FTS2001 Implementation Issues (02-JUL-01, GAO-01-855R). 	 
								 
The General Services Administration (GSA) awarded FTS2001	 
contracts to Sprint and MCI Worldcom to provide long distance	 
telecommunications services to federal agencies. The federal	 
government began the sizable and complex effort of transitioning 
from the existing FTS 2000 contracts to FTS2001 in June 1999.	 
Several implementation issues have delayed this transition. One  
of these issues concerns the billing problems experienced by GSA 
and its contractors. GAO found that the billing problems often	 
arose from changes in contracts and services. According GSA,	 
these issues also arose from the differences between contractors'
commercial billing practices and the government's practices.	 
Because these billing problems were not promptly resolved, they  
had an adverse effect on the transition progress. GSA is taking  
steps to resolve current billing problems. It is tracking issues 
as they arise, and it is currently trying to resolve 12 issues	 
still outstanding with Sprint and MCI WorldCom, including the	 
problem of commercial billing. In addition, GSA's Office of	 
Inspector General has recently begun a review of the FTS2001	 
billing area, which might also identify ways to prevent future	 
billing problems. Another issue that affected the transition	 
progress concerns the databases that supported the transition	 
process. GAO found that while GSA developed an automated system  
to track transition data and develop reports, the FTS2001	 
contractors did not furnish GSA with the data it needed to	 
populate that management system's database. As a result, GSA and 
agency transition managers did not receive the timely and	 
up-to-date information they needed to effectively plan and manage
transition activities.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-855R					        
    ACCNO:   A01320						        
  TITLE:     FTS2001 Implementation Issues			      
     DATE:   07/02/2001 
  SUBJECT:   Government contracts				 
	     Telecommunication					 
	     Federal procurement				 
	     Schedule slippages 				 
	     Federal Telecommunications System 2000		 
	     Federal Telecommunications System 2001		 
	     FTS 2000						 
	     FTS 2001						 

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GAO-01-855R
     
GAO- 01- 855R FTS 2001 Implementation

United States General Accounting Office Washington, DC 20548

July 2, 2001 The Honorable Tom Davis Chairman Subcommittee on Technology and
Procurement Policy Committee on Government Reform House of Representatives

Subject: FTS2001 Implementation Issues

Dear Mr. Chairman: As you know, GSA awarded FTS2001 contracts to Sprint and
MCI WorldCom to provide long distance telecommunications services to federal
agencies. The federal government began the sizable and complex effort of
transitioning from the existing FTS 2000 contracts to FTS2001 in June 1999.
This transition is presently nearing completion. In your letter of May 3,
2001, you asked that we respond to several follow- up questions pertaining
to your Subcommittee?s April 26, 2001, oversight hearing regarding the
FTS2001 contracts. My responses to your questions follow below.

Question 1: How feasible would it be to build into future contracts an
accountability mechanism that may include penalties that the General
Services Administration (GSA) could apply against the contractors?
guaranteed minimum revenue over the life of the contract? What is the
feasibility of renegotiating the current contracts?

Answer: It is feasible to include an accountability mechanism in future
contracts that include such civil penalties as provisions for credits or
liquidated damages. It is also feasible to modify the current FTS2001
contracts to include such an accountability mechanism, because federal
acquisition law does permit such modification of contracts (although such
action would require negotiations with, and the agreement of, the
contractors). We should make it clear, however, that the existing FTS2001
contracts already include accountability mechanisms, in both specific and
general terms.

As we stated in our report of last March, 1 the existing FTS2001 contracts
establish specific performance requirements, 2 including timeliness of
service delivery,

1 FTS2001: Transition Challenges Jeopardize Program Goals (GAO- 01- 289,
March 30, 2001). 2 These terms are stated at paragraph H. 13 of the FTS2001
contracts.

GAO- 01- 855R FTS 2001 Implementation Page 2 availability of services,
quality or grade of service, and restoration of failed or

degraded service. However, the contracts provide that these basic
performance requirements not take effect until the FTS2001 transition is
complete, thereby restricting the government?s ability to hold the
contractors accountable for performance shortcomings during the transition
period. 3 Thus, the FTS2001 transition delays that have occurred to date not
only had a financial effect but have also delayed the effective date of
these specific contract terms and conditions.

Beyond these specific requirements, the FTS2001 contracts contain additional
terms and conditions establishing accountability for failure to provide
service or meet contract requirements. For example, the contracts include a
default termination clause that permits termination of the contracts in
whole or in part. Rather than terminating the contracts, the government can
instead ask for consideration from the contractor. This consideration could
take any mutually agreed upon form, including price reductions or a
reduction in a contractor?s minimum revenue guarantee (MRG). We recommended
in our report that GSA take action to obtain consideration for failure to
meet management information and billing requirements within the time frames
established in the FTS2001 contracts. GSA concurred with this
recommendation. According to GSA, it is still examining the record of
FTS2001 contractors? performance to date to determine what specific action
may be appropriate.

Question 2: How can GSA prevent future billing problems? Is this a problem
caused by lack of database software used to collect and organize the
information or a personnel management issue?

Answer: As we reported to you in March, one factor inhibiting transition
progress was the lack of accurate, up- to- date billing information and the
improper billing of services. This problem is not unique to FTS2001- it is
common among users of telecommunications services. This problem is not
attributable to personnel management or to a lack of database software.
Rather, billing problems often arise from changes in contracts and services
such as those that took place during the FTS2001 transition. According to
GSA, these issues also arise because of differences between the contractors?
commercial billing practices and the practices that government agencies are
accustomed to, which are reflected in contract requirements. In that regard,
there has been a ?learning curve? for both the contractors and the
government on billing matters during transition. In the case of FTS2001, GSA
also waived the test and acceptance of one contractor?s billing system for
an indefinite period because of the desire to move forward with contract
implementation, and did not promptly resolve billing problems that arose
with both contractors.

3 Specifically, the contract states that these requirements ?? will not
apply to services being transitioned from the FTS2000 network to the FTS2001
network; services being migrated to FTS2001 from networks other than FTS2000
during the FTS2001 initial transition; or new service starts on the FTS2001
that may take place during the initial transition and startup of FTS2001.?

GAO- 01- 855R FTS 2001 Implementation Page 3 The best way to reduce the
effect of billing problems is for GSA to hold the

contractor responsible for resolving such problems promptly when they arise.
The billing problems we identified adversely affected FTS2001 transition
progress because their resolution was not prompt.

GSA is taking steps to resolve current billing problems. It is tracking
issues as they arise, and it is currently trying to resolve 12 issues still
outstanding with Sprint and MCI WorldCom, including the problem of
commercial billing that we reported. In addition, GSA?s Office of Inspector
General has recently begun a review of the FTS2001 billing area, which might
also identify ways to prevent future billing problems.

Question 3: Was the legitimacy of the databases that supported the
transition process from FTS2000 to FTS2001 inaccurate? Do you think this is
the sole reason for transition delays?

Answer: The lack of information needed to accurately and appropriately
manage and measure transition progress was one of the factors that
contributed to FTS2001 transition delays. This issue was one of lack of
access to information, however, rather than of its accuracy. Specifically,
while GSA developed an automated system to help track transition data and
develop reports, the FTS2001 contractors did not furnish GSA with the data
it needed to populate that management system?s database. According to GSA,
it also had difficulty obtaining information from one of the FTS2000
contractors during the initial transition planning. As a result, GSA and
agency transition managers did not receive the timely and up- to- date
information they needed to effectively plan and manage transition
activities.

This was not the sole reason for transition delays. Additional factors
contributing to transition delays included the inability to rapidly add
transition- critical services to contracts, the slow pace at which agencies
ordered services, contractor customer support problems, and the inability of
local telecommunications providers to deliver services and facilities as
scheduled.

Question 4: The MRGs have been slowed significantly due to delays in the
transition to FTS2001. Is it true that MCI and Sprint will not meet their
MRGs until 2004 and 2006 respectively? Further, doesn?t this point to
limited competitive opportunities for another three to five years for other
companies that are ready and able to offer the government low prices and
advanced technological services/ products?

Answer: We estimate that MCI WorldCom and Sprint may meet their MRGs in
fiscal years 2003 and 2004, respectively (contract years five and six). Our
estimate is based on FTS2001 revenues accumulated through April 2001, and
assume no significant change in the demand for services from either
contractor. An analysis recently prepared by GSA staff reached a similar
result.

GAO- 01- 855R FTS 2001 Implementation Page 4 Even if MCI and Sprint do not
meet their MRGs in fiscal years 2003 and 2004,

however, that result may not point to continued limited competitive
opportunities for the FTS2001 program. GSA?s position has been that it would
not wait until the MRGs were completely satisfied before allowing additional
competitors to cross over into FTS2001; rather, it would make that
determination when it was reasonably assured that the MRGs would be
satisfied within the potential 8- year contract period. At the April 26,
2001, hearing on FTS2001 implementation, the FTS Commissioner, Ms. Sandra
Bates, testified that GSA would begin accepting proposals this summer from
qualified contractors who wish to offer FTS2001 long distance services, that
is, those providing local telecommunications services under the GSA?s
Metropolitan Area Acquisition program. Therefore, if GSA follows through on
those statements, competitive opportunities under the FTS2001 program would
no longer be limited.

Question 5: Do the deviations from the FTS2001 requirements identified by
GAO represent the only deviations from contract requirements permitted by
GSA? If not, what others are there?

Answer: The only permitted deviation from the FTS2001 requirements that we
identified in our report was GSA?s decision to waive ordering and billing
system test and acceptance requirements for MCI WorldCom in order to allow
it to more quickly receive and process service orders. To the extent that
other contract requirements were not met when required- such as other
billing problems encountered with both contractors, and the failure to
provide management information when required- we recommended in our report
that GSA obtain consideration from the contractors in accordance with the
FTS2001 contracts? terms and conditions.

Question 6: What is the impact on the FTS2001 procurement, and competition
in general, of GSA's relaxation of FTS2001 contract requirements?

Answer: As we mention in our response to question 5, we identified in our
report only one deviation from contract requirements that GSA permitted.
Specifically, that one deviation was GSA?s decision to waive the requirement
that MCI WorldCom?s billing and ordering system be tested and accepted
before order processing could begin. As we reported to you in March, several
factors contributed to FTS2001 implementation delays. We reported that GSA?s
decision to waive the acceptance testing of MCI WorldCom?s billing system
contributed to billing problems and thus was one of the factors contributing
to FTS2001 implementation delays.

In addition, those instances where other contract requirements were not met
do not represent out of scope contract modifications on GSA?s part, and
therefore do not cast doubt on the original contract competition. This issue
was addressed in a protest filed with GAO by AT& T on May 25, 2001, alleging
that GSA had relaxed or waived FTS2001 requirements and specifications in a
manner that materially altered the fundamental nature and purpose of the
FTS2001 contracts.

GAO- 01- 855R FTS 2001 Implementation Page 5 The decision of GAO on June 14,
2001, dismissed the protest as a ?contract

administration? matter beyond our protest jurisdiction, and untimely in any
event. 4 We concluded that AT& T had not shown that the modifications to the
FTS2001 contracts were beyond the scope of the original contracts: ?The
objectives and scope of the FTS2001 contracts remain unchanged despite the
alleged poor performance of the contractors: the same services are being
provided notwithstanding the alleged relaxation or waiver of those
requirements.?

Question 7: During this period of transition, how much revenue that would
have been included under the FTS2001 Program was not as a result of
transition delays?

Answer: According to GSA revenue reports, approximately $159.8 million was
billed to the government under the FTS2000 contracts from December 2000
through April 2001. In comparison, about $236.4 million was billed under the
FTS2001 contracts during the same period. Not all of that FTS2000 revenue
would have been included under the FTS2001 program had transition not been
delayed, because the lower prices offered under the FTS2001 contracts would
reduce that amount. According to GSA, about $46 million in revenue will not
be included under the FTS2001 program because the transition extended beyond
December 2000.

In addition to the questions set forth in your May 3, 2001, letter, you also
asked during the hearing that we examine GSA?s estimate of savings lost to
the government due to transition delays. GSA FTS Commissioner Bates
testified at the hearing that about $74 million in savings was lost due to
delays in completing the FTS2001 transition. As I indicated to you at the
hearing, we have reviewed and evaluated GSA?s derivation of that estimate
and the supporting documentation. On the basis of this analysis, we found
the $74 million estimate to be reasonable.

In providing oral comments on a draft of this letter, the GSA FTS Assistant
Commissioners for Acquisition and for Service Delivery generally agreed with
the information presented. We have incorporated GSA?s comments where
appropriate.

- - - - During the course of our work to address the questions posed in your
May 3 letter, we reviewed the documentation we prepared in support of our
earlier report to you. We also met with the GSA FTS Assistant Commissioner
for Acquisition and with other FTS2001 program management staff to obtain
documentation of revenues accrued to date, estimated time lines for
satisfying contract minimum revenue guarantees, and actions being taken to
resolve billing issues. We also obtained documentation from GSA supporting
its estimate of lost FTS2001 savings and discussed the logic used and steps
followed to derive that estimate with the staff from Mitretek Systems, who
prepared that estimate for GSA. We independently estimated time lines for
satisfying contract minimum revenue guarantees based on FTS2001 revenue
documentation

4 AT& T Corporation, B- 287931, June 14, 2001.

GAO- 01- 855R FTS 2001 Implementation Page 6 obtained from GSA. We conducted
this work from May 2001 through June 2001 in

Washington, D. C., and Fairfax, Virginia, in accordance with generally
accepted government auditing standards.

- - - - We are sending copies of this correspondence to the Ranking Minority
Member, Subcommittee on Technology and Procurement Policy, and interested
congressional committees. We are also sending copies to the Administrator of
General Services, and to the Director, Office of Management and Budget.
Copies will be made available to others upon request. The correspondence
will also be available on GAO?s Web site at

http:// www. gao. gov.

If you have any questions regarding this correspondence, please contact me
or Kevin Conway, Assistant Director, at (202) 512- 6240 or by e- mail at
koontzl@ gao. gov or

conwayk@ gao. gov, respectively. Sincerely yours,

Linda D. Koontz Director, Information Management Issues

(310322)
*** End of document. ***