its own press 
statements.
    GSA received substantial price reductions based on the 
promised business. We are prepared to deliver the rates 
promised in our proposals and it is time for GSA to live up to 
the lines promised in their forecasts.
    I would be happy to answer any questions you have. I 
appreciate the opportunity to appear.
    [The prepared statement of Mr. Hogge follows:]
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    Mr. Tom Davis of Virginia. Mr. Page.
    Mr. Page. My name is Dave Page. I am vice president 
responsible for BellSouth's business with the Federal 
Government. I represent a staff dedicated to ensuring our 
Federal customers receive the best technology available.
    I have previously submitted my full statement to the 
subcommittee which I ask to be a part of the hearing record.
    During my 32-year career at BellSouth and predecessors I 
have held various positions in sales and customer support. I am 
fortunate to have had the opportunity to see telecommunications 
become the most exciting industry in the world.
    BellSouth is actively capitalizing on the changes in the 
industry to provide our customers with leading edge services. 
Building on the most sophisticated network infrastructure in 
the southeastern United States, our challenge is to maintain 
our perennial receipt of the industry's highest award for 
customer satisfaction, while simultaneously expanding our 
business into the global marketplace.
    GSA's FTS Program and the MAAs are key opportunities for 
BellSouth to achieve this growth. BellSouth has won 3 MAA 
competitions--Atlanta, Miami and New Orleans. The 1-year 
forbearance period for the Atlanta and Miami contracts expired 
April 26, 2001. We look forward to being able to offer enhanced 
and emerging services such as frame relay, ATM, SONET and long 
distance. Unfortunately, there have only been limited 
opportunities to expand the contracts.
    I have heard all the reason why we haven't been able to 
move forward and add new optional services. Some folks are 
concerned about commitments to FTS2001 contractors but is the 
government keeping its commitment to BellSouth and the millions 
of customers we serve.
    It is not my intention to raise issues to which I have no 
solution, so I won't sit here and grumble about the transition 
and how it slowed my ability to implement services under my 
contracts. In many cases, there has been a lack of creativity. 
I recognize this may be caused by too few people in the field 
and not enough support from headquarters. It is our 
understanding that processing contract modifications to add new 
services might take a back seat to basic transition. I 
understand that priorities sometimes change and we all have to 
be flexible in the process.
    Nevertheless, Mr. Chairman, BellSouth has been a good 
corporate citizen when dealing with all the stakeholders. We 
find we too have competing obligations for our people, our 
customers, our agencies and our shareholders. In the end, the 
approach to any problem that seems this complex is to get to 
the root and find a common solution.
    I was reminded that industry, government and Congress had 
already solved the problem. The best solution to move us 
forward is to return to the guiding principles. These 
principles are maps that tell us how to proceed.
    We aggressively lowered prices to win these MAAs. Our 
intent was to do more than just retain the business we have. It 
was an opportunity to expand into markets we won't enter and 
offer new and enhanced services. In fact, one of the primary 
reasons BellSouth bid on the MAAs was to be a partner with GSA 
moving from a low price bid war style of competition to a best 
value partnership. This is not a merge. Partners should take my 
interests to heart and protect me from FTS2000 transition 
delays and difficulties. Partners should allow us to work 
together to facilitate meaningful discussions at all levels. 
Partners should be fulfilling their obligations to increase 
opportunity for competition rather than taking an opportunity 
my team develops and giving it to a competitor. Partners should 
live up to their commitments to all FTS program stakeholders.
    To their customers, GSA owes the economic relief of the 
competitions that have already been conducted. The MAA should 
not subsidize GSA at the customer expense. To their contractor, 
GSA owes full, open, head to head competition. To the taxpayer, 
GSA owes more efficient government enabled by ruthless 
competition in the local and long distance services.
    BellSouth appreciates this opportunity to share its views 
and welcomes any questions you may have.
    [The prepared statement of Mr. Page follows:]
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    Mr. Tom Davis of Virginia. Ms. Davis.
    Mrs. Jo Ann Davis of Virginia. Mr. Hogge, you stated in one 
city you waited 4 months before you got the notice to proceed 
and in Minneapolis it has been a year.
    Mr. Hogge. No. I talked about an average period of time 
from contract award to when we received a notice to proceed, 
kind of the administrative point in time when you are 
responsible for delivering contract deliverables and can start 
working business under the contract.
    In Indianapolis, we won the contract on April 27, 2000; the 
notice to proceed came on July 11, roughly 2\3/12\ months 
later. It is getting to that first order that has taken to this 
day.
    Mrs. Jo Ann Davis of Virginia. Your contracts when you bid 
was based on dollars for a year ago?
    Mr. Hogge. Right. What we did in assessing each of these 
contracts city by city, we looked at the forecast of business, 
where the buildings were, how they matched our developing 
network and bid based on that forecasted business which was 
very specific, year by year, by service, by product and 
represented that in a business evaluation that we assessed and 
decided to go forward with each bid.
    Mrs. Jo Ann Davis of Virginia. I would like to ask the same 
of each of you. Did you experience the same delay and cause you 
a loss in revenue?
    Mr. Doherty. Yes. From an AT&T perspective, similar to 
Winstar, a robust business case was put together looking at the 
actual customers, the lines, the timing of the announcement of 
the award. In my testimony, we talked about untimely and 
inaccurate information. There is quite a bit of frustration if 
you are not the monopoly where you have all those 
infrastructures sunken costs in there for years. You have to 
plan when you are going to put infrastructure in to all your 
new customers and each of those delays delays not only 
implementing the capital expense but also the operational 
people you have in that city where you have targeted them to 
implement a program and they may be sitting around for 3, 4, 5 
or 6 months waiting for the first order. There as been a large 
degree of frustration for AT&T.
    Mr. Payne. I have the chart in front of me showing award 
dates and notice to proceed. Typically it has taken 3 months 
but in Boise, it took 7 months. You are not authorized to do 
any work until you have notice to proceed. In each case, we 
have hired staff ready to go, to move forward, so that is cost 
we have absorbed is for 7 months until you are allowed to work 
with the end users.
    Mr. Lucas. Of the three situations I describe in the 
testimony, there is still one that the wait time between the 
contract award and when we first got orders that was quite 
lengthy but we had to submit some interim proposals in that 
process as a part of the Fair Consideration Act. From the time 
we submitted the second round of proposals to the time we got 
the orders, it doesn't appear very lengthy at all.
    Mr. Page. There is a very big difference between the two 
regions I support. Region 7 in New Orleans was a very rapid 
process and region 4, Atlanta and Miami it has been a longer 
process and seems to be some confusion in how they are supposed 
to notify you, when they are supposed to notify you and there 
just seems to be some methods and procedures they are lacking 
there. I don't know that it has been 2 months though.
    Mrs. Jo Ann Davis of Virginia. Am I to get from most of you 
that the problem is the communications because it is a new 
program. I don't understand why two different regions would 
have such a significant difference. Do you get notification 
from the Washington office or the regional offices?
    Mr. Page. It comes from the regional office.
    Mrs. Jo Ann Davis of Virginia. Same for all of you?
    Mr. Payne. I want to emphasize something Winstar indicated. 
In Boise, it took 7 months to get the notice to proceed. We 
have not yet received the first orders. That was awarded in 
August 2000, last year. The point is there is a notice to 
proceed and then there is subsequent process and then you get 
the orders. So it isn't just the notice to proceed issue that 
is the delay. It is that interim between notice to proceed that 
the fair consideration process, which varies city by city, will 
determine when you get your first order. So you must first get 
your notice to proceed and then at some point there is a 
description separate from what was in the RFP, that region 
determines how they will define fair consideration.
    Mrs. Jo Ann Davis of Virginia. Do you think as a vendor you 
understand the definition of how they determine fair 
consideration?
    Mr. Payne. Since it is not in the RFP, it is absolutely at 
the discretion of the local city.
    Mrs. Jo Ann Davis of Virginia. It is not in the RFP?
    Mr. Payne. There is a reference to fair consideration but 
the process is not broken out, so each city takes their own 
definition of it. One of the reasons Minneapolis transitioned 
so quickly is they went to the notice to proceed and had a 
straightforward, fair consideration process. We went right into 
transition. As I sit here, we are 100 percent transitioned in 
Minneapolis.
    Mr. Tom Davis of Virginia. Mr. Turner.
    Mr. Turner. I find this whole process, even though I know 
it is designed to be an improvement over past practices, quite 
confusing. I get the impression that the vendors find it quite 
frustrating. It seems you aggressively pursue trying to make a 
proposal and then you are told you have been awarded the 
contract and then it takes months for anything to ever happen 
with regard to what you thought you got.
    Mr. Doherty, I am interested about the suggestion you made 
about moving to telecommunications services schedules. Explain 
to me exactly what that means and how that would differ from 
what we are currently doing. I also want to see if everyone on 
the panel agrees that would be a very positive change?
    Mr. Doherty. It is our position that we believe all vendors 
should be able to market services to the agencies when and if 
they have the capability, whether it is local, long distance or 
end to end service. It is our belief these contracts with the 
forbearance periods which have not been met and a number of us 
have relied on these dates where they said you have a contract 
for a year and then you have a crossover, these programs are 
too hard to manage.
    It is our position if you allowed industry to look at where 
you have a footprint--AT&T has capacity in 84 cities across the 
United States--we could offer the GSA a schedule of services we 
offer to those agencies and they could be free to buy those 
services at will.
    It would do two things. One, they would compare those 
services without any hidden fees with whatever is available to 
the market. Two, I don't think you would experience some of 
these lengthy delays mentioned here because the agencies would 
have all the information in front of them, I presume there 
would be multiple vendors who would enter services on that 
schedule and the process would be much quicker, therefore 
turning over savings to the agencies and taxpayers in a much 
quicker fashion.
    Mr. Turner. Does everyone agree that would be an 
improvement.
    Mr. Payne. To go back to what we are supposed to achieve, 
it is best practices, best service and maximize competition. 
From a business perspective, you constantly look at your 
methods and procedures to make certain you are doing the right 
thing to achieve your goals. I believe the great frustration 
here is the process is not designed to evolve with the 
competitive process.
    In the city I described, Boise, we are landlocked into how 
do we interpret fair consideration. I am looking for some 
uniformity. If you spend a year of delaying, we have heard $1 
million a month. That is not a good use of anyone's time. Go 
back and revisit the process.
    The overhead rate on schedules is 1 percent. Therefore the 
process is very expedited and off you go.
    Mr. Lucas. I don't disagree with the schedule being another 
alternative. I would have some mechanical issues with local 
services being provided on a schedule where every State is 
ruled by a different public service commission. I am not sure 
if we were going to mechanically create a schedule that could 
provide local services in 50 States what that price might look 
like once we take into consideration a balance across the 
country.
    A schedule would certainly be an easier vehicle. We have a 
GSA schedule where we sell equipment and labor services. That 
works very good. From my view, that is another channel, just as 
MAA is another channel to the Federal customer. It becomes a 
channel conflict question as well. How many channels do you 
need to provide the same kind of service.
    On the surface, the schedule would be a probably easier 
managed option but it would have some mechanical issues we 
would have to work through.
    Mr. Hogge. I would echo a good bit of Mr. Lucas' comments. 
Winstar also has a Federal supply schedule but we have a 
program that can work, we have a fair consideration process 
that is very loosely drafted, I think purposely so, and each 
GSA region has taken their own interpretation of how they 
implement that language. To us it should be a businesslike 
process. It is intended to be a process essentially of 
comparison shopping. These are nonmandatory contracts, in most 
cases multiple award, and you had a prequalification process 
through the RQS process that took some 2 years to complete, to 
evaluate all bidders on the basis of their technical and 
management capabilities.
    After you have gotten the notice to proceed and are into a 
site by site or agency by agency specification of requirements, 
you lay Winstar's proposal next to the other providers and make 
a decision. We view it as a process that is fixable but the FSS 
provides another means for doing it.
    Mr. Page. I would like to echo some of what Mr. Lucas said 
and say it would be a different channel. I do not think the MAA 
is above being fixed. I think it would be a wonderful 
contractual platform for us to use. Ms. Bates said earlier that 
the difficulty on local service is trying to determine exactly 
what people need for today and into the future. That is not a 
cookie cutter kind of process where you order from column two 
and one from column three. If you really know what you need, 
you can do it off a schedule. I think the MAA can be more than 
that.
    Mr. Turner. Ms. Bates, do you have a comment regarding my 
question? What do you think about moving to a schedule?
    Ms. Bates. First of all, I would like to indicate that in 
thinking about this, I think this is a very complex issue. I 
would say regarding schedules that it is easy to say but very 
difficult to do and requires some in-depth study.
    The problems we have been addressing today in the large 
part would not go away with the schedules. There has been much 
discussion of fair consideration. Fair consideration is a key 
component to buying off the schedule, so that does not change.
    In terms of implementation problems that we have spoken 
about today and the issues of plowing new ground in a 
deregulated market with many forces and contradictory 
definitions of success relative to business success, scheduled 
contracts do not change that. Those forces in the local market 
are there and are very dynamic, and are the byproduct of 
competition.
    The complexities of today are the complexities of 
competition and not the good old days of a single choice, one 
could say.
    The other area addresses the fees and I do not want my 
remarks to be construed in any way as defensive about a fee. We 
need to be mindful of our fee and that is what you hold us 
accountable for. I don't think we need to let the fact that 
FTS/GSA is fee for service obviate other issues. Many of the 
issues we are facing today and have been discussing this 
afternoon are here on the table ahead of us, fee or no fee. In 
the case of where a fee is 80 percent, it is $4, so I am not 
wanting to take attention from it but I don't think we ought to 
let it take our eye off the ball of some of the real hard 
issues we are facing.
    Mrs. Jo Ann Davis of Virginia [assuming Chair]. We will 
take a short recess to go vote and we will be right back.
    [Recess.]
    Mr. Tom Davis of Virginia [resuming Chair]. My first 
questions will be for AT&T.
    We understand effective coordination with the incumbent 
local providers is a critical success factor in the 
implementation process. You mentioned that as one of the 
problem areas. What steps have you taken to obtain that 
cooperation and what additional steps does GSA need to take to 
ensure that coordination? What steps do we need?
    Mr. Doherty. Let me say I agree with Ms. Bates and the 
testimony as far as we are working through the issues of the 
program. I understand that. I also understand depending on your 
comments that the regulatory environment in different parts of 
the country and the issues are different.
    However, I do believe that the accurate and timely 
information shared with the winning vendors as well as those 
vendors who competed for those services, particularly the ILECs 
and who have contracts, the time to work out how you are going 
to support the winning vendors is before those contracts are 
awarded.
    For example, in New York the riser cable issue became a 
major delay for AT&T in working with Verizon in New York to 
move forward to get access to buildings. That is cable inside a 
building that takes you from floor to floor.
    Mr. Tom Davis of Virginia. That is Verizon's cable?
    Mr. Doherty. It was GSA's position it was their cable, 
Verizon went to the PUC and it sided with Verizon and said it 
is Verizon's cable. That was a lengthy process. We also were 
told to use several different tariffs, both the wholesale and 
retail tariff and all of that is very time consuming.
    If some of those logistics had been worked out prior to the 
award, the implementation in New York would have been much 
quicker.
    Mr. Tom Davis of Virginia. That is also in a State where 
Verizon has been able to go across lines, so you don't have the 
local issues you would in other areas in terms of local 
competition?
    Mr. Lucas. Yes. That was the first State we were granted 
long distance relief and one of the check marks of being able 
to do that is that we have adequate local competition.
    Mr. Tom Davis of Virginia. Which should have incentivized 
you to get these guys in as fast as you could.
    Mr. Lucas. We believe we have cooperated with all those 
that want to get into the local service business.
    Mr. Tom Davis of Virginia. In New York.
    Mr. Lucas. In New York.
    Mr. Doherty. In cooperation with GSA, we are writing a 
document to describe the roles and responsibilities of the 
agencies, the government, the vendors, vendors who may support 
the agencies and that has been incorporated into our contracts. 
I think that has been very helpful in streamlining who is 
supposed to do what and when.
    When an agency orders something, what is it they are 
ordering and do they understand what they are ordering and what 
will be delivered by the program. Spreading that across all the 
MAA contracts for the different vendors would be helpful.
    Mr. Tom Davis of Virginia. You are on both sides of this, 
Qwest is?
    Mr. Payne. Yes, sir. We have talked about the management 
fee and I realize it is only a couple dollars here and there 
but it does frustrate the agencies. I want to be clear there 
has been specific guidance given to me here in Washington and 
to my representatives in the field. I have my program manager 
sitting here behind me and we were instructed not to discuss, 
not disclose the overhead rate.
    I think many of us at this table have gone through 
multimillion dollar, billing system upgrades so that management 
fee can be embedded in a line cost and not broken out 
separately. In the FTS 2000 world, the contract ended in 1998. 
There was a line item so every month you were reminded or you 
could see what the management fee was. I do think that 
frustrates some of the selling process.
    I don't understand why we can't deal directly with the 
agencies. Some cities do allow it but three of the four will 
not. I heard one of the achievements in the first panel was 
moving from analog to digital. Many customers I am dealing with 
did that 15 years ago. I don't consider that progress. In 
Australia, it is against the law to sell something that is an 
analog interface.
    When you talk directly to a customer, you are going to get 
the advanced technology and all the implementation advantages 
that come with it. Qwest is very anxious to bring DSL----
    Mr. Tom Davis of Virginia. What happens in the translation?
    Mr. Payne. If you went down this line, when someone is 
carrying the water for you, someone is interpreting what your 
selling proposition, I think it is a much better deal to say 
are you aware of hosting opportunities Qwest has in this area, 
are you aware of the DSL product, so the end user agency is 
starting to design their solutions to leap frog right into 
advanced technology.
    Mr. Tom Davis of Virginia. It expands their whole universe.
    Mr. Payne. Absolutely. That kind of dialog I witness 
everyday. It has been mentioned that the agencies in many cases 
want to use tools to make evaluations. My understanding is the 
minor tech pricing tools are not available and haven't been for 
months, so the agencies are out there without a mechanism to 
make those evaluations. The agencies are caught without a tool 
to make the evaluation. I am not clear why that is but that is 
what I understand.
    My most important issue is in a business environment, I 
learned a long time ago nothing happens because you work hard. 
That is a nice thing but you have to have a schedule and manage 
to the schedule. At this hearing on April 26, we were told long 
distance services will be available by the end of the summer. I 
proposed a schedule. I am looking forward to September 22 
providing long distance services under FTS2000 in one contract. 
That was the obligation I thought I heard. I am looking for a 
schedule of dates as we run most of our business there.
    The field is very much voice centric. We need an education 
process. When we go out and talk about our solutions, we are 
finding the field doesn't have basic training, neither GSA nor 
the agency. We have to figure a way to bring them into the new 
century about how telecommunications works. It is hard to get 
into advanced technology without that.
    Mr. Tom Davis of Virginia. You recommend that the MAA 
Program adopt the use of telecommunications service schedules 
and also reduce the GSA program administration fees and in turn 
a reduced role for GSA in managing the agency's 
telecommunications acquisitions.
    Under that proposed scenario, how would those agencies that 
rely heavily on GSA today because they don't have the staff to 
plan and implement these services manage their requirements? 
How would you envision the roles of GSA, the contractors, the 
customer agencies would be redefined?
    Mr. Doherty. I think one of the things our position 
supports is the fact we can't live in how we used to do things. 
If we are truly going to open up and are committed to bringing 
local competition throughout the United States to all the 
agencies, we have to look at doing things differently than we 
did in the past. If you currently look at the way the schedule 
exists for GSA for agencies to buy services, it is take all or 
nothing. There isn't a way you can say what I really need is 
technical information on this particular item and that is what 
you pay, kind of a fee for service type thing.
    I would encourage the GSA to look at different approaches 
to support the agencies in making buying decisions. I 
completely support the testimony of Ms. Bates earlier about a 
number of technical folks have left the agencies and a number 
of them do rely on GSA. We believe there could be a different 
proposition on how they are supported instead of having a fee 
that supports all that.
    Mr. Tom Davis of Virginia. There was a recent Federal 
Computer Week story that noted the Gov Works Program at the 
Minerals Management Service is exploring the establishment of a 
telecommunications services schedule to sell to Federal 
agencies. Is that a good idea? Would you support that?
    Mr. Doherty. We would absolutely support that.
    Mr. Payne. Let me add, I think competition always enhances 
choices and better prices. I think it should certainly have an 
effect on these programs.
    The critical difference is the GSA schedule does not allow 
any services that compete with the FTS services. There is a 
restriction of competition on the schedule side. I assume 
Interior is not going to take that approach. That will open an 
array of competition against FTS2000.
    Mr. Tom Davis of Virginia. That could undermine FTS2001, 
their minimum guarantees and everything else?
    Mr. Payne. It will encourage the prices to fall. The 
minimum revenue guarantee is a separate set of problems and I 
don't think it is related to prices.
    Mr. Tom Davis of Virginia. That is not the Minerals 
Management Service's problem?
    Mr. Payne. That is correct.
    Mr. Lucas. We would have the same issue. A schedule is 
something a little easier to manage but the mechanics of having 
a schedule that would be able to provide local services in all 
50 States would be mechanically a challenge because we would 
have to make sure we met all the needs of the 50 individual 
public service commissions. It is a regulatory issue for us as 
far as the way Verizon looks at it. It is a different 
proposition for the end user agencies. There is a value add in 
the GSA's program on the GSA side that would be a distinction 
with the schedule approach.
    Mr. Page. I don't disagree. It is a good additional channel 
for people to use but I have to emphasize what Mr. Lucas said, 
the regulatory battles you would have to run to try to come up 
with a 50 State price for something would be enormous.
    Mr. Tom Davis of Virginia. Although it has only been 
exercised in one instance to date, it is my understanding the 
MAA contracts do have a direct order, direct billing option 
that would seem to promote the kind of direct customer, 
provider interface relationship you find missing. Have you 
looked at that and does it meet your needs?
    Mr. Payne. Indeed we are aware of that. The delta between 
the direct bill versus full service--in Denver the full service 
fee is 44 percent management fee, the direct bill is 39 
percent. That is still pretty hefty overhead. We are not 
allowed at this stage in any of these four cities, the agencies 
are not allowed to come to us directly. That has to be 
separately authorized so we have not had an agency to select 
the direct approach. All of my agencies are at the full service 
level.
    Mr. Tom Davis of Virginia. Would it be helpful to a speedy 
transition if there was an Interagency Management Council for 
the MAA Program as we have for the long distance component of 
FTS2001?
    Mr. Doherty. Yes. I think anytime you can sit down and talk 
with all the principals, you are likely to get faster results. 
We all have our different motivations and different agendas but 
we also share the same sizable number of problems. Getting 
everyone's opinion on the table and talking through it is the 
fastest way as opposed to sending letters back and forth and 
GSA being in the position of having to filter everyone's 
differences.
    Mr. Tom Davis of Virginia. You identified the slow pace of 
orders as a factor in the transition delays noting to date you 
have received orders for only 5 percent of the identified 
lines. What steps have you taken by yourself or with GSA to try 
to facilitate contract marketing and service ordering 
processes?
    Mr. Hogge. Like all the other MAA winners, you start out 
with an initial event, kick off the city, get things going and 
try to work through the regional GSA office assigned to 
managing that specific MAA market to get out awareness, get 
customer interest and to start motivating the service order 
process.
    We have been actively doing that, we have been actively 
working with Sandy and Margaret who have instituted periodic 
meetings with each region to assess and track performance.
    In our testimony we suggest shining the light of day on 
where we are with respect to those forecasts. You get 
visibility on something and results tend to follow. We know 
with great detail what the GSA felt the requirements would be 
by city, by product by year. That is what we stepped up to the 
plate for and that is what we would like to see tracked. 
Whether it comes to Winstar or not, we know where we stand with 
respect to the fair consideration process in the multiaward 
cities as well as the single award cities like Baltimore and 
Cincinnati.
    Mr. Tom Davis of Virginia. I understand agencies didn't 
budget for one-time transition related costs such as 
termination fees. Given GSA did not collect funds from the 
agencies in advance to fund these one-time charges, what should 
we do now to address the issue?
    Mr. Hogge. As I suggested, perhaps the IT fund could be 
used to defray those one-time costs as well as taking a longer 
view of things. I understand how agencies do their fiscal year 
budgeting but Winstar has a built-in value proposition in the 
fixed 8 year pricing we proposed to take a life cycle view of 
things, to adjust the fair consideration process, to remove any 
kind of external factors that otherwise bias the decision 
toward the incumbent. Any combination of those could be used to 
remedy a situation.
    Mr. Doherty. It is my understanding that prior to going 
into the MAA Program, GSA had somewhere around 22 to 24 percent 
of the agencies used GSA for local services. I think GSA needs 
to take a much longer view of what would happen to the 
overheads if that was driven to the 55, 60, 65 percent 
capturing market share and instead of having some of these 
rates we have heard, from 23 to 84 percent, to lower those and 
take some of those fees and let the vendors use that as a short 
term service initiation charge. Increase our fees, that money 
goes to the vendors, the vendors now would take care of upfront 
capital costs and over a period of time, that would go away.
    If GSA looked at a model, I think those fees could be used 
in some type of transition fund.
    Mr. Tom Davis of Virginia. Mr. Page, you talked about the 
importance of niche contracting as a component of the overall 
FTS2001 strategy. It appears that concept really isn't being 
utilized by GSA. Would you agree, and if you do, what can be 
done to improve that utilization?
    Mr. Page. The only what I would call niche contract--a 
trilogy of contracts, FTS, MAA and the niche contract--all 
should be able to intermingle and compete with each other as we 
proceed--the only one I am aware of is the DSL contract 
recently awarded nationwide. I would consider that a niche 
contract for GSA. I don't know of any others.
    Mr. Tom Davis of Virginia. As far as you see, they are not 
utilizing it to the extent they could?
    Mr. Page. It is underutilized I would think.
    Mr. Tom Davis of Virginia. Have you had any difficulty 
marketing to customer agencies?
    Mr. Page. I have two extremes. In New Orleans where I am 
the sole provider, I have a relationship with GSA in region 7 
where we developed a marketing plan, we are actively going 
after customers not presently GSA customers and doing it in a 
uniform manner. We have worked with Margaret and her people to 
get some attractive, one-time looks at the market. That is a 
different world than my region 4 marketplace. I am having a 
very difficult time marketing in region 4. GSA wants to be 
between me and the customer.
    Mr. Tom Davis of Virginia. Ms. Davis.
    Mrs. Jo Ann Davis of Virginia. I believe Mr. Payne you 
stated you were forced to work with GSA rather than going 
directly to the Federal agencies.
    Mr. Payne. I think we all said it.
    Mrs. Jo Ann Davis of Virginia. I thought I heard the first 
panel that the agencies had a choice, either work directly with 
the vendor or go through GSA. What is your understanding?
    Mr. Payne. It varies from city to city. We have 
instructions to work through GSA. The pricing is done through 
GSA. We are not allowed to tell the end user what our bid price 
is, it has to have the overhead rate. One way they can control 
that is if the overhead rate is applied to the proposal 
responses coming out of the GSA. We are not in the position in 
some cases to know that.
    We should be with the agencies making their plans. At 
Treasury, we sat down with them with their 5 year plan, we know 
where they are going, we look at where the technology is taking 
us and them, make our plans accordingly and we are there when 
we need to be there with that new technology as it evolves in 
whatever prescribed direction. We will probably never go 
through an intermediary even though we are a sub to a contract. 
TRW has realized the best value is bring the two together, 
stand by and see what happens. That is always the best 
proposition, bring them to our facilities in Sterling to see 
our ``cybercenter,'' or to Minneapolis to see our managed care 
environment. It is a learning process. Our presentations are 
learning tools.
    Mrs. Jo Ann Davis of Virginia. Do you think it would have 
sped up the process which has dragged out for over a year in 
some cases?
    Mr. Payne. Yes. I think some of the solutions you can skip 
some of the intermediate technology and directly to the more 
advanced technology when you see the cost break points. Those 
are the tools we should be working, how do we proceed here.
    Mrs. Jo Ann Davis of Virginia. Do you all agree?
    Mr. Doherty. I think the broader issue is GSA should run 
this program as the public or private sector would run the 
program. I think there clearly is a role for the GSA in 
supporting the agencies, in helping them buy telecommunications 
services.
    The question is should the GSA have a marketing role? Our 
position is that is not a role for the GSA. The GSA should get 
contracts out there, get pricing in place, get policies in 
place and then let the marketplace rule, let the different 
vendors go out and market directly to the agencies, let the 
agencies make informed decisions and hold the vendor community 
responsible for the things they have said and commitments they 
have made. I don't think GSA needs to be in a role to get 
between the end user agencies and industry trying to provide 
services.
    Mr. Lucas. If I may offer a dissenting opinion. GSA is a 
distribution channel as far as we view the world and the MAA 
contract is one mechanism. To the extent GSA can market that 
value added to those agencies where they don't have the staff 
to do their own telecommunications planning and implementation, 
GSA provides the value. That is something I am willing to 
market through.
    GSA is also not mandatory, so if there appears to be some 
difficulty in a particular city or State where it doesn't look 
like GSA is a solution, there are other alternatives that we 
have to market directly to those customers.
    In the communications I have with GSA there is an 
understanding we can work together to where we are both 
successful and where we can't agree, there are other options.
    Mr. Hogge. I agree. There clearly is a value add. The GSA 
provides services to agencies that would not be equipped to 
respond to a bombardment of proposals from Qwest, AT&T, Winstar 
and the incumbent provider but other agencies are more 
sophisticated. I think there is a solution along the spectrum 
depending upon particular situations. That is the difference 
here on the local contracts versus the long distance contracts. 
Local service is inherently local, the agencies have specific 
needs at a specific site.
    We are open to working through GSA. It is a viable channel. 
That is why we pursued the program in the first place. To the 
extent there are agencies equipped to deal with the industry 
coming directly to them, there is clearly a subclass for those 
opportunities.
    Mr. Page. I personally think we could do both. Where I go 
out and develop a prospect and need and go through some 
elaborate design work, where that customer or agency has no 
procurement vehicle readily available to utilize, the MAA 
should be a platform I can bring that customer to and we can 
establish that process and because I have done the marketing, 
done some of the upfront work, then GSA might be able to 
negotiate with that customer on fees because there is less they 
have had to do.
    Clearly there is a need for GSA to be a marketing channel 
also. I see it as being more than just a two fee process where 
one fee is direct and one if GSA is involved. I think GSA is 
smart enough and savvy enough to figure out a way to have a 
sliding scale that allows for both. If I go out and kill it, I 
want to be able to eat it. You end up not having that desire to 
bring that in unless you know you can partake.
    Mr. Tom Davis of Virginia. You mentioned the MAA contracts 
are uniform in their product and service content, GSA's 
implementation and administration is not. Are there specific 
contract administration practices that ought to be made 
uniform?
    Mr. Hogge. I think there are administrative processes that 
should be made more simple and more straightforward. Fair 
consideration is the one we have chosen to focus on. Winstar 
began as a company focused on providing local broadband 
services to small and mid-sized businesses.
    When we decided to pursue government business through the 
MAA Program, you have about a 24 month period where there is a 
lot of expense and zero revenue. That was the RQS process. Then 
there is an additional period of time where you go through city 
by city competition and there is expense and zero revenue until 
you get to the point where you have a contract vehicle in 
place, a requirement in this market, it seems to me after that 
point you then get into more of a normal sort of business 
blocking and tackling, head to head competition for this 
business. That is where we think our recommendations about fair 
consideration can turn the post-award buying process into a 
more businesslike transaction.
    Mr. Tom Davis of Virginia. In your collective experience, 
if agencies have to provision for additional equipment in order 
to transition, do they know the options available to them such 
as buying from the Federal Supply Service Schedule?
    Mr. Payne. The sales process is actually one about training 
technically and giving the agency the contractual alternatives. 
We all know the rules and are very much aware of the vehicles 
and alternatives, and are aware in some instances an upgrade is 
required or necessary or maybe advantageous, so when you sit 
down with that agency directly, you start looking at that 
longer term vision, making those plans, then start realizing 
their capital investments and requirements. You can bring to 
the table some creative alternatives. That is part of the 
selling process.
    None of this is charged. This is inherent in what you do 
when you sell so some call it planning, some call it selling 
but basically the agency is getting the benefit of a consultant 
who comes in and will provide alternatives. Part of that is 
looking at the alternative contract vehicles.
    My concern is the agencies are making decisions not knowing 
what those alternatives are and not knowing what the costs are 
and we go out to deploy it and they are surprised because we 
didn't present the solution that there is more equipment 
necessary or more upgrades or riser cable.
    Mr. Tom Davis of Virginia. Ms. Bates, do you want to say 
anything? We will talk to you informally when this is over. I 
don't want this to go unrebutted if you want to say anything.
    Ms. Bates. I don't intend to rebut because it is too late 
in the day. I think on a positive note, I appreciate the fact 
we have come here today and I have heard and you have asked 
questions of this panel on ways GSA/FTS can improve. I think 
anytime we can all come together and talk about ways to improve 
it is positive.
    I would ask each of the panel members while they have spent 
much time thinking of ways we can improve, and we will look at 
that, they also need to think about how they can improve this 
process because we are in it together. If only one of us 
implements all the improvements, this many-legged stool will 
still fall over. I think we all need to take that to heart.
    I also think we have talked about many things that have 
different meanings. The big thing is communications. We have 
all identified that as an area of complexity that we need to do 
better. I think the testimony, questions and answers really 
elevate that to a new level.
    We have spoken of fees, marketing, many things where apples 
and oranges have been thrown into this fruit basket. It is a 
very complex issue and while we always choose to take the high 
road in trying to explain it, many times the devil lives in the 
details and we have to get down there to make sure we are 
comparing apples to apples.
    I will commit to work hard with GAO over the next several 
months as they complete the study you have requested to make 
sure as we make recommendations and discuss very important 
issues of this program and the FTS2001, we are making an apples 
to apples comparison so we can all come out with a common 
understanding. We have a long way to go to get there.
    We did talk about alternate contracting methods. While we 
need to look at that, I think we need to be aware the contract 
vehicles are not so much the problem but we are dealing in a 
deregulated market now where competition is new to many of our 
customers, ourselves and our industry and we cannot deny that 
we need competition along the way. That is threaded throughout 
in our discussion somewhat mixed of fair consideration.
    I intend to push ahead. I think we have a good program in 
place and everybody here has said they are committed to a rapid 
implementation of the current program, bringing on new 
customers, getting new customers over and getting that savings 
to the taxpayer. I believe I can speak for everyone here, we 
all intend to push ahead and do that.
    I appreciate the opportunity.
    Mr. Tom Davis of Virginia. Thank you.
    Ms. Davis.
    Mrs. Jo Ann Davis of Virginia. You are right, Ms. Bates, 
the devil is in the details. It sounded like the hearing today 
and all the testimony that communication is the answer to 
making this program work. I think it involves not only GSA here 
in Washington and all your regional offices as well as each of 
the vendors. I think if everyone could work on the 
communication, we can make a good program out of this.
    Thank you all for coming.
    Mr. Tom Davis of Virginia. I want to take a moment to thank 
everyone for attending the subcommittee's important oversight 
hearing. Thanks to all the witnesses, Congressman Turner and 
other members for participating, thank my staff for organizing 
this and I think it has been productive.
    Ms. Bates, this is a tremendous complex procurement on the 
cutting edge of new technologies. I understand how difficult 
this is even for the most seasoned private sector entrepreneurs 
who are going under every day in some cases. You have some very 
solid ones here that we will see through this contract and I 
think the spirit with which you have approached this is very 
encouraging.
    As long as we can keep talking to each other, try to learn 
from it and improve it as we move on, at the end of the day our 
goal is to give the taxpayers their best bang for the buck and 
for the agencies to allow them to operate most efficiently.
    I applaud the way you have approached this and working with 
us. We obviously have a way to go but we want to be there with 
you. I think the hearings help everyone to understand we are 
going to oversee these things. It allows everyone to utilize 
what they have to get together.
    To all the vendors, we want this to work for you as well.
    I am going to enter in the record the briefing memo 
distributed to subcommittee members.
    We will hold open the record for 2 weeks from this date for 
those who may want to forward submissions for possible 
inclusion or if there is some thought you want to get into the 
record before we proceed. You would be most welcome to do that.
    I am going to close the proceedings. Thank you.
    [Whereupon, at 4:48 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional information submitted for the hearing record 
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