FTS2001 Battle Shifts to Capitol Hill

The battle over the General Services Administration's FTS2001 long-distance contract is moving to Capitol Hill, where telecommunications companies shut out of the contract will press their case for opening it to wider competition.

Heating up the controversy is a harsh draft report by the General Accounting Office, charging problems and delays in transitioning to FTS2001 are hindering the GSA from meeting the program's goals of lower costs and better phone services.

Rep. Tom Davis, R-Va., chairman of the House Government Reform subcommittee on technology and procurement policy, has scheduled a hearing for April 26 to delve into the problems outlined in the report by the congressional watchdog agency.

"The salient part [of the report] is where it talks about the collective effect of the delays really jeopardizing the achievements of the program," Davis said. "In fact, the delays are affecting the outcome."

The continuing problems with the FTS2001 transition also are prompting criticism from non-FTS2001 companies, such as AT&T Corp., Basking Ridge, N.J., and Qwest Communications International Inc., Denver. They say they should be allowed to compete for the long-distance work.

The GAO's most dramatic recommendation is that the GSA renegotiate the contract's commitment that guarantees minimum revenue of $750 million apiece to the two contract holders, Sprint Communications Co. of Westwood, Kan., and WorldCom Inc., Clinton, Miss. The size of the guaranteed minimum is serving as a bar to competition, according to the GAO.

The March 16 draft report, "FTS2001: Transition Challenges Jeopardize Program Goals," was prepared at the request of Davis and Rep. Stephen Horn, R-Calif., chairman of the Government Reform subcommittee on government efficiency, financial management and intergovernmental relations. Neither the GSA nor the GAO would comment on the report.

The FTS2001 contract was awarded to Sprint in December 1998 and to WorldCom in January 1999. The program was to provide federal agencies with the best services and prices while maximizing competition.

At the time of the award, the contract's potential value was an estimated $5 billion over eight years, with each contractor being guaranteed at least $750 million.

However, unlike the predecessor FTS2000 contract, the new contract does not require federal agencies to purchase long-distance services through the FTS2001 contractors.

Consequently, telecom companies that have won Metropolitan Area Acquisition contracts to provide local telecom services in U.S. cities also will be allowed to compete for FTS2001 after the GSA lifts a forbearance period.

The GAO contends numerous problems have resulted in agencies paying more for their existing services, having difficulties in getting services they need, and that GSA itself is delaying open competition to make sure that WorldCom and Sprint reach their guaranteed minimum revenues.

Even though the FTS2001 contract went into effect more than two years ago, incumbents from the FTS2000 program ? Sprint and AT&T ? are still providing some level of service to numerous federal agencies under the terms of so-called bridge contracts extending their incumbent status.

The latest extensions were negotiated in December 2000. Sprint agreed to a six-month extension at higher rates, while AT&T negotiated a one-year extension at higher rates along with a one-time fee of $8 million.

The slow transition has threatened FTS2001 contractors' ability to reach their guaranteed minimum revenues, according to the GAO.

However, Jerry Edgerton, WorldCom's senior vice president of government markets, challenged the GAO's conclusion that the government isn't saving money. The GAO report noted the contract value had fallen by more than 50 percent, from about $5 billion to $2.3 billion, he said.

"My contention is that the government achieved its cost savings," Edgerton said. "What if it had not had FTS2001?"

Warren Suss, president of Suss Consulting Inc., a telecommunications consulting firm in Jenkintown, Pa., agreed with Edgerton's assessment.

A point the GAO misses in the report, Suss said, is that "the costs of FTS2001 services decline over the years of the contract." Although the costs are increasing for agencies that have not yet completed the transition to FTS2001, the other agencies continue to get not only a good deal, but a better deal each year, he said.

"The real bottom line here is the government is paying a lot less than they were [and] achieving enormous savings" with FTS2001, Suss said.

Edgerton also challenged the perception that WorldCom has not acted quickly to move agencies through the transition process. Some of the responsibility rests with the agencies themselves, he said, pointing out it took six months after the award of FTS2001 before the first change orders began trickling in.

"We got awarded the contract, and then discovered we didn't have any customers," Edgerton said.

The GAO report said one cause of delays was the slowness of local exchange carriers to provide facilities and services needed to make the changes.

Dan Smith, WorldCom's director of government markets, estimated 50 percent of his company's dates have been missed by the local service providers.

Edgerton placed some of the blame squarely on AT&T. "The villain in this process [was] the incumbent," he said. For example, "after we were ready for cutover, AT&T needed 45 days to disconnect."

The WorldCom executive said AT&T saw no reason to rush into making the change. Only when push came to shove, Edgerton said, did AT&T begin to respond.

And the client agencies with AT&T had never been through a transition, an inherently difficult process, Smith said.

"I don't think the government understood what would be involved. They hadn't done something like this in a while," he said.

Davis, a former contract attorney, said even if this is true, he didn't fault AT&T. It is the GSA's responsibility as the contract administrator to manage the process, he said.

John Doherty, vice president of civilian government markets, declined to respond to the complaints directed at the company, saying only: "I would allow AT&T's performance over the life of the FTS2000 contract to speak for itself."

Doherty said the best way to solve the problems with FTS2001 is to open up the contract to other providers. AT&T has won 10 MAA contracts, thus making it eligible to bid on FTS2001 work.

"Clearly, the agencies are concerned about performance issues, the deliverables of commitments made and the ability to actively manage their networks," Doherty said. "That's become a driving force here, to allow all the companies to bring their capabilities to the [contract] and allow" agencies to pick the companies that meet their requirements, he said.

Another company standing on the outside trying to get in is Qwest. The company holds four MAA contracts to provide local telecommunications services.

James Payne, senior vice president of Qwest's government systems division, has long been a vocal critic of the transition process, going so far as filing a protest March 22 with GAO over the FTS2000 bridge contracts.

He said the GAO laid the responsibility for the transition difficulties squarely on GSA, in large part because it never had a detailed plan for making the changes.

"There was no central accountability pressed against the two vendors," Payne said. "You're on the 14th floor of a 16-story building, you have no blueprint, and you're wondering why the building is wobbling."