GAO

United States General Accounting Office

Report to the Chairman, Committee on 

Government Reform, House of 

Representatives

April 2000 TELECOMMUNICATIONS

GSA’s Estimates of 

FTS2001 Revenues Are 

Reasonable

GAO/AIMD-00-123

Page 1 GAO/AIMD-00-123 FTS2001 Revenue Estimates

United States General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-284758 Letr

April 14, 2000

The Honorable Dan Burton

Chairman

Committee on Government Reform

House of Representatives

Dear Mr. Chairman:

The General Services Administration’s (GSA) Federal Technology Service 

(FTS) provides its customers with a broad range of end-to-end 

telecommunications services, including global voice, data, and video 

services, supporting both local and long-distance government 

telecommunications users. Its FTS2000 long-distance services reached 

more than 1.7 million users through two multibillion dollar 10-year 

contracts that were awarded to AT&T and Sprint in December 1988. Two 

contracts have since been awarded for the successor FTS2001 program–

one to Sprint in December 1998 and one to MCI WorldCom in January 1999. 

The federal government is now in the process of transitioning from the 

FTS2000 to the FTS2001 long-distance telecommunications program. 

On March 1, 2000, we briefed your office on the results of our review of the 

GSA’s revenue estimation process for FTS2001 and provided answers to 

four questions you asked regarding the FTS2001 contracts’ minimum 

revenue guarantees (MRGs) and the implications of allowing other service 

providers to compete in the FTS2001 market. 

To answer these questions, we analyzed the process and assumptions GSA 

used to develop program revenue estimates and time frames for meeting 

the MRGs. We also contracted with Technology Futures, Inc.–experts in 

telecommunications forecasting—to assist in our review of the revenue 

estimation process and to develop an independent high-level estimate of 

potential FTS2001 program revenues. We conducted our review from 

January 2000 through March 2000 in accordance with generally accepted 

government auditing standards, and on March 22, 2000, we received 

comments on this report from the GSA FTS Assistant Commissioner for 

Service Development, the Assistant Commissioner for Service Delivery, 

and the Deputy Assistant Commissioner for Acquisition. Additional details 

on our objective, scope, and methodology are contained in appendix I. This 
B-284758

Page 2 GAO/AIMD-00-123 FTS2001 Revenue Estimates

report provides a summary of our briefing. Our detailed briefing slides are 

presented in appendix II.

The FTS2001 Program GSA awarded two contracts for the FTS 2001 program–one to Sprint in 

December 1998 and one to MCI WorldCom in January 1999. Each contract 

is for 4 base years from the date of award with four 1-year options, and 

each contractor is guaranteed minimum revenues of $750 million over the 

life of the contracts. Major federal agencies committed themselves to 

transition their requirements expeditiously from FTS2000 contracts to 

FTS2001 upon award of those contracts and to use the FTS2001 contracts 

to meet their core requirements. However, unlike the FTS2000 program, 

agencies are not required to use FTS2001 for their telecommunications 

requirements. Agencies that opt to use the program will have access to a 

wide range of services including long-distance, toll-free, and 900 voice 

services; international services; internet and intranet-based services; and 

low-speed and high-speed data communications services. 

The FTS2001 program also provides for further competition beyond the 

two contractors already selected. Service providers who are awarded 

contracts under GSA’s Metropolitan Area Acquisition (MAA) program–

which provides local telecommunications services in selected geographic 

areas–may be permitted to compete for the FTS2001 business (1) if allowed 

by law and regulation, (2) after the FTS2001 contracts have been awarded 

for a year, and (3) if GSA determines that it is in the government’s best 

interests to allow such additional competition.

Results in Brief We found that GSA’s revenue estimation process, which relies on historical 

and known agency requirements for FTS2001-offered services, produced a 

reasonable estimate of program revenues. Our independent, high-level 

estimate, which used the most currently available traffic forecasts and 

pricing information, produced essentially the same estimate–about 

$2.3 billion in revenue over the life of the FTS2001 program, assuming all 4 

of the contracts’ option years are exercised. During our review, we also 

identified a number of technical issues with regard to GSA’s revenue 

estimation process that did not affect the integrity of its revenue estimates. 

We have included these issues in our presentation enclosed in appendix II 

to this report, and we will discuss these issues, along with our specific 

recommendations, in a separate letter to the Administrator of the General 
B-284758

Page 3 GAO/AIMD-00-123 FTS2001 Revenue Estimates

Services Administration. The following summarizes the answers to each of 

the specific questions you asked.

Question 1: What percentage are the MRGs of the FTS2001 contracts?

Answer: The MRGs–a total of $1.5 billion–represent about two-thirds of 

current estimated program revenues over 8 years.

Question 2: When are the MRGs likely to be satisfied?

Answer: According to the results of both GSA’s analysis and our own 

independent analysis based on current requirements forecasts, the 

FTS2001 MRGs are expected to be satisfied for both contractors during 

fiscal year 2004 (contract year 6).

Question 3: What sensitivities are there in each of the estimates provided in 

(1) and (2)? What factors could significantly alter these estimates?

Three primary factors could significantly alter estimates of total program 

revenue and corresponding time frames for satisfying the MRGs: pricing, 

agency demand for FTS2001 services, and transition progress.

• Price reductions, resulting from additional competition under the MAA 

program or the price management mechanisms in the FTS2001 

contracts,1

 would decrease estimated revenues to the two FTS2001 

service providers and increase the time needed to satisfy the MRGs.

• Agency demand for FTS2001 services could also alter estimates. For 

example, we noted that GSA’s projections for growth in agency data 

communications services were lower than private sector trends. To test 

the sensitivity of this assumption, we developed a sensitivity analysis 

using a data communications growth rate more consistent with private 

sector trends, as described in appendix I. The results of this sensitivity 

analysis demonstrated that using a more aggressive data 

communications growth rate significantly increased total estimated 

revenues. As this additional growth would primarily occur in the 

outyears of the program, however, the estimated MRG time frame is 

unaffected. 

1

The FTS2001 contracts include a requirement for periodic price management efforts to 

ensure that FTS2001 prices are competitive with prices paid by other large users of 

telecommunications services. 
B-284758

Page 4 GAO/AIMD-00-123 FTS2001 Revenue Estimates

• Delays in the current transition schedule could also decrease estimated 

revenues and lengthen the time needed to satisfy the MRGs. GSA 

originally expected the FTS2001 transition to be complete as of June 

2000, but progress has been slow to date. As of February 17, 2000, GSA 

managers reported that only 26 percent of agency site transitions were 

completed and the remainder would be completed from now through 

December 2000. 

Question 4: If additional competitors were permitted to compete for the 

FTS2001 business, how might that competition affect the estimates 

provided? Would reduced prices/transition costs brought about by such 

competition offset the impact on estimates?

Answer: Additional competition could yield price reductions, cause further 

transition delays, and reduce demand for services from the two existing 

FTS2001 contractors. In turn, these factors would decrease program 

revenues and lengthen the time needed to satisfy the MRGs. In regard to 

the potential benefits of reduced prices and transition costs, it is difficult to 

quantify the effect on estimates without knowing an added competitor’s 

prices or the specifics of related transition costs. However, two factors 

would have to be considered in such an analysis. First, savings in transition 

costs would occur only if the new competitor was an incumbent FTS2000 

provider and only to the extent that transition costs have not yet been 

incurred. Second, reductions in revenues to current FTS2001 contractors 

would increase the time frame for satisfying the MRGs. If MRGs are not 

satisfied during the contracts’ term, GSA may be liable for additional 

payments to the contractors.

Agency Comments On March 22, 2000, we met with the GSA FTS Assistant Commissioner for 

Service Development, the Assistant Commissioner for Service Delivery, 

and the Deputy Assistant Commissioner for Acquisition to obtain oral 

comments on a draft of this report. They agreed with the information 

presented and with our answers to your questions. They also suggested a 

few technical changes that we have incorporated as appropriate.

We are sending copies of this report to Representative Henry Waxman, 

Ranking Minority Member, House Committee on Government Reform. We 

are also sending copies to the Honorable Jacob J. Lew, Director of the 

Office of Management and Budget, and David J. Barram, Administrator of 
B-284758

Page 5 GAO/AIMD-00-123 FTS2001 Revenue Estimates

the General Services Administration. Copies will be made available to 

others upon request.

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

Conway, Assistant Director, at (202) 512-6240 or by e-mail at 

koontzl.aimd@gao.gov or conwayk.aimd@gao.gov. Other major 

contributors to this work were Cristina Chaplain and William B. Ritt.

Sincerely yours,

Linda D. Koontz

Associate Director

Governmentwide and Defense Information Systems
Page 6 GAO/AIMD-00-123 FTS2001 Revenue Estimates

Appendix I

Objective, Scope, and Methodology ApApenednxidexiIs

The objective of our review was to evaluate GSA's revenue estimation 

process and answer the following questions:

1. What percentage are the MRGs of the FTS2001 contracts?

2. When are the MRGs likely to be satisfied?

3. What sensitivities are there in each of the estimates provided in (1) and 

(2)? What factors could significantly alter these estimates?

4. If additional competitors were permitted to compete for the FTS2001 

business, how might that competition affect the estimates provided? 

Would reduced prices/transition costs brought about by such 

competition offset the impact on estimates provided?

To understand the FTS2001 program's services and its contract MRGs, we 

reviewed program documentation, initial program revenue projections, and 

copies of the contracts for FTS2001 services that were awarded to Sprint 

and MCI WorldCom. In examining GSA's options to add FTS2001 service 

providers, we also reviewed the solicitations that GSA has issued as part of 

its MAA program. We also interviewed GSA FTS2001 program managers 

and obtained other summary information on FTS2001 program 

implementation issues and status at the February 22, 2000, transition 

managers meeting in Washington, D.C., cosponsored by GSA, the 

Interagency Management Council, and the FTS2001 contractors. 

To fully understand and evaluate the process used by GSA to estimate 

program revenues and time frames for satisfying revenue guarantees, we 

interviewed GSA FTS2001 program managers and their Mitretek Systems 

support staff and analyzed and documented the specific steps followed and 

assumptions used by Mitretek Systems to develop those analyses. In 

addition, we engaged forecasting and telecommunications experts from 

Technology Futures, Inc. (TFI), in Austin, Texas, to assist us in analyzing 

and evaluating the GSA revenue estimation process. To determine what 

factors could significantly influence those estimates, we also examined the 

influence of changes in pricing, expected service volumes, and program 

schedules. 

To evaluate the reliability of GSA's program revenue estimates, we asked 

TFI to develop an independent estimate of potential FTS2001 program 

revenues, based on stated agency FTS2001 requirements and on pricing 

information covering the remainder of the contracts. In examining the level 
Appendix I

Objective, Scope, and Methodology

Page 7 GAO/AIMD-00-123 FTS2001 Revenue Estimates

of growth forecast for agency demand, TFI staff observed that the outyear 

growth in agency data communications forecasts lagged behind 

commercial forecasts for the same time periods. Therefore, to evaluate the 

sensitivity of this factor, TFI also developed an estimate of program 

revenues that assumed a level of agency requirements growth more 

consistent with private sector trends and that at least half of this additional 

growth might be satisfied by the nonmandatory FTS2001 contracts. 

To evaluate the forecasting methods used by agencies to estimate their 

FTS2001 service requirements, TFI staff joined us in conducting expert 

interviews at selected federal agencies. The four agencies we visited−the 

Departments of Defense, the Treasury, Justice, and Energy−represent a 

broad and sizeable range of telecommunications requirements and 

collectively accounted for about 46 percent of revenues billed for FTS2000 

telecommunications services in fiscal year 1999. We interviewed 

telecommunications managers at each of the four agencies to determine 

how they developed their respective agencywide forecasts, including the 

steps they followed and the systems and technology factors they 

considered. 

We conducted our review from January 2000 through February 2000 in 

accordance with generally accepted government auditing standards.
Page 8 GAO/AIMD-00-123 FTS2001 Revenue Estimates

Appendix II

Briefing to the House Committee on 

Government Reform ApendxiI

1

Accounting and Information

Management Division

FTS 2001: Analysis of Minimum

Revenue Guarantees

Presented to

House Committee on Government Reform

March 1, 2000
Appendix II

Briefing to the House Committee on 

Government Reform

Page 9 GAO/AIMD-00-123 FTS2001 Revenue Estimates

2

Agenda

• Background

• Objective, Scope, and Methodology

• GSA Revenue Estimation Process

• Minimum Revenue Guarantees (MRGs) Relative to Total

Revenues

• Timeframe for Satisfying Minimum Revenue Guarantees

• Key Factors and Sensitivities

• Potential Effects of Additional Competition

• Potential Areas for GSA Improvement
Appendix II

Briefing to the House Committee on 

Government Reform

Page 10 GAO/AIMD-00-123 FTS2001 Revenue Estimates

3

Background

• FTS2001, the successor to FTS2000, is a non-mandatory

program intended to provide a range of

telecommunications service to federal agencies including:

• Long-distance, toll-free, and 900 voice services

• Internet and intranet-based services

• Data communications services ranging from low-speed to very

high-speed interconnections using latest technologies like

Asynchronous Transfer Mode (ATM) and Frame Relay

• Special arrangements for mission-critical users (e.g., highavailability circuits, national security and emergency users)

• International services
Appendix II

Briefing to the House Committee on 

Government Reform

Page 11 GAO/AIMD-00-123 FTS2001 Revenue Estimates

4

Background (Continued)

• GSA has awarded contracts for FTS2001 services to:

• Sprint on December 18, 1998

• MCI WorldCom on January 12, 1999

• Each contract is for four base years with four one-year

options, and each vendor is guaranteed minimum

revenues of $750 million over the life of the contract
Appendix II

Briefing to the House Committee on 

Government Reform

Page 12 GAO/AIMD-00-123 FTS2001 Revenue Estimates

5

Background (Continued)

• Other service providers may also offer FTS2001 services

through programs such as GSA’s Metropolitan Area

Acquisition (MAA) program, but only when three

conditions are met

• When allowed by law and regulation

• After the FTS2001 contract(s) one-year forbearance period

• When GSA determines it is in the “best interest” of the

government
Appendix II

Briefing to the House Committee on 

Government Reform

Page 13 GAO/AIMD-00-123 FTS2001 Revenue Estimates

6

Objective, Scope, and

Methodology

The objective of our review was to evaluate GSA’s

revenue estimation process and answer the following

questions posed in the Committee’s January 5 letter:

1. What percentage are the MRGs of the FTS 2001 contracts?

2. When are the MRGs likely to be satisfied?

3. What sensitivities are there in each of the estimates provided in

(1) and (2)? What factors could significantly alter these

estimates?

4. If additional competitors were permitted to compete for the FTS

2001 business, how might that competition affect the estimates

provided? Would reduced prices/transition costs brought about

by such competition offset the impact on estimates provided?
Appendix II

Briefing to the House Committee on 

Government Reform

Page 14 GAO/AIMD-00-123 FTS2001 Revenue Estimates

7

Objective, Scope, and

Methodology (Continued)

• To meet our objective, we

• Interviewed GSA FTS2001 program managers, their Mitretek

support team, and telecommunications managers in selected

agencies to understand their FTS2001 forecasting processes

• Analyzed the process and assumptions used to develop program

revenue estimates and timeframes for meeting the MRGs

• Used forecasting and telecommunications experts from

Technology Futures, Inc. (TFI), to (1) assist our review of Mitretek

and selected agency telecommunications forecasting processes

and (2) develop an independent high-level estimate of potential

FTS2001 program revenues

• We did not independently validate Mitretek’s contract

pricing calculations used to develop revenue estimates
Appendix II

Briefing to the House Committee on 

Government Reform

Page 15 GAO/AIMD-00-123 FTS2001 Revenue Estimates

8

Objectives, Scope, and

Methodology (Continued)

We conducted our review work between January 12, 2000

and February 28, 2000 at GSA FTS offices, Fairfax, VA;

Mitretek offices, McLean, VA; the Department of Energy,

Germantown, MD; the Defense Information Systems

Agency, Arlington, VA; and Department of the Treasury

and Department of Justice offices in Washington, DC; in

accordance with generally accepted government auditing

standards.
Appendix II

Briefing to the House Committee on 

Government Reform

Page 16 GAO/AIMD-00-123 FTS2001 Revenue Estimates

9

GSA Revenue Estimation

Process

Develop Agency

Traffic

Forecasts Using

Historical Data

Adjust/Finalize

Forecasts Based

on Agency

Review/Input

Extract Future

Years’ Growth

Factors by

Agency, Service

Obtain Actual

Billing Data by

Agency/Service for

Month of October

Analyze Data to

Correct Known

Problems

Annualize Data;

Apply Future Year

Growth Factors &

FTS2001 Prices

Adjust to Reflect

Agency Transition

Plans & Other

Factors

Revenue Estimates

Agency Growth Factors
Appendix II

Briefing to the House Committee on 

Government Reform

Page 17 GAO/AIMD-00-123 FTS2001 Revenue Estimates

10

Observations on Revenue

Estimation Process

• The GSA/Mitretek process relies on historic and known

agency requirements for FTS2001 services and works as

intended to produce an estimate of program revenues

• Our independent, high-level TFI revenue forecast model

using the most currently available traffic and pricing

forecasts produced essentially the same revenue estimate

• For future MRG analyses, aspects of the process could be

improved by:

• Using the most current traffic and forecast data

• Documenting changes in data and assumptions

• Formalizing the process and verifying results
Appendix II

Briefing to the House Committee on 

Government Reform

Page 18 GAO/AIMD-00-123 FTS2001 Revenue Estimates

11

Process Improvement:

Using Current Data

• Recent FTS2001 revenue estimates are primarily based

on historical usage information that is several years old:

• Oct. 1995 FTS2000 traffic data (adjusted in the aggregate to

approximate actual Oct. 1998 traffic)

• Agency usage growth factors developed in 1996
Appendix II

Briefing to the House Committee on 

Government Reform

Page 19 GAO/AIMD-00-123 FTS2001 Revenue Estimates

12

Process Improvement:

Using Current Data

• More recent traffic data (Oct. 1998) was not used because

there was insufficient time to analyze the data and

translate it into usable form

• Updated agency growth factors were developed during

1999, but were only used for certain data services

• Preliminary Mitretek analysis indicates that using the more

current data & growth factors increases the FTS2001

revenue estimate by about $67 million (3 percent)
Appendix II

Briefing to the House Committee on 

Government Reform

Page 20 GAO/AIMD-00-123 FTS2001 Revenue Estimates

13

Process Improvement:

Quality control

• Mitretek revenue estimation analyses are based on ad hoc

processes that rely on staff to check their own work for

accuracy--there was no independent verification

• For example, while reviewing these processes with us,

Mitretek identified and corrected errors including

• Additional features and fixed costs not included in revenue

($260 million)

• 8 percent GSA overhead erroneously included as revenue

($50 million)

• IRS 800 service revenue erroneously included for 2003 ($20 million)
Appendix II

Briefing to the House Committee on 

Government Reform

Page 21 GAO/AIMD-00-123 FTS2001 Revenue Estimates

14

Process Improvement:

Quality control

• In addition, changes to agencies’ FTS2001 usage forecast

submissions were not always documented, making it

difficult to account for differences shown in the final

forecasts used to calculate growth factors
Appendix II

Briefing to the House Committee on 

Government Reform

Page 22 GAO/AIMD-00-123 FTS2001 Revenue Estimates

15

MRGs Relative to Total

Revenues

What percentage are the MRGs of the FTS 2001

contracts?

• Compared to GSA's initial estimates of contract value

(i.e., more than $5 billion) made at the time of contract

award (December 1998, January 1999), the MRGs

represented about one-third of estimated total program

revenues

• However, when compared to GSA’s February 2000

estimates of only approximately $2.3 billion, the MRGs

represent about two-thirds of estimated total program

revenues
Appendix II

Briefing to the House Committee on 

Government Reform

Page 23 GAO/AIMD-00-123 FTS2001 Revenue Estimates

16

Timeframe for Satisfying

MRGs

When are the MRGs likely to be satisfied?

• In January 2000, GSA and their Mitretek support team

completed an analysis at our request to estimate a

timetable for satisfying the FTS2001 MRGs

• This analysis is based on adjusted historical data projected

for the near-term, assumes the current transition schedule,

and has been adjusted to correct identified errors

• As illustrated on the next page, the corrected analysis

shows the MRGs satisfied for both vendors in FY04

(contract year 6)

• But analysis results also showed that any further revenue

reductions could move the MRG date out even later
Appendix II

Briefing to the House Committee on 

Government Reform

Page 24 GAO/AIMD-00-123 FTS2001 Revenue Estimates

17

0.00

0.25

0.50

0.75

1.00

1.25

1.50

FY99

1

FY00

2

FY01

3

FY02

4

FY03

5

FY04

6

FY05

7

FY06

8

Vendor 1

Vendor 2

MRG

Timeframe for Satisfying

MRGs (Continued)

FTS2001 Cumulative Revenue

$Billions
Appendix II

Briefing to the House Committee on 

Government Reform

Page 25 GAO/AIMD-00-123 FTS2001 Revenue Estimates

18

Key Factors and Sensitivities

What sensitivities are there in each of the estimates

provided in questions (1) and (2)?

What factors could significantly alter these estimates?

• Three primary factors could significantly alter estimates

of total program revenue and corresponding timeframes

for satisfying the MRGs:

• Pricing

• Service demand

• Transition progress
Appendix II

Briefing to the House Committee on 

Government Reform

Page 26 GAO/AIMD-00-123 FTS2001 Revenue Estimates

19

Key Factors and Sensitivities:

Pricing

• FTS2001 revenues could be affected by price reductions

resulting from several factors including:

• Price management mechanisms included in the contract

• Potential price matching for similar services between the two

incumbent service providers

• The addition of competing MAA service providers to the FTS2001

program

• Assuming demand for services remains constant, any price

decreases would increase MRGs as a percentage of

estimated program revenues, and therefore, increase the

timeframe to meet the MRGs
Appendix II

Briefing to the House Committee on 

Government Reform

Page 27 GAO/AIMD-00-123 FTS2001 Revenue Estimates

20

Key Factors and Sensitivities:

Service Demand

• By relying on historic and known agency requirements, the

GSA/Mitretek process produces a conservative estimate of

program revenues

• We noted that forecasted growth rates in federal agency

data communications services are lower than private

sector trends

• TFI examined agency forecasts in light of commercial

trends and completed a sensitivity analysis indicating that

program revenues could be significantly higher if a more

aggressive data communications growth rate were

assumed
Appendix II

Briefing to the House Committee on 

Government Reform

Page 28 GAO/AIMD-00-123 FTS2001 Revenue Estimates

21

Key Factors and Sensitivities:

Service Demand (Continued)

• However, given the general lack of experience under the

FTS2001 program and that it is not mandatory, it is

uncertain at this time how much, if any, additional growth

in data communications requirements would accrue to the

FTS2001 program

• Further, the largest amount of this growth would occur in

the out-years of the FTS2001 program and, as a result,

would not reduce the estimated MRG timeframe
Appendix II

Briefing to the House Committee on 

Government Reform

Page 29 GAO/AIMD-00-123 FTS2001 Revenue Estimates

22

Key Factors and Sensitivities:

Transition Progress

• FTS2001 is currently in the second year of the base fouryear contracts, but transition to these new contracts has

yet to be completed

• As of February 17, with only about 3 months remaining of

the original planned 18-month transition schedule, GSA

managers reported that only 26 percent of agency site

transitions were complete. They expect transitions to be

completed by December 2000.

• Transition delays limit the revenue accruing against MRGs

• Current revenue estimates, which reflect agency transition

schedules as of January 2000, attribute more than $450 million in

lost revenue to transition delay

• Additional delays would further decrease program revenues and

increase the timeframe to meet the MRGs
Appendix II

Briefing to the House Committee on 

Government Reform

Page 30 GAO/AIMD-00-123 FTS2001 Revenue Estimates

23

Key Factors and Sensitivities:

Transition Progress (Cont.)

• GSA managers have cited several reasons for transition

delay:

• The slow pace of agency vendor selection and transition planning

(vendor selections by large agencies were completed in Nov. 1999)

• Y2K concerns that caused agencies to delay transition until after the

first of the year
Appendix II

Briefing to the House Committee on 

Government Reform

Page 31 GAO/AIMD-00-123 FTS2001 Revenue Estimates

24

Key Factors and Sensitivities:

Transition Progress (Cont.)

• Agencies also cite vendor issues for transition delay and

failure to complete transition orders on time:

• Poor communication between the FTS2001 service providers

and agency, as well as within vendor organizations

• Lack of agreements between the government and a prior

FTS2000 vendor to support transition activities

• Poor vendor coordination with local exchange carriers
Appendix II

Briefing to the House Committee on 

Government Reform

Page 32 GAO/AIMD-00-123 FTS2001 Revenue Estimates

25

Key Factors and Sensitivities:

Transition Progress (Cont.)

• The FTS2001 program is being adversely impacted by

transition delays. For example:

• On February 3, 2000, the Office of Comptroller of the Currency

(OCC) suspended its transition efforts citing vendor performance

problems. However, Treasury officials responsible for managing

participation in this program report that OCC has since restarted

transition with its assigned vendor.

• IRS is deferring its transition of its toll free 800 service until as late

as September 2003, citing risk to their tax modernization efforts as

a factor in its decision
Appendix II

Briefing to the House Committee on 

Government Reform

Page 33 GAO/AIMD-00-123 FTS2001 Revenue Estimates

26

Key Factors and Sensitivities:

Transition Progress (Cont.)

• GSA and Interagency Management Council managers

have been meeting with agency and vendor staff to

improve transition execution

• In response, the current FTS2001 vendors are taking steps

to add staff and improve service ordering and transition

processes

• Further, GSA executed a transition agreement in January

2000 supporting the AT&T/MCI transition effort

• An agreement supporting the AT&T/Sprint transition effort

is still pending
Appendix II

Briefing to the House Committee on 

Government Reform

Page 34 GAO/AIMD-00-123 FTS2001 Revenue Estimates

27

Potential Effects of Additional

Competition

If additional competitors were permitted to compete

for the FTS2001 business, how might that competition

affect the estimates provided?

• Additional competition could yield price reductions,

cause further transition delays, and reduce demand for

services from existing FTS2001 vendors. This, in turn,

would affect the estimates provided by increasing the

percentage of the total contract cost that the MRGs

represent and the timetable for satisfying the MRGs.

• For example, a recent GSA analysis showed that with

less than a 20 percent decline in total estimated

program revenue, vendor MRGs would not be satisfied

until contract year 8
Appendix II

Briefing to the House Committee on 

Government Reform

Page 35 GAO/AIMD-00-123 FTS2001 Revenue Estimates

28

Potential Effects of Additional

Competition (Continued)

Would reduced prices/transition costs brought about by

such competition offset the impact on estimates

provided?

• Not knowing what an added competitor’s reduced prices

might be, it is difficult to quantify the specific impact of

reduced pricing on MRG timelines or obligations

• Further, to fully evaluate this offset, other factors must be

considered, including:

• expected benefit of transition cost reductions

• net effect on MRG obligations
Appendix II

Briefing to the House Committee on 

Government Reform

Page 36 GAO/AIMD-00-123 FTS2001 Revenue Estimates

29

Potential Effects of Additional

Competition (Continued)

• Transition costs: Transition cost savings would only

accrue if the competitor added to the program were the

incumbent FTS2000 service provider and where

transition costs have not yet been incurred

• Some of these costs have already been incurred

• For example, GSA has obligated one-third of its transition fund

to date

• Similarly, for DOD, the largest FTS2001 customer, managers

told us that at this stage of transition planning and

implementation, most of their transition funds have already

been expended or are committed
Appendix II

Briefing to the House Committee on 

Government Reform

Page 37 GAO/AIMD-00-123 FTS2001 Revenue Estimates

30

Potential Effects of Additional

Competition (Continued)

• Obligations: Reduction in revenues to current FTS 2001

service providers would increase the timeframe for

satisfying contract MRGs. If the MRGs are not satisfied,

GSA may be liable for additional payments to the

contractors.
Appendix II

Briefing to the House Committee on 

Government Reform

Page 38 GAO/AIMD-00-123 FTS2001 Revenue Estimates

31

Potential Areas for GSA

Improvement

• GSA envisioned additional FTS2001 competition in its

overall FTS planning and MAA acquisition program,

but any decision to add competition must consider the

government’s ability to meet the contract MRGs

• Given the need to closely manage FTS2001 MRGs,

GSA needs to strengthen its revenue estimation

process to reduce errors and improve consistency

• In addition, since MRG analysis is a key indicator in

deciding when additional FTS2001 competition would

be in the best interest of the government, the MRG

analysis should be updated at least annually during

the life of the contracts

(511691) Letr
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