FTS2001: Transition Challenges Jeopardize Program Goals
Published: 2001-03-30T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Telecommunications services are increasingly critical to transforming the way the federal government does business; communicates internally and externally; and interacts with citizens, industry, and state, local, and foreign governments. Electronic government services based on reliable, secure, and cost-effective telecommunications can enable agencies to streamline the way they do business, reduce paperwork and delays, and increase operational efficiencies. It is important that a far-reaching program, such as the FTS2001 program, take full advantage of new services offered by industry; that agencies effectively and efficiently implement these telecommunications services to improve operations; and that the program be successfully implemented to maximize benefits to the taxpayers. Despite progress, the government did not meet its deadlines for transition to FTS2001 and has not yet completed this effort. The government missed its deadline for several reasons, including a lack of sufficient information to effectively oversee and manage this complex transition, slowness in completing all the contract modifications needed to add transition-critical services to the FTS2001 contracts, slowness of some customer agencies to order FTS2001 services, staffing shortfalls and billing problems on the part of FTS2001 contractors, and local exchange carriers' difficulties providing facilities and services on time. Until the General Services Administration addresses the outstanding issues impeding transition and expeditiously completes this transition, it will be unable to fully achieve its basic FTS2001 goals of ensuring the best service and maximizing competition.

section_title: Letter
paragraphs: As you know, telecommunications services are increasingly critical in  transforming the way the federal government conducts business,  communicates internally and externally, and interacts with citizens,  industry, and state, local, and foreign governments. Electronic government  services based on reliable, secure, and cost-effective telecommunications  can enable agencies to streamline the way they conduct business, reduce  paperwork and delays, and increase operational efficiencies. They also  offer the potential for building better relationships between government  and the public by making interaction with citizens smoother, easier, and  more efficient. Accordingly, it is important that a far-reaching program like  the FTS2001 program take full advantage of new services offered by  industry; that agencies effectively and efficiently implement these  telecommunications services to improve operations; and that the program  be successfully implemented in order to maximize benefits to the  taxpayers.
The FTS2001 program is the successor to FTS 2000, which provided long  distance telecommunications services to federal agencies. While federal  agencies were required to use the FTS 2000 program for their long distance  telecommunications, FTS2001 is not mandatory. The program relies instead  on its ability to provide good services at low prices as a means of attracting  and retaining federal customers. Under the FTS2001 program strategy, the  General Services Administration (GSA) would also award contracts for  local-area telecommunications services and ultimately might allow those  contractors to offer both local and FTS2001 long distance services.
GSA awarded an FTS2001 long distance services contract to Sprint in  December 1998 and another to MCI WorldCom in January 1999. Under the  terms of these contracts, each contractor is guaranteed minimum revenue  of $750 million over the life of the contracts, which run for 4 base years and  have four 1-year options.
The federal government began transitioning from the FTS 2000 to the  FTS2001 long distance telecommunications contracts in June 1999. In order  to support continuity of telecommunications service to agencies during the  transition, GSA awarded FTS 2000 extension contracts in December 1998  to the two FTS 2000 contractors—Sprint and AT&T. These contracts had a  12-month base period with two 6-month options. The second and final 6-month options were to expire on December 6, 2000—the expected date  for fully completing the FTS2001 transition. However, delays encountered  during transition have caused an extension of the transition period, thereby  requiring GSA to negotiate extensions to the FTS 2000 extension contracts  in December 2000.
This report responds to a July 28, 2000, request from the Chairman,  Subcommittee on Government Management, Information, and Technology,  Committee on Government Reform. That request asked that we determine  (1) the status of the FTS2001 transition, (2) reasons for delays, and (3) the  effects of delays on meeting FTS2001 program goals of maximizing  competition for services and ensuring best service and price. We conducted  our work from July 2000 through February 2001 in accordance with  generally accepted government auditing standards. Appendix I contains a  discussion of our objectives, scope, and methodology.
subsections: section_title: Background
paragraphs: The FTS2001 program is the successor to the two programs that provided  long distance telecommunications to the federal government: the Federal  Telecommunications System (FTS) and the FTS 2000 program. Each  program represented an improvement over its predecessor in terms of  available services and technology. The programs’ principal differences in  acquiring and delivering long distance telecommunications services are  summarized in table 1.
A significant difference between the FTS 2000 and the FTS2001 programs  is that, unlike the FTS 2000 program, the FTS2001 program is not  mandatory. That is, agencies are not required to use FTS2001 for their  telecommunications needs. Nevertheless, all but one federal agency  represented on the IMC agreed in October 1997 to transfer their core  telecommunications requirements expeditiously from FTS 2000 to FTS2001  contracts upon award of those contracts.
subsections: section_title: FTS2001 Program Strategy, Goals, and Contracts
paragraphs: Between 1994 and 1997, IMC and GSA cooperatively developed, revised,  and issued a post-FTS 2000 program strategy, during that time considering  and incorporating comments from industry as well as from the Congress.  IMC and GSA set two goals for the FTS2001 program: to ensure the best  service and price for the government and to maximize competition for  services. An integral part of the basic strategy to achieve those goals was  ultimately to move beyond offering only long distance telecommunications  services by adding integrated end-to-end telecommunications services, that  is, permitting each contractor to offer both local and long distance services.
Consistent with this original program strategy, the overall FTS2001  program allows further competition in the long distance market beyond the  two contractors already awarded FTS2001 contracts. For example, 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  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.
In implementing this program strategy, GSA awarded two contracts for  FTS2001 long distance services—one to Sprint in December 1998 and one  to MCI WorldCom in January 1999. Services offered to agencies under  these contracts include toll-free and other voice services; international  voice and data services; Internet- and intranet-based services; and low- speed and high-speed data communications services. Each contract is for 4 base years from the date of award, with four 1-year options, and each  vendor is guaranteed minimum revenues of $750 million over the life of the  contracts.
Although to date it has also made MAA contract awards to 8 service  providers in 19 metropolitan areas across the country, GSA has not yet  allowed MAA contractors to offer FTS2001 long distance services.  Observing that the FTS2001 minimum revenue guarantees may take longer  to meet than the 4-year base period of the Sprint and MCI WorldCom  contracts, the GSA Administrator considered those guarantees to be a  major factor in deciding when to open the FTS2001 long distance market to  MAA contractors. Therefore, the sooner the federal government can be  assured of satisfying its FTS2001 minimum revenue guarantees, the sooner  GSA can add more long distance options and maximize the ability of  federal agencies to achieve basic program objectives cost effectively. In an  April 2000 report to the Chairman of the Committee on Government  Reform, we assessed the FTS2001 minimum revenue guarantees and their  constraining effect on GSA’s ability to add competition to the FTS2001  program.
To support service continuity during the FTS2001 transition period, GSA  awarded sole-source extension contracts, effective in December 1998, to  the two FTS 2000 contractors. These contracts had a 12-month base period  with two 6-month options. The AT&T and Sprint extension contracts were  originally valued at $801.3 million and $285.5 million, respectively. The  second 6-month option on the FTS 2000 extension contracts expired on  December 6, 2000, thereby establishing this date as the goal for completing  the FTS2001 transition.
section_title: FTS2001 Transition Is Complex
paragraphs: The transition of the federal government’s long distance telecom- munications services from its FTS 2000 contracts with Sprint and AT&T to  its FTS2001 contracts with Sprint and MCI WorldCom is a sizable and  complex undertaking. For example, the multibillion-dollar FTS 2000 long  distance services contracts ultimately reached more than 1.7 million users  during the contracts’ 10-year existence. FTS 2000 revenues for fiscal year  1999 alone approached $752 million for a variety of voice, data, and video  communications services to users throughout the federal government. The  significant differences between the government’s FTS 2000 transition and  its transition to FTS2001 are highlighted in table 2.
section_title: FTS2001 Transition Responsibilities Are Spread Among Participants
paragraphs: Although the FTS2001 long distance contracts are administered by GSA,  several parties share responsibility for moving to and implementing those  contracts. In particular, agencies themselves must select which of the two  service providers best meets their service requirements and cost  objectives. (Agencies can also select both providers if that arrangement  best suits their needs.) This selection is the first step in the transition  process. Once this selection is made, the next step is for the selected  FTS2001 contractor to complete a site survey of agency requirements and  develop a site transition plan. The next step is for agencies to order  services. The FTS2001 contractors then must complete the order for the  service to be transitioned. At this point in the process, local exchange  carriers become involved. In coordination with the two FTS2001 long  distance service providers, local carriers provide the facilities and network  connectivity that link a customer agency’s premises to the FTS2001  contractor’s network. Finally, after the transition order is completed, the  agency must issue a disconnect order to the incumbent FTS 2000 service  provider, who must then execute it.
This shared responsibility shifts some of the control over transition  processes, for some agencies, away from GSA. Rather than actively  managing and directing the FTS2001 program transition, as it did with FTS  2000, GSA views itself as a facilitator. Principal responsibility for transition  rests with the agencies, in partnership with their selected service providers,  where an agency chooses to manage its own transition. Nevertheless, GSA  does have important program-level responsibility for transition planning.  For example, GSA’s Federal Technology Service organization is responsible  for FTS2001 program management and contract administration; centralized  customer service; ongoing coordination and procurement of services;  billing support to agencies; and engineering, planning, and performance  support through review of transition plans and contractor performance  monitoring.
In addition to that provided by GSA, oversight is also provided by IMC’s  Transition Task Force, established to aid transition efforts by sharing  information and lessons learned, identifying and solving common  problems, and advising GSA FTS managers on transition management and  contractual issues. This IMC Transition Task Force began meeting with  agency, contractor, and GSA staffs in December 1999 to oversee and  support transition activities.
section_title: FTS2001 Transition Is Behind Schedule
paragraphs: According to the IMC’s Transition Task Force, about 88 percent of FTS2001  transition service orders were completed as of February 2001, whereas the  original schedule called for the transition to be complete by December 6,  2000. Transition progress varies by the type of service ordered. According  to transition management reports prepared by IMC’s Transition Task Force,  the government had by February 2000 transferred most voice services from  FTS 2000 to FTS2001 and substantially completed the transition of its  dedicated transmission services. However, the transition of switched data  services—primarily large agency data communications networks using  frame relay or ATM (asynchronous transfer mode) technologies—was  lagging significantly. These transition results are summarized in table 3.
Revised schedules developed by Sprint and MCI WorldCom for the IMC  Transition Task Force in February 2001 projected that the contractors  would complete their FTS2001 service orders in April 2001 and June 2001,  respectively.
As the transition progresses, trends suggest that the final services to be  transitioned are the most time-consuming. As summarized in figures 1 and  2 below, the number of days on average from the time a contractor receives  an order for service until it completes the order has significantly increased  in recent months, particularly with respect to data communications  services.
section_title: Several Factors Contribute to Transition Delays
paragraphs: There are several reasons for FTS2001 transition delays, which involve all  the key players in the program, including GSA, federal agencies, FTS2001  contractors, and local exchange carriers:   The FTS2001 contractors did not provide GSA with the management  data it needed to manage and measure this complex transition process.
GSA was not able to rapidly add all the services to the FTS2001  contracts required by agencies to complete their transition.
Customer agencies were slow to order FTS2001 services.  FTS2001 contractors had staffing shortfalls and turnover on account  teams, as well as billing and procedural problems, which impaired their  support of agency transition activities.
Local exchange carriers had problems delivering facilities and services  on time to the FTS2001 contractors.
Although progress has been made to correct these problems, they  prevented the completion of FTS2001 transition actions by the original  December 6, 2000, deadline.
subsections: section_title: Management Information Shortfalls Impede GSA’s Transition Reporting and Oversight Efforts
paragraphs: As transition manager, GSA plays a critical role in coordinating the efforts  of the other players, but it is having a difficult time collecting the accurate  and comprehensive data it needs to carry out its responsibilities. While  GSA developed an automated system to help track transition data and  develop reports, the FTS2001 contractors did not furnish GSA with the data  it needed to populate this management system. As a result, GSA and agency  transition managers are not receiving the timely, up-to-date information  they need to effectively manage transition activities.
In April 1999, GSA awarded the SETA Corporation a task order, valued at  $245,000, to develop a Transition Status and Monitoring System that could  be used by both GSA and agency transition managers to actively manage  the FTS2001 transition. The system was intended to provide managers with  up-to-date status reports, event notices, and jeopardy reports based on  overall contractor transition plans and current progress. Managers could  then select these reports by contractor, agency, bureau, location, service  type, and transition phase. Using detailed, up-to-date transition information  to be provided by the two FTS2001 contractors’ respective on-line  transition management plans and databases, this management system was  to provide GSA and agency transition managers with the information they  needed to measure transition progress and identify variances from  transition plans.
Although SETA developed the system and delivered it to GSA in  September 1999, it has not been used to manage the transition as planned.  According to GSA managers, the system is not operational because the  basic management information it needs to operate was not provided by the  FTS2001 contractors. The FTS2001 contracts require the contractors to  develop on-line versions of their respective transition management plans  and to update the information in these plans daily. In addition, the  contractors are required to develop and maintain information on transition  schedules, along with a summary of all information contained in transition  management plans, in a transition database. This database information was  required to be fully up-to-date for a given location at the time access service  was ordered for that location, and the contractors were to update it as  required to maintain its currency and accuracy until transition was  complete.
GSA transition managers were not able to obtain usable and complete  transition management information from the contractors until recently,  however, which prevented the use of this information in populating the  automated transition management system as planned. GSA managers cited  two reasons for this problem. First, the FTS2001 contractors were slow to  develop this on-line information. For example, GSA did not receive a usable  version of a transition database from MCI WorldCom until December 2000;  in January 2001, GSA was considering how to use that information to  populate its management system to support future telecommunications  planning and acquisition efforts. GSA is continuing to work with Sprint to  obtain its transition database and expects to receive that information in  March 2001. Second, because the contractors were slow to develop the  required information, SETA, GSA, and the FTS2001 contractors could not  agree on a common interface format that would have allowed SETA to  populate the transition management system with any available information  sooner.
In the interim, GSA and others have been gauging the progress of the  transition from information on service orders submitted by agency  managers, agency activity reports, and contractor activity reports. In doing  so, GSA used time-consuming, ad hoc processes to obtain transition event  and status information, including manually reconciling changes as they  were reported. In addition to GSA’s efforts, the IMC’s Transition Task Force  has been verifying transition-reporting data with agencies and contractors  in order to improve the accuracy of their transition measurements. In spite  of these efforts, GSA cannot be certain that the information it gathers  presents a full accounting of transition progress.
Although both the IMC Transition Task Force and GSA report transition  progress in terms of transition orders completed, their reports provide an  incomplete perspective because they do not report on the final step in the  transition process—the issuance and completion of disconnect orders  required to turn off FTS 2000 services. Reporting of this final step can  significantly affect perceptions of progress. For example, as a means of  tracking transition completion, monthly reports from the U.S. Department  of Agriculture’s FTS2001 transition manager include information on both  transition orders completed and FTS 2000 billing statistics. That is, USDA  managers are using their FTS 2000 billing information to confirm that  service disconnect orders are completed by AT&T. As illustrated in table 4  below, although orders completed indicate that USDA is making substantial  transition progress, this progress is substantially reduced when viewed in  terms of completed service disconnection.
GSA receives disconnect reports from AT&T and is comparing the data in  those reports to its inventory of FTS 2000 services and to reports from the  FTS2001 contractors of transition orders completed. Where it appears that  FTS 2000 services have not yet been disconnected, GSA flags those  instances and reports them to the affected agency. However, GSA does not  use this information to report formally on transition progress. As a result,  transition progress reports that focus only on service order completion will  not indicate full transition completion because of the time lag between the  completion of an FTS2001 service order and the disconnection of the FTS  2000 service that it replaces.
section_title: Contract Modification Efforts Impede Transition Progress
paragraphs: In addition to its responsibility for overseeing the transition, GSA has  administrative responsibility for processing and authorizing contract  modifications. This function is critical to the ongoing transition because, at  the time of their initial award, the FTS2001 contracts did not contain all the  services that agencies need to complete their transition. To transfer their  services from FTS 2000 contracts, agencies must be able to order suitable  replacement services from their FTS2001 contractors. Adding all the  services needed to complete transition to the FTS2001 contracts has taken  time, however, which has in turn delayed agency transition efforts.
Although GSA set a target of completing a contract modification within  60 days of receipt of proposal from the contractor, the time for completion  has actually varied widely, ranging from 1 week to more than 15 months.  For example, for nine transition-critical modifications completed by  October 23, 2000, the processing time averaged 162 days from the time the  contractors’ proposal was received to the time the modification was  completed. Six of those nine modifications required over 60 days to  complete processing. Modifications can take longer than expected to  complete because GSA and the contractors must negotiate the terms, and  according to GSA managers, customer agency need for customized  services also contributes to delay in processing contract modifications.  One modification—a 7.5 kHz dedicated transmission service for the FBI  that affected over 225 service orders—was under consideration for more  than 11 months, delayed by pricing considerations. Other transition-critical  modifications are still in evaluation, such as modifications for managed  network services required to support transition efforts at the Social  Security Administration, Treasury, Interior, and Coast Guard.
GSA has taken steps to improve its processing of contract modifications,  and workarounds have been used to minimize the effect of these delays.  For example, in August 2000, on the advice of the IMC Transition Task  Force, GSA began prioritizing its processing of transition-related contract  modifications. By February 21, 2001, all but one contract modification  required to complete the Sprint FTS2001 transition had been made, and six  transition-related contract modifications required for the MCI WorldCom  contract were still in process. GSA expected to complete the most critical  of these modifications by the end of February 2001 and the remainder by  the end of April 2001.
Further, agencies are receiving managed network services on a trial basis  as a workaround while the managed network services modifications with  MCI WorldCom are being developed and processed.
section_title: Agencies Were Slow to Order FTS2001 Services
paragraphs: Although IMC specifically recognized the time-critical nature of the  FTS2001 transition when it chartered the Transition Task Force, this did not  result in prompt FTS2001 service ordering. The delay in issuing transition  service orders has been significant. Both FTS2001 contracts were awarded  by January 12, 1999, with the planned completion date for the transition  being December 6, 2000. As of January 2000, halfway through the allotted  transition period, less than a third of the total service orders required for  transition had been submitted by agencies. After February 2000, the pace of  agency order submissions increased significantly. Nevertheless, for  transitioning switched data services, where the least progress has been  made, agencies had submitted only about half the service orders required  for transition by June 2000—18 months after the final FTS2001 contract  was awarded and 12 months after the start of transition activity.
The slow pace of orders was associated with two factors. First, the initial  12 months of the FTS2001 contracts coincided with agency planning and  preparation associated with the Year 2000 computer issue. As a result,  many transition activities were suspended during this period. Second,  agency efforts were hindered by a reported lack of resources devoted to  transition planning and management. For example, 7 of 11 transition  managers at federal agencies that planned to move to FTS2001 told us that  agency resource limits hampered their transition progress.
Recognizing the need for assistance, GSA stepped in and made contractor  support resources available to agencies, covering the cost of those  resources out of the FTS2001 transition fund. As of February 2001,  agencies had submitted almost all orders for switched voice and dedicated  transmission services, with orders for less than 4 percent of switched data  services still outstanding.
section_title: FTS2001 Contractors Have Difficulty With Customer Support and Billing
paragraphs: Reported shortcomings with FTS2001 contractors’ customer support  inhibited agency transition efforts and contributed to transition delay. For  example, 10 of 12 agency transition managers we spoke with stated that  initial transition efforts were hampered by turnover in contractor account  teams and inadequate contractor procedures. These issues were  specifically raised by the Treasury Chief Information Officer in a November  1999 letter to GSA’s FTS Commissioner expressing dissatisfaction with  Treasury’s service provider, noting the contractor’s continual inability to  meet customer due dates, failure to provide adequate transition resources,  and unacceptable project planning and scheduling. The Treasury’s Office of  Comptroller of the Currency (OCC), which began its transition in June  1999, terminated that effort in August 1999 because of contractor  performance concerns and in February 2000 was threatening to leave the  FTS2001 program.
In response to these shortcomings, both Sprint and MCI WorldCom took  steps to increase substantially their resources supporting transition efforts  and to improve their procedures. As a result, following discussion with its  Sprint contractor on performance concerns, OCC restarted its transition in  February 2000.
The second major problem area undermining transition progress was a lack  of accurate, up-to-date billing information and the improper billing of  services. The IMC Transition Task Force Chairman stated at that group’s  September 2000 meeting that billing was emerging as the number one  transition-related issue. We were not able to obtain data to quantify the  severity of billing problems across all agencies. However, we did document  instances where the National Park Service, the Bureau of Land  Management, the Tennessee Valley Authority, and bureaus within the U.S.  Department of Agriculture were improperly billed by MCI WorldCom at  higher commercial rates instead of at FTS2001 program rates after moving  to FTS2001. In some cases these commercial bills led to collection  activities against the agency for nonpayment and in a few instances  actually resulted in the disconnection of service.
Rather than focusing on transition matters such as ordering services, these  agencies had to redirect resources to resolve incorrect billings, respond to  and try to resolve collection actions that had been improperly initiated, and  restore erroneously disconnected services. The National Park Service and  the Bureau of Labor Management either suspended or threatened to  suspend their service ordering and transition efforts as a result of these  problems and the time and effort required to solve them.
These billing problems arose because GSA did not ensure that the FTS2001  contractors met all billing requirements. For example, MCI WorldCom was  required to have a contract-compliant service ordering and billing system in  place before agencies began ordering services, but only recently has GSA  completed acceptance testing for that system. GSA had waived the test and  acceptance requirement for an indefinite period pending completion of  testing to allow MCI WorldCom to begin accepting and processing FTS2001  service orders. However, GSA suspended acceptance testing in May 2000  because the MCI WorldCom billing system experienced persistent  problems with the quality and timeliness of the monthly invoices it was  producing for GSA. GSA escalated these billing issues with MCI  WorldCom, and since September 2000 has held biweekly, executive-level  meetings to resolve them. After receiving more timely and complete  invoices from MCI WorldCom, GSA restarted service order and billing  system acceptance testing in December 2000 and completed testing in  February 2001; formal acceptance is expected in March 2001.
FTS2001 billing problems are not limited to MCI WorldCom. GSA has been  trying to solve problems regarding approximately 23 contract deliverable  items (including nine billing-related requirements) that Sprint has either  not yet provided to the government or has not delivered in an acceptable  form. GSA is continuing to address these issues with Sprint as well.
section_title: Local Exchange Carrier Issues Delayed Transition Activities
paragraphs: The completion of FTS2001 service orders has also been delayed because  of difficulties obtaining required network access services and facilities  from local carriers when and where needed. The IMC Transition Task  Force chairman reported in March 2000 that 46 percent of agency locations  that required local carrier access had experienced delays completing their  service orders ranging from a few days to months. This problem has been  worse where agencies wish to obtain higher speed access facilities in rural  locations, such as Idaho Falls, Idaho, and in metropolitan areas that are  experiencing a competing high demand for services and facilities, such as  the Washington, D.C., metropolitan area.
Further compounding this issue was the recent strike by employees of the  local exchange carrier, Verizon, which adversely affected more than 1,200  FTS2001 transition orders in the Northeast and Mid-Atlantic areas of the  country. These particular problems, which affect all users seeking to  expeditiously obtain services from their local carriers, are not unique to the  FTS2001 contracts. Nevertheless, they contributed to delays in  implementing these contracts.
section_title: Transition Delays Jeopardize Timely Achievement of FTS2001 Program Goals
paragraphs: FTS2001 transition delays have three important effects on the program  goals of ensuring the best service and price for the government and  maximizing competition. First, delays in transitioning services increase the  costs of those services. Second, because the FTS2001 contracts waive  service performance requirements until the transition is complete, the  government cannot ensure that service delivery meets expectations. Third,  delays in transitioning services slow the accumulation of revenues to meet  the FTS2001 contracts’ minimum revenue guarantees, which makes GSA  reluctant to add more contractors offering long-distance services.
subsections: section_title: Transition Delays Are Causing Telecommunications Costs to Rise
paragraphs: Delays in completing the FTS2001 transition will increase the cost of  telecommunications for those agencies that have not completed their  transition. There are several reasons why costs will rise for these agencies:  Discounts under FTS2000 that were offered by Sprint expired on  September 30, 2000, increasing the cost of services contracted after that  date by approximately 20 to 25 percent.
The modification made to AT&T’s FTS 2000 extension contract in  December 2000 discontinues discounts of 20 to 65 percent that had been  in effect for a variety of services.
The AT&T extension contract modification made in December 2000 also  required a one-time payment to AT&T of $8 million. GSA is raising the $8 million payment by assessing a 20 percent surcharge against user  agencies’ monthly FTS 2000 bills through June 6, 2001.
For FTS 2000 contractors Sprint and AT&T, volume discounts for voice  services are in effect. That is, the unit price that agencies will pay for  these services will increase as the volume of traffic on the FTS 2000  extension contracts decreases. For example, a telephone call placed  with AT&T increases by more than 77 percent, to almost 10 cents per  minute, once aggregate calling volume declines to less than 50 million  minutes. Also, this increase does not include increases in access costs  that are also sensitive to call volume.
section_title: Contract Terms Defer Performance Requirements Pending Completion of Transition
paragraphs: The FTS2001 contract waives basic contract performance requirements  until the FTS2001 transition has been completed, thereby restricting the  government’s ability to hold the FTS2001 contractors accountable for  shortcomings in performance. These performance requirements include  such things as the timeliness of service delivery, the availability of services,  the quality or grade of service, and the restoration of failed or degraded  service. As a result, transition delays not only increase the price the  government pays for telecommunications services, they also hinder the  government’s ability to hold the FTS2001 contractors accountable for  timely and effective service delivery.
section_title: Delays in Meeting Revenue Commitments Hamper Efforts to Add Competition
paragraphs: In developing the FTS2001 program strategy, IMC and GSA envisioned that  FTS2001 contractors would be allowed to compete to offer services in the  local MAA telecommunications markets and that MAA contractors would  be allowed to compete in the FTS2001 long-distance market. This strategy  would benefit agencies by allowing them to competitively acquire  telecommunications services on an end-to-end local and long-distance  service basis. There are several potential advantages to this approach.  First, agencies might be able to obtain services at lower cost than they  would otherwise because of opportunities to aggregate multiple service  requirements with one provider. Second, using a single contractor would  permit agencies to reduce the cost and effort associated with managing  multiple contractors. Third, customer agencies might be able to obtain  better network performance guarantees by purchasing end-to-end services  from a service provider who owns or operates that infrastructure. These  advantages—obtaining reliable, high-quality telecommunications services  at low cost—increase in importance as the federal government moves to  deliver more information and services electronically.
GSA’s ability to maximize competition for services and enable agencies to  acquire end-to-end services is constrained by its need to meet the  substantial FTS2001 revenue guarantees. Under the terms of the respective  contracts, each of the FTS2001 contractors is guaranteed minimum  revenues of $750 million over the life of the contracts, which may run from  4 to 8 years. Year 3 of the FTS2001 contracts began on October 1, 2000.  When it awarded these contracts, GSA believed that they might be worth  more than $5 billion over an 8-year period. However, a GSA analysis of  FTS2001 savings completed on January 28, 1999, revealed that the  contracts’ lowest prices could actually result in total contract revenues of  only $2.3 billion over 8 years. Revised program estimates developed in  February 2000 affirmed this $2.3 billion revenue estimate. Because of the  need to meet the FTS2001 revenue commitments, GSA has not yet allowed  other contractors into FTS2001 as originally envisioned.
Delays in completing the FTS2001 transition slow the accumulation of  revenue to meet the government’s contract commitment. Although FTS  2000 revenues do not correlate directly with FTS2001 revenues because of  service and pricing differences, the available revenue data indicate that  significant FTS 2000 expenditures are continuing that cannot be applied to  meet FTS2001 minimum revenue guarantees. During fiscal year 2000, for  example, more than $465 million was paid out for FTS 2000 services. In  addition, GSA reported that although 84 percent of all FTS2001 agency  locations had completed transition by January 3, 2001, agencies still spent  almost $36.5 million on FTS 2000 services in December 2000, the last month  for which data are available.
Even for Sprint, which is both an incumbent FTS 2000 service provider and  an FTS2001 contractor, payments made for services not moved to the  FTS2001 contract do not reduce the government’s minimum revenue  commitments to Sprint for FTS2001. Sprint’s monthly FTS 2000 billings  were about $9.4 million in December 2000. Sprint expects to complete its  portion of the FTS2001 transition in April 2001.
In managing the contracts’ minimum revenue guarantees, GSA must cope  not only with transition delay, but also with transition deferral and the loss  of program customers. For example, despite some agency plans to transfer  their FTS 2000 services to the FTS2001 contracts, 17 departments or  agencies have since decided to use alternative suppliers for all or part of  their services, which GSA values collectively at more than $78 million. A  few examples illustrate these losses.
The Internal Revenue Service, in order to minimize risk, has delayed  transitioning its toll-free 800 number services until it completes its  systems modernization.
NASA decided that it would be more efficient to acquire its data  communications services through the agency’s information technology  support contract. (The agency is, however, transitioning its switched  voice service to FTS2001.)
The U.S. Postal Service, believing it could obtain better prices outside  FTS2001, has awarded its own contract to meet most of its service  needs.
The Tennessee Valley Authority decided in October 2000 that it would  not transfer its remaining services to FTS2001, partly due to problems  encountered with billing and disconnected service.
This decline in customer base further exacerbates the difficulty of  managing FTS2001 revenue guarantees. If transition can be completed  rapidly, and if there is no further loss of customers, FTS2001 will be in a  better position to expeditiously meet the minimum revenue guarantees,  which will give GSA greater latitude in adding contractors in order to  achieve its basic program goals.
section_title: Conclusions
paragraphs: Despite progress, the government did not meet its deadlines for transition  to FTS2001 and has not yet completed this effort. The deadline was missed  for numerous reasons: a lack of sufficient information to effectively  oversee and manage this complex transition, slowness in completing all the  contract modifications needed to add transition-critical services to the  FTS2001 contracts, slowness of some customer agencies to order FTS2001  services, staffing shortfalls and billing problems on the part of FTS2001  contractors, and local exchange carriers’ difficulties providing facilities  and services on time. Until GSA addresses the outstanding issues impeding  transition and expeditiously completes this transition, it will be unable to  fully achieve its basic FTS2001 goals of ensuring the best service and  maximizing competition.
section_title: Recommendations
paragraphs: To enable more accurate tracking of FTS2001 transition progress, we  recommend that the Administrator of General Services direct the program  manager for FTS2001 to   obtain usable and complete management information, as required by  contract, from the FTS2001 contractors by April 27, 2001; and   track the status of FTS 2000 service disconnection orders and include  that information in GSA’s transition progress reports from April 6, 2001,  onward.
To ensure achievement of FTS2001 program goals, we recommend that the  Administrator direct the program manager for FTS2001 to promote the  completion of the FTS2001 transition by ensuring that all remaining  contract modification proposals related to the transition are processed  expeditiously.
To ensure prompt identification and resolution of any outstanding billing  issues, we recommend that the Administrator direct the program manager  for FTS2001 to work with IMC to   catalog all billing problems raised since January 2000 during the  meetings of IMC and the IMC’s Transition Task Force, GSA’s biweekly  FTS2001 management meetings, and other agency working groups;   document the status of problems raised, and how and when they were  resolved, as appropriate;  obtain and document agency confirmation of the resolution of closed   develop an action plan that identifies all current billing problems, the  actions taken to date to resolve those problems, and a plan that will  correct those problems by July 2, 2001.
Further, we recommend that the Administrator direct the program manager  for FTS2001 to continue efforts to obtain consideration from the FTS2001  contractors for failure to meet management information and billing  requirements within the time frames established in the contracts.
section_title: Agency Comments
paragraphs: In written comments on a draft of this report, the Acting Administrator  for General Services generally agreed with our report and our  recommendations, and indicated that GSA was acting to implement all  recommendations. The Administrator stated, however, that the report did  not reflect the success of the FTS2001 transition. We believe that we have  fairly characterized progress made on the transition and GSA’s efforts to  address those factors that are impeding completion. At the same time, we  have noted that the deadline for completing transition was missed and as a  result FTS2001 is experiencing delays in meeting its goals. We did not  assess the cost savings that GSA mentions because this was not part of our  review.
GSA also disagreed with our use of transition progress measurements  developed by the IMC Transition Task Force because those measurements  are incomplete and misleading. GSA requested that we use statistics  generated by its Transition Coordination Center, which measure transition  progress by customer sites, because GSA has been using these statistics for  18 months and the methodology was endorsed by IMC. We do not concur  with GSA’s position. The Transition Task Force’s measurements are based  on the number of service orders completed—a measurement that GSA  ultimately tracks as well—as reported to the Transition Task Force by  contractor program management staff and verified with agency transition  managers. While we report that there are limitations on available transition  management information, we believe that the IMC Transition Task Force’s  statistics represent a reasonably developed and independently derived  assessment.
In its comments, GSA lists four additional factors that it believes have  contributed to transition delays: a lack of an accurate service inventory,  time and effort required to arrange for procedural agreements and network  gateways between FTS2001 and FTS 2000 contractors, customer agencies’  need to upgrade their facilities before or during transition, and customer  agencies’ need for customized services.
Because of the complexity of the transition process, we recognize that we  did not discuss all the factors contributing to its delay. Rather, we focused  on presenting the most significant factors. GSA mentioned some other  contributing factors that may be involved. With regard to GSA’s statements  on service inventories and the need to upgrade customer facilities, we  agree that an agency should have an accurate service inventory and a clear  understanding of its transition needs—including upgrade requirements— before ordering services. These factors may have contributed to the agency  delays in ordering FTS2001 services described in our report. Further, we  recognize that there were delays in establishing procedural agreements and  network gateways between the contractors. We agree with GSA, therefore,  that the delay from the time that this transition risk was identified to the  time the agreements were reached likely impaired transition activity for  some services. Finally, we recognize that some agencies’ need for  customized services was a reason for delays in the development and  processing of contract modifications, and we have incorporated those  comments where appropriate.
GSA offered two technical comments with respect to our recom- mendations concerning completion of contract modifications and the  pursuit of consideration for requirements not met that we have  incorporated as appropriate. GSA provided a number of other technical  comments that we have incorporated as appropriate. GSA’s written  comments are presented in appendix II.
As agreed with your offices, 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 Representative Janice  Schakowsky, Ranking Minority Member, Subcommittee on Government  Efficiency, Financial Management, and Intergovernmental Relations;  Representative Jim Turner, Ranking Minority Member, Subcommittee on  Technology and Procurement Policy; and interested congressional  committees. We are also sending copies to the Honorable Mitchell E.  Daniels, Jr., Director of the Office of Management and Budget, and the  Honorable Thurman M. Davis, Sr., Acting Administrator of the General  Services Administration. Copies will be made available to others upon  request. The report will also be available on GAO’s 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. Other major contributors to this report  were George L. Jones and Mary Marshall.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives were (1) to determine the status of the FTS2001 transition,  (2) to identify the reasons for delays in transitioning to FTS2001, and (3) to  evaluate the potential effects of transition delays on meeting program goals  of maximizing competition for services and ensuring best service and price.
To determine the status of FTS2001 transition efforts, we obtained and  analyzed the transition plans and related documentation prepared by GSA,  the FTS2001 contractors, and select federal agencies. We obtained and  reviewed transition management reports independently prepared by GSA  FTS2001 program managers and by the Interagency Management Council’s  Transition Task Force.
To identify the reasons for the pace of the FTS2001 transition and to  determine why the transition was taking so long to complete, we  interviewed GSA’s FTS2001 program managers as well as FTS2001  contractors in order to better understand their respective transition  processes and reasons for progress to date. We also reviewed transition  documentation, including minutes and presentations from monthly IMC  and IMC Transition Task Force meetings and GSA bi-weekly management  sessions with the FTS2001 contractors. In addition, we interviewed  transition managers in 12 agencies to understand the processes they had in  place for the transition, progress made, and problems encountered. The  agencies selected were the Departments of Defense, Energy, Housing and  Urban Development, Treasury, Agriculture, Education, Health and Human  Services, and Interior, as well as the Administrative Office of the U.S.  Courts, the Tennessee Valley Authority, the National Aeronautics and Space  Administration, and the U.S. Postal Service. We selected 10 of the 12  agencies because they represented the five leading agencies and five  lagging agencies identified in a June 2000 GSA transition progress report.  We subsequently identified through program management documents two  additional agencies that could provide us with greater insight into the  billing issues that were impeding transition progress.
We also interviewed officials from an FTS 2000 service provider, AT&T, and  a local exchange carrier, Verizon, to determine their roles in the transition  process and to identify impediments they may have encountered while  working with agencies and FTS2001 contractors to transfer  telecommunications services to FTS2001.
To evaluate the potential effect of transition delay on program goals, we  reviewed program strategy documentation, FTS2001 contracts, and reports  and documentation including weekly GSA transition status reports,  minutes of monthly IMC and IMC Transition Task Force meetings,  presentations from monthly IMC Transition Task Force meetings, and  minutes of GSA bi-weekly management sessions with the FTS2001  contractors. Further, we reviewed government FTS 2000 and FTS2001  billing reports current through the month of December 2000 (the last  month for which billing information was available) and revised FTS2001  contractor transition completion estimates. We also reviewed a September  2000 revenue analysis prepared for GSA by Mitretek Systems that  considered the potential effect of transition delays and changes in revenue  projections—positive and negative—on minimum revenue guarantees  based on transition progress up to that date. We obtained documentation  and reviewed the terms and conditions of FTS 2000 extension contract  modifications that were made in December 2000 and interviewed GSA  FTS2001 contracting staff to understand the implications of those  modifications on FTS2001 minimum revenue guarantees. We performed  our audit work from July 2000 through February 2001 in accordance with  generally accepted government auditing standards.
section_title: Comments From the General Services Administration
subsections: section_title: Ordering Information
paragraphs: The first copy of each GAO report is free. Additional copies of  reports are $2 each. A check or money order should be made out to  the Superintendent of Documents. VISA and MasterCard credit  cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address are  discounted 25 percent.
Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC  20013 Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders by phone: (202) 512-6000 fax: (202) 512-6061 TDD (202) 512-2537 Each day, GAO issues a list of newly available reports and  testimony. To receive facsimile copies of the daily list or any list  from the past 30 days, please call (202) 512-6000 using a touchtone  phone. A recorded menu will provide information on how to obtain  these lists.
section_title: To Report Fraud, Waste, or Abuse in Federal Programs
paragraphs: Web site: http://www.gao.gov/fraudnet/fraudnet.htm  e-mail: fraudnet@gao.gov  1-800-424-5454 (automated answering system)