GAO-01-958R Metropolitan Telecommunications Acquisition

United States General Accounting Office

Washington, DC 20548

July 27, 2001

The Honorable Tom Davis

Chairman

Subcommittee on Technology and Procurement Policy

Committee on Government Reform

House of Representatives

Subject: Metropolitan Area Acquisition (MAA) Implementation Issues

Dear Mr. Chairman:

As you know, the General Services Administration (GSA) initiated its Metropolitan

Area Acquisition (MAA) program in 1997 to achieve immediate, substantial, and

sustained price reductions for local voice and selected data communications services

in selected metropolitan areas. As of June 2001, GSA had awarded 37 MAA contracts

for 20 metropolitan areas. The transition from existing GSA contracts to the MAA

contracts is still under way.

In your letter of June 27, 2001, you asked that we respond to several follow-up

questions pertaining to your Subcommittee’s June 13, 2001, oversight hearing

regarding the MAA contracts. My responses to your questions follow below.

1: In your testimony, you note that GSA envisioned that these MAA contracts would

complement its existing contracts, as well as provide a solution for local service

contracts that were expiring. Are there any indications that these local contracts

are conflicting with each other rather than complementing each other?

There is an indication or appearance of conflict between the MAA contracts and

GSA’s existing contracts for local telecommunications services.1

 This conflict stems

from terms in existing contracts regarding termination of service; according to some

MAA contractors, these terms put them at a competitive disadvantage by reducing the

incentive for agencies to move to the MAA contracts. For example, contractual

agreements in effect in New York, New Jersey, and Pennsylvania establish a

 1

 In addition to the MAA contracts, FTS offers a variety of programs through which agencies can

acquire local telecommunications service. For example, the Aggregated System Procurement program

consolidates local requirements into an overall system procurement based on the Bell Operating

Company boundaries. The Individual System Procurement program serves locations where the

aggregated program does not. In addition, regional FTS offices have obtained rate stabilization

agreements that allow agencies to acquire local tariffed telecommunications services at short-term

discounts.
2 GAO-01-958R Metropolitan Telecommunications Acquisition

minimum number of lines that the government agrees to buy. This minimum

requirement continues throughout the term of the contract even if agencies transition

to the MAA contacts, unless the MAA contractor is an incumbent carrier. Effectively,

the result is a termination “penalty,” because the government must either pay

prevailing higher tariff rates for the remaining lines, or continue to pay for the

minimum number of lines whether it uses them all or not. Another instance of such a

disincentive is the Aggregated System Procurement (ASP) contract for Western

Zone I, which includes the Dallas-Fort Worth MAA market; this contract includes a

specific one-time disconnect charge of $25.90 per line.

We do not know, however, whether this indication or appearance of conflict is

actually responsible for delaying MAA implementation in these regions. We plan to

address this issue in our continuing work.

In commenting on a draft of this report, the GSA Federal Technology Service’s

Assistant Commissioner for Regional Services stated that the terms of the existing

local service contracts reflect the fact that they were negotiated before

telecommunications reform. As a result, these terms are less favorable than they

would have been if negotiated in today’s more competitive telecommunications

environment. While acknowledging that the timing, terms, and conditions of these

existing local contracts do create MAA implementation issues, GSA contends that

these concerns will be mitigated as those existing contracts expire.

2: You also stated that GSA charges customer agencies two types of fees. What are

these two types and what are they for?

GSA’s Federal Technology Service (FTS), which has responsibility for the MAA

program, is a self-sustaining organization. As such, it assesses customer agencies two

types of management fees to recover the costs of contract management and

administration activities: a contract management fee and a full-service fee. The

contract management fee is to cover general program, acquisition, and contract

management activities and is applied as a percentage of service cost. The full-service

fee covers service ordering, implementation planning and coordination, and billing.

The full-service fee is an additional percentage applied to the total of service costs

plus the contract management fee.

Those customer agencies that choose the direct-order/direct-billing option available

to them under the MAA contracts would pay only the GSA contract management fee.

They would not be assessed the full-service fee, because they would shoulder

responsibility for billing and ordering themselves, rather than obtaining those support

services from GSA.

3: The management fees that GSA charges range in total from about 28 to over

80 percent. Based on your work to date, what is your view on these rates?

Our view is that GSA should be disclosing the rates it is charging customer agencies

for its management services. As I stated in my testimony, the MAA contracts
3 GAO-01-958R Metropolitan Telecommunications Acquisition

presently require contractors to embed the GSA fees in the service pricing that they

disclose to agencies during marketing activities, as well as on the invoices submitted

for payment of services. As a result, agencies do not have complete information to

help them determine whether using GSA’s services is their most economical option.

For example, an agency in St. Louis could lower its local MAA service costs by almost

18 percent if it assumed additional service ordering, billing, and administration

responsibilities and their associated cost. However, lacking full information on these

fees, agencies cannot readily determine whether it is more economical for them to

procure their own local services, to procure services through GSA but perform

management support activities themselves, or to procure services through GSA and

pay GSA for support.

During the course of our continuing work on MAA contract implementation, we will

more thoroughly evaluate the management fees that GSA is collecting on these

contracts, as well as the support that GSA provides in exchange.

4: Based on your work to date, do you have any advice on how MAA contract

implementation could be improved?

Yes, based on our work to date, there is one immediate step that GSA could take to

improve MAA contract implementation in New York. As discussed in my testimony,

our work on the New York MAA indicated that AT&T and GSA had different

perspectives on such issues as vendor marketing and the time frames for completing

transition requirements. Given the complexity and newness of this particular

implementation effort, some of these differences are understandable. However, this

situation also warrants an increased quantity and quality of communication between

these two parties. In commenting on a draft of this report, the Assistant

Commissioner for Regional Services stated that GSA has scheduled vice presidentlevel meetings with the MAA contractors in order to improve communication and

resolve related issues.

Our review of the MAA program is continuing. We may offer additional suggestions to

improve MAA program implementation in our final report.

5: Both Qwest and WinStar suggest that GSA provide better information to agencies

and vendors on transition. In your view, is there a benefit to publishing a

monthly report card or other transition report in order to push both FTS regional

offices and federal agencies to transition?

In our view, the reporting of MAA implementation progress to agencies and to

contractors by GSA would be a useful management tool. According to the Project

Management Institute, performance reporting is a valuable element of project

management; these reports should cover such matters as status or percentage

completion in relation to schedules, what is completed versus what is in progress,
4 GAO-01-958R Metropolitan Telecommunications Acquisition

and the forecasting of future status and progress.2 The recommendations made to you

during the hearing by both Qwest and WinStar reiterate this point.

For its FTS2001 transition, GSA did post this type of information on its Web site,

contained in transition bulletins and status reports. While GSA also posts MAA

program information, the MAA Web pages do not contain information on transition or

implementation progress. Although several factors are influencing the actual pace of

MAA implementation, as a general management practice we would view regular MAA

status reporting to all program stakeholders as a positive step by GSA. According to

the FTS Assistant Commissioner for Regional Services, GSA is now looking at how to

make MAA implementation status information publicly available.

- - - - -

In addition to the questions set forth in your letter of June 27, 2001, I was also asked

by Congressman Horn during the hearing to determine whether GAO obtains its local

telecommunications equipment and services from GSA, and whether we or GSA

provides the related computer security. We do not currently obtain local

telecommunications services from GSA (with the exception of our office in Boston,

Massachusetts). Starting October 1, GAO offices in the Washington, D.C., area will

obtain local telecommunications services and equipment from GSA, using its

Washington Interagency Telecommunications Services 2001 (WITS2001) contract.

With regard to computer security, we have a computer security unit—the Information

Systems Security Unit within the Information Systems and Technology Services

organization—that is responsible for information security across the agency. For

local telecommunications procured under the WITS2001 contract, GSA does not

perform computer security functions for customer agencies such as GAO; however,

GSA requires the contractor providing those services and equipment to meet certain

security requirements.

- - - - -

In providing the agency’s official oral comments on a draft of this letter, the GSA FTS

Assistant Commissioner for Regional Services generally concurred with the

information presented. We have incorporated GSA’s comments where appropriate.

- - - - -

During the course of our work to address the questions posed in your June 27 letter,

we reviewed the documentation we prepared in support of our earlier testimony

before the Subcommittee. We also met with the GSA FTS Assistant Commissioner for

Regional Services and other MAA program management staff. We conducted this

work in July 2001 in Washington, D.C., and Fairfax, Virginia, in accordance with

generally accepted government auditing standards.

 2

 Established in 1969, the Project Management Institute (PMI®) is a not-for-profit project management

professional association, with nearly 80,000 members worldwide. The PMI has published the project

management standard, A Guide to the Project Management Body of Knowledge (PMBOK® Guide).
5 GAO-01-958R Metropolitan Telecommunications Acquisition

- - - - -

We are sending copies of this correspondence to the Ranking Minority Member,

Subcommittee on Technology and Procurement Policy, and interested congressional

committees. We are also sending copies to the Administrator of General Services and

to the Director, Office of Management and Budget. Copies will be made available to

others upon request. The correspondence will also be available on GAO’s Web site at

http://www.gao.gov.

If you have any questions regarding this correspondence, please contact me or Kevin

Conway, Assistant Director, at (202) 512-6240 or by e-mail at koontzl@gao.gov or

conwayk@gao.gov, respectively.

Sincerely yours,

Linda D. Koontz

Director, Information Management Issues

(310328)