a

GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Technology and Procurement 

Policy, Committee on Government 

Reform, House of Representatives

April 2002 TELECOMMUNICATIONS

GSA Action Needed to 

Realize Benefits of 

Metropolitan Area 

Acquisition Program

GAO-02-325
Why GAO Did This Study

The Metropolitan Area

Acquisition (MAA) program,

managed by the General Services

Administration (GSA), provides

local telecommunications

services to government agencies

in selected metropolitan areas.

Under this nonmandatory

program, local telecommunications services are to be

transitioned from existing service

providers to MAA contractors

within 9 months after contractors

are given notice to proceed. GAO

was asked to determine, among

other things, the status of MAA

contract implementation and

identify reasons for any delays.

April 2002

TELECOMMUNICATIONS

GSA Action Needed to Realize Benefits of

Metropolitan Area Acquisition Program

This is a test for developing highlights for a GAO report. The full report, including GAO’s objectives, scope, methodology, and analysis is available

at www.gao.gov/cgi-bin/getrpt?GAO-02-325. For additional information about the report, contact Linda Koontz (202-512-6240). To provide comments on

this test highlights, contact Keith Fultz (202-512-3200) or E-mail HighlightsTest@gao.gov.

Highlights of GAO-02-325, a report to the Chairman, Subcommittee on Technology and Procurement

Policy, Committee on Government Reform, House of Representatives.

What GAO Recommends

To improve MAA program

administration, GSA should

develop current, realistic time

frames for completing ongoing

MAA contract implementations,

and it should develop and apply

appropriate performance

measures to monitor and manage

the progress of those

implementation efforts.

In written comments on a draft of

this report, the administrator of

General Services agreed with our

recommendations and indicated

that GSA was acting to implement

them.

United States General Accounting Office

What GAO Found

Although MAA contract implementation is progressing, in most

metropolitan areas GSA remains behind schedule for completion. Of 19

areas that were to have completed the transition from existing services

to MAA services by or before March 1, 2002, 5 have done so. In the

remaining areas, implementation progress has been slow. For example,

the first three pilot cities—New York, Chicago, and San Francisco—were

to have completed implementation by April 2000. As of March 1, 2002,

New York had converted 37 percent of users to MAA contracts, Chicago

had converted 73 percent, and San Francisco had converted 68 percent.

(The table below shows implementation status for the 19 areas, as of

March 1, 2002.) Prompt implementation of MAA contracts is central to

the major goal of the program: to achieve immediate and sustained price

reductions by taking advantage of emerging competition in the newly

deregulated telecommunications market. This goal has been met, in that

MAA contracts do offer lower rates; however, savings cannot be fully

realized until the transition to the new contracts is complete.

This transition has been delayed by a range of challenges facing GSA and

the MAA contractors. Some stem from changes in the local telecommunications market as a result of deregulation and are beyond GSA’s control

(such as disputes concerning ownership and access to cables within

buildings). Others include insufficient preparedness on the part of

contractors and customers. However, the timely resolution of problems

causing delays is hindered in part because GSA has not revised its 9-

month goal for transition (even though this time has elapsed in most

cases), nor has it devised performance measures for gauging progress.

Without realistic time goals and adequate performance measures, GSA is

hampered in effectively managing implementation.

Status of MAA Implementation as of March 1, 2002

MAA city

Months since

notice to

proceed

Percentage

complete MAA city

Months since

notice to

proceed

Percentage

complete

Albuquerque 17 12% Denver 18 93%

Atlanta 20 11% Indianapolis 20 93%

Baltimore 20 22% Los Angeles 20 25%

Boise 12a 100% Miami 20 4%

Boston 18 8% Minneapolis 12a 100%

Buffalo NA 100% New Orleans 16 81%

Chicago 32 73% New York 32 37%

Cincinnati NA 100% San Francisco 32 68%

Cleveland 20 78% St. Louis 10a 100%

Dallas 18 22%

Note: NA indicates that Implementation was complete within 9 months of notice to proceed.

a Months from notice to proceed until 100 percent complete.

G A O

Accountability Integrity Reliability

Highlights
Page i GAO-02-325 Telecommunications

Letter 1

Results in Brief 2

Background 4

MAA Implementation Is Progressing but Is Behind Schedule 7

Management Fees Vary Widely and Are Not Transparent to

Customers 14

GSA Has Taken Action to Enable Crossover 18

Conclusions 20

Recommendations 20

Agency Comments 21

Appendix I Objectives, Scope, and Methodology 22

Appendix II Comments from the General Services

Administration 25

Tables

Table 1. MAA Contracts Awarded as of January 9, 2002 5

Table 2: GSA Local Telecommunications Management Fees for FY

2002 (Sorted by Total Fee Percentage) 15

Table 3: Current MAA Customer and Potential Customer Sites

Visited 23

Figures

Figure 1: Implementation Status as of March 1, 2002 9

Figure 2: Progress of MAA Crossover by Metropolitan Area as of

March 1, 2002 19

Abbreviations

FTS Federal Technology Service

GSA General Services Administration

MAA Metropolitan Area Acquisition

Contents
Page 1 GAO-02-325 Telecommunications

April 4, 2002

The Honorable Tom Davis

Chairman

Subcommittee on Technology and Procurement Policy

Committee on Government Reform

House of Representatives

Dear Mr. Chairman:

As you know, the Metropolitan Area Acquisition (MAA) program provides

local telecommunications services to federal agencies in selected

metropolitan areas. The MAA program manager, the General Services

Administration (GSA), initiated the program in 1997 to achieve immediate,

substantial, and sustained price reductions for local telecommunications

for agencies, to expand their choices of high-quality services, and to

encourage cross-agency sharing of resources. Further, service providers

that are awarded contracts under the MAA program are allowed to

compete for GSA’s FTS2001 long distance service contracts, so that

federal agencies may potentially acquire end-to-end local and long

distance telecommunications services from one source.

On June 13, 2001, we presented testimony on our preliminary work on the

status of the MAA program,1

 reporting on three topics: the status of MAA

contract implementations, the fees that GSA charges customer agencies

for managing and administering MAA contracts, and the steps taken by

GSA to enable MAA (local) and FTS2001 (long distance) contractors to

cross over between these programs and competitively offer both types of

services. Following our testimony, we agreed to pursue three objectives in

our continuing evaluation of the program:

• to determine the status of MAA contract implementation and identify the

reasons for delays encountered,

• to document the fees that GSA charges customer agencies for managing

and administering the MAA contracts and determine the extent to which

those fees are transparent to customer agencies, and

 1

 U.S. General Accounting Office, Telecommunications: Metropolitan Area Acquisition

Program Implementation and Management, GAO-01-798T (Washington, D.C.: June 13,

2001).

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-02-325 Telecommunications

• to identify the steps that GSA is taking to enable the MAA and FTS2001

contractors to cross over between these sets of contracts and offer both

local and long distance services.

This report is based on our June 2001 testimony and on further work we

have performed since then. Appendix I contains a detailed discussion of

our objectives, scope, and methodology. We conducted our work from

April 2001 through March 2002 in accordance with generally accepted

government auditing standards.

Although MAA contract implementation continues to progress, in most

metropolitan areas GSA remains behind schedule for completion. Of 19

metropolitan areas that were to have completed the transition from

existing services to MAA services by or before March 1, 2002, 5 have done

so. In the remaining metropolitan areas, implementation progress has been

slow. For example, the first three MAA pilot cities—New York, Chicago,

and San Francisco—were to have completed implementation by April

2000. As of March 2002, New York had converted 37 percent of users to

MAA contracts, Chicago had converted 73 percent, and San Francisco had

converted 68 percent.

Implementation of the MAA contracts has been delayed by several

significant challenges that have faced GSA and MAA contractors. Although

the program was initiated by GSA to take advantage of emerging

competition in the local telecommunications market, some of the sizable

implementation challenges—access and use of building riser cabling,2

 the

transfer of local numbers between service providers, and the financial

difficulties of an MAA contractor—have their roots in this newly

competitive environment. Delays have also arisen from challenges

unrelated to the new market environment, including the charges

associated with service initiation and equipment replacements, as well as a

lack of contractor and customer preparedness. By delaying contract

implementation, these challenges in turn postpone the realization of

savings that could accrue from the MAA contracts, which can offer

significantly lower costs to agencies.

 2

 A riser cable carries telecommunications services from the network demarcation point to

distribution facilities within a building. The network demarcation point, which is typically

in the basement of a building, is the point of interconnection between the local exchange

carrier’s facilities and the wiring and equipment at the end user’s facilities.

Results in Brief
Page 3 GAO-02-325 Telecommunications

GSA has taken some positive measures to improve contract administration

and implementation. For example, actions taken to improve GSA’s

personnel and processes in Chicago and to overcome contractor

performance problems in Los Angeles and San Francisco have improved

implementation progress in those cities. Nevertheless, the timely

resolution of problems causing delays is hindered in part because GSA has

not established current completion schedules and performance measures

for its MAA contracts. Specifically, although its 9-month goal for

implementing existing contracts has passed in most cases, GSA has not

revised its targets for completing these implementations, nor has it

established performance measures for monitoring their completion.

Without revised time frames and appropriate performance measures, GSA

managers have no baseline against which to monitor and more effectively

manage the progress of specific MAA implementation efforts.

To support its MAA contract management services, GSA charges customer

agencies fees that currently range in total from about 9 to 97 percent or

from $1.20 to $8.49 per line per month (depending on the specific

metropolitan area); these percentages are in addition to the cost of the

contract services. Agencies can avoid one type of fee, the “full-service fee”

for ordering and billing services, if they choose to perform these functions

themselves. However, because GSA does not disclose its management fees

unless specifically requested by customer agencies, these customers do

not necessarily have complete information to help them determine

whether using GSA’s full range of services is their most cost-effective

approach to these contracts.

GSA has taken action in the past 17 months to allow MAA and FTS2001

contractors to offer services in both the local and long distance markets, a

process termed “crossover.” In December 2000, GSA opened the contracts

in the first three MAA cities to crossover from eligible MAA and FTS2001

contractors. In August 2001, GSA opened its FTS2001 contracts to

crossover by MAA contractors, as envisioned in the 1997 strategy. As of

March 1, 2002, GSA had opened all of its eligible MAA cities to crossover.

To address the shortcomings we identified and to improve program

administration, we are making recommendations to GSA to establish

current, realistic contract implementation time frames and to make

management fees and the services they cover transparent to customer

agencies.
Page 4 GAO-02-325 Telecommunications

In written comments on a draft of this report, the administrator of General

Services agreed with our recommendations and said that GSA was acting

to implement them.

GSA began planning the MAA program just a few months after passage of

the Telecommunications Act of 1996, which was intended to increase

competition and reduce regulations in the telecommunications industry.

The MAA program sought to take advantage of emerging competition in

the local services market; the program focused on the largest cities in the

country, whose population density would be likely to draw competitors

into their markets. GSA recognized that this emerging competition would

create an opportunity for the government to gain an immediate price

reduction in local telecommunications services. Further, it envisioned the

MAA contracts as a complement to existing contracts in metropolitan

areas, as well as a solution for local service contracts that were expiring.

The MAA program is a set of contracts offering local voice and selected

data telecommunications services. Each contract is a fixed-price,

indefinite-delivery, indefinite-quantity contract with a base term of 4 years

(48 months) from date of award, with four successive 1-year options. The

contracts state that all initial service locations identified in these contracts

are to be transitioned to the MAA contracts within 9 months after GSA

gives “notice to proceed,” which is an authorization for the contractor to

begin implementation.

As indicated in table 1, the initial stage of the MAA program (phase I)

consisted of pilot acquisitions in the New York, Chicago, and San

Francisco metropolitan areas in May 1999. Encouraged by substantially

lower prices in these three pilot cities, GSA expanded the MAA program to

other metropolitan areas throughout the country and awarded contracts in

17 additional cities (phase II) between February 2000 and February 2001.

In its latest series of MAA acquisitions (phase III), GSA recently awarded

contracts in three cities (San Antonio in August 2001, Detroit in November

2001, and Norfolk in January 2002), and contracts are planned to be

awarded soon in two additional cities (Salt Lake City and Seattle). GSA

estimates that the federal government could save about $1.1 billion over

Background
Page 5 GAO-02-325 Telecommunications

the 8-year life of the 37 phase I and phase II MAA contracts awarded to

date.3

Table 1. MAA Contracts Awarded as of January 9, 2002

Metro area Award date

Estimated savings

(millions of dollars) Contractor(s)

Phase I (pilot)

New York 20 May 1999 $150.0 AT&T

Chicago 20 May 1999 75.0 AT&T

San Francisco 20 May 1999 32.0 AT&T

Phase II

Buffalo 24 Feb. 2000 6.4 AT&T

Verizon

Cincinnati 23 Mar. 2000 36.6 Winstar

Cleveland 24 Mar. 2000 20.0 Ameritech (SBC)

AT&T

Los Angeles 24 Mar. 2000 47.0 Pacific Bell (SBC)

Winstar

Baltimore 28 Mar. 2000 44.0 Winstar

Atlanta 26 Apr. 2000 174.0 Bell South

Winstar

Miami 26 Apr. 2000 44.0 Bell South

Winstar

Indianapolis 27 Apr. 2000 51.0 AT&T

SBC Global

Winstar

St. Louis 27 Apr. 2000 36.0 Southwestern Bell (SBC)

Winstar

Minneapolis 31 May 2000 13.0 Qwest

Winstar

Dallas 30 June 2000 128.0 AT&T

Southwestern Bell (SBC)

Winstar

Denver 12 July 2000 68.0 AT&T

Qwest

Winstar

Boston 31 July 2000 78.0 AT&T

Southwestern Bell (SBC)

Verizon

Winstar

Albuquerque 31 Aug. 2000 19.0 Qwest

Boise 31 Aug. 2000 6.5 Qwest

 3

 GSA based these savings estimates on the difference between current service prices in

effect for each of the first 20 MAA cities and the total amount of the lowest offeror’s prices

for a given city. For the phase III cities, GSA did not estimate total savings.
Page 6 GAO-02-325 Telecommunications

Metro area Award date

Estimated savings

(millions of dollars) Contractor(s)

New Orleans 16 Oct. 2000 11.0 Bell South

Philadelphia 27 Feb. 2001 66.0 AT&T

Winstar

Phase III

San Antonio 13 Aug. 2001 aSouthwestern Bell

Winstar

Detroit 19 Nov. 2001 aSouthwestern Bell

Winstar

Norfolk 9 Jan. 2002 aVerizon

a

According to GSA, it no longer reports estimated savings for MAA awarded cities because of

difficulties forecasting for nonmandatory contracts.

Source: GSA Federal Technology Service.

Federal agencies are not required to use the MAA contracts. Depending on

their specific requirements, federal agencies may use the

telecommunications services provided through a GSA regional

telecommunications services program4

 (using either the MAA contracts or

one of GSA’s other local services contracts or agreements), or they may

acquire and manage their own local telecommunications services and the

associated equipment.

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

program. FTS headquarters is responsible for planning and program

management, while GSA’s field offices implement and administer the MAA

contracts. As a self-sustaining organization, GSA assesses customer

agencies two types of management fees to finance its activities: a contract

management fee and a full-service fee. The contract management fee is

intended to recoup the cost of general program, acquisition, and contract

management activities and is applied as a percentage of service cost. In

addition to the contract management fee, the full-service fee is an optional

fee charged to those agencies that use GSA staff to support MAA service

ordering, implementation planning and coordination, and billing. It also is

applied as a percentage of the cost of contract service.

 4

 FTS offers a variety of programs through which agencies can acquire local

telecommunications service. For example, the Aggregated System Procurement Program

consolidated local requirements into an overall system procurement based on the Bell

Operating Company boundaries. The Individual System Procurement Program serves

locations that the aggregated program does not. In addition, regional FTS offices have also

obtained Rate Stabilization Agreements that allow agencies to acquire local tariffed

telecommunications services at short-term discounts.
Page 7 GAO-02-325 Telecommunications

Although the MAA program focuses on local services, it also has

implications for increased competition in both the local services and the

long distance markets. Part of the overall FTS program strategy, developed

in 1997 in consultation with industry and the Congress, was to eventually

permit contractors to offer both local and long distance services through

three types of crossover: between the local MAA contracts; from local

MAA contracts to the long distance FTS2001 contracts; and from the

FTS2001 contracts to the local MAA contracts. This crossover was

envisioned to yield two important benefits: first, ensuring the government

the opportunity to receive the best contract price and service for local and

long distance services, and second, maximizing competition for those

services in both markets. Crossover was not intended to go into effect

immediately: both the MAA and the FTS2001 contracts had to be in effect

for 1 year, known as the forbearance period, before they could be

modified to permit crossover. Furthermore, GSA delayed allowing MAA

contractors to offer FTS2001 services until it could be sure that the

minimum revenue guarantees to the current FTS2001 contractors would

be met.5

Although MAA contract implementations continue to progress, in most

metropolitan areas GSA remains behind schedule for completing these

efforts. Specifically, of 19 metropolitan areas that were to have completed

the transition from existing services to MAA services by or before March 1,

2002, 5 have done so. GSA had planned to complete the transition of 100

percent of its customer base in all 20 phase I and phase II MAA cities by

the end of March 2002. GSA is unlikely to meet this March deadline,

however, because as of March 1, 2002, the MAA program was providing

service to about 52 percent of potential MAA users, so that about 77,000

potential customers are not yet transitioned.6

 5

 Each FTS2001 contractor is guaranteed minimum revenues of $750 million over the life of

the FTS2001 contract. The implications of these revenue guarantees on GSA’s decision to

allow other service providers to compete in the FTS2001 market were addressed in a

previous report: U.S. General Accounting Office, Telecommunications: GSA’s Estimates of

FTS2001 Revenues Are Reasonable, GAO/AIMD-00-123 (Washington, D.C.: April 2000).

6

 The figure for currently serviced users is based on the number of users converted to MAA

contracts as of March 1, 2002 (84,409), compared to the total number of potential MAA

users identified by GSA (161,582), as recorded by GSA’s MAA management reporting

system.

MAA Implementation

Is Progressing but Is

Behind Schedule
Page 8 GAO-02-325 Telecommunications

Reasons for delays vary. Although GSA initiated its MAA program to take

advantage of emerging competition in the local telecommunications

market, some sizable implementation challenges arose directly from this

new environment. Challenges unrelated to the market environment have

also noticeably delayed contract implementation: for example, the

customer charges associated with service initiation and equipment

replacements, as well as a lack of contractor and customer preparedness.

Although it has taken some steps to move the implementation efforts

forward, GSA has not established current, realistic time frames for

completing ongoing MAA implementations, nor has it established

performance measures for monitoring implementation. These gaps inhibit

its ability to expeditiously resolve transition impediments. As a result,

federal agencies in many locations are not realizing the potential cost

savings offered by the MAA program.

Although the MAA contracts require the transition of initial service

locations to be completed within 9 months after contractors are given

notice to proceed, this transition has not been as fast as anticipated. The

transition goal was achieved in two metropolitan areas (Buffalo and

Cincinnati); three other metropolitan areas (Minneapolis, St. Louis, and

Boise) have also completed MAA contract implementation, although not

within the 9-month goal. Figure 1 gives the dates that GSA notified the

respective contractors to proceed with contract implementation and the

implementation status for each awarded city. As shown in figure 1,

although the goal for completing MAA contract implementations for the

three phase I cities was April 2000, only 68 percent of users in San

Francisco, 73 percent of users in Chicago, and 37 percent of users in New

York had been converted to MAA contracts by March 1, 2002.

Contract Implementation

Has Been Delayed
Page 9 GAO-02-325 Telecommunications

Figure 1: Implementation Status as of March 1, 2002

Note: Complete implementation is indicated by dark progress bars and dark boxes around city

names.

Source: GSA Federal Technology Service.

Those cities showing greatest progress with implementation have typically

benefited from simpler transition requirements. For example, Denver,

Cincinnati, and St. Louis were primarily transitioning private branch
Page 10 GAO-02-325 Telecommunications

exchange trunks,7 which are relatively few in number, as compared to

transitioning individual business lines, which typically involve higher

volumes and additional effort. Buffalo, Minneapolis, New Orleans, and

Boise placed most of their MAA service orders with the incumbent service

providers.

The challenges facing GSA and the MAA contractors have hampered

timely completion of the MAA contracts and thus the realization of

maximum MAA contract savings. Some of these challenges arose as a

result of the newly deregulated local telecommunications market: disputes

over MAA contractors’ access to and use of building riser cabling,

problems in coordinating the transfer of local telephone numbers between

service providers, and the financial difficulties of an MAA contractor. For

example:

• Although the MAA contractor in New York was authorized to proceed with

implementation in July 1999, more than 2 years later that transition effort

is only 13 percent complete. Over half the estimated 21,000 lines to be

transitioned were affected by a dispute over access to and use of building

riser cables. That is, following the AT&T divestiture in 1984,8

 Verizon was

permitted to retain ownership rights to substantially all the building riser

cabling in the New York metropolitan area. This riser cabling carries

telecommunications services from the local exchange carrier’s facilities

(typically located in the basement of a building) up to the end user’s

facilities, located on each floor throughout a building. In order for AT&T

or another competitive local exchange carrier to provide service to tenants

in an affected building, such a carrier must either construct its own cable

riser in the building or compensate Verizon for access to and use of the

existing riser cable. Clarification of riser cable access and compensation

issues was the subject of a New York State Public Service Commission

hearing. In June 2001, this commission issued an order allowing

competitive local exchange carriers such as AT&T to have direct access to

riser cable owned by other carriers. Following that decision, GSA and

 7

 A private branch exchange (PBX) is a piece of equipment that acts as an organization’s

own internal telephone switch, handling internal calls and all the connections to and from

the public telephone network.

8

 As a result of an antitrust suit by the U.S. government, in January 1984 AT&T divested

itself of the Bell operating companies that provided local exchange service, yielding an

AT&T corporation providing long distance services and seven independent regional

telephone companies providing local services.

Numerous Causes

Contribute to Delays in

Implementation
Page 11 GAO-02-325 Telecommunications

AT&T reached agreement on a contract modification in November 2001

recognizing this added cost; GSA expects this agreement to resolve this

long-standing impediment.

• The riser cable access issue is also a transition impediment in Atlanta and

Miami, affecting about 85 percent of buildings housing prospective MAA

customers in those cities, and about half the total lines to be served.

Although this issue first arose in Miami in December 2000, efforts are still

pending to resolve the cost issue between GSA and the affected MAA

contractor in both cities.

• Our review of program management data in Atlanta, Chicago, and Miami

found problems associated with coordinating the transfer of telephone

numbers from one local carrier to another. These problems have delayed

the MAA contractors’ implementations for periods ranging from 3 to

7 weeks.

• In Atlanta and Miami, another implementation impediment has been the

financial condition of an MAA contractor.9

 This contractor’s bankruptcy

filing prompted several customer agencies to postpone their participation

in the MAA program and caused one building manager in Miami to deny

the contractor building access required to provide service to agencies in

that location.

In addition to challenges associated with the recently deregulated local

telecommunications market, other difficulties are slowing implementation

of MAA contracts: these include the customer charges associated with

initiating services and replacing equipment, as well as a lack of contractor

and customer preparedness. Because costs can be incurred just to

implement the MAA contracts (for example, service initiation charges and

the cost of changing or upgrading customer telecommunications

equipment), the ability of agencies to accommodate these added costs

within their budgets can influence the timing of MAA implementation and

in some cases deter agencies from participating. In Boston, for example,

these costs have delayed implementation of about half the prospective

MAA service lines in that city. Further, according to GSA records,

contractors have not been prepared in some cases for implementing

services or have had problems with their equipment. These issues have

delayed implementations for times ranging from 12 days to 7 months in

 9

 In April 2001, Winstar Communications, Inc., voluntarily filed for protection under

Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the District of

Delaware. In December 2001, the IDT Corporation acquired substantially all the operating

assets of Winstar Communications pursuant to a sale order by the U.S. Bankruptcy Court.

Winstar MAA services continue to be provided to GSA and its customers at this time.
Page 12 GAO-02-325 Telecommunications

Atlanta, Chicago, Indianapolis, New York, and San Francisco. These

records also show that customer preparedness and delays in making MAA

decisions have also been factors slowing implementations in Chicago,

New York, and San Francisco.

Although some factors hindering implementation progress are beyond

GSA’s ability to control, its ability to expeditiously resolve impediments

and minimize delays has been constrained by two gaps in its program

management. First, GSA has not established current time frames for

implementing specific MAA contracts. For example, although only 2 out of

19 metropolitan areas that began implementation 9 months ago or more

actually met GSA’s initial 9-month implementation goal, GSA has not

established new time frames that would enable it to manage the timely

completion of the remaining efforts. Second, GSA has not established

performance measures that would enable its managers to better monitor

and measure the completion of specific contract implementation efforts.

Without revised time frames for completing these specific contract

implementations and without appropriate performance measures, GSA

managers have no clear, current, or coherent measurement baseline

against which to monitor and more effectively manage the progress of the

various MAA implementation efforts.

Without such an established baseline, managers may not take prompt

action to resolve impediments before they cause lengthy delays. For

example:

• Although the MAA contractor in Albuquerque was authorized to proceed

with implementation in October 2000, over a year later only 2 percent of

prospective MAA users have been converted. One factor hindering

implementation was higher contract pricing for one required service,

affecting more than 60 percent of prospective MAA users in Albuquerque.

GSA executed a contract modification in August 2001 to improve pricing

for this service and enable its implementation to go forward. Prompt

understanding of the severity of this impediment could have hastened its

resolution.

• A further disagreement between GSA and the Albuquerque MAA

contractor, concerning the network demarcation point,10 first arose in

October 2000, stalling progress on an additional 36 percent of the

 10 A network demarcation point is the point of interconnection between the local exchange

carrier’s facilities and the wiring and equipment at the end user’s facilities.
Page 13 GAO-02-325 Telecommunications

prospective MAA lines in that area. Although agreement on a solution was

ostensibly reached by GSA regional staff and the contractors involved in

April 2001, it was not until October 2001 that GSA FTS headquarters finally

issued a decision that defined network demarcation points and brought

the matter to a close. Had the extent of this obstacle been more quickly

understood, the problem might have been resolved more rapidly.

The slow completion of contract modifications is not unique to

Albuquerque; MAA implementations in Chicago and in Indianapolis have

also been held up, pending completion of necessary modifications.

In an effort to improve contract administration and implementation, GSA

has revised its aggregate program-level goals. Specifically, GSA has

changed its goal of completing the transition of 100 percent of prospective

customers in all phase I and phase II MAA cities by March 2002; its new

goal is to transition 50 percent of prospective customers by April 2002.

GSA believes that this goal is sufficient to manage MAA implementation.

GSA is also developing aggregate program-level performance measures

and is refining the processes that will be used for tracking and reporting.

Although these are positive steps, they are not a substitute for specific

contract implementation time frames and performance measures.

Aggregate goals and performance measures are not adequate to manage

MAA implementation, because they do not allow managers to readily

determine (1) when a specific implementation effort is taking more time

than expected, (2) how to measure the loss of potential savings in such

cases in order to prioritize and expedite corrective actions, or (3) how

many resources and how much time they should devote to overcoming

impediments.

Despite this shortcoming, GSA has taken positive measures to improve

contract administration and implementation. In Chicago, for example,

GSA’s implementation efforts had initially been hampered in part by its

own turnover in staff, an inadequate approach to managing service order

implementations, and poor communications with its MAA contractor. By

January 2001, GSA began taking steps to solve its staffing problems and

bring order and focus to its regular communications with its contractor,

and in June 2001, it implemented a new ordering process for MAA

services. Our analysis of GSA management data indicates that after these

steps were completed, the pace of MAA implementation improved in

Chicago (although some implementation problems remain). In San

Francisco and Los Angeles, GSA’s managers also took steps to overcome
Page 14 GAO-02-325 Telecommunications

performance problems with the contractors by exercising existing

contractual remedies to prompt performance improvement.

GSA’s positive steps notwithstanding, the implementation delays that

persist lead to increased cost: the loss of the potential savings afforded by

the MAA contracts. GSA had estimated that the MAA program could save

about $1.1 billion, basing its estimate on the difference between service

prices in effect for each of the 20 phase I and phase II MAA cities at the

outset of the program and the total amount of the lowest MAA offeror’s

prices for a given city. However, this estimate did not take into account

the time required to implement these contracts. Because savings are not

realized until the service is actually implemented, delays in implementing

the contracts in turn delay the realization of substantial cost savings and

limit what can be realized over the 8-year term of the contracts. For

example, we analyzed average monthly line rates for all 20 MAA cities

within Phase I and Phase II before and after MAA contract awards, and

determined that federal agencies in these cities may be forgoing as much

as $1.1 million dollars per month in cost savings for those users not yet

transitioned to MAA contracts (approximately 75,000 users11).

The two types of management fees that GSA charges vary widely among

the metropolitan areas served. When expressed as a percentage of the

contractor’s base rate, GSA’s full-service fee ranges from a low of

5.5 percent in St. Louis to a high of almost 51 percent in San Francisco.

Table 2 identifies the fees that GSA has set for its MAA contracts. For

purposes of comparison, we have also computed a total fee that combines

the contract management and full-service fees.

 11 These 75,000 potential users are those in the first 20 MAA awarded cities; the figure of

77,000 potential users, given earlier, represents users in all MAA cities.

Management Fees

Vary Widely and Are

Not Transparent to

Customers
Page 15 GAO-02-325 Telecommunications

Table 2: GSA Local Telecommunications Management Fees for FY 2002 (Sorted by Total Fee Percentage)

Fees (%) Fees (in dollars)

Metro area

Contract

management Full service Total feea

Contractors’ line

rateb

GSA’s total

feec Total line rated

New York 47.27% 50.13% 97.40% $3.85 $3.75 $7.60

San Francisco 24.81% 50.95% 75.76% $4.18 $3.17 $7.35

Philadelphia 33.00% 30.70% 63.70% $9.33 $5.94 $15.27

San Antonio 15.04% 40.26% 55.30% $6.78 $3.75 $10.53

Boston 38.12% 15.68% 53.80% $10.97 $5.90 $16.87

Baltimore 31.96% 17.11% 49.07% $4.85 $2.38 $7.23

Denver 8.25% 40.74% 48.99% $17.33 $8.49 $25.82

Albuquerque 14.98% 32.23% 47.21% $15.95 $7.53 $23.48

Dallas 17.00% 25.60% 42.60% $10.47 $4.46 $14.93

Buffalo 32.93% 8.25% 41.18% $13.09 $5.39 $18.48

Miami 28.00% 11.52% 39.52% $10.50 $4.15 $14.65

Detroit 30.00% 9.00% 39.00% $12.49 $4.87 $17.36

Chicago 11.99% 24.85% 36.84% $3.42 $1.26 $4.68

Atlanta 25.98% 8.80% 34.78% $9.20 $3.20 $12.40

Boise 5.17% 28.90% 34.07% $15.05 $5.13 $20.18

New Orleans 14.03% 19.06% 33.09% $12.33 $4.08 $16.41

Los Angeles 13.92% 13.92% 27.84% $7.55 $2.10 $9.65

Indianapolis 1.77% 19.40% 21.17% $9.59 $2.03 $11.62

St. Louis 9.46% 5.49% 14.95% $13.85 $2.07 $15.92

Minneapolis 1.97% 11.26% 13.23% $16.78 $2.22 $19.00

Cincinnati 4.27% 8.87% 13.14% $9.13 $1.20 $10.33

Cleveland 0.89% 7.78% 8.67% $21.33 $1.85 $23.18

Note: Table 2 does not include Norfolk, which GSA recently awarded.

a

Total fee equals contract management fee plus full-service fee.

b

GSA computes a monthly weighted average analog line rate for all contractors within a single MAA

city.

c

GSA’s total fee equals contractors’ line rate times total fee.

d

Total line rate equals contractors’ line rate plus GSA’s total fee.

Source for contract management, full-service fee percentages, and weighted average line rate: GSA

Federal Technology Service.

Like other federal agencies that provide centralized services, GSA charges

these fees to recover the costs of managing the program. For example, the

contract management fee is meant to cover GSA’s cost to issue the

contracts and to resolve contract interpretation issues, disputes, and

discrepancies and to issue contract modifications. This fee is also intended

to recoup the cost of MAA program management and oversight. The

optional full-service fee is meant to cover costs associated with such
Page 16 GAO-02-325 Telecommunications

functions as initiating and executing service orders and monitoring service

implementation, monitoring contractor performance, coordinating

government-furnished property availability, coordinating site access for

contractor personnel, reviewing contractor invoices, and serving as

customer point of contact for technical issues.

In this type of service model, making the amounts and purposes of fees

transparent to users is appropriate and useful. First, disclosing fee

amounts provides user agencies with key input for deciding whether to

acquire services from the service provider or from alternative sources.

Second, such disclosure helps enable customers to hold the service

provider accountable for providing a level of performance commensurate

with the fees charged.

Because use of the MAA contracts is not mandatory, agencies can choose

to procure local services on their own, if they believe they could do so

more economically than going through GSA. In addition, to avoid paying

the full-service fee, a customer agency can opt to use the MAA contracts’

direct ordering and direct billing option. In so doing, the agency assumes

responsibility for its service ordering, implementation planning and

coordination, and billing management.

Rather than disclosing to agencies the fees that GSA charges, the MAA

contracts require contractors to embed the contract management fee in

their service pricing. GSA took this approach to focus agencies’ attention

on making decisions based on the total cost of obtaining

telecommunications services, rather than on the management fee

percentage. Its position was that even with the management fees included,

the total cost of local telecommunications services under the MAA

contracts is dramatically lower than what is available under its other local

service contracts.

As shown in table 2, comparing the fees according to percentages provides

only a partial picture—it is important to consider also the dollar amounts.

For example, the fee that GSA charges to manage and administer MAA

contracts in New York is 97 percent in addition to the contractor’s

monthly line rate. Although this fee appears high when viewed on a

percentage basis, it equals $3.75 per line. In contrast, MAA customers in

Denver are charged a total management fee of 49 percent (about half New

York’s total fee percentage); this translates, however, into $8.49 per line—

more than double the dollar amount that GSA charges in New York.
Page 17 GAO-02-325 Telecommunications

Of the 12 MAA customer agencies we met with in Atlanta, Chicago, Dallas,

Denver, and New York, none were aware of the actual amounts of the GSA

management fees that they were being charged. However, they were all

pleased with the bottom-line cost savings that they were receiving by

obtaining local telecommunications services through the MAA program.

The total cost of service is an important factor in making decisions on how

to buy local services, but specific information on fees would be a further

aid to agency decisionmaking. Without such information, an agency in San

Francisco, for example, would not be aware that it could lower its local

MAA monthly service costs by almost 29 percent or $2.13 per line if it

assumed additional service ordering, billing, and administration

responsibilities.12 Lacking full information on these fees, agencies cannot

readily compare the cost of GSA services with the costs they would incur

if they performed these services themselves. As a result, agencies cannot

determine whether it is more economical for them (1) to procure their

own local services, (2) to procure services through GSA but perform

ordering and billing activities themselves, or (3) to procure services

through GSA and pay GSA for support. If customers were aware of both

the fees and rates for their city, they would be able to make more informed

decisions.

At the subcommittee’s June 2001 hearing on MAA contract

implementation, we noted that GSA was not disclosing to agencies the fees

it charged for MAA-related services. At that hearing, the GSA FTS

commissioner disclosed the total percentage of fees GSA was charging.

The commissioner further testified that GSA would reveal fees to

customer agencies. Since that time, GSA has revised its policy on

disclosure of fees, and regional telecommunications directors have been

instructed to disclose fees to those customer agencies that request such

information. GSA has also drafted a listing of the services that agencies

can expect in return for these fees.

This action does not ensure adequate disclosure and transparency of fees

for three reasons. First, GSA intends to inform agencies of the fees being

charged only if an agency inquires. Second, GSA has not informed its

customers of this change in policy. As a result, agencies may be unaware

 12 An agency’s total local MAA service cost could include the cost of contractor service,

GSA’s contract management fee, and GSA’s full-service fee. In San Francisco for example,

GSA’s full-service fee (51 percent as high as the cost of contractor service) would represent

29 percent of an agency’s total monthly MAA service cost.
Page 18 GAO-02-325 Telecommunications

that they can now learn what fees they are being charged by GSA. Third,

the listing of services GSA developed to describe what customers receive

in return for their fees does not clearly indicate what fees support the cost

of which services. For example, GSA’s lists of services bought by its fullservice fee and those bought by its contract management fee overlap

considerably. That is, almost 88 percent of the services it identifies as

being supported by its contract management fee are also identified with its

full-service fee, making it difficult to determine which fee is supporting

which service.

GSA has recently initiated action to reexamine and simplify its

management fee structure. On November 27, 2001, GSA’s Local Rate

Setting Redesign Team, composed of GSA FTS financial, program, and

regional telecommunications personnel, held its first meeting. This group

is expected to report to the FTS assistant commissioner for Local Services

in the spring of 2002 on ways to simplify its fee structure in recouping its

costs and to achieve greater consistency in its fees between regions. At

this time, this effort is focused predominantly on how GSA calculates its

fees, rather than on services rendered in return. However, without

disclosure of the management fees it is charging and a clear delineation of

what services are supported by those fees, the actions taken by GSA will

not be adequate to provide the transparency needed to provide agency

decisionmakers with full information.

GSA has taken action in the past 17 months to allow MAA and FTS2001

contractors to offer services in both the local and long distance markets.

In December 2000, GSA allowed FTS2001 and other MAA contractors to

submit proposals to offer local services in the three pilot MAA cities (New

York, Chicago, and San Francisco). In August 2001, GSA published

guidance on the submission and evaluation of proposals to initiate

crossover between these local and long distance contracts, allowing local

service providers to offer long distance services and long distance service

providers to offer local services in MAA markets. Further, as of March 1,

2002, GSA had opened all 20 eligible metropolitan areas to crossover, had

received contractor proposals for 4 of those MAA cities, and had

completed a contract modification to allow crossover in 1 city.

GSA Has Taken

Action to Enable

Crossover
Page 19 GAO-02-325 Telecommunications

Figure 2 summarizes the current status of MAA crossover activity.

Figure 2: Progress of MAA Crossover by Metropolitan Area as of March 1, 2002

Note: According to the MAA contracts, once the forbearance period is over, GSA can award

crossover contract modifications when it is in the government’s best interests.

Source: GSA Federal Technology Service.
Page 20 GAO-02-325 Telecommunications

GSA continues to make progress in implementing the MAA program.

Nevertheless, in many locations GSA has not met its schedules for

transitioning agencies’ telecommunications services to MAA vendors,

because of impediments including challenges posed by recent

deregulation of telecommunications services, as well as a lack of MAA

contractor and customer preparedness. As a result of these delays, federal

agencies may be forgoing substantial cost savings—as much as $1.1

million—for each month of delay in transitioning the remaining

approximately 77,000 prospective MAA customers.

Achieving these cost savings for local telecommunications services—the

primary goal of the MAA program—is hindered because GSA managers are

missing opportunities to improve program administration. Specifically,

GSA has not yet established current and realistic implementation time

frames and associated performance measures to guide and manage the

timely completion of specific, ongoing contract implementations. As a

result, GSA lacks a basic yardstick for more consistent, reliable, and

effective measurement and management actions to address impediments

before they cause lengthy delays. In addition, GSA has not yet made its

fees and services transparent to its customer agencies and disclosed what

it charges agencies for the services it offers.

To improve MAA program administration, we recommend that the

administrator of General Services direct the commissioner of the Federal

Technology Service to

• develop current, realistic timeline objectives and schedules for

expeditiously completing those MAA contract implementations that are

currently in progress and

• use these objectives to develop and apply reliable performance measures

to gauge MAA progress and manage implementations.

To assist federal agencies in making well-informed telecommunications

choices and to improve management of GSA’s own support services, we

recommend that the administrator direct the commissioner of the Federal

Technology Service to

• routinely disclose to MAA customers the fees that GSA charges them for

managing the MAA contracts and for the ordering and billing services it

provides and

• clarify for MAA customers the services that each of the fees supports.

Conclusions

Recommendations
Page 21 GAO-02-325 Telecommunications

In written comments on a draft of this report, the administrator of General

Services agreed with our recommendations and indicated that GSA was

acting to implement them. In response particularly to a recommendation

in the draft report regarding opening MAA contracts to crossover on a

consistent basis, GSA agreed to open all eligible MAA cities to crossover

by March 1, 2002. After confirming that GSA had taken that action, we

updated this report to reflect the current status. GSA also provided a

number of technical comments that we have incorporated into this report

as appropriate. GSA’s written comments are presented in appendix II.

As agreed with your office, unless you publicly announce the contents of

this report earlier, we will not distribute it until 30 days from its issue date.

At that time, we will send copies of this report to the ranking minority

member, Subcommittee on Technology and Procurement Policy, and

interested congressional committees. We will also send copies to the

director of the Office of Management and Budget and the administrator of

the General Services Administration. Copies will be made available to

others upon request. This report will also be available on our home page at

http://www.gao.gov.

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

Conway at (202) 512-6240 or by E-mail at koontzl@gao.gov or

conwayk@gao.gov, respectively. Individuals making key contributions to

this report included Scott Binder, Barbara Collier, Michael Koury,

Frank Maguire, Mary Marshall, and Debra Rucker.

Sincerely yours,

Linda D. Koontz

Director, Information Management Issues

Agency Comments
Appendix I: Objectives, Scope, and

Methodology

Page 22 GAO-02-325 Telecommunications

The objectives of our review were to identify (1) the status of Metropolitan

Area Acquisition (MAA) contract implementation and reasons for any

delays, (2) the fees charged customer agencies by the General Services

Administration (GSA) for the management and administration of those

contracts and the extent to which those fees are transparent to customer

agencies, and (3) the steps being taken by GSA to enable MAA and

FTS2001 contractors to cross over between these sets of contracts and

offer both local and long distance services.

To evaluate the status of MAA contract implementation efforts, we

reviewed MAA contracting, including solicitations, contracts, and

associated modifications. We reviewed an internal GSA management

report on MAA implementation challenges prepared by GSA’s Office of

Inspector General and interviewed the staff who prepared this report. In

addition, we reviewed reports generated by GSA’s automated MAA status

tracking system and verified the information in the reports against other

documentation gathered, such as tracking reports used by regional GSA

staff.

To better gauge specific MAA implementation efforts, we visited five GSA

FTS regional staff offices. We selected these regional offices because they

were responsible for implementing contracts in 14 of the 22 cities that had

MAA contracts in place at the time of our review. These contracts

reflected a range of MAA implementation experiences, as they

encompassed a mix of multiple and single award cities, and included

contract awards to competitive local exchange carriers and to incumbent

local exchange carriers. The staff offices we visited were

• GSA’s Northeast and Caribbean Region in New York, responsible for two

MAA contracts;

• the Southeast Region in Atlanta, responsible for two MAA contracts;

• the Great Lakes Region in Chicago, responsible for five MAA contracts;

• the Greater Southwest Region in Dallas, responsible for four MAA

contracts; and

• the Rocky Mountain Region in Denver, responsible for one MAA contract.

During these visits, we met with responsible GSA management staff and

analyzed information pertaining to each region’s MAA marketing and

transition plans, service ordering and billing processes, and

implementation and administration roles and responsibilities. We also

analyzed documentation pertaining to the challenges each faced in

implementing its MAA contracts. In addition to the offices visited, we

reviewed marketing, transition planning, and contract administration

Appendix I: Objectives, Scope, and

Methodology
Appendix I: Objectives, Scope, and

Methodology

Page 23 GAO-02-325 Telecommunications

documentation from each of the four other GSA regional offices with MAA

contracts.

To gain customers’ perspectives on MAA contract implementation status,

we interviewed 15 agency managers in 5 cities who were responsible for

their agency’s local telecommunications services, as shown in table 3. We

also met with officials from the Executive Office for U.S. Attorneys and

the Executive Office for U.S. Trustees, located in Washington, D.C.

Officials in each of these two offices had nationwide responsibility for

local telecommunications services and were able to offer insight into their

agencies’ participation in the MAA program for multiple cities.

In determining which agencies to contact, we chose from a range of larger

and smaller agencies and also selected from both current MAA customers

and potential MAA customers. In our meetings with managers from these

agencies, we obtained documentation and discussed their GSA contract

marketing experience, their transition progress and challenges, their MAA

cost savings, and their knowledge of GSA management fees, where

possible and as appropriate.

Table 3: Current MAA Customer and Potential Customer Sites Visited

City Agency

Atlanta Department of Labor, Regional Administrative Services Office

Natural Resources Conservation Service

U.S. Fish and Wildlife Servicea

Denver National Institute of Standards and Technology, Boulder, Colo.

a

National Renewable Energy Laboratory, Golden, Colo.a

U.S. Courts for the Tenth Circuit, Office of the Circuit Executive

Dallas Health and Human Services, Program Support Center, Administrative

Operations Service

Social Security Administration, Southwest Regional Office

Chicago Environmental Protection Agency

Health and Human Services, Program Support Center, Administrative

Operations Service

Internal Revenue Service

New York Internal Revenue Service, Office of the Regional Inspector North East

Region

Corps of Engineers, New York District a

Health and Human Services, Program Support Center, Administrative

Operations Service a

Housing and Urban Development, New York Administrative Service

Center

a

Potential MAA customer; has not converted yet.
Appendix I: Objectives, Scope, and

Methodology

Page 24 GAO-02-325 Telecommunications

To gain additional information and documentation pertaining to

contractor experiences with MAA implementation, we met with AT&T

MAA program managers in Washington, D.C., and in New York; Verizon

MAA program managers in Washington, D.C.; and Winstar MAA program

managers in Herndon, Virginia.

To determine the management fees charged to customer agencies by GSA

and how those fees were derived, we reviewed GSA’s method for

calculating its management fees and supporting documentation. We also

reviewed statutory and regulatory guidelines13 governing the establishment

of such program fees. In addition, we reviewed GSA’s MAA management

roles and responsibilities and interviewed FTS program managers as well

as the FTS Network Services Financial Services Center manager

responsible for developing the GSA management fees. We also interviewed

customer agencies to determine what information GSA was disclosing to

them regarding the fees that GSA charged and services rendered.

Finally, to evaluate the actions being taken by GSA to enable MAA and

FTS2001 contractors to cross over within and between these programs, we

obtained and reviewed GSA’s contract language on the forbearance

concepts and process and reviewed both its current guidance on the

crossover process and a report on crossover status. We reviewed GSA’s

June 2001 and August 2001 presentations to the Industry Advisory Group,

as well as GSA’s response to questions raised at those presentations. We

also reviewed documentation pertaining to GSA’s December 2000 decision

to lift forbearance in the MAA pilot cities and its first crossover award.

We conducted our review from April 2001 through March 2002, in

accordance with generally accepted government auditing standards.

 13 P. L. 99-500, October 18, 1986, 100 Stat. 1783-340, and OMB Circular No. A-25, Revised

(July 8, 1993).
Appendix II: Comments from the General

Services Administration

Page 25 GAO-02-325 Telecommunications

Appendix II: Comments from the General

Services Administration
Appendix II: Comments from the General

Services Administration

Page 26 GAO-02-325 Telecommunications (310325)
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