GAO: Treasury agreement with GSA, OMB changed TCE proposal

The Government Accountability Office has thwarted a $1 billion Treasury Department award to AT&T Corp. after it learned that agency had entered into an agreement that encouraged it to let the contract expire early.

The bidders on the Treasury Communications Enterprise contract did not know about the memorandum of understanding among Treasury, the General Services Administration and the Office of Management and Budget, according to GAO.

The agreement made it significantly less likely that Treasury would exercise its options in the lucrative contract, according to a redacted version of GAO's decision. The contract has a three-year base and seven one-year options.

GAO yesterday agreed with four contractors that protested Treasury's decision to award the coveted contract to AT&T in December 2004.

GAO recommended that Treasury revise its request for proposals to reflect the fact that it might not exercise any options and reopen the competition to revised proposals.

Contract incumbent Northrop Grumman Corp.; Qwest Inc. of Denver; Broadwing Communications Corp. of Columbia, Md., whose communications subsidiary, Broadwing Communications LLC, is based in Austin, Texas; Level-3 Communications Inc. of Broomfield, Colo.; and MCI Inc. of Ashburn, Va., filed bid protests with GAO. Sprint Corp. did not file a protest.

The memorandum of understanding (MOU), signed on the eve of the award, put Treasury on a course to move to the governmentwide Networx contract, which is to be awarded in 2006, when the contract's base period was up in 2007.

"The protesters assert ? that it was unreasonable to require the offerors to prepare their proposals without disclosing this information. We agree," the GAO said in its decision.

"GSA, FTS, OFPP [OMB's Office of Federal Procurement Policy] and congressional sources made clear to Treasury prior to award of the TCE contract that they disapproved of its proceeding with the contract effort rather than meeting its network requirements under the forthcoming governmentwide GSA FTS-Networx telecommunications services contract," GAO said in its decision, which was based on testimony it received.

Shortly after Treasury CIO Ira Hobbs assumed his position last summer, he learned there was "a great deal of consternation" at OMB over the TCE initiative. "Similarly, the record suggests that there was congressional concern that, by seeking to satisfy its network requirements under its own contract, Treasury was diluting the government's buying power in the marketplace and undercutting GSA's Networx contract," GAO said in its decision.

Hobbs suggested he would consider what GSA had in mind when Treasury started considering options. "We think we can live with that, but we want something in writing," the OFPP administrator said, according to the GAO. David Safavian is the OFPP administrator.

An initial MOU draft written by Treasury provided that the department would transition its network requirements from TCE to Networx if a cost-benefit analysis determined that it was more advantageous for Treasury. However, GSA prepared another draft, which outlined the steps both GSA and Treasury would take "to efficiently migrate current and future TCE requirements to the governmentwide Networx program," GAO said.

But the wording was found to constitute a fundamental change in the TCE request for proposals. Hobbs testified that he viewed GSA's revision to be a "breach" and inconsistent with a "cooperative agreement." The MOU was revised to provide for a "best-value" analysis to determine whether Treasury would transition its network requirements to Networx, the decision said.

The agreement also had provisions to include Treasury in Networx planning and transition activities, to identify TCE requirements that can be included in the Networx RFPs, to exchange TCE and Networx contract information, and to agree on common performance metrics and methodology for total cost of ownership. "Transition costs will not be factored into the cost-analysis performed," GAO said the MOU specifically stated.

The MOU departed from federal acquisition regulations by giving final authority to OMB over disputes between Treasury and GSA about the best-value analysis, making the exercise of the options less likely, GAO said. "The MOU also made the exercise of the options less likely by providing that the best-value determination would focus not on Treasury's best interest, but on the best interest of the government as a whole, presumably including GSA and its Networx contract initiative," GAO said.

GAO also said Treasury's price evaluation was unreasonable and understated AT&T's proposal. Treasury also failed to ensure that the discussions of price evaluation were common to the other bidders.