Telecommunications: Metropolitan Area Acquisition Program	 
Implementation and Management (13-JUN-01, GAO-01-798T). 	 
								 
This testimony discusses the implementation and management of the
General Services Administration's (GSA) Metropolitan Area	 
Acquisition (MAA) program, which encourages competition for	 
telecommunication services in large cities. GAO found that as of 
June 2001, GSA had awarded 37 MAA contracts for 20 metropolitan  
areas. These contracts required transition from existing GSA	 
contracts to MAA contracts to be completed within 9 months after 
contractors were authorized to begin implementation. Of the 14	 
metropolitan areas in which authorization was given, this time	 
goal was met in only 2 areas. GSA charges customer agencies two  
types of fees to recover the costs of their contract management  
and administration activities. Although GSA does not yet allow	 
MAA contractors to offer FTS2001 services, it is taking steps to 
allow crossover between the two programs.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-798T					        
    ACCNO:   A01186						        
  TITLE:     Telecommunications: Metropolitan Area Acquisition Program
             Implementation and Management                                    
     DATE:   06/13/2001 
  SUBJECT:   Competition					 
	     Contract administration				 
	     Fees						 
	     Government contracts				 
	     Telecommunication					 
	     Chicago (IL)					 
	     Detroit (MI)					 
	     FTS 2001						 
	     GSA Metropolitan Area Acquisition			 
	     Program						 
								 
	     Kansas City (MO)					 
	     New York						 
	     Norfolk (VA)					 
	     Oklahoma City (OK) 				 
	     Salt Lake (UT)					 
	     San Antonio (TX)					 
	     San Francisco (CA) 				 
	     Seattle (WA)					 

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GAO-01-798T
     
TELECOMMUNICATIONS Metropolitan Area Acquisition Program Implementation and
Management Statement of Linda D. Koontz Director, Information Management
Issues

United States General Accounting Office

GAO Testimony Before the Subcommittee on Technology and Procurement

Policy, Committee on Government Reform, House of Representatives

For Release on Delivery Expected at 2 p. m. EDT, Wednesday, June 13, 2001

GAO- 01- 798T

Mr. Chairman and Members of the Subcommittee: Thank you for inviting us to
participate in today?s hearing on the implementation and management of the
General Services Administration?s (GSA) Metropolitan Area Acquisition (MAA)
program. As you know, GSA initiated its MAA program in 1997 in order to
achieve immediate, substantial, and sustained price reductions for local
telecommunications in selected metropolitan areas, to expand agencies?
choices of high- quality services, and to encourage cross- agency sharing of
resources. Further, service providers awarded contracts under GSA?s MAA
program may eventually be allowed to compete for FTS2001 long distance
service, so that federal agencies could potentially acquire end- to- end
local and long distance telecommunications services from one source.

Mr. Chairman, in an April 2001 letter, you requested us to review the MAA
program. Specifically, as agreed with your staff, our work to date has
focused on

the status of MAA contract implementation,

the fees charged customer agencies by GSA for managing and administering
those contracts, and

the steps being taken by GSA to enable the MAA and FTS2001 contractors to
cross over between these programs and offer both local and long distance
services.

My testimony this afternoon provides the interim results of our work. This
work is continuing and should be completed later this year.

Results in Brief As of June 2001, GSA had awarded 37 MAA contracts for 20
metropolitan areas. These contracts required transition from existing GSA
contracts to the MAA contracts to be completed within 9 months after
contractors were authorized to begin implementation. Of the 14 metropolitan
areas in which authorization was given 9 months ago or earlier, this time
goal was met in 2 areas, but in the 12

2 others it was not. For example, the MAA transitions for New York, Chicago,
and

San Francisco are not yet complete almost 2 years after the contractors were
authorized to begin implementation.

GSA and the MAA contractors have faced significant challenges in
implementing this program. First, in New York City, the newly deregulated
local telecommunications environment has produced unexpected barriers to
implementation, which will take time to resolve. In addition, GSA and the
MAA contractors have raised numerous other factors that they believe have
contributed to implementation delays, including contractor performance,
customer budgets, and the process used by GSA to allocate business among
contractors in multiple award cities. These delays, in turn, postpone the
realization of savings under the MAA program.

GSA charges customer agencies two types of fees to recover the costs of
their contract management and administration activities. Depending on the
specific metropolitan area, these fees (which are assessed as a percentage
of the amount charged by the contractor for services), in total, currently
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 contracts for local
services. GSA does not separately disclose these fees and instead requires
the contractors to embed them in the contract prices. As a result, agencies
do not have complete information to help them determine whether using GSA?s
services is their most economical option.

Although GSA has not yet allowed MAA contractors to offer FTS2001 services,
it is taking steps to allow crossover between the two programs. In December
2000, GSA permitted FTS2001 contractors and other MAA contractors to offer
local services in three of the MAA markets. In addition, GSA has drafted a
paper to clarify its position on permitting additional competition in the
FTS2001 program. This paper states that with the transition to FTS2001
nearing completion, GSA has concluded that it is appropriate to proceed with
determining when to allow additional competition for FTS2001 services. As
one of the first steps in this

3 process, GSA plans to present this clarification to industry for comment
on

June 28, 2001. Background The MAA program was conceived just a few months
after passage of the Telecommunications Act of 1996, which was intended to
increase competition and reduce regulations in the telecommunications
industry. The MAA program sought to take advantage of emerging competition
in the local services market; the program focused on the largest cities in
the country, whose population density would be likely to draw competitors
into their markets. GSA believed that this emerging competition would create
an opportunity for the government to gain an immediate price reduction in
local telecommunications services. Further, it envisioned the MAA contracts
as a complement to existing contracts in metropolitan areas, as well as a
solution for local service contracts that are expiring.

The MAA program is a contractual vehicle for offering local voice and
selected data services. Each contract is a fixed- price, indefinite-
delivery, indefinite- quantity contract with a base term of 4 years (48
months) from date of award, with four successive 1- year options. The
contracts state that all initial service locations identified in these
contracts are to be transitioned from existing GSA contracts to the MAA
contracts within 9 months after GSA gives ?notice to proceed?- authorization
for the contractor to begin implementation.

The initial stage of the MAA program (Phase I) consisted of pilot
acquisitions in the New York, Chicago, and San Francisco metropolitan areas
in May 1999. Bolstered by substantially lower prices in these three pilot
cities, GSA expanded the MAA program to other metropolitan areas throughout
the country, and awarded contracts in 17 additional cities (Phase II)
between February 2000 and February 2001. In Phase III, awards are expected
to be made by the end of this calendar year in seven additional cities:
Detroit, Kansas City, Norfolk, Oklahoma City, Salt Lake City, San Antonio,
and Seattle. GSA estimates that the federal

4 government could save about $1.1 billion over the 8- year life of the 37
MAA

contracts awarded to date. 1 Each MAA contract also has a minimum dollar
guarantee that is divided equally among all original contract awardees for a
given metropolitan area. These guarantees were largest in the pilot cities,
which were the first (and largest) MAA markets: for New York, the guarantee
was $7 million; for Chicago, $3 million; and for San Francisco, $2 million.
Guarantees in the most recent contracts have been significantly lower, at
$100,000.

GSA?s Federal Technology Service (FTS) has responsibility for the MAA
program. FTS headquarters is responsible for planning and program
management, while FTS staff in GSA?s field offices implement and administer
the MAA contracts. As a self- sustaining organization, GSA FTS assesses
customer agencies two types of management fees to finance its activities: a
contract management fee and a fullservice fee. The contract management fee
is to cover general program, acquisition, and contract management activities
and is applied as a percentage of service cost. The full- service fee covers
service ordering, implementation planning and coordination, and billing. The
full- service fee is an additional percentage applied on top of the total
service cost plus the contract management fee.

Federal agencies are not required to use the MAA contracts. Depending on
their specific requirements, federal agencies may use the telecommunications
services provided through a GSA regional telecommunications services program
2 (using either GSA?s MAA contracts or one of GSA?s other local services
contracts or agreements), or they may acquire and manage their own local
telecommunications services and the associated equipment. A substantial
number of

1 GSA based these savings estimates on the difference between current
service prices in effect for each of the 20 MAA cities and the total amount
of the lowest offeror?s prices for a given city. 2 FTS offers a variety of
programs through which agencies can acquire local telecommunications

service. For example, the Aggregated System Procurement Program consolidated
local requirements into an overall system procurement based on the Bell
Operating Company boundaries. The Individual System Procurement Program
serves locations where the aggregated program does not. In addition,
regional FTS offices have also obtained Rate Stabilization Agreements that
allow agencies to acquire local tariffed telecommunications services at
short- term discounts.

5 agencies do choose to acquire services through GSA: in FY2000 for example,

GSA?s local telecommunications services program provided approximately
540,000 active service lines to government agencies, at an average monthly
cost per line of $18.81.

Although it focuses on local services, the MAA program also has implications
for the long distance market. Part of the overall FTS program strategy,
developed in 1997 in consultation with industry and the Congress, was to
eventually permit contractors to offer both local and long distance services
through crossover between the local MAA contracts and the long distance
FTS2001 contracts, thereby allowing further competition in both markets.
Specifically, MAA contractors would be permitted to compete for FTS2001 long
distance business (1) where allowed by law and regulation, (2) after the
FTS2001 contracts have been awarded for a year (known as the forbearance
period), and (3) if GSA determines that it is in the government?s best
interests to allow such additional competition.

Objectives, Scope and Methodology The objectives of our ongoing review are
to provide information on (1) the status of MAA contract implementation, (2)
the fees charged customer agencies by GSA for the management and
administration of those contracts, and (3) the steps being taken by GSA to
enable the MAA and FTS2001 contractors to cross over between these programs
and offer both local and long distance services.

In our work to date, we have addressed these objectives by reviewing MAA
contract documentation, including solicitations, contracts, and associated
modifications. We also reviewed an internal GSA management report on MAA
implementation challenges prepared by GSA?s Office of Inspector General
(OIG), and interviewed the staff who prepared this report.

To evaluate the status of MAA implementation efforts, we reviewed reports
generated by GSA?s automated MAA status tracking system, verifying the

6 information in the reports against other available documentation such as
billing

system reports. To better understand how the program is being implemented,
we visited the New York City FTS Region 2 office, reviewed contract
management documentation, and interviewed GSA FTS regional management staff
responsible for program implementations in New York and in Buffalo. To gain
the customers? perspective on MAA implementation, we also interviewed agency
managers at the Department of Housing and Urban Development in New York City
and at the Office of U. S. Trustees and the U. S. Attorney?s Office in
Washington, D. C. We also met with AT& T MAA managers in Washington, D. C.,
and in New York, as well as Verizon MAA program managers in Washington, D.
C., to gain additional information and documentation pertaining to program
implementation and management.

To determine the management fees charged by GSA and how those fees are
derived, we reviewed documentation on those fees as well as MAA management
roles and responsibilities, and interviewed FTS program managers as well as
the FTS Financial Service Center manager responsible for developing those
rates.

To determine the steps being taken by GSA regarding FTS crossover, we
obtained and reviewed an initial draft policy clarification prepared by GSA,
analyzed documentation pertaining to GSA?s December 2000 decision to lift
forbearance in the MAA pilot cities, and reviewed documentation pertaining
to GSA's first crossover award. We also discussed the draft policy
clarification with GSA FTS managers.

7 MAA Implementation Status

As of June 2001, GSA had awarded 37 MAA contracts for 20 metropolitan areas.
Table 1 summarizes MAA contract awards and GSA?s estimated savings for each
area. As indicated in the table, in 8 of the 20 metropolitan areas, a single
contract was awarded. In addition, GSA recently decided to allow MAA
contractors to cross over between cities and offer services in areas other
than those in which they were awarded an MAA contract. 3 Two contractors
have so far responded to this decision: In March 2001, GSA accepted
Verizon?s proposal to offer MAA services in New York, and Winstar has
submitted proposals to offer services in all three Phase I cities.

3 These crossovers are not reflected in the table because they do not
represent new awards.

8

Table 1. MAA Contracts Awarded as of June 5, 2001 Metro area Award date

Estimated savings (millions of dollars) Contractor( s)

Phase I (pilot)

New York 20 May 1999 $150 AT& T Chicago 20 May 1999 75 AT& T San Francisco
20 May 1999 32 AT& T

Phase II

Buffalo 24 Feb 2000 6.4 AT& T Verizon

Cincinnati 23 Mar 2000 36.6 Winstar Cleveland 24 Mar 2000 20 Ameritech (SBC)

AT& T Los Angeles 24 Mar 2000 47 Pacific Bell (SBC)

Winstar Baltimore 28 Mar 2000 44 Winstar Atlanta 26 Apr 2000 174 Bell South

Winstar Miami 26 Apr 2000 44 Bell South

Winstar Indianapolis 27 Apr 2000 51 AT& T

SBC Global Winstar

St. Louis 27 Apr 2000 36 Southwestern Bell (SBC) Winstar

Minneapolis 31 May 2000 13 Qwest Winstar

Dallas 30 Jun 2000 128 AT& T Southwestern Bell (SBC) Winstar

Denver 12 Jul 2000 68 AT& T Qwest Winstar

Boston 31 Jul 2000 78 AT& T Southwestern Bell (SBC) Verizon Winstar

Albuquerque 31 Aug 2000 19 Qwest Boise 31 Aug 2000 6. 5 Qwest New Orleans 16
Oct 2000 11 Bell South Philadelphia 27 Feb 2001 $66 AT& T

Winstar Source: GSA Federal Technology Service

9 MAA Implementation Has Been Delayed

Although the MAA contracts require transition to be completed within 9
months after contractors are given notice to proceed, GSA?s implementation
of these contracts has not been as fast as anticipated. As shown in table 2,
for example, almost 2 years after notice to proceed was given, 66 percent of
users in San Francisco, 43 percent of users in Chicago, and only 12 percent
of users in New York are converted to MAA contracts.

Table 2: Percentage of GSA Local Telecommunications Users Converted to MAA
Services as of June 1, 2001

Metro area Award date Notice to

proceed date Implementation

status

New York 20 May 1999 18 Jul 1999 11.74% Chicago 20 May 1999 15 Jul 1999
42.92% San Francisco 20 May 1999 19 Jul 1999 65.76% Buffalo 24 Feb 2000 15
Jun 2000 100.00% Cincinnati 23 Mar 2000 14 Jul 2000 100.00% Cleveland 24 Mar
2000 06 Jul 2000 0.00% Los Angeles 24 Mar 2000 14 Jul 2000 13.54% Baltimore
28 Mar 2000 29 Jun 2000 7.01% Atlanta 26 Apr 2000 29 Jun 2000 0.10% Miami 26
Apr 2000 29 Jun 2000 0.00% Indianapolis 27 Apr 2000 06 Jul 2000 1.20% St.
Louis 27 Apr 2000 17 Aug 2000 16.49% Minneapolis 31 May 2000 19 Sep 2000
84.7% Dallas 30 Jun 2000 11- 22 Sep 2000 28.22% Denver 12 Jul 2000 13 Sep
2000 28.59% Boston 31 Jul 2000 12 Sep 2000 5. 43% Albuquerque 31 Aug 2000 03
Oct 2000 0.00% Boise 31 Aug 2000 23 Feb 2001 0.00% New Orleans 16 Oct 2000
09 Nov 2000 75.64% Philadelphia 27 Feb 2001 None to date 0. 00% Source: GSA
Federal Technology Service

Progress to date implementing the more recently awarded contracts in the
Phase II cities has also been mixed. Of the 11 phase II cities where notice
to proceed was issued 9 months ago or more (September 13, 2000, or earlier),
two- Buffalo and Cincinnati- have completed the conversion to the MAA
contracts; implementation in the other 9 cities ranged from 0 to 29 percent
complete, as of June 1. In the

10 six cities where notice was given to proceed after September 13, 2000,
completion

rates varied from 0 to 85 percent as of June 1. GSA and Contractors Face
Challenges in Completing MAA Implementation

Although they are making progress, GSA and the MAA contractors have faced
significant challenges in completing this transition. First, in New York
City, the newly deregulated local telecommunications environment has
produced unexpected barriers to implementation, which will take time to
resolve. In addition, GSA and the MAA contractors have raised numerous other
factors that they believe have contributed to implementation delay. These
factors include contractor performance, local number portability, contractor
marketing, customer budgets, and the process used by GSA to allocate
business among contractors in multiple award cities.

Implementing the MAA contract in the newly deregulated local
telecommunications environment has created challenges for both GSA and the
MAA contractors in New York City. Specifically, more than half the business
lines served within this MAA are affected by a regulatory interpretation of
access rights, and the associated connection and usage costs, to a
building?s riser cable (a cable that carries telecommunications services
from the network demarcation point, typically in the basement of a building,
to distribution facilities within the building). The Federal Communications
Commission (FCC) has reviewed this issue and ruled that the incumbent local
exchange carrier would retain ownership of the inside wiring, including the
riser cable, but that the carrier could not impose fees on the use of this
wiring. As a result, the MAA contracts were written under the assumption
that the riser cable would be available free of charge to the MAA
contractor. However, in New York, the incumbent carrier, Verizon, requires
payment from the MAA contractor, AT& T, under a ruling by the New York
Public Service Commission (a state regulatory body) that the incumbent
carrier could charge for use of the riser cable. As a result, GSA and AT& T
have had to delay

11 implementation efforts in the affected buildings until they can determine
a

mutually acceptable strategy for dealing with this problem. In our work to
date, GSA and the MAA contractors have raised numerous other factors that
they believe have contributed to implementation delays. These include the
following:

Contractor performance. According to GSA, AT& T has experienced systemic
performance problems that have resulted in untimely service delivery and
service outages during implementation and have reduced the willingness of
customers to use MAA services. For example, GSA FTS officials told us that
implementation in San Francisco was delayed because of recurring equipment
problems that AT& T encountered as it installed Integrated Services Digital
Network (ISDN) services. According to GSA, these equipment problems resulted
in AT& T transitioning only a few lines at time, significantly adding to
implementation time.

When we discussed these issues with AT& T MAA program managers, they
acknowledged that there had been some performance issues. However, they told
us that they recently changed hardware suppliers in order to resolve the
equipment problems they had experienced in installing ISDN services. In
addition, they stated that GSA had contributed to delays by failing to
submit customer service orders to them in a timely manner. They added that
discrepancies between the customer information maintained by the incumbent
carrier and GSA billing records have been a continuing problem that has
added to implementation time.

Local number portability. Local number portability, which allows customers
to retain local phone numbers while changing local service providers, has
contributed to implementation delays, according to GSA. According to GSA?s
MAA tracking reports, scheduled implementations in Atlanta and Miami were
delayed between 2 and 5 weeks specifically by problems with implementing
local number portability. In an internal management report prepared by GSA?s
OIG, number portability problems were ascribed both to technical
difficulties and to

12 the fact that the incumbent carrier typically has little incentive to
assist in this

process. MAA contractor marketing. According to AT& T MAA program officials,
GSA has not permitted AT& T to directly market MAA services to customer
agencies in New York- a factor these officials believe has delayed
implementation efforts. GSA officials, however, told us that AT& T is
permitted to directly market these services and must only inform GSA of its
plans to do so.

Customer budgets. According to an internal management report prepared by
GSA?s OIG and discussions with AT& T MAA managers, customers did not budget
funding to cover service initiation charges and (in some cases) the cost of
upgrading hardware, required as part of MAA implementation. The report cited
this as one of the factors that has caused implementation to proceed less
quickly than initially projected.

Fair consideration. In multiple- award MAA cities, delays were caused by the
fair consideration process 4 that GSA uses to distribute service orders to
contractors in cities where there is more than one MAA contractor. In
Buffalo, for example, this process was not completed until 3 months after
notice to proceed was issued, due in part to the time required by GSA to
review all contractor deliverables.

All the delays described affect the potential savings under the MAA program.
GSA has estimated that the MAA program could save about $1.1 billion. GSA
based its savings estimate on the difference between current service prices
in effect for each of the 20 MAA cities and the total amount of the lowest
MAA offeror?s prices for a given city. However, this estimate does not
consider the time required to actually implement these contracts. Because
savings are not realized until the service is actually implemented, delays
in implementing the contracts in turn

4 The fair consideration process identified in the MAA contracts is a means
for the government to provide contractors a fair opportunity to compete for
MAA service orders. According to these contracts, the government may base
its fair consideration decision on (1) relative contract prices without
further consideration of other factors or (2) a combination of price,
technical, and past performance considerations.

13 delay the realization of savings and limit what can be realized over the
8- year term

of the contracts. More Transparency Is Needed for Management Fees GSA?s two
fees- a contract management fee and a full- service fee- vary among the
metropolitan areas served. GSA?s contract management fee ranges from a low
of 9.5 percent in St. Louis to a high of 60 percent in Baltimore, for the 19
MAA cities where fees have been determined. GSA?s full- service fee (which
is applied on top of the contract management fee) ranges from a low of less
than 2 percent in Albuquerque, Dallas- Fort Worth, and New Orleans, to a
high of 20 percent in San Francisco.

Table 3 identifies the fees that GSA has set for its MAA contracts. For
purposes of comparison, we have also computed a composite fee that combines
the contract management and full- service fee rates. To offer some
additional perspective, the table also displays the single management fee
that GSA currently assesses in MAA cities for non- MAA local
telecommunications contracts. (It should be noted, however, that these fees
are applied to a much higher base contract price.)

14

Table 3: GSA Local Telecommunications Management Fees Metro area Contract

management fee Full- service

fee Composite

fee a Non- MAA management fee

Chicago 30.00% 10.00% 43.00% 56.73% New York 30.00% 10.00% 43.00% 20.19% San
Francisco 50.00% 20.00% 80.00% 38.60% Buffalo 40.00% 10.00% 54.00% 20.19%
Cincinnati 32.00% 5. 00% 38.60% 56.73% Cleveland 32.00% 6. 00% 39.92% 56.73%
Los Angeles 44.20% 6. 20% 53.14% 38.60% Baltimore 60.00% 15.00% 84.00%
27.26% Atlanta 26.00% 7. 00% 34.82% 34.41% Miami 28.00% 9. 00% 39.52% 34.41%
Indianapolis 22.00% 5. 00% 28.10% 56.73% St. Louis 9.50% 15.79% 26.79% 5.
00% Minneapolis 30.00% 7. 00% 39.10% 56.73% Dallas 30.00% 1. 84% 32.39%
30.00% Denver 30.95% 9. 60% 43.52% 27.42% Boston 38.44% 11.16% 53.89% 32.03%
Boise 24.59% 2. 93% 28.24% 33.60% Albuquerque 30.01% 1. 84% 32.40% 30.00%
New Orleans 30.01% 1. 84% 32.40% 30.00% Philadelphia TBD TBD - 27.26% a The
formula used for the composite fee is (CMF + FSF) + (CMF ï¿½ FSF), where CMF =
contract management fee and FSF = full- service fee.

Source for contract management and full- service fee percentages: GSA
Federal Technology Service

As previously stated, use of the MAA contracts is not mandatory; agencies
can choose to procure local services on their own, if they believe they
could do so more economically than GSA. In addition, to avoid paying the
full- service fee, a customer agency can opt to use the MAA contracts?
direct ordering and direct billing option. In so doing, the agency assumes
responsibility for its service ordering, implementation planning and
coordination, and billing management. To date, only the Internal Revenue
Service in the Dallas- Fort Worth MAA has chosen to exercise this option.

GSA, like other federal agencies that provide centralized services, charges
these fees to recover the costs of managing the program. In this type of
service model, making fees transparent to users is an appropriate and
valuable service. First,

15 disclosing fee amounts provides user agencies with key input to deciding
whether

to acquire services from the service provider or from alternative sources.
Second, such disclosure makes the service provider accountable to customer
agencies for providing a level of service commensurate with the fees
charged.

The MAA contracts, however, require contractors to embed the GSA fees in the
service pricing that they disclose to agencies during marketing activities,
as well as on the invoices submitted for payment of services. According to
the Assistant Commissioner for Regional Services, GSA took this approach to
focus agencies? attention on making decisions based on the total cost of
services rather than on the fee percentage. She pointed out that even with
the management fees included, the total cost of services under the MAA
contracts is dramatically lower than what is available under other local
service contracts. For example, in Baltimore, the composite fee is about 84
percent; however, the total MAA monthly cost per service line- including all
management fees- is $8.92, compared to $23.92 under another GSA local
services contract. As another example, composite fees in Cleveland total
about 40 percent. However, the total MAA monthly cost per service line is
$22.02, inclusive of fees, compared to $28.67 under another GSA contract
vehicle.

Although the total cost of services is obviously a critical factor in making
decisions on how to buy local services, specific information on fees would
further inform agency decisionmaking. Without such information, an agency in
St. Louis, for example, would not be aware that it could lower its local MAA
service costs by almost 18 percent if it assumed additional service
ordering, billing, and administration responsibilities. Lacking full
information on these fees, agencies cannot readily determine whether it is
more economical for them to procure their own local services, to procure
services through GSA but perform contract and management support activities
themselves, or to procure services through GSA and pay GSA for support.
Further, agencies cannot accurately discern whether the services provided by
GSA are worth the management fees charged. For these

16 reasons, GSA should consider reassessing its decision not to disclose its
fees to

user agencies. MAA Contractor Crossover to the FTS2001 Market As you know,
Mr. Chairman, part of GSA?s overarching FTS strategy was to eventually
permit MAA and FTS2001 contractors to offer both local and long distance
services. Although GSA has delayed allowing MAA contractors to offer FTS2001
services until it could be sure that the minimum revenue guarantees to the
current FTS2001 contractors are met, GSA has taken two steps in the past six
months to initiate crossover 5 between the MAA and FTS2001 programs. First,
in December 2000 GSA lifted forbearance in the three pilot MAA cities,
allowing FTS2001 and other MAA contractors to submit proposals to offer
local services in those areas. In March 2001, GSA accepted Verizon?s
proposal to offer MAA services in New York. Winstar has also submitted
proposals to offer services in the three pilot cities (New York, Chicago,
and San Francisco). Second, GSA has drafted a paper to clarify its position
on crossover between and among the FTS2001 and MAA contracts, which the FTS
Commissioner has approved. This paper states that with the transition to
FTS2001 nearing completion, GSA has concluded that it is appropriate to
proceed with determining when to allow additional competition for FTS2001
services. As one of the first steps in this process, GSA plans to present
this clarification to industry for comment on June 28, 2001.

__ __ __ __ __ Mr. Chairman, that concludes my remarks regarding the interim
results of our review of GSA?s ambitious MAA program. We will continue our
work, focusing on the barriers to timely MAA contract implementation and
GSA?s efforts to

5 Three types of contractor crossover are envisioned between and among the
FTS2001 and MAA contracts: (1) where a local MAA service provider is allowed
to cross over to offer FTS2001 long distance services; (2) where an FTS2001
contractor is allowed to cross over to offer MAA local services; and (3)
where an MAA contractor is allowed to cross over into an MAA city in which
it did not receive one of that city?s initial MAA contracts.

17 surmount these barriers. In addition, we will more thoroughly evaluate
the

management fees that GSA is collecting on these contracts, as well as the
support that GSA is in turn providing to agencies.

We would like to offer two observations at this time. First, there is a need
for greater transparency of the MAA contracts? management fees. An
opportunity exists for agencies to make a more informed business decision on
whether to buy GSA?s management and administrative services or to perform
these functions themselves. However, because GSA does not disclose fee
information to its customers, they cannot make such fully informed
decisions. In addition, disclosing these fees would make GSA more
accountable to agencies for the amount of these fees.

Second, our work on the New York MAA indicates that AT& T and GSA have
different perspectives on the transition to date. Given the complexity and
newness of this implementation endeavor, some of these differences are
understandable. However, this situation also suggests the need for an
increased quantity and quality of communication between these two parties.

Mr. Chairman, that concludes my statement. I would be happy to respond to
any questions that you or other members of the Subcommittee may have at this
time.

GAO Contacts and Staff Acknowledgments For information about this testimony,
please contact Linda Koontz at (202) 512- 6240 or by e- mail at koontzl@
gao. gov. Individuals making key contributions to this testimony included
Scott Binder, Kevin Conway, and Mary Marshall.

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