Title  : OIG Review of NSFNET
Type   : Report
NSF Org: OIG
Date   : April 23, 1993
File   : oig9301




======================================================================

   NOTES ON THE TEXT:  The following is the text of the report
   "Review of NSFNET" by the Office of Inspector General of the
   National Science Foundation, followed by the text of NSF's
   response to the OIG report.  The format is somewhat different
   from the printed versions of the report and response, to
   accommodate normal screen width and the limitations of the ASCII
   format (only one font, no underlining or boldface).  When
   language in the printed report was italicized for emphasis, in
   this version that language has asterisks ("**") placed on either
   side.  The page numbering is different than in the printed
   version, but the Table of Contents has been corrected to conform
   with this version.
======================================================================


                      Office of Inspector General
                      National Science Foundation





                           Review of NSFNET







                             23 March 1993





                                   1
======================================================================
                           Review of NSFNET



   I.   Introduction . . . . . . . . . . . . . . . . . . . . . .   3

   II.  Background:  What NSFNET Is  . . . . . . . . . . . . . .   4

   III. Programmatic Issues
        A.   The NSFNET Solicitation, Evaluation of the
             Proposals,
                  and the Award  . . . . . . . . . . . . . . . .   7
        B.   Expansion of NSFNET and Conversion to T3
             1.   Necessity  . . . . . . . . . . . . . . . . . .  11
             2.   Amendment or Resolicitation? . . . . . . . . .  16
        C.   Spinning Off:  ANS & CO+RE
             1.   CO+RE and the Infrastructure Pool  . . . . . .  21
             2.   Commercial Use . . . . . . . . . . . . . . . .  25
             3.   Commercial Access  . . . . . . . . . . . . . .  29
             4.   The Decisionmaking Process . . . . . . . . . .  31
             5.   Public Announcement  . . . . . . . . . . . . .  35
        D.   Acceptable Use Policy . . . . . . . . . . . . . . .  38

   IV.  Administrative Issues
        A.   Cooperative Agreement or Contract?  . . . . . . . .  42
        B.   Conditions of the Award . . . . . . . . . . . . . .  43
        C.   Prior Approval  . . . . . . . . . . . . . . . . . .  45
        D.   Documentation . . . . . . . . . . . . . . . . . . .  49
        E.   Compliance with OMB Circular A-110  . . . . . . . .  50
        F.   Accessibility . . . . . . . . . . . . . . . . . . .  52
        G.   NSF Funding for the Provider or the Users?  . . . .  53

   V.   The Future of NSFNET
        A.   The Proposed Solicitation . . . . . . . . . . . . .  54
        B.   Comments on the Proposed Solicitation . . . . . . .  57
        C.   Interagency Coordination of the NREN
             1.   The New NASA/DOE Network . . . . . . . . . . .  61
             2.   The High Performance Computing Act . . . . . .  62
             3.   Coordination of the New NASA/DOE Network . . .  64
             4.   A New Paradigm . . . . . . . . . . . . . . . .  65

   VI.  Conclusions and Recommendations  . . . . . . . . . . . .  67

   Appendix:  NSFNET Acceptable Use Policy . . . . . . . . . . .  79


   NSF RESPONSE TO OIG REPORT  . . . . . . . . . . . . . . . . .  81





                                   2
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                           Review of NSFNET



                                  I.
                             Introduction

        In response to a Congressional request, we have reviewed the

   National Science Foundation's administration of the National

   Science Foundation Network ("NSFNET") program.  In general we

   were favorably impressed with the NSFNET program and staff.

   Nevertheless, we make recommendations to correct certain

   deficiencies and strengthen the upcoming re-solicitation.

        This review was initiated at the request of Congressman Rick

   Boucher, Chairman of the Subcommittee on Science of the House

   Science, Space, and Technology Committee.  Congressman Boucher

   identified certain concerns after conducting a hearing on

   NSFNET.1  This report addresses the specific concerns raised by

   Congressman Boucher in the context of a general review of NSF's

   administration of NSFNET.

        In the course of this review, we interviewed, among others:

   the Assistant Director for NSF's Directorate for Computer and

   Information Science and Engineering ("CISE"), the Director of

   CISE's Division of Networking and Communications Research and

   Infrastructure ("DNCRI"), the Deputy Director of DNCRI, the

   former General Counsel of NSF (until February 1993), the former

   Executive Officer of CISE (until December 1991), the Director of


                          ____________________

        1 Hearing on Management of NSFNET, 102d Cong., 2d Sess. (12
   March 1992).  These concerns included:  modification of the
   cooperative agreement for expansion of the NSFNET backbone to T3
   without re-bidding the award; privatization of the backbone;
   commercial use of the backbone; allowing conflicts of interest in
   the contractor-subcontractor relationship; and failure to
   properly oversee the agreement.

                                   3
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   the Division of Legislative Affairs of NSF's Office of

   Legislative & Public Affairs, and individuals from the National

   Aeronautics and Space Administration, the Department of Energy,

   Merit Network, Inc. ("Merit"), Advanced Network & Services, Inc.

   ("ANS"), Performance Systems International, Inc., and the

   Commercial Internet Exchange.  The documents we reviewed include:

   NSFNET and other program files from DNCRI, the Division of Grants

   and Contracts, and the Office of General Counsel; additional

   documents we requested from Merit and ANS; electronic mail files

   from the Director and Deputy Director of DNCRI; archives from the

   "com-priv" electronic mail bulletin board established by

   Performance Systems International, Inc.; comment letters received

   in response to the proposed solicitation; and various publicly

   available reports.

                                  II.
                              Background:
                            What NSFNET Is

        "The National Science Foundation Network (NSFNET)
        provides the opportunity for students, scientists,
        business people -- individuals from literally all walks
        of life -- to access resources ranging from electronic
        community bulletin boards to supercomputers scattered
        across the continent and around the world.  The NSFNET
        offers access to the nation's largest and fastest
        network for research, education, and technology
        transfer."2

        "The NSFNET was designed to support the data networking
        needs of the research and education community.  It has
        become an essential infrastructure for the community
        used daily to facilitate communication among
        researchers, educators, and students and to provide
        them with remote access to information and computing
        resources.  The number of users, the number of
        connected networks, and the amount of network traffic
        continue to grow rapidly.


                          ____________________

        2 "NSFNET:  Bringing the World of Ideas Together", Merit
   Network, Inc. (1992).

                                   4
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        "NSFNET also supports the goals of the High Performance
        Computing and Communications (HPCC) Program which was
        delineated in the President's Fiscal 1992 and 1993
        budgets and became law with the passage of The High
        Performance Computing Act of 1991 (PL 102-194).  One
        component of the HPCC Program is the National Research
        and Education Network (NREN) Program which calls for
        gigabit per second speed networking for research and
        education by the mid 1990s."3

        As an example, imagine Dr. Smith, sitting at a computer

   terminal at NSF in Washington, D.C., sending a message to

   Dr. Jones, at a terminal at Stanford University in Palo Alto,

   California.  Dr. Smith is connected to NSF's network, which

   connects about 1200 people.  The NSF network cuts the message

   into pieces called "packets" and sends the packets through a type

   of switch, called a router, which is part of a regional network

   called "SURANET".4

        SURANET has a router in College Park, Maryland, that is

   linked to a router called an external nodal switching subsystem

   ("ENSS"), which is an entry point for NSFNET.  The ENSS routes

   packets such as Dr. Smith's from SURANET -- on NSFNET, now -- to

   a router called a core nodal switching system ("CNSS") at an MCI

   switching center in Perryman, Maryland.5  The CNSS sends the

   packet(s) that contain Dr. Smith's message out over MCI's long

   distance lines, via other CNSS's as necessary, to the CNSS at

   Dominguez Hills, California, which is linked to an ENSS in Palo



                          ____________________

        3 "Public Draft -- Network Access Point Manager / Routing
   Authority and Very High Speed Backbone Network Services Provider
   for NSFNET and the NREN Program," 57 Fed. Reg. 26,692 (1992)
   (hereafter "Public Draft").

        4 Southeastern University Research Association Network.

        5 The locations where routers can connect to MCI's long
   distance lines are referred to as MCI "points of presence".

                                   5
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   Alto, where Stanford's regional network, "BARRNET",6 is

   connected.  Leaving NSFNET, Dr. Smith's packets continue via

   BARRNET to Stanford's campus network, and finally to Dr. Jones's

   electronic mail box.  Dr. Smith's message travels on NSFNET to

   the distant regional network used by Dr. Jones virtually

   instantaneously.7

        The system of MCI's long distance lines and the CNSS's,

   ENSS's, and the local telephone lines connecting them convey

   traffic for the "NSFNET backbone".  Moving from Dr. Smith's

   terminal, onto the NSF local network, onto SURANET, and so on --

   at each link, getting closer to MCI's long distance lines --

   there are more and more packets moving over the system.  The

   routers need sufficient speed to ensure that the packets don't

   get bottlenecked along the way.  Speed is generally expressed in

   standard telephone company units of multiples of megabits per

   second (mbps); the unit designations relevant to this discussion

   are "T1", which is 1.5 mbps, and "T3", which, at 45 mbps, is 30

   times faster than T1.  In general, the lines transmit information

   at very high speeds; the big MCI lines can handle thousands of

   mbps.  Routers, which analyze each packet's destination and

   choose the appropriate path, limit the speed of the system.  NSF

   and the other institutions on SURANET use T1 routers.  Capacity





                          ____________________

        6 Bay Area Regional Research Network.

        7 It works the same way when what is being transmitted is
   large amounts of data, the only difference being there are many
   more packets.

                                   6
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   can be increased by using multiple routers, in parallel, to feed

   messages into the lines.8

                                 III.
                          Programmatic Issues

                                  A.
                       The NSFNET Solicitation,
              Evaluation of the Proposals, and the Award

        The project solicitation for a cooperative agreement for the

   management and operation of the NSFNET backbone was issued by the

   Division of Networking and Communications Research and

   Infrastructure of the NSF Directorate for Computer and

   Information Science and Engineering.9  The solicitation closed

   on 14 August 1987, with the receipt of proposals from six

   offerors, including Merit.10  A panel of ten reviewers

   evaluated the proposals on the basis of nine weighted criteria:

        1.   Understanding NSFNET objectives and improving
             infrastructure (20%).

        2.   Capability to develop, manage, and operate NSFNET
             including prior experience managing networks and
             providing information services (15%).

        3.   Likelihood of availability of services in FY 1988
             (15%).


                          ____________________

        8 In theory, thirty T1 routers could provide the capacity of
   one T3 router; however, the software involved in coordinating
   thirty routers would be a logistical nightmare.

        9 This solicitation envisioned that the award would be
   structured as a cooperative agreement, as opposed to a contract.
   Cooperative agreements and contracts are used by the government
   in different circumstances, as discussed below in Section IV.A.

        10 Merit was the Michigan Educational Research Information
   Triad, a non-profit corporation managed by a consortium of eight
   Michigan universities:  University of Michigan, Central Michigan
   University, Eastern Michigan University, Michigan State
   University, Michigan Technological University, Oakland
   University, Wayne State University, and Western Michigan
   University.  The company's name has been legally changed to Merit
   Network, Inc.

                                   7
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        4.   Capabilities of key personnel (15%).

        5.   Quality of circuit facilities (10%).

        6.   Quality of educational and information services (10%).

        7.   Quality of planned interaction with affiliated
             subnetworks (5%).

        8.   Quality of migration for NSFNET from the TCP/IP
             protocol to the Open Systems Interconnection protocols
             of the International Standards Organization (5%).

        9.   Plan for interconnection with other government networks
             including the ability to develop agreements (5%).

   Evaluated with the above criteria, the proposals received the

   following overall scores from the reviewers:11

      Offeror:
   Reviewer: 1       2     Merit   4      5      6
     1       VG      G       G     F      P      F
     2        E      E      VG     G      F      G
     3        E     VG      VG     F      G      F
     4       VG      G       G    VG      F      F
     5       VG     VG      VG     F      F      P
     6        G     VG      VG     G      F      P
     7       VG     VG       G     G      F      F
     8       VG     --12    VG     G      G      F
     9       VG     VG       G     F      F      P
    10       VG     VG      VG     G      G      F

        On the basis of these scores, the reviewers determined that

   the proposals from Offerors 4, 5, and 6 were technically

   unresponsive.  The remaining three proposals were then considered

   by the reviewers in light of their pricing information, as set

   out below for the full five year period of the award:

        Offeror 1      $40,012,850 13

                          ____________________

        11 "E" = excellent; "VG" = very good; "G" = good; "F" =
   fair; "P" = poor.

        12 This reviewer did not review Offeror 2's proposal.

        13 Offeror 1's proposal included budgets that ranged from
   $34,862,370 to $43,927,503.  The six different proposed budgets
   each depended on the speed of the backbone and circuits and the
   level of redundancy.  The price quoted is for a backbone
   comparable to that proposed by Merit.

                                   8
======================================================================
        Offeror 2      $24,556,000
        Merit          $13,996,543

   For comparable capacities and speeds, Offeror 1's and Offeror 2's

   proposals were substantially more expensive than Merit's.

   Offeror 1's proposal was much more costly in part because NSF

   would pay for purchasing all equipment including the routers,

   Offeror 1's indirect cost rate was high,14 and salaries and

   phone lines were expensive.  Offeror 2's proposal was more costly

   primarily because its cost of phone lines was much higher than

   Merit's.15

        Merit's proposal included contributions from MCI and IBM,

   which the Review Analysis prepared by NSF discussed as follows:

             "When pricing information was restored to the
        Merit, Inc. proposal, the Panel was initially concerned
        because the proposed cost to the NSF was
        unrealistically low for the level of service promised.
        The Panel then noted the extraordinary degree of
        cost-sharing proposed; this included:

        "    $5M from the State of Michigan for facilities and
             personnel,

        "    approximately $6M from MCI in reduced communication
             charges, and

        "    $10M from IBM in equipment, installation, maintenance
             and operation.

             "When these cost-shared amounts were added to the
        proposed cost, the value of the Merit, Inc. proposed
        effort was seen by the panel to be fully comparable to
        the other two technically highly-rated proposals."16




                          ____________________

        14 Offeror 1's indirect cost rate ranged from 67.08% for
   FY88 to 73.25% for FY92, while Merit's was 58 percent.

        15 MCI, the provider of lines under the Merit proposal,
   accepts a lower-than-market rate for access to its lines and
   connections.

        16 Review Analysis at 2 (27 October 1987).

                                   9
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   On the basis of the panel's evaluation, NSF staff made the

   following recommendation:

             "Although the technical features of the Merit,
        Inc. proposal were not the most highly rated, the
        differences among the point scores of the three highly
        rated proposals were slight (less than 0.25); because
        of the large cost-sharing proposed, however, the Panel
        felt that the Merit, Inc. proposal offered the NSF and
        the scientific community the best cost:benefit ratio,
        that the risk level of the proposal was acceptable, and
        that therefore an agreement should be negotiated
        between the NSF and Merit, Inc. for approximately the
        amount requested, to carry out the proposed work."17

   The Memorandum to Members of the National Science Board in

   support of funding Merit's proposal stated:

             "A merit review panel was convened to evaluate six
        proposals obtained in response to the solicitation.
        After the six proposals were rated, three proposals
        were rated `technically competitive.'  The panel was
        then provided with the cost portion of the proposal.
        Consensus was quickly reached when the Merit, Inc.
        proposal costs were shown to be 50 to 65 percent less
        than the other two technically competitive proposals.

             "Merit, Inc. was thus rated as the only proposal
        in the competitive range and was recommended for
        funding pending satisfactory responses to questions and
        concerns of the panel.  The panel unanimously agreed
        that Merit, Inc. had excellent understanding of the
        objective of NSFNET and had proven capability of
        managing and operating an intercampus network for more
        than fifteen years.  Their key personnel were also
        given high scores for the interaction with and work
        done for the current interim manager of NSFNET
        Backbone.  The joint study partners IBM and MCI were
        seen as clearly committed to the success of the
        project.  The experimental nature of the nodal switch
        equipment and the information service software were
        questioned by several reviewers.  These concerns have
        been addressed by Merit, Inc. in their responses to
        questions.  Overall, this was seen as an excellent
        proposal directed by highly competent and reputable
        personnel.  The immediate expansion of their current
        Network Operation Center at Merit, Inc. would assure
        its availability in FY 1988.  The cost sharing by the
        State of Michigan and Merit, Inc.'s joint study



                          ____________________

        17 Review Analysis at 3 (27 October 1987).

                                  10
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        partners of IBM and MCI make this a highly leveraged
        project."18

        At its 16 October 1987 meeting, the National Science Board

   approved the award to Merit, and in November 1987 NSF awarded to

   Merit a five-year cooperative agreement (the "Cooperative

   Agreement") to implement and manage the NSFNET backbone.

        The NSFNET backbone, operating at T1, came on-line in July

   1988.  A Mid-Term Performance Review of the project was conducted

   by a panel of outside reviewers on 17-18 May 1989.  Merit's

   performance during the first eighteen months of the agreement was

   generally deemed to meet or exceed expectations; the review panel

   found that Merit did not fail to meet expectations in any area.

        We conclude that NSF's decision to award the Cooperative

   Agreement for NSFNET to Merit was reasonable.19

                                  B.
               Expansion of NSFNET and Conversion to T3

                                  1.
                               Necessity

        In February 1989, at the request of the Division of

   Networking and Communications Research and Infrastructure, Merit

   proposed an expansion of NSFNET primarily through the addition of

   up to fifteen new nodes in order to improve access for campus



                          ____________________

        18 Memorandum to Members of the National Science Board Re
   Support for the Management and Operation of the NSFNet Backbone
   Network at 3-4.

        19 For the purposes of this review, it is not relevant
   whether Michigan, MCI, and IBM have in fact contributed the
   precise amounts estimated in the Merit proposal, or somewhat
   greater or lesser amounts.  What is relevant is that Merit's
   proposal was substantially less costly to the government than the
   other technically responsive proposals, and Merit's performance
   under the award has met or exceeded expectations as evaluated by
   both NSF staff and a panel of outside peer reviewers.

                                  11
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   sites that had no access to a backbone node.20  The location of

   each new node would be determined in cooperation with NSF; the

   total projected budget if fifteen nodes were added was

   approximately $24.5 million,21 with implementation scheduled to

   begin in late 1989 and last six months.  The proposal explained

   that, "[w]ith [T1 speeds already achieved], the NSFNET backbone

   is well positioned for the implementation of T-3 (45 Mbps) in the

   early 1990s recommended by [the Office of Science and Technology

   Policy (OSTP)]."22

        In March, the five peer reviewers of the Merit proposal

   "were unanimous in their highly supportive comments relating to

   Merit's qualifications and of their current operations and

   management of the network . . . ."23  The reviewers also

   unanimously agreed that the NSFNET backbone needed to be

   expanded; however, they were concerned that T1 technology would

   soon become obsolete and that, therefore, investing large amounts

   of money in adding T1 nodes would not be cost-effective.  As one

   reviewer stated:

             "The hardware technology proposed is relatively
        expensive and cannot easily migrate to support the T3
        environment.  Caution is advised in making too great an

                          ____________________

        20 "Proposal for the Management and Operation of the NSFNET
   Backbone Network:  Expansion," submitted by Merit (February 1989)
   (hereafter, "Merit Expansion Proposal").

        21 MCI agreed to waive its installation fees although it
   would pass on costs for the installation of local access lines.
   The main reason for the increase was the cost for the additional
   lines.

        22 Merit Expansion Proposal at 3.  The OSTP report
   recommended that the NREN be upgraded to T3 in the early 1990's.
   OSTP, "The Federal High Performance Computing Program," at 32, 36
   (8 September 1989).

        23 Review Analysis at 5 (1 June 1989).

                                  12
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        investment in this technology at this time with a
        possible limited useful life."

   Another reviewer expressed similar concerns:

        "The new NSS nodes will increase access/connectivity,
        but this will also increase the requirements for
        testing of new versions and enhancements to the NSFNET.
        . . . Expansion of the NSFNET is needed but must be
        balanced with the planned advancement to new
        technologies for the NSFNET which will bring T3 network
        capacities to the users in the 3 year period of this
        proposal."

        In June 1989 the National Science Board approved an increase

   in the authorization limit for NSFNET from $14 million to

   $20 million, as recommended by the Division of Networking and

   Communications Research and Infrastructure.  This decision was

   made on the basis of the increase in traffic from September 1987

   (75 million packets for the old network) to February 1989

   (600 million packets) and the increase in the number of

   institutions connected to regional networks.  The additional

   money allocated was intended to provide increased capacity and

   connectivity and reduced delays by adding new nodes and changing

   the physical topology of the backbone.

        After approval of the funding level increase, locations for

   the new nodes were proposed and were assessed by a panel of peer

   reviewers, and studies of new network configurations, including

   possible inclusion of newly-available T3 technology, were

   undertaken by Merit at NSF's request.  In December 1989, traffic

   projections indicated that the increase in network use could

   reach the limits of NSFNET's capacity during the next year.

   Therefore, instead of adding more T1 routers and fifteen new

   nodes to reduce this bottleneck, Merit proposed that only one to

   three new nodes be added at T1, two nodes be added at T3, and



                                  13
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   portions of the existing backbone be upgraded to T3.24  T3

   nodes provide 30 times the speed of T1 nodes, and, therefore, T3

   nodes can be used for applications where very high speeds are

   necessary such as moving pictures.  Thus, the expansion to T3

   would enable the use of network applications that were impossible

   under T1.

        The panel of peer reviewers gave Merit high praise for its

   past performance and supported Merit's proposal.  In April 1990,

   Merit submitted a revised statement of work, "based on the input

   received from the National Science Foundation, in particular the

   need for adding nodes to and expanding the switching and

   transmission capacity for the NSFNET backbone."25  Merit then

   submitted a scope of work revision, proposing the addition of

   three new nodes at T3 combined with the T3 upgrade of six nodes

   instead of adding any new T1 nodes.26  On 29 May 1990, an

   amendment to the Cooperative Agreement provided funding for this

   revision.27

        In August 1990 Merit submitted a proposal for the "Expansion

   of T-3 Capabilities for the National Science Foundation Network

   (NSFNET)".  Thereafter, in November 1990, the Board approved an

   increase in the Cooperative Agreement's authorization limit from

   $20 million to $28 million so the entire backbone could provide



                          ____________________

        24 Memorandum from Merit to NSF (20 February 1990).

        25 "Revised Statement of Work / NSF Supplemental Proposal
   No. 8944037" (20 April 1990).

        26 "Scope of Work Revision / Proposal No. NCR-8912875" (30
   April 1990).

        27 Amendment No. 4 to Cooperative Agreement No. NCR-8720904.

                                  14
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   T3 speeds.  The conversion to T3 routers was completed in

   mid-1992.28

        At the same time as the T3 expansion, a new network

   architecture was implemented for the T3 technology under which

   CNSSs were linked by multiple T3 circuits.  In addition, MCI

   assumed the responsibility of maintaining the connection of each

   ENSS to its CNSS at MCI's point of presence (through local

   telephone company lines or MCI's own lines).

        When the network was expanded to T3, the cost increased

   dramatically.  Specifically, the additional cost to provide T3 to

   the first eight sites was about $8 million, of which almost

   $7 million was for the direct costs of transmission services

   (including circuits, equipment, installation, and maintenance).

   The three primary reasons for this cost increase were the new

   high-performance router technology, the costs of the additional

   capacity and speed on the MCI lines, and the requirement that the

   local lines from the CNSS's to the ENSS's be able to handle T3

   speeds.

        We believe NSF's decision to upgrade NSFNET to T3 **before**

   the T1 network was saturated was reasonable.  We also believe the

   price was not unreasonable:  even with the additional costs,

   Merit provided NSFNET with more nodes and complete T3 expansion

   in 1992 at a total cost of $28 million29 -- considerably less

                          ____________________

        28 The current network is "T3" in the sense that it can be
   upgraded to T3 whenever there is a need to do so.  The routers
   are presently able to handle 22.4 mbps (half of T3), and they can
   be readily configured to provide full T3 speed.  The routers have
   not yet been upgraded to T3 because the volume of traffic has not
   been sufficient to saturate them at half that rate.

        29 Not including $95,401 to connect DARPA to the backbone,
   and $754,701 to connect NASA.

                                  15
======================================================================
   than Offeror 1 proposed to provide only T1 and about fifteen

   percent more than Offeror 2 proposed to implement the slower

   technology.  Also, although T3 costs substantially more than T1,

   it provides a **30-fold** increase in network speed.

                                  2.
                     Amendment or Resolicitation?

        Nonetheless, it is legitimate to question whether NSF should

   have issued a new solicitation for the node expansion and/or the

   T3 conversion, rather than increasing the existing award.  We

   must therefore consider whether the public was on notice, when

   the original NSFNET solicitation was issued, that the awardee of

   the NSFNET cooperative agreement would be responsible for

   modifications and expansions of the backbone to accommodate

   increased use and advances in technology.  The project

   solicitation for the management and operation of the NSFNET set

   out NSF's expectations:

        "NSFNET is dynamic.  It will change with evolving
        network affiliations, improved technologies, competing
        communications costs, varying traffic load, and other
        similar factors.  It is necessary that NSFNET
        management be able to advise and accommodate changes in
        the top-level, or backbone, architecture."30

   The network engineering, protocols, and standards in the

   solicitation required that the managing organization "provide or

   arrange for the following services", including:

        "d.  Plan, and with the approval of the NSF/DNCRI
             install, modifications to the network topology and
             node assignments to improve overall network
             performance and reduce operations and/or circuit
             costs to the government.  Alteration of Backbone




                          ____________________

        30 Project Solicitation for Management and Operation of the
   NSFNET Backbone Network at 1 (hereafter "Project Solicitation").

                                  16
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             nodes and/or Tail31 links are specifically
             permitted.

        "e.  Coordinate, and with the approval of the NSF/DNCRI
             install, changes to the NSFNET Backbone and Tails
             as required to accommodate network growth and
             traffic pattern changes as additional affiliated
             networks are connected to the backbone or as
             traffic from existing networks grows."32

   The solicitation also required that the proposals contain

   "[p]lans and procedures to monitor traffic in order to plan for

   and accommodate growth including working with new sites and

   phasing in new equipment."33

        As requested in NSF's solicitation, Merit's proposal

   anticipated increases in required speeds:

        "Our solution utilizes technology designed to work at
        T1 speeds and well beyond that as needed in the future.
        This design can be extended quickly, to stay ahead of
        the anticipated, increasing network load."34

        "[Merit's structure p]rovides a foundation for future
        networks with broader user bases and greater
        capabilities as projected by the FCCSET Report to
        Congress."35

        "[W]e believe that the structure proposed will provide
        a flexible base for further network development and
        thereby position NSFNET to evolve into the type of
        network envisioned by the FCCSET study."36



                          ____________________

        31 Tails are "the circuits, gateways, taps, etc. extending
   from the Backbone to [regional] networks, each of which is an
   independent entity serving its own end-user community and
   providing its own facilities and user services."  Project
   Solicitation at 1.

        32 Project Solicitation at 3.

        33 Project Solicitation at 6.

        34 "Management and Operation of the NSFNET Backbone
   Network," at vi, submitted by Merit (hereafter "Merit Proposal").

        35 Merit Proposal at vi.

        36 Merit Proposal at viii.

                                  17
======================================================================
        "At the beginning of 1990 we expect to begin the
        transition into NSFNET's second phase, incorporating
        into it [T3]-capable software.  If demand for higher
        rates exists, and funding for the additional hardware
        and transmission becomes available, we have targeted
        the beginning of the deployment of a higher speed
        network for that time."37

   One reviewer commented that Merit's proposal was an

   "[i]nteresting hybrid approach that allows adjustment of traffic

   **and** [speed] . . . ."

        The other two competitive proposals, per the solicitation,

   also anticipated enhancements to the network.  Offeror 1's

   proposal stated:

        "The NSFNET Operations and/or Engineering staffs, in
        consultation with NSF and other appropriate
        organizations, will plan changes to NSFNET.  Network
        Information Services will announce and document changes
        well in advance."38

        "Major changes in communications facilities will be
        carefully planned to overlap with existing facilities,
        providing cutover to new facilities."39

        "3.3.6.  Site Addition Procedures

        "We urge NSF to ask us to review proposals for
        connection to NSFNET as part of the peer review
        process.  Once the determination has been made that the
        new site or network is to be connected, we would expect
        to follow [certain] procedures . . . ."40

        "11. Experimentation on the NSFNET Backbone

        "[We] are deeply involved in the ongoing Internet
        engineering efforts.  Our strategy for protocol
        development will be to work with the various task
        forces of the Internet Activities Board to define areas
        where research and experimentation need to be done; to
        foster and participate in that research and
        experimentation as much as possible; and to develop

                          ____________________

        37 Merit Proposal at 13.

        38 Offeror 1 Proposal at 12.

        39 Offeror 1 Proposal at 12.

        40 Offeror 1 Proposal at 13.

                                  18
======================================================================
        deployment strategies for a new function or
        architecture when the task forces reach a consensus.
        We want to be sure that the NSFNET backbone is a
        state-of-the-art network to support the tremendous
        requirements of its clients . . . .

        "The ongoing evolution of the Internet will require
        integration of experimental components from time to
        time . . . .

        "[We] will maintain a test lab for testing the
        interoperability of any experimental routers before
        they are used on the backbone . . . ."41

   Similarly, Offeror 2's proposal anticipated expansion and
   enhancements:

        "[A]s the needs of NSFNET grow and change, additional
        processors can be added or communications interfaces
        replaced at minimum cost."42

        "We expect that NSFNET traffic volume and patterns will
        change as mid-level networks are added and as new
        networking applications come into use.  [We] will
        monitor backbone traffic patterns during the life of
        the agreement to insure that the backbone meets service
        requirements at minimum cost.  We will study traffic
        measurements and interview NSF officials, mid-level
        network managers, and supercomputer site administrators
        to estimate future traffic loads and network growth.
        Twice a year, starting three months after the network
        is installed, network designers using [our] expert
        system will analyze this information and make
        recommendations to provide adequate capacity and
        redundancy to meet then-current and near-term future
        communication requirements.  [Our] staff will also be
        available to plan for the addition of new mid-level
        networks or other changes to NSFNET."43

        "4.4.11.  Modifications to Network Topology.  Changing
        levels and flows of data traffic can require
        modification to network topology, as would adding or
        deleting mid-level networks.  The network analysis
        services described in 4.4.4 can be coupled with
        topological design to validate the results of previous
        designs and to provide data for network modeling.

        "In addition to routine performance monitoring, network
        performance (network delay, throughput and circuit

                          ____________________

        41 Offeror 1 Proposal at 18.

        42 Offeror 2 Proposal at 2.

        43 Offeror 2 Proposal at 6-7.

                                  19
======================================================================
        utilization) and reliability will be reassessed every
        six months.  Changes to the topology will be
        recommended to account for changes in traffic volumes
        and traffic patterns.  Topological changes might
        include the addition or removal of specific circuits or
        devices, as well as redeployment of existing circuits
        and devices.  Internet packet routers will be
        reconfigured as necessary to meet requirements for
        throughput and to interface to appropriate
        communications lines."44

        Thus, the NSFNET solicitation explicitly envisioned

   expansions of and improvements to the network, and the public was

   on notice that the successful offeror would be responsible for

   expansions of the NSFNET backbone within the period of the award.

   The NSFNET solicitation sought proposals that anticipated

   expansion and upgrading of the network, and Merit's winning

   proposal did so.  In our view it was reasonable for NSF to modify

   the Cooperative Agreement to fund expansion of NSFNET and the T3

   upgrade.  Indeed, particularly in light of the extremely

   favorable evaluations Merit's work on NSFNET received in its peer

   reviews, NSF would likely have had no justification to cut short

   the term of the Cooperative Agreement and re-compete it.45


                          ____________________

        44 Offeror 2 Proposal at 10-11.

        45 It has been alleged that the NSFNET backbone was
   unreliable and that the speed was not that which had been
   promised.  NSFNET was always expected to be, and has been, a
   testbed for the cutting edge of networking technology -- a work
   in progress.  Throughout the period of performance of the
   Cooperative Agreement, NSF and Merit have pushed and extended the
   limits of networking technology.  Each upgrade of the network has
   presented problems that had not been encountered previously, and
   NSF and Merit, IBM, and MCI have worked together to solve them.
   We have no basis to disagree with the judgment of NSF staff --
   shared by the outside reviewers who evaluated Merit's performance
   at midterm and for each proposed upgrade -- that the performance
   of NSFNET has been within reasonable expectations.

                                  20
======================================================================
                                  C.
                      Spinning Off:  ANS & CO+RE

                                  1.
                   CO+RE and the Infrastructure Pool

        Before the expansion of NSFNET and conversion to T3, in

   September 1990, Merit, IBM, and MCI formed a nonprofit

   corporation called Advanced Network & Services, Inc. ("ANS") to

   take over management and operation of NSFNET.  In ANS's

   Certificate of Incorporation, the purpose of ANS is set forth as

   follows:

             "The Corporation is a non-profit organization
        dedicated to the advancement of education and research
        in the interest of improving the ability of the United
        States to compete in the global economic environment.
        The Corporation will concentrate on computer networking
        and related services, an area clearly recognized as a
        vital component of United States competitiveness.  The
        Corporation shall help establish a high-speed computer
        network which will be maintained at the leading edge of
        technology, and which will eventually feature
        multi-gigabit per second data transfer rates.  The
        Corporation will also help to expand the access to and
        interchange of information technology resources among
        academic, government and industry users.  In addition,
        the Corporation will engage in research and development
        work which will support the academic and research
        communities and contribute to United States preeminence
        in high speed network technology and related services."

   NSF agreed to the assignment of Merit's responsibilities under

   the Cooperative Agreement to ANS, and further agreed that ANS

   could seek new customers, as follows:

        "NSF agrees that [ANS] may solicit and attach to the
        NSFNET Backbone new users, including commercial users,
        and may connect them to new or existing nodes on the
        Backbone, with the understandings that:

             "1) such users will reimburse [ANS] for at
             least the full average cost of the
             connection, the added traffic, and additional
             related support, and

             "2) the reimbursements will be used to
             enhance the network infrastructure and
             services, in order that the level of service
             provided by MERIT under its Cooperative
             Agreement with NSF not be diminished.




                                  21
======================================================================
        "NSF and MERIT will agree on the technical means of
        compliance with 2) above."46

        In May 1991, ANS created "ANS CO+RE Systems, Inc."

   ("CO+RE"), a for-profit corporation, to:

        "engage in activities that are not solely in support of
        scientific research and education, but include
        providing network services for (1) mixed commercial and
        scientific research and educational traffic, (2)
        commercial traffic, and (3) any other activity which
        would constitute an unrelated trade or business if
        carried on by [ANS].  For example, commercial users who
        want direct connectivity with the scientific research
        and educational community would connect through
        [CO+RE].  Their attachment fees would be paid to
        [CO+RE] . . . . Network consulting services also will
        be provided by [CO+RE].  After-tax profits from [CO+RE]
        generally will be dividended to [ANS] to the extent
        they are not needed for reinvestment in [CO+RE]."47

        The NSFNET Acceptable Use Policy (the "AUP"), which is set

   out in the appendix to this report and is discussed in greater

   detail in Section III.D., prohibits purely commercial traffic

   from using NSFNET.48  When CO+RE was formed, NSF program staff

   agreed with Merit and ANS that the Merit/ANS network operations

   center, IBM-provided routers, and MCI-provided lines were not

   subject to the AUP because NSF was not paying for equipment and

   facilities, but was instead paying for the conveyance of NSFNET

   traffic and the provision of network support services.

   Nonetheless, NSF did place the following conditions on the use of

   the network for conveying commercial traffic:


                          ____________________

        46 Letter from NSF to Merit (10 September 1990).

        47 Attachment No. 4 to ANS's Filing with the Internal
   Revenue Service for Non-Profit Status at 3.

        48 Under the Acceptable Use Policy, research and education
   users can use NSFNET to contact commercial entities and receive
   commercial services and products over NSFNET (such as Dialog),
   but commercial entities cannot affirmatively use the backbone for
   advertising commercial activities.

                                  22
======================================================================
        "NSF agrees that ANS may move commercial traffic in
        both directions across the NSF sponsored Backbone
        gateways, providing that:

        "(1) ANS recovers at least the average cost of the
             commercial use that traverses the NSF sponsored
             gateways.

        "(2) Excess revenues recovered above costs for this use
             after tax will be placed in a pool to be
             distributed.

        "(3) An ANS resource allocation committee will be
             formed with representation from the participating
             NSF sponsored gateway management, other network
             organizations, the NSF and ANS to distribute those
             funds with the objective of further building
             national and regional infrastructure, and

        "(4) MERIT and ANS ensures that the attachment and
             service sponsored by the NSF under Merit's
             Cooperative Agreement with the NSF is not
             diminished.

        "NSF, MERIT and ANS will agree on the technical means
        of compliance with the points outlined above."49

        In our view, the establishment of the infrastructure pool is

   consistent with the requirement in the Cooperative Agreement that

   "project income received or accruing to the [awardee] during the

   period of this award shall be retained and added to the funds

   committed to the project by the Foundation and used to further

   project objectives."  We recommend that NSF ensure that the

   infrastructure pool is funded properly.

        ANS subsequently explained how the "infrastructure pool"

   would work:  regional networks may sign "connectivity agreements"

   with ANS, thereby "simply . . . agree[ing] to accept traffic from

   ANS CO+RE customers."  ANS explained further:

        "Networks that sign ANS connectivity agreements pay
        nothing, and, because they agree to let commercial
        traffic travel across their gateways and through their


                          ____________________

        49 E-mail message from NSF to Merit (24 May 1991).

                                  23
======================================================================
        networks, they are eligible to receive grants from the
        National Infrastructure Pool."50

        "*ALL* of the additional revenues due to [commercial]
        charges go into the infrastructure pool and get
        distributed back to the service providers that
        participate in the connectivity agreement to build
        infrastructure."51

   Thus, the revenues in the infrastructure pool are to be

   distributed as determined by the resource allocation committee,

   which consists of one representative each from ANS, NSF, and each

   network service provider that has signed a connectivity or

   gateway agreement.  We recommend that NSF ensure that the

   infrastructure pool is equitably distributed among the networks

   that are connected to NSFNET and that this money is used to build

   national and regional infrastructure as required by the agreement

   between NSF and Merit.  We further recommend that, at the close

   of the term of the Cooperative Agreement, NSF ensure that Merit

   conducts a cost and compliance audit of ANS and CO+RE to verify

   that the infrastructure pool has been funded and distributed

   appropriately.52

                          ____________________

        50 E-mail message from ANS to com-priv@psi.com and other
   addressees (12 December 1991).

        51 E-mail message from ANS, cc'd to com-priv@psi.com (13
   January 1992) (emphasis in original).

        52 As discussed below, Merit has been allowed to permit
   commercial traffic over the T3 network created with NSF support;
   this use was not anticipated by the parties at the time of the
   original solicitation or Cooperative Agreement.  Although we have
   concluded that it was not inappropriate to allow such commercial
   use of this NSF-funded resource, the unanticipated benefit that
   Merit received resulted in the formation of the infrastructure
   pool and hence the need to audit it.  Therefore, we feel it is
   equitable for NSF to ensure that Merit conducts a cost and
   compliance audit of ANS and CO+RE **at Merit's own expense** (an
   expense which should not decrease CO+RE's contribution to the
   infrastructure pool).

                                                      (continued...)

                                  24
======================================================================
                                  2.
                            Commercial Use

        We have been told by NSF staff that in 1986-87, when NSF

   conducted the NSFNET solicitation and entered into the

   Cooperative Agreement with Merit, it was not clearly foreseeable

   when, or if, high-speed networking would become commercially

   viable.  Therefore, NSF did not address the issue of commercial

   use of the network by the awardee in the solicitation or the

   Cooperative Agreement.  Similarly, **none** of the offerors

   addressed commercial use in its proposal.  As discussed above, we

   have concluded that the decision to proceed with the T3 expansion

   by amending the extant cooperative agreement with Merit was

   reasonable largely because the expansion of the network was

   anticipated in the NSFNET solicitation and was therefore

   anticipated by Merit as well as the other offerors.53  In this

   case, neither the solicitation nor the proposals anticipated or





                          ____________________

        52 (...continued)
        The Office of the Inspector General contracted for an
   independent audit of Merit for the period from 1 December 1987 to
   30 June 1991.  No questioned costs were found, and no instances
   of internal control structure weaknesses were detected.
   "Questioned costs are costs for which there is documentation that
   the recorded costs were expended in violation of the law,
   regulations or specific conditions of the Cooperative Agreement
   and the grant or those costs which require additional support by
   the grantee or which require interpretation of allowability by
   the NSF grant or contract officer."  "Financial Audit of National
   Science Foundation Awards to Michigan Educational Research
   Information Triad, Inc.," at 3, Office of Inspector General
   Report No. 92-1017 (20 December 1991).  Non-statistical sampling
   was used.  However, this audit did not include CO+RE and the
   infrastructure pool, which should be a particular focus of the
   audit performed after the termination of the Cooperative
   Agreement.

        53 See Section III.B.2.

                                  25
======================================================================
   prohibited commercial use.54  Because of this ambiguity, the

   question of whether commercial use should have been permitted is

   properly resolved by reference to the objectives of NSF in

   general and NSFNET in particular:  if commercial use would have a

   negative effect on either NSF's objectives or NSFNET's

   objectives, then commercial use must be prohibited.

        NSF decided that commercial use would not have a detrimental

   effect on the objectives of NSF or NSFNET.  In our view NSF

   reasonably concluded that allowing commercial use of the

   network -- with the conditions NSF imposed -- is consistent with

   NSF's overall statutory mandate "to foster the interchange of

   scientific and engineering information among scientists and

   engineers" and "to foster and support the development and use of

   computer and other scientific and engineering methods and

   technologies, primarily for research and education in the


                          ____________________

        54 Merit's original and subsequent proposals, as well as the
   amendments to the Cooperative Agreement, do provide detailed
   information about equipment and facilities to be used for NSFNET
   and subsequent enhancements.  This level of detail is consistent
   with the requirement that proposals demonstrate the offeror's
   ability to meet NSFNET's technical requirements.  However, we do
   not read these documents as implying that the equipment and
   facilities would be **dedicated** to NSFNET.  The network created
   by Merit under the NSFNET Cooperative Agreement is composed of
   routers, lines, and network operations support.  There is
   certainly no question that the lines to be provided by MCI were
   not going to be physical wires and cables dedicated to NSFNET.
   The network operations support consists for the most part of
   staffing at a network operations center and service personnel
   provided, as needed, by MCI and IBM.  Again, there is nothing in
   any of the documentation to imply that MCI and IBM were going to
   provide specific, dedicated individuals, and the Merit proposal
   explicitly stated that its network operations center would be
   shared with non-NSFNET uses.  Merit Proposal at 51-52.  There is
   no discussion in the solicitation or the proposals about shared
   use of the routers.  Taken as a whole, however, we conclude that
   shared use of the routers, lines, and network operations support
   for NSFNET is not inconsistent with the Cooperative Agreement and
   subsequent amendments.

                                  26
======================================================================
   sciences and engineering".55  NSF further concluded that

   commercial use of the network -- along with concomitant creation

   and funding of the infrastructure pool -- would further the

   objectives of NSFNET, by enhancing connectivity among commercial

   users and research and education users and by providing for

   enhancements to the network as a whole.56  Under these

   circumstances, we conclude that it was not unreasonable for NSF

   to decide that allowing Merit to permit some commercial traffic

   over the network created by Merit was consistent with the

   objectives of NSF and the NSFNET program.57

        It is clear that Merit, ANS, and CO+RE have benefited from

   CO+RE's ability to sell use of the network to commercial

   entities, in a manner not anticipated when Merit and NSF entered

   into the NSFNET Cooperative Agreement.  However, in view of the

   fact that the objectives of the program were furthered by

   commercial use of the network, the mere fact that an unexpected

                          ____________________

        55 42 U.S.C.   1862(a)(3)-(4).

        56 As set out above, in the agreement with NSF allowing
   commercial traffic, Merit and ANS were required to "[ensure] that
   the attachment and service sponsored by the NSF under Merit's
   Cooperative Agreement with the NSF is not diminished."  ANS has
   in fact gone well beyond that requirement, by providing a full T1
   backup system while the T3 network was being deployed and
   debugged, as well as adding redundancy to the T3 network.

        57 Our understanding of NSF's reasons for allowing
   commercial use of the T3 network is based on oral explanations
   provided by NSF staff during the course of our review.  As
   discussed in Section III.C.4., appropriate documentation for this
   decision does not exist.

                                  27
======================================================================
   benefit accrued to the awardee is not objectionable58 and would

   not require a re-solicitation.

        In our view, it is also significant that ANS is a

   not-for-profit entity created to operate for the public good.

   While Merit, IBM, and MCI are all closely associated with ANS

   (Merit, IBM, and MCI each have one seat on ANS's Board), such

   association does not seem to us to be significant, particularly

   in light of ANS's tax-exempt status and its corporate mission to

   further the good of the networking community.59  Once ANS

                          ____________________

        58 As project income, any **financial** benefit accrued
   during the life of the award must be applied to further the
   purposes of the award; for example, under the NSFNET award,
   CO+RE's after-tax profits fund the infrastructure pool.  See
   Section III.C.1.

        59 ANS has qualified for tax-exempt status under 26 U.S.C.
     501(c)(3), which states:  "Corporations . . . organized and
   operated exclusively for . . . scientific, . . . or educational
   purposes, [and] . . . no part of the net earnings of which inures
   to the benefit of any private shareholder or individual . . ."
   are tax-exempt.  We see no reason not to rely on the
   determination of the Internal Revenue Service that ANS meets this
   definition.

        The Articles of Incorporation of ANS are also consistent
   with ANS's non-profit status because they prohibit any financial
   gain (except Merit's potential gain from liquidation of ANS) to
   Merit, IBM, and MCI (its members) as follows:

                            "ARTICLE FOURTH

             "No part of the earnings or assets of the
        Corporation shall inure to the benefit of, or be
        distributable to, its members (subject to the
        provisions of Article Fifth below), directors, officers
        or other private persons, except that the Corporation
        shall be authorized and empowered to pay reasonable
        compensation for services rendered and to make payments
        and distributions in furtherance of the purposes set
        forth . . . above. . . .

                            "ARTICLE FIFTH

             "In the event of the liquidation, dissolution or
        winding-up of the affairs of the Corporation . . . ,
                                                      (continued...)

                                  28
======================================================================
   decided that commercial use was also desirable, a second

   spin-off -- this time a for-profit entity which would thus pay

   taxes on its commercial profits -- was used.  At least for the

   term of the NSFNET Cooperative Agreement, CO+RE's after-tax

   profits will fund the infrastructure pool, to be distributed

   according to the principles discussed above; even after the term

   of the Cooperative Agreement, if the profits are received by ANS

   in the form of dividends, they must be used in a manner

   consistent with ANS's tax-exempt status.

        Considering all of these factors, we conclude that NSF's

   decision to allow Merit to permit commercial traffic over the

   network created by Merit under the NSFNET Cooperative Agreement

   was not unreasonable.

                                  3.
                           Commercial Access

        Was CO+RE granted an advantage over other network providers

   by virtue of ANS's relationship with NSF?  CO+RE is able to sell

   access to the T3 network (which was created jointly --

   cooperatively -- by NSF and Merit/ANS/IBM/MCI) for commercial

   traffic.  However, NSF has publicly stated that if another

   company wishes to send commercial traffic over the T3 network set

   up by NSF and Merit/ANS, it can do so on the same terms accorded



                          ____________________

        59 (...continued)
        the Board of Directors will . . . distribute all the
        assets of the Corporation in the manner the Board of
        Directors determines to be best suited to the
        accomplishment of the purposes of the
        Corporation . . . , but in no event shall any portion
        of such transfer inure to the benefit of any member of
        the Corporation (other than any member that is a
        not-for-profit organization and will use such assets to
        accomplish the purposes of the Corporation)."

                                  29
======================================================================
   to CO+RE.60  Furthermore, although a few research and education

   entities (such as the NSF Supercomputer Centers) presently have

   use for T3 service, there is not yet any **commercial** demand

   for T3 service, and at this time CO+RE has no commercial T3

   customers.  In our view, the very fact that no commercial

   provider has pursued NSF's offer of equal access to the T3





                          ____________________

        60 After learning that CO+RE was marketing commercial access
   to the T3 network, a commercial network provider inquired:

        "Now given that [the network] is a government resource
        there, can [we] sign a contract with [a regional
        network connected to the T3 network] to provide them
        with commercial access through that interface?"

   E-mail message to NSF, cc'd to com-priv@psi.com (16 December
   1991).  NSF responded:

        "<Ahem> It's a government-*sponsored* resource.  NSF
        doesn't own the gateway.

        "But the short-form answer is `Yes, under the same
        conditions as ANS.'  There are enough variables,
        however, that we need to meet to find out exactly what
        you have in mind. . . ."

   E-mail message cc'd to com-priv@psi.com (19 December 1991).  The
   NSF position was reiterated publicly:

        "Anybody else wanting to provide regional-to-regional
        interconnect for non-R&E traffic between two regionals
        who allow such traffic can . . . use the NSFNET
        Backbone gateways under the same conditions as ANS
        CO+RE."

   E-mail message cc'd to com-priv@psi.com (17 January 1992).  The
   open-access policy was also reiterated by NSF internally:

        "NSF will permit other private providers to attach to
        Backbone nodes and pass non-conforming traffic to NSF
        Backbone service clients who elect to receive it, on
        the condition that they, like ANS, contribute to the
        fund that is used to increase network capacity so that
        R&E service is not impacted."

   E-mail message (11 February 1992).

                                  30
======================================================================
   network further indicates that CO+RE's access to the T3 network

   is not, in and of itself, commercially significant.61

        At the end of October 1992, the original period of the

   Cooperative Agreement expired:  NSF and Merit have amended the

   Cooperative Agreement to extend its period for eighteen months,

   to give NSF more time to undertake the solicitation for further

   enhancement of NSFNET and implementation of the NREN (as

   discussed below).  We recommend that, for the remaining period of

   the amended Cooperative Agreement, NSF ensure that other network

   providers continue to be offered access to the T3 network on the

   same terms as CO+RE, and, if the offer is accepted, then access

   is provided fully and fairly.

                                  4.
                      The Decisionmaking Process

        The record is utterly barren of documentation of NSF's

   reasoning for allowing commercial use of the network.  The only

   documentation of NSF's decision to allow commercial use is an

   electronic mail message and a letter, both from the Director of

   DNCRI, describing the conditions under which ANS/CO+RE could



                          ____________________

        61 The commercial network provider who had inquired about
   equal access to the T3 network dismissed NSF's offer of equal
   access:

        "To get real serious -- [we] do[] not want to meet with
        NSF alone to discuss how we can take pecuniary
        advantage on millions of tax dollars.  You need to
        discuss this with the community [in] an open manner,
        you need to fix the current wrongs -- quickly.  I want
        a level playing field."

   E-mail message to NSF, cc'd to com-priv@psi.com (1 January 1992).
   Nonetheless, we are satisfied that other commercial providers
   were publicly offered commercial access to the network on the
   same basis as CO+RE, so NSF has not given CO+RE an advantage over
   its commercial competitors.

                                  31
======================================================================
   convey commercial traffic over the network -- and even those

   documents were not in the program files.

        As a result of the lack of documentation of the decision

   regarding commercial use, we were required to reconstruct the

   reasoning behind the decision from interviews with the program

   staff, more than two years after some of the events in question.

   Such post hoc explanations can lead to inaccuracies.  For

   example, we were told by the program staff that Merit's proposed

   price for the T3 upgrade was conditioned upon ANS's ability to

   sell commercial access to the T3 network.  This led us to

   initially conclude that the decision to allow commercial

   applications was based on an assumption that NSF would save funds

   if it allowed commercial use.  However, representatives of both

   Merit and ANS have unequivocally stated that the price of T3 was

   not conditioned on commercial use.





                                  32
======================================================================
        Important program decisions,62 particularly those

   involving a program as large as NSFNET, must be both

   well-reasoned **and** well-documented.63  Ultimately, clear

   documentation facilitates clear reasoning and results in better

   decisions.  Requiring documentation necessarily results in more

   careful analysis -- including evaluation of whether peer review,

   public comment, supervisory review, and/or evaluation and

   approval by the National Science Board are appropriate.  Peer

   review of, and/or public comment on, important decisions ensure

   that the views of the affected community are considered.

   Documented supervisory review ensures that no one individual acts

   beyond his or her mandate.  Pursuant to NSF's Proposal and Award

   Manual:

        "Prior approval by the National Science Board (NSB) is
        required for all recommended awards involving any of
        the following conditions:

                          ____________________

        62 Importance is determined by reference not just to cost or
   project performance, but to **all** relevant factors.  The
   decision to allow the network service provider spun off by
   Merit -- ANS -- to convey commercial traffic over the T3 network
   was, in our view, indisputably an important decision requiring
   significant, documented programmatic evaluation before it was
   made.  NSF has a long-standing policy prohibiting NSF awardees
   from using NSF-supported facilities commercially in a manner that
   "may have a material and deleterious effect on the success of
   private companies engaged in the provision of equivalent
   services."  NSF Important Notice Number 91 (11 March 1983).
   Congress addressed this issue recently when it amended the NSF
   Act:  "The Committee . . . does not intend that, under the
   authority provided by the legislation, NSF will institute
   policies that result in improper competition between NSFNet, or
   the interim NREN, and other commercial networks."  H.R. Rep. No.
   567, 102d Cong., 2d Sess. 4 (1992).  As explained in
   Section III.C.3, we have concluded that the manner in which NSF
   allowed commercial traffic over the T3 network did not give
   ANS/CO+RE a competitive advantage, because all commercial
   providers are allowed access on equal terms; nonetheless, the
   decision was clearly an important one requiring thorough
   consideration and documentation.

        63 See also Section IV.D.

                                  33
======================================================================
        "a.  a total commitment of $2 million or more;

        "b.  an annual commitment of $500,000 or more;

        "c.  a policy issue that has not previously been
             resolved by the Board; and

        "d.  a new program or novel set of circumstances."64

   Although the initial decisions to (1) award NSFNET to Merit and

   (2) expand the network to T3 were submitted to the Board for

   approval, the decision to (3) allow commercial use of the T3

   network was not reviewed by the Board.  In our view, prior

   approval by the Board would have been appropriate because the

   decision to allow commercial use of the T3 network was "a policy

   issue that ha[d] not previously been resolved by the Board" and

   involved a "novel set of circumstances."

        As explained above, we have concluded that the decision to

   allow commercial use of the T3 network was within NSF's

   discretion.65  However, as the Supreme Court observed in an

   analogous situation, "the orderly functioning of the process of

   review requires that the grounds upon which the administrative

   agency acted be clearly disclosed and adequately sustained."66

   Thus, the dearth of documentation of NSF's underlying reasoning

   -- as well as the lack of evidence of peer, supervisory, or

   National Science Board review of this decision -- reduces our

   confidence in this conclusion.  This contrasts sharply with our

   confidence in our conclusions regarding the reasonableness of the

   well-documented decisions to award the NSFNET Cooperative

                          ____________________

        64 NSF Manual 10 at II-12.

        65 See Section III.C.2.

        66 Securities and Exch. Comm'n v. Chenery Corp., 318 U.S.
   80, 94 (1943).

                                  34
======================================================================
   Agreement to Merit and to upgrade the network to T3,67 because

   those decisions were based on written proposals, peer reviews,

   and staff evaluations, as well as final review and approval by

   the National Science Board.

        We recommend that, in the future, all significant program

   decisions by DNCRI and the reasoning behind them be

   well-documented (including documentation of significant meetings

   and telephone conversations with people outside NSF) in a manner

   that reflects the level of NSF supervisory review and approval

   that occurred, and we also recommend that, when appropriate,

   issues involving the program be reviewed by scientific peers

   and/or submitted to the National Science Board for review and

   approval.

                                  5.
                          Public Announcement

        In addition to the lack of formal documentation, it is

   legitimate to question whether NSF's decision to allow commercial

   use should have been publicly announced.  A review of the

   chronology of events is useful:  NSF gave formal permission for

   Merit to make a subaward to ANS for the operation and management

   of the NSFNET backbone in September 1990, and in May 1991 NSF

   agreed to the specific terms under which commercial traffic would

   be allowed over the T3 network.  ANS began marketing commercial

   services in 1990.  CO+RE was formed by ANS in May 1991 and began

   more active solicitation of commercial customers; its first

   commercial customer was signed up in September 1991 and connected

   to the T3 backbone in November 1991.  CO+RE's commercial


                          ____________________

        67 See Sections III.A. and III.B.

                                  35
======================================================================
   competitors soon became aware that CO+RE was marketing commercial

   access to the T3 backbone, and on 3 October 1991 one of CO+RE's

   commercial competitors asked in writing for NSF to provide copies

   of the agreements between NSF and Merit that allowed such

   marketing.  The agreements were provided to the commercial

   competitor on 31 October 1991.  On 7 December 1991 that

   commercial competitor announced on the "com-priv" computer

   bulletin board that it had obtained, and was disclosing for the

   first time publicly, "Secret NSF-Merit/ANS Agreements."

        The government is under no general duty to **announce**

   modifications of agreements between itself and its awardees.  The

   government **is** required by the Freedom of Information Act

   ("FOIA") to provide certain information, upon written

   request.68  We do not believe the actions of NSF can fairly be

   viewed as reflecting an intent to keep "secret" the agreements

   regarding commercial use.  As noted above, when copies of the

   agreements were requested in writing, NSF provided them within

   four weeks.  Since that written request was expressly **not**

   made under FOIA (which requires a response within 10 days69),

   we have no basis for objecting to the time taken in producing

   them.

        Because NSF intended other commercial network providers to

   have access to the T3 backbone on the same terms accorded to

   CO+RE,70 however, we believe NSF should have affirmatively

   announced **this** development to the networking community.  By

                          ____________________

        68 5 U.S.C.   552.

        69 5 U.S.C.   552(a)(6)(A)(i).

        70 See Section III.C.3.

                                  36
======================================================================
   making a public announcement, NSF could have avoided a

   controversy which in our view was generated primarily by

   (1) ignorance of the facts regarding the commercial access

   available to the T3 backbone, and (2) a mistaken perception that

   the agency was endeavoring to keep its actions from the public.






                                  37
======================================================================
                                  D.
                         Acceptable Use Policy

        Under Section 3(a)(4) of the National Science Foundation Act

   of 1950, as amended (the "NSF Act"), NSF was given the authority

        "to foster and support the development and use of
        computer and other scientific and engineering methods
        and technologies, **primarily for research and
        education in the sciences and engineering**."71

   In 1989, NSF drafted an Acceptable Use Policy ("AUP") to define

   research and education traffic that may properly be conveyed over

   NSFNET under Section 3(a) of the NSF Act.  This policy has

   undergone a number of revisions but remains in force; a recent

   version is attached as an appendix to this Report.  In March

   1992, NSF's Office of General Counsel concluded that "some form

   of acceptable use policy will continue to be necessary to ensure

   that NSF funds are used to further the objectives of

   Section 3(a)(4) of the Act."72

        The Scientific and Advanced Technology Act of 1992,

   introduced by Congressman Boucher and signed into law on 23

   October 1992, subtly modified NSF's authority to support computer

   networks that are not limited to research and education.  This

   statute added the following new subsection to Section 3 of the

   NSF Act:

        "(g) In carrying out subsection (a)(4), the Foundation
        is authorized to **foster and support access by the
        research and education communities** to computer
        networks which may be used substantially for purposes
        in addition to research and education in the sciences
        and engineering, **if the additional uses will tend to



                          ____________________

        71 42 U.S.C.   1862(a)(4) (emphasis added).

        72 Memorandum dated 16 March 1992 from NSF Office of General
   Counsel to DNCRI.

                                  38
======================================================================
        increase the overall capabilities of the networks to
        support such research and education activities**."73

   Thus, NSF is now authorized to support **research and education

   access** to networks that are used primarily for commercial

   purposes, **but only if** allowing commercial use will

   enhance the networks' utility **for research and education**.

        The legislative history of subsection (g) also emphasizes

   the principle that NSF support must **directly** benefit research

   and education.  In the report accompanying the House version of

   the bill, the House Committee on Science, Space, and Technology

   stated:

             "The Committee intends to provide increased
        flexibility to NSF in formulating policies for NSFNet
        and the interim NREN.  The Committee does not intend in
        any way to alter the Foundation's principal role
        relative to networking activities, which is to develop
        and use computer networks for support of research and
        education in the sciences and engineering. . . . In
        exercising the authority provided by H.R. 5344, NSF is
        expected to institute policies which result in
        increased capacity for computer networks supported by
        NSF **and improved service for network users in the
        research and education communities** at the lowest
        possible cost to the Federal Government."74

        Therefore, in our view an AUP is necessary, now even more

   than before, to define what constitutes research and education

   traffic, because NSF is authorized only to provide funding that

   supports access by that traffic to the networks that NSF chooses

   to fund.75


                          ____________________

        73 42 U.S.C.   1862(g) (emphasis added).

        74 H.R. Rep. No. 567, 102d Cong., 2d Sess. 4 (1992).

        75 By "AUP," we mean a stated policy defining what
   constitutes research and education traffic, and not necessarily
   the current version of the NSFNET AUP (set out in the Appendix).
   In our view the current NSFNET AUP is reasonable, but it can
   certainly be revised and remain consistent with the NSF Act.

                                  39
======================================================================
        For policing compliance with the AUP, NSF currently relies

   on users to avoid sending their commercial traffic over NSFNET.

   It is not practical to monitor network traffic for classification

   as acceptable or not under the AUP.  In the current AUP, DNCRI

   reserves the right to "resolve any questions about this Policy or

   its interpretation."  While there is no evidence of substantial

   abuse under the current system, as use of the network grows, so

   will the likelihood of serious abuse.  This reinforces our

   conclusion that further steps must be taken to ensure that NSF is

   not exceeding its statutory mandate.

        The AUP must be applicable to all users of the NSF-funded

   network.  We do not understand how NSF could enforce the AUP

   against an uncooperative end-user if, for example, the end-user's

   network also refused to cooperate, because we do not see how the

   AUP is legally binding on end-users.  The AUP is not even part of

   the award conditions enforceable against Merit, and NSF generally

   has no direct relationship to other networks connected to NSFNET

   or to end-users that would facilitate enforcement.  In addition,

   if the AUP is intended to apply to all users of NSFNET, we

   believe the failure to publish the AUP in the Federal Register

   and the failure to provide the public with notice and an

   opportunity for comment are inconsistent with the Administrative

   Procedure Act.76

                          ____________________

        76 The Administrative Procedure Act requires that each
   agency publish "substantive rules of general applicability
   adopted as authorized by law, and statements of general policy or
   interpretations of general applicability formulated and adopted
   by the agency . . . ."  5 U.S.C.   552(a)(1)(D).  The Supreme
   Court has noted that one of the purposes of the publication
   requirements in the Administrative Procedure Act is "to avoid the
   inherently arbitrary nature of unpublished ad hoc
                                                      (continued...)

                                  40
======================================================================
        The Administrative Procedure Act promotes the involvement of

   the public in government policymaking.  Providing the public with

   notice and an opportunity to comment before promulgating the AUP

   as a regulation will give the affected public -- particularly the

   networking community -- an opportunity to have its views

   considered on this important matter of agency policy which may

   significantly affect their activities.

        Accordingly, we recommend that NSF continue to maintain an

   AUP that will ensure that NSF's support for access to the network

   is consistent with the NSF Act.  We recommend that the AUP be

   promulgated as a regulation, after receipt and analysis of

   comments from the affected public.77  Promulgation of the AUP

   as a regulation will ensure not only that the views of the public

   are considered in a formal and effective manner, but it will also

   help NSF take action against abuses, including preventing future

   access to the network and debarment in extreme cases.78  We

   also recommend that the AUP be made a part of the award

   conditions both for Merit as well as for any organization that

   later receives NSF funding pursuant to the proposed new

                          ____________________

        76 (...continued)
   determinations."  Morton v. Ruiz, 415 U.S. 199, 232 (1974).  For
   the AUP to be legally applicable to the users of NSFNET, notice
   and a comment period is required by the Administrative Procedure
   Act.  5 U.S.C.   553.

        77 NSF is authorized by section 11(a) of the NSF Act
   (42 U.S.C.   1870(a)) to promulgate a regulation to codify the
   AUP.

        78 NSF's nonprocurement debarment regulation (at 45 C.F.R.
   620.305(b)(3)) permits debarment for "[a] willful violation of a
   statutory or regulatory provision or requirement applicable to a
   public agreement or transaction."  NSF will be better able to use
   this enforcement tool if the AUP is adopted as a regulation that
   specifically states that a willful violation of the AUP is a
   ground for debarment.

                                  41
======================================================================
   solicitation.  In addition, NSF should ensure that end-users are

   aware of the provisions in the AUP and the sanctions that may be

   imposed for violations.  Therefore, we recommend that NSF

   disseminate the AUP in a manner such that all end-users are aware

   of its prohibitions.

                                  IV.
                         Administrative Issues

                                  A.
                  Cooperative Agreement or Contract?

        The legal funding instrument used by NSF for the creation of

   the NSFNET backbone was a cooperative agreement, not a contract.

   Under the Federal Grant and Cooperative Agreement Act of 1977,

   contracts are the appropriate legal funding instrument to be used

   by the government "whenever the principal purpose of the

   instrument is the acquisition . . . of property or services for

   the direct benefit or use of the Federal Government . . . ."79

   In contrast, cooperative agreements are to be used "whenever --

   (1) the principal purpose of the relationship is the transfer of

   money, property, services, or anything of value to the . . .

   recipient to accomplish a public purpose of support or

   stimulation authorized by Federal statute, rather than

   acquisition . . . of property or services for the direct benefit

   or use of the Federal Government; **and** (2) substantial

   involvement is anticipated between the executive agency, acting

   for the Federal Government, and the . . . recipient during

   performance of the contemplated activity."80



                          ____________________

         79 41 U.S.C.   503.

        80 41 U.S.C.   505 (emphasis added).

                                  42
======================================================================
        NSF sought an awardee to work with NSF to create a computer

   network on an unprecedented scale, thereby benefiting the

   scientific research and education community.  Because of the

   nascent development of large-scale networking, and the

   anticipated -- but unpredictable -- technical and logistical

   problems, NSF and Merit expected substantial involvement by NSF

   in the evolution of the network.  In fact, NSF staff and

   Merit/ANS have maintained close contact throughout the evolution

   of the network.  Thus, in our view the NSFNET program is a

   paradigm for the use of a cooperative agreement.  We also believe

   the use of a cooperative agreement for NSFNET's next stage of

   evolution is appropriate.81

                                  B.
                        Conditions of the Award

        Initially, a "Letter Cooperative Agreement" was entered into

   by Merit and NSF.82  This letter subjected the agreement to the

   Grant General Conditions and Cooperative Agreement General

   Conditions, as well as several special conditions.  The first

   amendment to the Letter Cooperative Agreement consisted of a

   "Cooperative Agreement," which superseded the Letter Cooperative

   Agreement.83  This new Cooperative Agreement was also subject

   to the same General Conditions, as well as special conditions,

   some of which limited the applicability of the General

                          ____________________

        81 The DOE/NASA award discussed in Section V.C. was a
   **contract** for provision of a network to connect primarily
   government research laboratories; thus, those agencies -- unlike
   NSF with NSFNET -- are "acquir[ing] . . . services for the direct
   benefit or use of the Federal Government," making a contract more
   appropriate for that undertaking.

        82 Letter from DGC to Merit (19 November 1987).

        83 Cooperative Agreement (15 December 1987).

                                  43
======================================================================
   Conditions.  However, in Amendment Number 2 to the Cooperative

   Agreement, dated 27 March 1989, NSF stated:

        "Pursuant to NSF Important Notice No. 104, 'Changes in
        NSF Proposal Processing and Grant Administration
        Requirements,' dated September 22, 1988, the NSF FL200
        Grant General Conditions (10/87) and the NSF FL175
        Cooperative Agreement General Conditions (11/87), to
        which the referenced Cooperative Agreement is subject,
        have been superseded by the attached FDP-II Federal
        Demonstration Project General Terms and Conditions
        (October 1988) and the attached NSF CA-1 Cooperative
        Agreement General Conditions (October 1988)."

   This is odd, because Important Notice Number 104 merely stated

   that all NSF grants would now be subject to the new Grant General

   Conditions; it did not mention the Federal Demonstration Project

   General Terms and Conditions or the NSF Cooperative Agreement

   General Conditions.  There is no documentation in the files as to

   why the General Conditions of the Cooperative Agreement were

   changed.  The reasons for including this Cooperative Agreement in

   the Federal Demonstration Project ("FDP") are unclear.

        The Federal Demonstration Project institutions were chosen

   via a solicitation issued by NSF and other federal agencies

   participating in the FDP.  The solicitation sought organizations

   wishing to participate in the FDP, which would "eliminate

   unnecessary administrative burdens on sponsored research thereby

   enhancing research productivity."84  According to an

   information sheet provided to us by the Division of Grants and

   Contracts ("DGC"), the FDP "eliminates most of the current

   requirements for Federal prior approval . . . as long as

   pertinent grantee administrative systems are adequate."  We were




                          ____________________

        84 53 Fed. Reg. 20,697 (6 June 1988).

                                  44
======================================================================
   told by DGC that FDP terms should only be applied when the

   organization is an FDP institution.

        Merit is not an FDP institution, but the University of

   Michigan is.  Under an agreement between Merit and the University

   of Michigan, the University "shall provide to Merit:

   (a) facilities; (b) personnel; and (c) financial and

   administrative services; as required by Merit to implement and

   manage NSFNET . . . ."  The mere contractual arrangement between

   Merit and the University of Michigan is not a sufficiently large

   part of the Cooperative Agreement to justify treating Merit as an

   FDP institution.  Therefore, inclusion of the FDP General Terms

   and Conditions as the terms of the NSFNET Cooperative Agreement

   was inappropriate.85  We recommend that, in the future, NSF

   apply the Federal Demonstration Project conditions only to awards

   where the organization receiving the grant is an FDP institution.

                                  C.
                            Prior Approval

        Before the expansion of NSFNET and conversion to T3, in

   September 1990, Merit, IBM, and MCI formed ANS to take over

   management and operation of NSFNET.  ANS was then assigned all of

   Merit's rights and responsibilities under the NSFNET Cooperative

   Agreement.  Generally, prior approval for such an assignment is

   required under the general conditions of the award; however,

   there is no prior approval requirement in the Federal

                          ____________________

        85 No one who was responsible for the amendment is still
   employed by the Division of Grants and Contracts.  Because we do
   not believe that NSF was injured by the application of the FDP
   terms and conditions to the NSFNET Cooperative Agreement (as
   discussed in Section IV.C., the special conditions of the award
   still required prior approval of assignments), we did not
   undertake to locate and interview the individuals who were
   responsible for including this Cooperative Agreement in the FDP.

                                  45
======================================================================
   Demonstration Project General Terms and Conditions, to which the

   Cooperative Agreement was (albeit erroneously) subject.86  On

   the other hand, the Cooperative Agreement's Special Conditions

   (in   E.3.) do require that,

        "[p]rior to execution, any agreements between the
        awardee and other participants for the purpose of
        activities of mutual benefit must receive the NSF
        Grants and Contracts Officer's written approval."

   The term "other participants" is not defined in the agreement;

   presumably, the "other participants" are MCI and IBM.  In our

   view, since this requirement is included in the special

   conditions pertaining to this agreement and these special

   conditions have not been superseded, any documents involved in

   the creation of ANS by Merit, MCI, and IBM, would be subject to

   prior approval by the Division of Grants and Contracts ("DGC").

   Furthermore, it is our view that ANS, as a creation of Merit,

   MCI, and IBM, is also a "participant", so that the Cooperative

   Agreement independently required DGC to approve any agreement

   entered into between Merit and ANS.

        There is no record in DGC's files of DGC approval having

   been sought or obtained for anything having to do with the

   assignment to ANS; nor is there anything in the program files.

   In a "final draft of Merit's fourth year NSFNET project final

   report," Merit said that "NSF approved the subcontracting of

   backbone services for NSFNET from ANS in a letter dated




                          ____________________

        86 There is a prior approval requirement in the Cooperative
   Agreement **General** Conditions, to which the Cooperative
   Agreement was also subject.  However, the special conditions
   deleted the article in the Cooperative Agreement General
   Conditions that dealt with prior approval.

                                  46
======================================================================
   10/17/90 . . . ."87  When Merit was asked to provide a copy of

   this letter, it was actually dated 10 September 1990.  The

   letter, from the Division Director of DNCRI -- not DGC -- stated:

        "NSF agrees to MERIT's assigning the existing joint
        studies with MCI and IBM to [ANS].

        "NSF agrees to MERIT's subcontracting services to
        [ANS].  Although [ANS] may thus become the actual
        provider of the NSFNET Backbone, NSF will continue to
        deal with MERIT under the terms of the existing
        Cooperative Agreement.

        "**The specific concurrence of NSF's Division of Grants
        and Contracts has been obtained in the above two
        paragraphs**."88

   Thus, although there is no record of it in either the program's

   or DGC's files, apparently the program and DGC both approved the

   creation of, and assignment to, ANS.  Important decisions such as

   this one should have been thoroughly documented by both the

   program and DGC, in consultation with NSF's Office of General

   Counsel ("OGC").  We recommend that NSF ensure that DNCRI and DGC

   more thoroughly document their decisionmaking processes and

   ensure that **all** relevant records are included in the program

   and DGC files.89

                          ____________________

        87 Final Draft of Merit's Fourth Year NSFNET Project Final
   Report at 6.

        88 Letter from NSF to Merit (10 September 1990) (emphasis
   added).

        89 The Division of Grants and Contracts has recently
   undertaken to correct the lack of DGC formal, written approval
   for the Merit/ANS "subcontract".  Amendment No. 11 to the
   Cooperative Agreement (17 November 1992) states:

        "It has come to our attention that a substantive
        portion of the effort has been subcontracted without
        official NSF approval.  Article II.E.3 of the Special
        Conditions for this Cooperative Agreement states the
        following:

                                                      (continued...)

                                  47
======================================================================
        NSF's General Counsel was consulted about the AUP (see

   Section III.D.); however, the Office of General Counsel ("OGC")

   was not included in other significant administrative decisions

   discussed herein.  Because these issues can be legally complex,

   we recommend that NSF ensure that major program decisions on

   NSFNET always include documented consultation with the Office of

   General Counsel, and, when appropriate, legal opinions should be

   obtained from OGC in writing.

        We also recommend that NSF ensure that a prior approval

   clause is included in any future awards involving the approval of

   the National Science Board90 that are subject to the Federal

   Demonstration Project, and that this prior approval clause

   require written approval from the Office of General Counsel as

   well as from the Division of Grants and Contracts.


                          ____________________

        89 (...continued)
             **Prior to execution, any agreements between
             the awardee and other participants for the
             purposes of activities of mutual benefit must
             receive the NSF Grants and Contracts
             Officer's written approval.**

        "In accordance with this requirement, your organization
        is hereby required to submit a formal request for
        subcontracting by November 30, 1992.  The signed
        request should include the proposed performance
        statement and budget, a statement indicating the basis
        for selection of the contractor, and a justification of
        the proposed arrangement.  The request must be
        submitted to [the] NSF Grants and Contracts Officer and
        is not considered official until you receive her
        written approval.  Additionally, any further proposals
        which contain substantive subcontracts must contain
        subcontracting budgets."

   (Emphasis in original).

        90 In general, the National Science Board approves all
   awards involving total amounts exceeding six million dollars and
   all awards involving greater than one and a half million dollars
   in one year.  NSB-91-69.

                                  48
======================================================================
                                  D.
                             Documentation

        In addition to the lack of records on the prior approval of

   the assignment, reports required by the Cooperative Agreement

   were not in the program files.  In the First Amendment to the

   Letter Cooperative Agreement, dated 15 December 1987, Merit was

   required to submit monthly performance reports, quarterly

   reports, and annual reports.  While some of the required reports

   were included in the program files, no monthly performance

   reports were included, most of the quarterly reports were

   missing, and some of the annual reports were omitted from the

   files.

        Other documentation was also omitted from the program files.

   For example, NSF staff frequently communicate with Merit/ANS via

   electronic mail, but no hard copies of such mail were included in

   the program files.91

        Moreover, agreements between NSF and Merit dealing with

   commercial use of the network were not included in the program

   files.  When those items were requested by a commercial network

   provider in October 1991,92 NSF had to obtain them by FAX from

   Merit; when we sought them in the course of this review, less

   than a year later, NSF had again misplaced them:  we obtained one

   from the commercial network provider that had previously obtained

   it from NSF, another from a DNCRI staff member's e-mail archive

   file, and another by FAX from Merit.




                          ____________________

        91 See Section IV.F.

        92 See Section III.C.5.

                                  49
======================================================================
        This sort of disorganization of program files is simply

   unacceptable.  We recommend that NSF ensure that **all** relevant

   documents, especially reports required by the Cooperative

   Agreement and agreements relevant to the award, are included in

   the program files.

                                  E.
                  Compliance with OMB Circular A-110

        The agreement between Merit and ANS refers to itself as a

   "subcontract".  If the agreement is a contract or subcontract for

   the purchase of goods or services, Attachment O of OMB Circular

   A-110 applies.  Attachment O includes two provisions that are

   particularly relevant to the arrangement between Merit and ANS.

   Attachment O prohibits conflicts of interests in contracting by

   federal grantees:

        ". . . No employee, officer, or agent shall participate
        in the selection, award, or administration of a
        contract in which Federal funds are used, where, to his
        knowledge, he or his . . . organization . . . has a
        financial interest . . . ."93

   Awardees are also required by Attachment O to maximize

   competition in spending Federal funds:

             "All procurement transactions shall be conducted
        in a manner to provide, to the maximum extent
        practical, open and free competition . . . ."94

        There is no problem with Merit, MCI, and IBM creating an

   independent entity such as ANS.  The difficulty arises from the

   assignment to ANS of the NSFNET networking services, because

   subcontracts for services under a cooperative agreement subject

   to the terms of Attachment O must comply with Attachment O's

                          ____________________

        93 Paragraph 3.a.

        94 Paragraph 3.b.  Numerous procedural requirements are also
   set out in paragraph 3.c.

                                  50
======================================================================
   conflict of interest and competition requirements.  As described

   above, the Merit-ANS arrangement would clearly violate those

   provisions of Attachment O, were they applicable:  Merit clearly

   had an interest in ANS,95 and there was no effort whatever to

   seek competition.

        In our view, however, the applicability of Attachment O

   should be determined by the true nature of the legal relationship

   between the parties, and not by the label that the parties apply

   to that relationship.  We are convinced that Merit and ANS did

   not accurately characterize their relationship when they called

   it a subcontract.  Merit did not simply promise to pay money to

   ANS in exchange for the provision of specifically identified

   network services.  Rather, ANS and Merit were to work very

   closely together to run, develop, and improve NSFNET, in a manner

   analogous to the arrangement between NSF and Merit.  The legal

   relationship between NSF and Merit was quite properly a

   cooperative agreement, because NSFNET was intended for the

   benefit of the public and was going to be implemented and

   enhanced with frequent and intimate interaction between the two

   parties.96  What Merit assigned to ANS was a substantial

   portion of its responsibilities under the Cooperative Agreement

   with NSF.  Thus, in our view, the relationship between Merit and

   ANS was really a sub-cooperative agreement rather than a

   subcontract, and it was therefore not a "contract for the




                          ____________________

        95 Merit, together with IBM and MCI, created ANS, and Merit,
   IBM, and MCI were each represented on ANS's Board of Directors.

        96 See Section IV.A.

                                  51
======================================================================
   purchase of goods or services" subject to the requirements of

   Attachment O.

                                  F.
                             Accessibility

        We are especially impressed by the availability of the

   Division of Networking and Communications Research and

   Infrastructure ("DNCRI") to the public via participation in an

   electronic bulletin board that is widely read by the community of

   users of NSFNET.97  NSF and Merit/ANS make announcements of

   widespread interest on the bulletin board, but more important,

   network users who have a question or complaint can post it to the

   bulletin board, **and representatives from Merit or ANS or NSF

   will usually respond**, often on the same day.  Often there is an

   exchange of views among NSF, the NSFNET provider (Merit/ANS), and

   the users of the network that is truly remarkable in a federal

   program.  We applaud this accessibility by DNCRI, and encourage

   its continuation by DNCRI and emulation by other NSF

   programs.98

        On the other hand, none of these electronic bulletin board

   exchanges was documented in the program files.  We recommend

   that, to the extent that NSF or NSFNET policy is expressed in

   postings in electronic or any other media, NSF ensure that hard





                          ____________________

        97 The bulletin board is "com-priv@psi.com", where users
   post questions and comments on the network, its operation, and
   its uses.

        98 But see Section III.C.5.

                                  52
======================================================================
   copies (and the message(s) to which they are directly responding)

   are included in the program file.99

                                  G.
               NSF Funding of the Provider or the Users?

        We believe that the funding approach taken by NSF --

   supporting the creation of the NSFNET backbone directly, rather

   than giving grants to the users of the network in the hope that

   the availability of buyers would inspire network providers to

   enter the market -- was reasonable.  When NSFNET came on-line at

   T1 it was pushing the envelope of large-scale networking

   technology, and the same was true when it advanced to T3.  This

   is a field that is rediscovering the scope of its usefulness

   virtually on a daily basis, **as it is used**, which in turn

   inspires more use.  The resultant strain on the NSFNET backbone's

   capacity culminated in the various expansions and enhancements

   implemented by NSF and Merit.  We are convinced that relying on

   demand-driven market forces would have advanced neither

   networking technology nor use as rapidly as both have advanced

   under the direct funding approach taken by NSF.  In its proposed


                          ____________________

        99 While the maintenance of a single electronic mail archive
   that contains all electronic mail relating to a program is a
   superficially attractive idea, we do not believe it would work
   well in practice.  The program would have to ensure that each
   message was referred to at the appropriate place in the program
   file (program files are generally divided into a few substantive
   sections, with material arranged chronologically within each
   section) so that a person reviewing the file would be aware of a
   related message in the electronic mail archive.  Because
   including a sheet of paper for each message would generally
   require the same amount of effort and space as including the
   messages themselves in the program file, while requiring
   significant additional effort on behalf of a person reviewing the
   file, we believe the program staff should ensure that hard copies
   of these messages are included in the program file.  In the
   future, if program files are maintained completely
   electronically, this requirement will no longer be necessary.

                                  53
======================================================================
   solicitation for the next phase of NSFNET/NREN, NSF makes it

   clear that it is going to phase itself out of direct funding,

   which we also view as a reasonable decision.  As the use of

   networks catches on -- particularly with the uses possible only

   with T3 speeds and beyond -- demand can take over to sustain and

   expand the market.  The government's focus can then turn to

   expanding the breadth of the community of users of the network.

                                  V.
                         The Future of NSFNET

                                  A.
                       The Proposed Solicitation

        After completing consultation with the community about the

   continuation of NSFNET backbone services and preparing the

   Project Development Plan for the implementation of continued

   services, the NSF staff requested an extension of the Merit

   Cooperative Agreement for eighteen months so that NSF would have

   a sufficient amount of time to solicit and evaluate bids and so

   that the awardee would have a sufficient amount of time to start

   its operation without an interruption of service.  This eighteen

   month award involved additional spending at current levels, not

   to exceed $15 million over the eighteen month period of the

   extension.  We believe that the extension was reasonable,

   particularly since it will provide ample time to analyze the

   comments received in response to the published proposed

   solicitation.100

                          ____________________

        100 Merit has administered the Cooperative Agreement for the
   five year term of the original award, and it will continue to
   administer the agreement during the eighteen month extension.  If
   NSF determines that any substantial (that is, more than three
   months) additional extension of the award is necessary, in our
   view the extension should be made via a new solicitation,
   allowing free and open competition.

                                  54
======================================================================
        On 15 June 1992, NSF published a proposed solicitation for a

   "Network Access Point (NAP) Manager and Routing Authority (RA)

   organization; and a provider of very high speed Backbone Network

   Services (vBNS)".101  This proposed solicitation sets forth a

   new architecture for providing NSFNET backbone services,

   including regional networks and network service providers.102

   The proposed solicitation anticipates total NSF funding of about

   $10 million per year for 100 mbps on the NAPs and 155 mbps on the

   vBNS (compared to roughly the same cost per year currently for

   the T3 (45 mbps) backbone).

        In the draft solicitation, a NAP is defined as "a high speed

   network or switch to which a number of routers can be connected

   for the purpose of traffic exchange and interoperation."103

   NAPs are locations where other networks can connect to the vBNS.

   NAPs must be able to operate at speeds of at least 100 mbps, and

   networks that attach to NAPs must operate at speeds of at least

   1.5 mbps (T1).

        The NAP Manager/RA will be responsible for arranging for and

   maintaining the NAPs and routing information for NSFNET.  The NAP

   Manager/RA will also provide for the interconnection of

   appropriate networks under circumstances not subject to the




                          ____________________

        101 Public Draft at 26,692.

        102 "It is anticipated that networks other than the VBNS
   will connect to the NAPs.  Examples of such networks include:
   other federally sponsored networks; other service providers for
   research and education; service providers for traffic which is
   not limited to the support of research and education; and
   international networks."  Public Draft at 26,695.

        103 Public Draft at 26,693.

                                  55
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   AUP.104  In essence, the NAP Manager/RA will assume the duties

   for which Merit and ANS are currently responsible (with

   contributions from IBM).  Networks would pay attachment fees to

   connect to the NAPs.  These attachment fees will consist of an

   initial and an annual fee and will be determined by the NAP

   Manager/RA and NSF such that a portion of the costs associated

   with the NAPs and the NAP Manager/RA will be recovered.105

        The vBNS Provider is responsible for establishing and

   maintaining a vBNS to accept traffic from the NAPs that complies

   with the AUP.  The vBNS Provider is also required to provide for

   high speed connectivity between regions; facilitate distributed

   computing applications; facilitate multimedia applications; and

   promote development and utilization of advanced routing

   technologies.106  In essence, the vBNS Provider will undertake

   the provision of the services which MCI currently provides for

   ANS, at a substantially higher speed.  Although vBNS NSFNET/NREN

   traffic must comply with the AUP, "[t]he vBNS may have

   connections and customers beyond those specified by NSF as long

   as the quality and quantity of required services for

   NSF-specified customers are not affected."107

        The NAPs will not be subject to the AUP and "will permit,

   for example, two attached networks to exchange traffic without

   violating the AUPs of any other attached network."108

                          ____________________

        104 Public Draft at 26,692.

        105 Public Draft at 26,695.

        106 Public Draft at 26,692.

        107 Public Draft at 26,694.

        108 Public Draft at 26,693.

                                  56
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   Therefore, any commercial carrier may attach to a NAP and provide

   services to others that are attached to that NAP, including other

   commercial users.  NSF will support current NSFNET midlevel

   networks as follows:

             "NSFNET midlevel networks may connect either to
        network services providers which are connected to NAPs
        or directly to NAPs.  NSF will support for one year a
        single such connection fee for midlevel networks which
        are currently connected to the NSFNET Backbone Network
        Service.  In the following years of the cooperative
        agreement, NSF support for the connection fee will
        decrease and the midlevel network will need to increase
        other sources of support correspondingly.  NSF support
        of this fee will cease after the (first) term of the
        NAP Manager/RA Cooperative Agreement."109

        In short, networks other than the vBNS can attach to the

   NAPs by paying a fee to the NAP Manager/RA for the provision of

   the NAP.  The vBNS will be attached to each NAP and will provide

   services in support of research and education.

                                  B.
                 Comments on the Proposed Solicitation

        In our view, the draft solicitation was a laudable means of

   polling the affected public of network users.  In a field that is

   evolving as quickly as this one, seeking the insights of the user

   community is especially beneficial.

        In our view, it is reasonable to allow the vBNS Provider to

   have non-NSF-specified connections and non-NSF-specified

   customers with traffic that is not subject to the AUP (as long as

   the quality and quantity of services to the research and

   education traffic is not decreased), since NSF may reasonably

   anticipate that by doing so it will receive superior service at




                          ____________________

        109 Public Draft at 26,695.

                                  57
======================================================================
   substantially less cost to the government.110  The

   federally-supported vBNS provider may, when the vBNS is running

   with sufficient reliability, have a competitive advantage over

   other network providers for customers desiring very high speeds.

   In order to leverage its funds, the government may provide

   additional advantages to awardees as an incentive to invest

   substantial amounts of their private funds.  Since the draft

   solicitation explicitly includes this potential competitive

   advantage, the public is on notice that the successful offeror

   will potentially gain this competitive advantage.  In these

   circumstances, the provision of such an advantage is a reasonable

   means of obtaining substantial benefits for the research and

   education community at minimal cost to the federal government.

        However, the draft solicitation provides that the NAPs are

   not subject to the AUP, and it does not give research and

   education traffic any priority over commercial traffic.

   Therefore, it is possible that the NAPs could become overwhelmed

   with commercial traffic to the detriment of research and

   education traffic.  It seems to us that permitting commercial

   traffic to use the NAPs in a manner that could be detrimental to

   the use of the network by research and education traffic may not

   be consistent with the NSF Act.  We recommend that NSF consider

   permitting the NAPs to handle commercial traffic only under the

   same condition as the vBNS -- that is, "as long as the quality


                          ____________________

        110 Indeed, it is likely that the only offerors that could
   hope to win the vBNS award would already have in place a working
   network of long-distance lines, for primarily (if not
   exclusively) commercial purposes.  They will be interested in the
   vBNS solicitation only if they anticipate having sufficient
   excess capacity to fill the needs of NSFNET.

                                  58
======================================================================
   and quantity of required services for NSF-specified customers are

   not affected."111  If NSF decides to permit commercial traffic

   to use the NAPs without giving the research and education traffic

   priority (as proposed in the draft solicitation), we recommend

   that it obtain a legal opinion from its Office of General Counsel

   stating that such a decision is consistent with the NSF

   Act.112

        Some regional networks charge lower fees to research and

   education customers than to commercial customers, thereby

   subsidizing the research and education customers with revenues

   derived from commercial sources.113  In a similar vein, we

   recommend that NSF consider whether it is desirable and practical

   to require the NSFNET provider(s) to charge commercial traffic a

   higher rate than research and education traffic.  In this way,

   NSF may be able to provide additional support to the research and

   education community -- subsidized rates -- thus leveraging its

   funds further.

        In our view, allowing commercial traffic on the NSFNET (both

   the vBNS and the NAPs) only to the extent that it does not

   interfere with research and education traffic would also simplify


                          ____________________

        111 Public Draft at 26,694.  The AUP has always defined the
   priority in terms of traffic rather than in terms of users, which
   we believe is appropriate.  For example, the same user could send
   traffic that is subject to the AUP -- e.g., a professor sending a
   request for material for one of her classes -- and also send
   packets that are not compatible with the AUP -- e.g., the same
   professor accessing the Dow Jones service to determine whether
   her stock portfolio has increased in value.

        112 See Section III.D.

        113 "The National Research and Education Network Program,"
   p. 17, Report to Congress, Office of Science and Technology
   Policy (December 1992).

                                  59
======================================================================
   the AUP issue from NSF's perspective, because the NSFNET

   provider(s) would have an incentive to ensure that NSF is not

   subsidizing commercial traffic:  the provider(s) could charge

   commercial traffic for access to the vBNS that research and

   education users get free, and could charge commercial traffic a

   higher rate for use of the NAPs.  The NSFNET providers would thus

   have their own financial incentives to distinguish types of

   traffic.  As a result of the requirement that research and

   education traffic always have priority, and the financial

   incentives provided by the commercial users, the NAP Manager/RA

   and the vBNS Provider would presumably enhance and expand the

   network facilities as demand warrants.

        Of course, if NSF requires the NSFNET provider(s) to charge

   higher rates for commercial traffic, the providers' incentives

   would clearly be to maximize their income by deciding that any

   given user's traffic is commercial, and thus subject to vBNS

   charges and higher NAP charges.  NSF would thus still have a role

   to play in mediating disputes that the users and providers are

   not able to resolve amicably, and would have to reserve the

   ultimate authority to decide such disputes.114

        In addition, we are concerned about continuity.  Because the

   new network will be pushing technology beyond current limits and

   therefore unforeseeable problems are sure to arise, we recommend

   that NSF consider whether it should require that the vBNS

   Provider and NAP Manager/RA provide an adequate back-up to the

   vBNS and the NAPs, at least until such time as the new network is

   proven reliable.  In this way, most traffic (other than

                          ____________________

        114 See Section III.D.

                                  60
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   applications requiring very high speeds) will be able to continue

   with minimal disruption caused by problems with the new

   technology.

                                  C.
                 Interagency Coordination of the NREN

                                  1.
                       The New NASA/DOE Network

        In February 1991, the National Aeronautics and Space

   Administration ("NASA") and the Department of Energy ("DOE")

   issued a request for proposals for provision of a network that

   will primarily serve to connect laboratories conducting research

   for those agencies.  The network will operate at T3 in 1993, 155

   mbps in 1994, and 622 mbps in 1995.  In August 1992 NASA/DOE

   announced their intention to award a contract.115  Under the

   contract, the network will cost $50 million over five years at

   T3, with the cost of the higher speeds to be determined later.

        The first phase of the NASA/DOE contract will have the same

   speed objective that NSFNET has already obtained; the second

   phase of the NASA/DOE contract will have the same speed objective

   as the NSFNET re-solicitation (155 mbps).116  Such redundancy

   is not necessarily deleterious:  government agencies occasionally

   have awarded similar contracts to two different companies with

   the expectation that the best product will emerge from two


                          ____________________

        115 NASA/DOE have not yet entered into a contract because
   the award is currently under protest.

        116 The costs of the NASA/DOE and NSF networks are not
   directly comparable, however, because NASA/DOE are seeking
   provision of a "Layer 2" network, for which NASA/DOE will
   themselves be providing routing and administration services.  The
   NSFNET is and will continue to be a "Layer 3" network, with
   routing and administrative services provided by the awardee(s),
   not NSF.

                                  61
======================================================================
   independent product development efforts.  The government could

   take this approach to the federal funding of two national

   high-speed computer networks.

                                  2.
                  The High Performance Computing Act

        The High Performance Computing Act of 1991 (the

   "HPCA")117 was signed into law in December 1991, at a time

   when NASA/DOE were finalizing the solicitation for their network.

   One of the stated purposes of the HPCA is

        "improving the interagency planning and coordination of
        Federal research and development on high-performance
        computing and maximizing the effectiveness of the
        Federal Government's high-performance computing
        efforts."118

   By seeking to improve interagency coordination, the HPCA is

   designed to ensure against an ad hoc, every-agency-for-itself

   approach toward high-performance computing and its

   applications.119

        In furtherance of this statutory mandate, the participating

   NREN agencies "have established a Charter and worked to define

   their respective roles."120  The HPCA specifically requires

   the National Science Foundation to

        "upgrade the National Science Foundation funded
        network, assist regional networks to upgrade their
        capabilities, and provide other Federal departments and



                          ____________________

        117 15 U.S.C.    5501-5528.

        118 15 U.S.C.   5502(2).

        119 S. Rep. No. 57, 102d Cong., 2d Sess. 17 (1991),
   reprinted in 1991 U.S.C.C.A.N. 1228, 1251.

        120 NREN Report to Congress prepared by the Office of
   Science and Technology Policy (1992) at 35 (hereafter, "NREN
   Report").

                                  62
======================================================================
        agencies the opportunity to connect to the National
        Science Foundation funded network."121

   Accordingly, NSF has been assigned primary responsibility for

   "coordinat[ing] the Interagency Interim NREN activities,

   including coordinating the development, deployment, and

   operations of the Interagency Interim NREN facilities and

   services . . . ."122  Under this coordination framework, NASA

   and DOE are expected to upgrade their existing networks, but only

   "as part of the coordinated Interagency Interim NREN

   Program"123 -- which NSF has primary responsibility to

   coordinate.124  The NREN agencies coordinate through the

   Office of Science and Technology Policy's Federal Coordinating

   Council for Science, Engineering, and Technology ("FCCSET") and

   the Federal Networking Council ("FNC").125


                          ____________________

        121 15 U.S.C.   5521(a)(4).

        122 NREN Report at 37.

        123 NREN Report at 38.

        124 As explained above, the HPCA expressly requires **NSF**
   to take the lead in the development of a high speed national
   network for the NREN, to which other agencies may attach; by
   contrast, neither DOE nor NASA has primary responsibility under
   the statute for providing a national network.  DOE is charged to
   "perform research and development on, and systems evaluations of,
   high-performance computing and communications systems" and to
   "provide for networking infrastructure support for energy-related
   activities."  15 U.S.C.   5523(a)(1), -(4).  There is no
   reference to communications or networking activities by NASA in
   the statute.  15 U.S.C.   5522.  The legislative history is also
   clear on this point:  "NSF will coordinate deployment of the
   NREN, accelerating the harmonizing of multiple agency networks
   and protocols into a single NREN."  S. Rep. No. 57, 102d Cong.,
   2d Sess. 17 (1991), reprinted in 1991 U.S.C.C.A.N. 1228, 1245
   (NASA is not mentioned in the report with regard to the NREN).

        125 The Federal Networking Council consists of
   representatives from interested federal agencies.  It coordinates
   the activities of the NREN agencies while acting as a liaison to
   persons interested in the program.

                                  63
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                                  3.
               Coordination of the New NASA/DOE Network

        The HPCA was enacted at a time when preparation of the

   request for proposals for the NASA/DOE network was very far

   advanced, and FCCSET finalized its formal scheme for coordination

   among the NREN agencies only relatively recently.  Although

   NASA/DOE did not formally coordinate the procurement of their new

   high-speed network through FCCSET and FNC,126 it is our view

   that the implementation of the NASA/DOE network can still be

   effectively coordinated with NSFNET.127

        We believe the government and the public will benefit if

   FCCSET and FNC analyze potential cost savings that could result

   from integrating the NSF and NASA/DOE network undertakings -- and


                          ____________________

        126 Some technical issues related to the overlap of the
   NASA/DOE network with the next stage of NSFNET were discussed by
   members of the Federal Engineering Planning Group ("FEPG"), which
   is a subcommittee of FNC.  The FEPG is composed of people
   involved in the technical engineering aspects of the
   implementation of the NREN agencies' currently operating
   networks.  As a result, its meetings are regularly attended by a
   representative of Merit, but not by anyone from NSF.  Thus, since
   NASA and DOE operate their own networks, attendees intimately
   familiar with the proposed NASA/DOE network were present, but no
   one involved in the proposed NSFNET solicitation was present.  In
   addition, a Merit representative would be expected to represent
   Merit's views on the network but would not necessarily state
   NSF's views on network issues.

        We are also aware that the NREN agencies are in frequent
   contact with each other, through FCCSET as well as through
   informal interactions that predate the NREN.  This frequent
   contact certainly furthers the goals of the High Performance
   Computing Act.  Because of the NREN agencies' frequent contact,
   NASA/DOE may have felt no need to discuss the implementation of
   their network because they were confident that it would not
   dovetail with NSFNET.

        127 Coordination is still possible because the final terms
   of the NASA/DOE contract have not been finalized, and in any
   event such a contract could probably be readily amended to
   accommodate changes deemed desirable through the FCCSET and FNC
   process.

                                  64
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   thereby possibly having fewer nodes, simpler routing tables,

   and/or shared administrative costs.128  In our view, the NREN

   agencies, through the FCCSET and FNC processes, should:

   (1) explicitly consider and formally endorse or reject the

   creation of both NSF and NASA/DOE networks and (2) evaluate

   possible cost savings associated with integrating the NSF and

   NASA/DOE network undertakings.  The pressure to reduce government

   spending is only going to get greater as the NREN progresses, so

   it is incumbent on the NREN agencies to work closely together to

   achieve maximum efficiency.  If the government is going to spend

   $100 million to create two national networks when there are

   **potentially** overlapping requirements and duplicative costs,

   it should do so only after careful consultation among the NREN

   agencies as coordinated by FCCSET and FNC.

                                  4.
                            A New Paradigm

        We are well aware that a certain amount of inter-agency

   competitiveness has traditionally existed, with some agencies

   trying to "scoop" the others in cutting edge fields such as

   high-speed computer networking, but it is simply no longer

   acceptable.  The High Performance Computing Act, as well as

                          ____________________

        128 The potential cost savings may in fact not be
   substantial.  As we understand it, the cost of these high speed
   networks is to a great extent proportional to the number of
   nodes.  The NASA and DOE laboratories need to be able to
   communicate with each other on secure isolated "Virtual Private
   Networks", which may or may not be able to communicate with each
   other and with which outside parties cannot communicate.  By
   contrast, NSFNET's NAPs will be open to all research and
   education traffic.  Although a single provider could serve
   NASA/DOE's needs as well as NSF's, approximately the same number
   of network connections may be required even if NASA and DOE
   combined with NSF to fund a network meeting the needs of all
   three agencies' user communities, without substantial cost
   savings.

                                  65
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   common sense in a period of increasing pressure for budgetary

   belt-tightening, mandates that every agency's high-performance

   network undertakings be coordinated with other relevant agencies.

        The HPCA, as well as the establishment of FCCSET and FNC,

   reflect a paradigm shift for federal government decisionmaking:

   government agencies must fundamentally alter their approach to

   large-budget projects such as the NREN that involve multiple

   agencies, actively seeking cost savings and efficiencies through

   coordination and cooperation.  Using statutes such as the HPCA,

   Congress is taking steps to ensure against traditional -- but

   fundamentally wasteful -- internecine competition among federal

   agencies.129

        Accordingly, we recommend that NSF, pursuant to its

   responsibilities under the HPCA to coordinate the NREN, raise

   with FCCSET and FNC the issue of how best to effect coordination

   of the NSF and NASA/DOE networks.  We also recommend that NSF

   coordinate **its** networking effort to the greatest extent

   possible with NASA/DOE and the other NREN agencies through FCCSET

   and FNC; in the spirit of the HPCA, the coordination should be

   real and not just pro forma.




                          ____________________

        129 Similarly, the proposed National Competitiveness Act of
   1993 (S. 4, 103rd Cong., 1st Sess.   603) would require the
   Office of Science and Technology Policy, through FCCSET, to
   "establish an Information Infrastructure Development Program
   . . . that shall provide for a **coordinated interagency effort**
   to develop technologies needed to apply high-performance
   computing and high-speed networking in education, libraries,
   health care, manufacturing, and other appropriate fields . . ."
   (emphasis added).

                                  66
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                                  VI.
                    Conclusions and Recommendations

        In general we were favorably impressed with the NSFNET

   program and staff.  Nevertheless, we make recommendations to

   correct certain deficiencies and strengthen the upcoming

   re-solicitation.

        NSF's decision to award the Cooperative Agreement for NSFNET

   to Merit was entirely reasonable in light of the reviewers'

   assessments and Merit's proposed budget.  (See Section III.A.)

   In addition, NSF's decision to expand NSFNET to T3 was reasonable

   given the facts that: (1) NSFNET was approaching the limit of its

   capacity at T1 and (2) T3 speeds would permit the use of NSFNET

   for applications impossible at T1.  We also believe the price for

   T3 was not unreasonable:  even with the additional costs, Merit

   provided NSFNET to the scientific community for five years at a

   total cost of $28.9 million, less than Offeror 1 proposed to

   provide only T1, and about fifteen percent more than Offeror 2

   proposed for T1.  (See Section III.B.1.)  NSF was reasonable in

   not soliciting bids for the expansion to T3, because Merit had

   performed well under the award and the original NSFNET

   solicitation clearly envisioned the likelihood of such expansions

   of the network so that the public was thus on notice that the

   successful offeror would be responsible for expansions.  (See

   Section III.B.2.)

        The infrastructure pool created when CO+RE was established

   is consistent with the requirement in the Cooperative Agreement

   that project income be used to further the objectives of NSFNET.

   We recommend that NSF ensure that the infrastructure pool is

   funded properly and that the funds from the infrastructure pool

   are equitably distributed among the networks connected to NSFNET



                                  67
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   to build national and regional infrastructure.  We further

   recommend that, after the termination of the Cooperative

   Agreement, NSF ensure that Merit conducts a cost and compliance

   audit of ANS and CO+RE to verify that the infrastructure pool has

   been funded and distributed appropriately.  (See

   Section III.C.1.)

        Neither the NSFNET solicitation nor the proposals either

   anticipated or prohibited commercial use.  Because of this

   ambiguity, the question of whether commercial use should have

   been permitted is properly resolved by reference to the

   objectives of NSF in general and NSFNET in particular.  NSF

   decided that commercial use would not have a detrimental effect

   on the objectives of NSF or NSFNET; indeed, NSF concluded that

   commercial use of the network -- along with concomitant creation

   and funding of the infrastructure pool -- would further the

   objectives of NSFNET, by enhancing connectivity among commercial

   users and research and education users and by providing for

   enhancements to the network as a whole.  We therefore conclude

   that it was within NSF's discretion to allow Merit to permit

   commercial traffic over the network created by Merit under the

   NSFNET Cooperative Agreement.  (See Section III.C.2.)  NSF has

   publicly stated that if another company wishes to send commercial

   traffic over the T3 network set up by NSF and Merit/ANS, it can

   do so on the same terms accorded to CO+RE.  Therefore, we

   conclude that CO+RE has been accorded no advantage over other

   commercial network providers.  We recommend that, for the

   remaining period of the amended Cooperative Agreement, NSF ensure

   that other network providers continue to be offered access to the



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   T3 network on the same terms as CO+RE, and, if the offer is

   accepted, then access is provided fully and fairly.  (See

   Section III.C.3.)

        There is no documentation of NSF's reasoning for allowing

   commercial use of the network.  Important program decisions,

   particularly those involving a program as large as NSFNET, must

   be both well-reasoned **and** well-documented.  As explained

   above, we have concluded that the decision to allow commercial

   use of the network was within NSF's discretion.  However, the

   dearth of documentation of NSF's underlying reasoning, as well as

   the lack of evidence of peer, supervisory, or National Science

   Board review of this decision, reduces our confidence in this

   conclusion.  Therefore, we recommend that, in the future, all

   significant program decisions by DNCRI and the reasoning behind

   them be well-documented in a manner that reflects the level of

   NSF supervisory review and approval that occurred.  We also

   recommend that, when appropriate, issues involving the program be

   reviewed by scientific peers and/or submitted to the National

   Science Board for review and approval.  (See Section III.C.4.)

        The government is under no general duty to **announce**

   modifications of agreements between itself and its awardees.

   However, we believe NSF should have affirmatively announced to

   the networking community NSF's decision to allow commercial use

   of the T3 network.  By making a public announcement, NSF could

   have avoided a controversy which we believe was generated

   primarily by (1) ignorance of the facts regarding the commercial

   access available to the T3 backbone, and (2) a mistaken





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   perception that the agency was endeavoring to keep its actions

   from the public.  (See Section III.C.5.)

         The NSF Act was recently amended to clarify NSF's authority

   to support computer networks; however, this new legislation

   continues to limit NSF's authority in the networking area such

   that NSF may permit commercial use of networks supported by NSF

   only if permitting such use will result in network enhancements

   that will better enable uses in furtherance of research and

   education **and** if the NSF funding supports access to the

   networks by research and education activities.  Therefore, an AUP

   is necessary to define which traffic constitutes research and

   education traffic because NSF is only authorized to provide

   funding that supports access by that traffic to the networks that

   NSF chooses to fund.  In addition, this AUP must be applicable to

   all users of the NSF-funded network and promulgated with notice

   to, and evaluation of comments from, the networking public.

        Accordingly, we recommend that NSF continue to maintain an

   AUP that will ensure that NSF's support for access to the network

   is consistent with the NSF Act.  In order for the AUP to be based

   on demonstrable input from the public and for the AUP to be

   legally applicable to end-users, we recommend that NSF take

   appropriate action to promulgate the AUP as a regulation.  We

   also recommend that the AUP be made a part of the award

   conditions both for Merit as well as for any organization that

   later receives NSF funding pursuant to the proposed new

   solicitation.  In addition, we recommend that NSF disseminate the

   AUP in a manner such that all end-users are aware of its

   prohibitions.  (See Section III.D.)



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        The use of a cooperative agreement, as opposed to a

   contract, to fund NSFNET was appropriate.  We also believe the

   use of a cooperative agreement for the next stage of evolution

   for NSFNET is appropriate.  (See Section IV.A.)

        Inclusion of the NSFNET Cooperative Agreement under the

   Federal Demonstration Project was inappropriate; however, we are

   aware of no injury to NSF that resulted from this error.  We

   recommend that, in the future, NSF apply the Federal

   Demonstration Project conditions only to awards where the awardee

   is a Federal Demonstration Project institution.  (See

   Section IV.B.)

        Prior approval by the Division of Grants and Contracts

   ("DGC") was required for the assignment of Merit's duties to ANS.

   Although there is no record in the files of either DGC or DNCRI

   of such approval being sought or obtained for this assignment,

   apparently DNCRI and DGC both approved the assignment.  Important

   decisions such as this one should have been thoroughly documented

   by both DNCRI and DGC, in consultation with NSF's Office of

   General Counsel ("OGC").  We recommend that NSF ensure that DNCRI

   and DGC more thoroughly document their decisionmaking processes

   and ensure that all relevant records are included in their files.

   We also recommend that NSF ensure that major program decisions on

   NSFNET always include documented consultation with OGC, and, when

   appropriate, legal opinions should be obtained from OGC in

   writing.  In addition, we recommend that NSF ensure that a prior

   approval clause is included in any future awards involving the

   approval of the National Science Board that are subject to the

   Federal Demonstration Project.  This prior approval clause should



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   require written approval from OGC as well as from DGC.  (See

   Section IV.C.)

        In addition to the lack of records on the prior approval of

   the assignment, reports required from the awardee by the

   Cooperative Agreement and agreements important to the award were

   not included in DNCRI's files.  We recommend that NSF ensure that

   all relevant documents, especially reports required by the

   Cooperative Agreement and agreements relevant to the award, are

   included in the program files.  (See Section IV.D.)

        With regard to compliance with OMB rules governing

   subcontracting, we see no problem with the creation of ANS and

   its assumption of the responsibility for providing the NSFNET

   backbone.  Because of the level of interaction between Merit and

   ANS, the relationship between Merit and ANS was really a

   sub-cooperative agreement rather than a subcontract (as it was

   termed by the parties), and it was therefore not subject to the

   requirements of Attachment O to OMB Circular A-110.  (See

   Section IV.E.)

        We have been very impressed with the availability of DNCRI,

   Merit, and ANS to the public via their participation in an

   electronic bulletin board that is widely read by the community of

   users of NSFNET.  The exchange of views among NSF, the NSFNET

   provider (Merit/ANS), and the users of NSFNET, is truly

   remarkable in a program of the federal government.  We applaud

   this accessibility by DNCRI, and encourage its continuation by

   DNCRI and emulation by other NSF programs.  We do recommend,

   however, to the extent that NSF or NSFNET policy is expressed in

   postings in electronic or any other media, NSF ensure that hard



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   copies (and the message(s) to which they are directly responding)

   are included in the program file.  (See Section IV.F.)

        We believe that the funding approach taken by NSF --

   supporting the creation of the NSFNET backbone directly, rather

   than giving grants to the users of the network in the hope that

   the availability of buyers would inspire network providers to

   enter the market -- was reasonable.  We are convinced that

   relying on demand-driven market forces would have advanced

   neither networking technology nor use as rapidly as both have

   advanced under the direct funding approach taken by NSF.  In its

   proposed solicitation for the next phase of NSFNET/NREN, NSF

   makes it clear that it is going to phase itself out of direct

   funding, which we also view as a reasonable decision.  (See

   Section IV.G.)

        NSF's issuance of the draft solicitation for the next phase

   of NSFNET was an excellent idea, polling the interested

   networking community on a project that will fundamentally advance

   networking in the United States, and beyond.  In addition, the

   extension of the Cooperative Agreement with Merit for eighteen

   months was reasonable, particularly because it provided NSF

   sufficient time to analyze the comments received in response to

   the proposed solicitation.

        In our view, it is perfectly appropriate to allow the vBNS

   Provider to convey traffic that is not subject to the AUP, since

   the research and education traffic will have priority and it can

   reasonably be anticipated that by doing so NSF will receive

   superior service at substantially less cost to the government.

   The possibility of a competitive advantage thereby provided to



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   the successful offeror is permissible because potential offerors

   and the public are on notice that the successful offeror will

   gain that advantage, and thus offerors will have an incentive to

   reduce the price of their proposals to NSF.

        However, the draft solicitation does not require that

   research and education traffic have priority over commercial

   traffic at the NAPs.  We recommend that NSF consider permitting

   the NAPs to handle commercial traffic only under the same

   condition as the vBNS; that is, "as long as the quality and

   quantity of required services for NSF-specified customers are not

   affected."  If NSF decides to permit commercial traffic to use

   the NAPs without giving the research and education traffic

   priority (as proposed in the draft solicitation), we recommend

   that NSF obtain a legal opinion from its Office of General

   Counsel stating that such a decision is consistent with the NSF

   Act.  We also recommend that NSF consider whether it is desirable

   and practical to require the NAPs to charge commercial traffic a

   higher rate than research and education traffic.

        As a result of concerns involving continuity and

   reliability, we recommend that NSF consider requiring the vBNS

   Provider and NAP Manager/RA to provide an adequate back-up to the

   vBNS and the NAPs, at least until such time as the new network is

   proven reliable.  (See Section V.B.)

        The HPCA was enacted at a time when preparation of the

   request for proposals for the NASA/DOE network was very far

   advanced, and FCCSET finalized its formal scheme for coordination

   among the NREN agencies only relatively recently; nevertheless,

   we believe that the implementation of the NASA/DOE network can



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   still be effectively coordinated with NSFNET.  We believe that

   the government and the public will benefit if FCCSET and FNC

   analyze potential cost savings that could result from integrating

   the NSF and NASA/DOE network undertakings.  In our view, the NREN

   agencies, through the FCCSET and FNC processes, should:

   (1) explicitly consider and formally endorse or reject the

   creation of both NSF and NASA/DOE networks and (2) evaluate

   possible cost savings associated with integrating the NSF and

   NASA/DOE network undertakings.  Accordingly, we recommend that

   NSF, pursuant to its responsibilities under the HPCA to

   coordinate the NREN, raise with FCCSET and FNC the issue of how

   best to effect coordination of the NSF and NASA/DOE networks.  We

   also recommend that NSF coordinate **its** networking effort to

   the greatest extent possible with NASA/DOE and the other NREN

   agencies through FCCSET.  (See Section V.C.)

        As explained above, we make the following recommendations:

   Current Cooperative Agreement:

   1.   NSF should ensure that the infrastructure pool is funded

        properly and that the funds from the infrastructure pool are

        equitably distributed among the networks connected to NSFNET

        to build national and regional infrastructure.

   2.   After the termination of the Cooperative Agreement, NSF

        should ensure that Merit conducts a cost and compliance

        audit of ANS and CO+RE to verify that the infrastructure

        pool has been funded and distributed appropriately.

   3.   For the remaining period of the amended Cooperative

        Agreement, NSF should ensure that other network providers

        continue to be offered access to the T3 network on the same



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        terms as CO+RE, and, if the offer is accepted, then access

        should be provided fully and fairly.

   4.   In the future, NSF should ensure that all significant

        program decisions by DNCRI and the reasoning behind them are

        well-documented in a manner that reflects the level of NSF

        supervisory review and approval that occurred.  When

        appropriate, NSF should ensure that issues involving the

        program are reviewed by scientific peers and/or submitted to

        the National Science Board for review and approval.

   Acceptable Use Policy:

   5.   NSF should continue to have in place an AUP that will ensure

        that NSF's support for access to the network is consistent

        with the NSF Act.

   6.   For the AUP to be based on demonstrable input from the

        public and for the AUP to be legally applicable to

        end-users, NSF should take appropriate action to promulgate

        the AUP as a regulation.

   7.   NSF should ensure that the AUP is made a part of the award

        conditions both for Merit as well as for any organization

        that later receives NSF funding pursuant to the proposed new

        solicitation.

   8.   NSF should disseminate the AUP in a manner such that all

        end-users are aware of its prohibitions.

   Administrative Issues:

   9.   NSF should apply the Federal Demonstration Project

        conditions only to awards where the awardee is a Federal

        Demonstration Project institution.





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   10.  NSF should ensure that DNCRI and DGC more thoroughly

        document their decisionmaking processes and ensure that all

        relevant records, especially agreements relevant to the

        award and reports required by the Cooperative Agreement, are

        included in their files.  To the extent that NSF or NSFNET

        policy is expressed in postings in electronic or any other

        media, NSF should also ensure that hard copies (and the

        message(s) to which they are directly responding) are

        included in the program file.

   11.  NSF should ensure that major program decisions on NSFNET

        always include documented consultation with OGC, and, when

        appropriate, legal opinions should be obtained from OGC in

        writing.

   12.  NSF should ensure that a prior approval clause is included

        in any future awards involving the approval of the National

        Science Board that are subject to the Federal Demonstration

        Project.  This prior approval clause should require written

        approval from OGC as well as from DGC.

   New Solicitation:

   13.  NSF should consider permitting the NAPs to handle commercial

        traffic only under the same condition as the vBNS; that is,

        "as long as the quality and quantity of required services

        for NSF-specified customers are not affected."  If NSF

        decides to permit commercial traffic to use the NAPs without

        giving the research and education traffic priority (as

        proposed in the draft solicitation), NSF should obtain a

        legal opinion from its Office of General Counsel stating

        that such a decision is consistent with the NSF Act.



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   14.  NSF should consider whether it is desirable and practical to

        require the NSFNET provider(s) to charge commercial traffic

        a higher rate than research and education traffic.

   15.  NSF should consider requiring the vBNS Provider and NAP

        Manager/RA to provide an adequate back-up to the vBNS and

        the NAPs, at least until such time as the new network is

        proven reliable.

   Coordination with Other Government Agencies

   16.  NSF should raise with FCCSET and FNC the issue of how best

        to effect coordination of the NSF and NASA/DOE networks.

   17.  NSF should coordinate **its** networking effort to the

        greatest extent possible with NASA/DOE and the other NREN

        agencies through FCCSET.












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                               APPENDIX



          THE NSFNET BACKBONE SERVICES Acceptable Use Policy


   GENERAL PRINCIPLE:

   (1)  NSFNET Backbone services are provided to support open
        research and education in and among US research and
        instructional institutions, plus research arms of for-profit
        firms when engaged in open scholarly communication and
        research.  Use for other purposes is not acceptable.

   SPECIFICALLY ACCEPTABLE USES:

   (2)  Communication with foreign researchers and educators in
        connection with research or instruction, as long as any
        network that the foreign user employs for such communication
        provides reciprocal access to US researchers and educators.

   (3)  Communication and exchange for professional development, to
        maintain currency, or to debate issues in a field or
        subfield of knowledge.

   (4)  Use for disciplinary-society, university-association,
        government-advisory, or standards activities related to the
        user's research and instructional activities.

   (5)  Use in applying for or administering grants or contracts for
        research or instruction, but not for other fundraising or
        public relations activities.

   (6)  Any other administrative communications or activities in
        direct support of research and instruction.

   (7)  Announcements of new products or services for use in
        research or instruction, but not advertising of any kind.

   (8)  Any traffic originating from a network of another member
        agency of the Federal Networking Council if the traffic
        meets the acceptable use policy of that agency.

   (9)  Communication incidental to otherwise acceptable use, except
        for illegal or specifically unacceptable use.






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   UNACCEPTABLE USES:

   (10) Use for for-profit activities unless covered by the General
        Principle or as a specifically acceptable use.

   (11) Extensive use for private or personal business.

   This statement applies to use of the NSFNET Backbone only.  NSF
   expects that connecting networks will formulate their own use
   policies.  The NSF Division of Networking and Communications
   Research and Infrastructure will resolve any questions about this
   Policy or its interpretation.













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                            April 19, 1993



   MEMORANDUM TO:      Linda G. Sundro, Inspector General

   FROM:               Frederick M. Bernthal, Acting Director

   SUBJECT:            NSF Response to Office of Inspector General
                       Review of NSFNET Report and Recommendations


   We generally agree with the OIG Report and its recommendations,
   and appreciate the time and effort OIG expended to consider and
   understand this complex program.  We are also pleased that your
   staff and mine were able to work together to resolve several
   areas of previous misunderstanding.

   NSF's NSFNET program contributed substantially to the phenomenal
   growth of computer networking.  In your report, you indicate that
   you were "favorably impressed with the NSFNET program and staff,"
   and you acknowledge the reasonableness of NSF's actions in
   developing this remarkably successful program.  We, too, believe
   that NSF staff have responded to this complex task with energy
   and creativity, and we welcome your recommendations as a means to
   improve this activity.

   Our responses (in plain text) to individual OIG recommendations
   (in italics) are as follows:


   RECOMMENDATION 1:  NSF should ensure that the infrastructure pool
   is funded properly and that the funds from the infrastructure
   pool are equitably distributed among the networks connected to
   NSFNET to build national and regional infrastructure.

        NSF agrees with this recommendation.  NSF will activate its
        membership in the Resource Allocation Committee (the
        Committee that oversees the distribution of the
        infrastructure pool) and will actively work to ensure that
        the infrastructure pool is properly funded and equitably
        distributed.  In addition, the audit proposed in
        Recommendation 2 should further ensure that the
        infrastructure pool is funded properly.

   RECOMMENDATION 2:  After the termination of the Cooperative
   Agreement, NSF should ensure that Merit conducts a cost and
   compliance audit of ANS and CO+RE to verify that the
   infrastructure pool has been funded and distributed
   appropriately.



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        NSF agrees that a cost and compliance audit of ANS and CO+RE
        should be conducted.

   RECOMMENDATION 3:  For the remaining period of the amended
   Cooperative Agreement, NSF should ensure that other network
   providers continue to be offered access to the T3 network on the
   same terms as CO+RE, and, if the offer is accepted, then access
   should be provided fully and fairly.

        NSF agrees with this recommendation and DNCRI will ensure
        that all network providers are offered access to the T3
        network on the same terms as CO+RE.  DNCRI will reiterate
        and publicize the conditions for shared use of the T3
        network.

   RECOMMENDATION 4:  In the future, NSF should ensure that all
   significant program decisions by DNCRI and the reasoning behind
   them are well-documented in a manner that reflects the level of
   NSF supervisory review and approval that occurred.  When
   appropriate, NSF should ensure that issues involving the program
   are reviewed by scientific peers and/or submitted to the National
   Science Board for review and approval.

        NSF will ensure that all significant program decisions and
        the reasoning behind them are well-documented.  NSF will do
        this in accordance with the best practices of NSF
        documentation and policy review.  When appropriate, NSF
        discussion will incorporate a review of policy and program
        issues by relevant peer review mechanisms and through
        National Science Board involvement.

   RECOMMENDATION 5:  NSF should continue to have in place an AUP
   that will ensure that NSF's support for access to the network is
   consistent with the NSF Act.

        NSF agrees with this recommendation and will continue to
        maintain an acceptable use policy.

   RECOMMENDATION 6:  For the AUP to be based on demonstrable input
   from the public and for the AUP to be legally applicable to end-
   users, NSF should take appropriate action to promulgate the AUP
   as a regulation.

        NSF agrees that all users of the NSF-funded network should
        comply with a stated policy governing acceptable uses of the
        network.  NSF also agrees that the affected public should be
        provided the opportunity to comment on the development of
        all NSFNET Program acceptable use policies.  In the past, we
        solicited input from the DNCRI Advisory Committee.  In
        addition, the current NSFNET Backbone AUP has been the
        subject of continuing discussions in various public arenas.

        In the new solicitation it is important to distinguish
        between the several different parts of the emerging NSFNET
        architecture, which includes a vBNS( very high speed
        backbone), NAPs (network access points), a RA (routing


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        arbiter) Manager and various RNPs (regional network
        providers).  Each of these different functions contemplates
        particular types of providers and usage.  Thus, it might not
        be appropriate to try and cast one uniform AUP provision
        across these functions.  For example, the NAPs are designed
        to serve as a common entry point for the NSF-supported R&E
        (research and education) users and general non-NSF
        commercial traffic.  Whereas, the vBNS will be exclusively
        devoted to R&E traffic.

        NSF will develop an acceptable use policy or policies for
        the NSFNET and will publish a notice in the Federal Register
        soliciting the views of the public on that policy.  When NSF
        finalizes it, NSF will publish the policy or policies,
        together with responses to comments received from the
        public, in the Federal Register.  The range of acceptable
        use policy enforcement mechanisms to be considered will
        include the use of award terms and conditions and the
        possibility of promulgation of regulations. In our
        coordinating role for the Interagency Interim NREN, NSF will
        also consult with the other FCCSET agencies regarding the
        appropriateness of all these policy or policies.

   RECOMMENDATION 7:  NSF should ensure that the AUP is made a part
   of the award conditions both for Merit as well as for any
   organization that later receives NSF funding pursuant to the
   proposed solicitation.

        NSF generally agrees with this recommendation and will enter
        into negotiations with Merit to amend the Cooperative
        Agreement to require compliance with the AUP.  NSF will also
        make AUP compliance part of the award conditions for the
        vBNS and NAP/vBNS Interface.

   RECOMMENDATION 8:  NSF should disseminate the AUP in a manner
   such that all end-users are aware of its prohibitions.

        NSF agrees with this recommendation.  We have already
        published the AUP in a variety of fora (e.g., the com-priv
        electronic bulletin board).  NSF will continue to publish
        the AUP on electronic bulletin boards as appropriate; will
        forward copies of the AUP to administrators of clients of
        NSFNET Backbone Services and ask that they disseminate the
        AUP broadly to their clients; and will ensure that the AUP
        is publicly available on STIS and by anonymous ftp.

   RECOMMENDATION 9:  NSF should apply the Federal Demonstration
   Project Conditions only to awards where the awardee is a Federal
   Demonstration Project Institution.

        NSF agrees with this recommendation, and acknowledges that
        it erred in including FDP Project terms and conditions in
        the Merit cooperative agreement.  NSF will begin
        negotiations with Merit to substitute the Cooperative
        Agreement GC-1 for the FDP terms and conditions.



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   RECOMMENDATION 10:  NSF should ensure that DNCRI and DGC more
   thoroughly document their decisionmaking processes and ensure
   that all relevant records, especially agreements relevant to the
   award and reports required by the Cooperative Agreement, are
   included in their files.  To the extent that NSF or NSFNET policy
   is expressed in postings in electronic or any other media, NSF
   should also ensure that hard copies (and the message(s) to which
   they are directly responding) are included in the program file.

        NSF agrees with this recommendation.  NSF will document its
        decisionmaking processes and will ensure that complete
        records are maintained in DNCRI files.  DNCRI will maintain
        hard copies of all policy statements made in electronic or
        other media postings.  DNCRI and DGC have also begun to
        review all pertinent program files to identify what
        additional documents and records should be included in those
        files, including agreements relevant to the award and
        reports required under the Cooperative Agreement.

   RECOMMENDATION 11:  NSF should ensure that major program
   decisions on NSFNET always include documented consultation with
   OGC, and, when appropriate, legal opinions should be obtained
   from OGC in writing.

        NSF agrees that OGC should be consulted for legal advice
        when appropriate, and that such consultation would be
        appropriate for most, but not all, types of major NSFNET
        program decisions.  For example, it probably would not be
        necessary to consult OGC on budget decisions, even though

        such decisions might be viewed as "major".  NSF agrees to
        expand consultations with OGC on NSFNET, in the spirit of
        this recommendation.

   RECOMMENDATION 12:  NSF should ensure that a prior approval
   clause is included in any future awards involving the approval of
   the National Science Board that are subject to the Federal
   Demonstration Project.  This prior approval clause should require
   written approval from OGC as well as from DGC.

        The Interagency Committee of the Federal Demonstration
        Project* is in the process of revising the standard terms
        and conditions for FDP awards to include a requirement that
        FDP-participating organizations obtain prior written
        approval from the cognizant agency official (the grants and
        contracts officer) if there is to be a significant project
        change, such as a transfer, by contract or otherwise, of a
        significant part of the research or substantive programmatic
        effort.  The language in the FDP subcontracting clause will
        be similar to that in the GC-1, and should resolve the
        concerns underlying this recommendation.  Until such time as
        the revised FDP terms and conditions are in place, NSF will

                          ____________________

        * The Committee is comprised of the senior policy officials
   of the participating agencies.

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        ensure that a prior approval clause is included in future
        FDP awards that require the approval of the National Science
        Board.  Consistent with the response to recommendation 11,
        DGC will consult with, and obtain the approval of, OGC, as
        appropriate.

   RECOMMENDATION 13:  NSF should consider permitting the NAPs to
   handle commercial traffic only under the same condition as the
   vBNS; that is, "as long as the quality and quantity or required
   services for NSF-specified customers are not affected."  If NSF
   decides to permit commercial traffic to use the NAPs without
   giving the research and education traffic priority (as proposed
   in the draft solicitation), NSF should obtain a legal opinion
   from its Office of General Counsel stating that such a decision
   is consistent with the NSF Act.

        NSF will consider a requirement that NAPs handle commercial
        traffic only if the quality and quantity or required
        services for NSF-specified customers are not affected.  If,
        based on such consideration, NSF decides not to impose this
        requirement, NSF will obtain a legal opinion from OGC
        stating that this decision is consistent with the NSF Act.

   RECOMMENDATION 14:  NSF should consider whether it is desirable
   and practical to require the NSFNET provider(s) to charge
   commercial traffic a higher rate than research and education
   traffic.

        NSF will consider whether it is desirable and practical to
        require NSFNET provider(s) to charge commercial traffic a
        higher rate than research and educations.

   RECOMMENDATION 15:  NSF should consider requiring the vBNS
   Provider and NAP Manager/RA to provide adequate back-up to the
   vBNS and the NAPs, at least until such time as the new network is
   proven reliable.

        NSF agrees, and will make provision for backup connectivity
        until the new architecture is proven reliable.

   RECOMMENDATION 16:  NSF should raise with FCCSET and FNC the
   issue of how best to effect coordination of the NSF and NASA/DOE
   networks.

        NSF will raise the issue of coordination with FCCSET and
        will continue to work for improved coordination of the HPCC
        Program.  NSF will also have the FNC form a study group to
        consider the extent to which a merger of the two networks
        would result in potential cost savings.

   RECOMMENDATION 17:  NSF should coordinate its networking effort
   to the greatest extent possible with NASA/DOE and the other NREN
   agencies through FCCSET.

        NSF will continue to coordinate its NREN activities with
        NASA/DOE and the other NREN agencies through FCCSET,


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        particularly through the National Coordination Office which
        is responsible for overall coordination of HPCC activities.














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