Feds' Phone Deal head For Hang-Up

n intense lobbying war has erupted as high-tech contractors jockey for the yearly $1 billion federal phone business.

They argue that more than 200 people in the General Services Administration run the contract at an annual cost of $22 million; it would be cheaper, deliver better service and follow the spirit of government reinvention to let the invisible hand of the free market do its job. "The government achieved prices available in the marketplace only through the use of price cap processes. These processes cost the government in personnel resources and did not achieve the prices possible with...market competition," said John Messier, vice president at GTE Government Systems Division, before a recent House panel on the procurement.

Still, such criticism appears not to have swayed GSA, which is sticking with the old administrative-command approach for an award in 1998, according to critics.

For instance, GSA wants to award a nationwide, comprehensive contract offering a range of services to two or more companies -- precisely what it did the last time in awarding the FTS 2000, or Federal Telephone System 2000 contract. That would effectively exclude smaller firms that provide one or more specialized services at cheaper prices, and it would likely restrict competition to a handful of large telephone companies. Even more, this strategy could make the contract far too big to manage or award efficiently -- even as dozens of new technologies and services never considered in the contract speed to market.

Meanwhile, the General Accounting Office says the contract defines its needs in terms of technical capabilities rather than services that help solve particular kinds of organizational problems. That violates the spirit of reinventing the federal procurement system.

The proposed contract plan also excludes local service -- even as the distinction between long distance and local carriers is fast disappearing.

But the most controversial point is GSA's ambiguous stance on the mandatory use of the network. Many claim that old policy unnecessarily restricted competition between winning vendors and emerging commercial services, forcing agencies to use inferior services at higher prices.

The agency's strategy document says only that "user agencies will generally have the right to choose which [FTS 2000] contract they use to meet their needs," but it does not say what "generally" means and if agencies can go outside FTS 2000 contracts for services. That leaves GSA the option of later making use mandatory, says the General Accounting Office.

The present contract was originally awarded in 1988 to AT&ampT and Sprint, which split contract revenue on a 60/40 basis, respectively.

Critics at a hearing March 21 before the House of Representatives said it has failed to deliver advanced services that were either promised or became available commercially. For instance, contract administrators had hoped data services would represent 50 percent of FTS revenues by now, but that figure is only 10 percent. And data and videoteleconferencing services offered by competing vendors are incompatible -- meaning many agencies can't share vital information through advanced technology services, one of the contract's key goals.

Now, as the megacontract is due for a reaward in 1998, companies from across the information technology spectrum have lined up to plead their case before Congress to avoid similar problems. The stakes are huge. The contract is worth about $580 million per year in business, and if a proposal to merge defense networks with the system is accepted, that figure would rise to nearly $1 billion.

Still, GSA insists FTS 2000 has given the government cheaper basic phone service. That claim's truth is beyond doubt.

But the argument may also be a red herring. Long distance phone service is cheaper for everyone. And the cost of FTS 2000 service does not include annual contract administration expenditures of nearly $22 million as well as the unavailability of some advanced services; nor does it account for industry lobbying and bid and proposal costs, which in one way or another eventually get passed on to consumers.