California's $2 billion telecom project draws fire

Industry group says RFP favors incumbent SBC Communications

CALNET II MILESTONES

Nov. 8, 2004: RFP released

Jan. 18: Last day to submit letter of intent to bid

Feb. 4: Last day to protest RFP requirements

Feb. 22: Conceptual proposals due

April 22: Detailed technical proposals due

June 27: Draft proposals due

Aug. 22: Final proposals due 

Sept. 12-16: Demonstration, if required 

Nov. 18: Project award

"The more providers of service on a contract, the more complex the contract administration becomes. [Multiple vendors] would require the state to become a systems integrator or acquire a systems integrator."? Barry Hemphill, deputy director for telecommunications with the California Department of General Services

State of California

An industry group has launched a sharp attack on a planned $2 billion network project in California, contending that the new program's requirements favor the incumbent contractor, SBC Communications Corp.

The Information Technology Association of America said the project, known as Calnet II, would not offer California competitive pricing because the state intends to award the contract to a single contractor rather than to several vendors. The Arlington, Va., trade group also said the contract as crafted would not give state agencies access to the latest technologies, such as voice over IP.

The California Department of General Services issued the request for proposal for Calnet II Nov. 8. Final proposals for the seven-year contract to provide voice and data services to state and local governments are due by Aug. 22. The project is tentatively scheduled for award Nov. 18.

State officials overseeing the procurement said the single-contract approach is best for the state and the more than 2,000 local governments that would draw services from it, because it places responsibility squarely on the shoulders of one company rather than forcing state officials to oversee multiple contractors ? a job they don't want.

After receiving no response from state officials to a Dec. 10 letter voicing its concerns, the ITAA escalated its attack on the procurement last month by meeting directly with top aides of Gov. Arnold Schwarzenegger (R). To bolster its case, the group has commissioned a study from the Center for Digital Government, a Folsom, Calif., research institute, comparing Calnet II to similar contracts in other states.



UPHILL BATTLE

Many telecommunications companies worry that the absence of requirements for advanced technologies makes it difficult for them to unseat incumbent contractor SBC of San Antonio and leaves them with few or no subcontracting opportunities, because SBC can fulfill the contract's telecom requirements on its own, an industry official said. SBC did not respond to a request for comment.

The structure of the procurement, worth more than $2 billion, runs counter to the trend in government contracting to award telecommunications contracts to several vendors to ensure that agencies using the services get the best pricing available.

By indicating a preference for the contract to be administered by a communications service provider rather than a systems integrator, California is excluding from the bidding a substantial block of companies that are qualified to administer telecommunications and convergent communications projects, industry analysts said.

The upshot is that systems integrators, such as Accenture Ltd., EDS Corp. and IBM Corp. have resigned themselves to looking for subcontracting opportunities rather than bidding as the prime contractor.

"As it is structured now, we wouldn't bid it as a prime because the bid asks for a communications company. It just wouldn't make sense for us to bid it as a prime," said Dick Callahan, client executive for EDS' U.S. Government Solutions.

Instead, integrators will scout for possible subcontracting opportunities related to applications development and technology enhancements as the procurement moves forward this year, Callahan said.

This leaves the job of unseating SBC to rivals such as MCI Communications Corp., Denver's Qwest Communications Inc. and Verizon Communications Inc. of New York.

The telecommunications companies are divided as to whether a single- or multiple-vendor award is the better approach, but all want a piece of the business, Callahan said.

"It's a big, important deal both for the state and the companies bidding on it," he said.



CLEAR LINE OF ACCOUNTABILITY

California awarded Calnet I to SBC and MCI in 1998, with SBC serving as the project leader, said Barry Hemphill, deputy director for telecommunications with the California Department of General Services. The initial award involved two companies because regulations at the time prohibited one company from providing both long distance and local services on the same contract, he said.

The current requirements mirror the previous contract for the most part, according to ITAA. They include voice and data communications, systems integration and professional services, computer equipment and software products, maintenance and call-center support, and research and development, according to market research data.

The state regards the single-contractor approach as the best way to manage the project, Hemphill said.

"The more providers of service on a contract, the more complex the contract administration becomes," he said. "It would require the state to become a systems integrator or acquire a systems integrator in addition."

The sentiment is one often expressed by state officials about contracts of this nature, said Warren Suss, president of Suss Consulting, a research and consulting firm in Jenkintown, Pa.

Officials at all levels of government have limited ability to manage complex technology deals, Suss said. Even in the federal government, where there is more depth and expertise, federal agencies don't want to serve as their own integrator.

"They like to have a single button to push," he said. "It minimizes their overhead, minimizes finger-pointing between vendors and simplifies decision-making. It's very reasonable for an official to prefer a single prime contractor taking total responsibility."

But the single-contractor approach can result in noticeable inefficiencies, Suss said. By choosing one contractor, the government customer usually does not get the best team available for the project. To do that, it either has to pick the subcontractors itself or have a systems integrator pick the team, he said.

"There is no clear right and wrong answer here," Suss said "What California is doing is typical of agencies at the state and local level around the country."



GROUP GRIPES

ITAA rejects the rationale set forth by the Department of General Services. "We find it problematic for a whole host of reasons, because it will not result in the best value to the state and to its taxpayers," said Carol Henton, vice president for ITAA's Western region. "We believe that competition for rates over time can only be achieved if there is more than one vendor."

What riles ITAA even more is the almost total absence of convergent and advanced technologies in the request for proposal.

"The fact that just 1 percent of the evaluation points involve new technologies shows us that this is just not a priority for them," Henton said. "This is a large contract, and there is no VoIP and no wireless." The people in the Department of General Services "seem to be saying that VoIP is not a priority for them," she said.

California plans to contract out for new communications technologies in coming years, but it will not do so strictly through Calnet II, Hemphill said.

The study conducted for ITAA by the Center for Digital Government examined how 30 states approach convergent communications and advanced communications technology procurements and whether they use one vendor, several vendors or take a hybrid approach, said Paul Taylor, the center's chief strategy officer and an author of the report.

The study, which was completed but not released at press time, examined both departmentwide and governmentwide procurements at the state government level, Taylor said.

"We found that multiple award within and across those categories is the dominant approach," he said, noting that California, by choosing one contractor for the procurement. would be in the minority.

The study makes several recommendations. First, it suggests that the California Department of General Services use the four years left on the Calnet I contract to give it sufficient time to overhaul the procurement.

Next, it recommends that the state include in the procurement not only local and long-distance voice services but also LANs, WANs and wireless infrastructure. Given the size and term of Calnet II, the Center for Digital Government said it is imperative that California include these requirements, and note that VoIP will be a mainstream technology during the contract's lifetime.

The state also should scale back the number of evaluation points devoted to scoring cost on Calnet II, the study said. Rather than devote more than 70 percent of the evaluation points to cost, the state should reassign 25 percent to 35 percent to advanced technologies. In this way, the advanced technologies would have "a meaningful impact" on the total scoring, Taylor said. "The landscape has changed so much that by 2008, IP telephony will eclipse conventional plain old telephone service," he said.

For these reasons, the Center for Digital Government recommends that California issue a new procurement by asking for conceptual proposals for Calnet II as it did for Calnet I, rather than issue an RFP with specific requirements.

The Department of General Services could well do a solicitation for a conceptual proposal, Taylor said. "By changing the scoring and re-orienting to a converged network, it would make it difficult for any single vendor to answer the procurement," he said. "With 1 percent devoted to advanced technology, it is conceivable that one company could do the whole thing. But if 25 or 30 points are assigned dedicated to future technologies, it probably becomes a multiple award."

Senior Writer William Welsh can be reached at wwelsh@postnewsweektech.com.

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