Threat of new TSM prime puts contractors in a tizzy

As House appropriators prepare a new budget for the Tax Systems Modernization (TSM), some Internal Revenue Service contractors are wrangling over the wisdom of creating a new prime contract as they try to head off expected funding cuts and possible changes to the contracting strategy for the beleaguered program.

Several IRS hardware and software development contractors, including AT&T, Computer Sciences Corp. and Unisys Corp., question whether a proposal from the Treasury Department to select a new prime contractor for TSM would delay the program and place their own contracts in limbo.

At stake when the House Appropriations Committee's Treasury, Postal Service and General Government Subcommittee drafts the IRS spending bill tomorrow are billions of dollars in spending on systems and software over the next several years.

"We're certainly in favor of the IRS getting its ADP budget," said Clara Boothe, a senior member of the business development staff at CSC, one of 14 vendors that hold software development and support contracts under the $955 million Treasury Information Processing Support Services (TIPSS) program. "We're also very much in favor of them sticking to the original boundaries of the TIPSS contract" and the $300 million Integration Support Contract held by TRW Inc.

TIPSS vendors and TRW stand to benefit most if the IRS maintains its contracting arrangements because Congress has demanded that the agency outsource most of its systems development work. Awarding a new contract could draw business away from these contractors, especially TIPSS vendors. Having a new systems integrator may also affect what hardware the IRS buys, although the impact on equipment vendors is less clear.

An unsigned memo, attributed to the TIPSS vendors and sent to subcommittee chairman Rep. Jim Lightfoot (R-Iowa) last week, said the IRS can repair the program within the scope of existing contracts and should receive funding as long as it "takes full advantage" of "private-sector expertise and experience." The memo said that using existing contracts "does not engender new procurement expense or delays, or potential organizational conflicts of interest that changes in contract scope would likely entail."

But not all vendors agree with this approach. Electronic Data Systems Corp., which holds a subcontract under TIPSS with Vector Resources Inc. and once was a subcontractor to TRW, has pushed for a new procurement, arguing that multiple vendors should be allowed to pitch their plans to rescue TSM.

"The customer has said they cannot use the existing vehicle to accomplish what they want," said EDS spokesman Randy Dove. "We are interested in a free and open competition."

If the new competition for a prime contractor is to be held, likely bidders may include EDS, TRW, CSC and other large integrators, industry sources said.

In a speech last week to federal technology vendors, Lightfoot would not reveal his plans. "We don't want to kill the program," he said, but he added that he will "hold pretty hard" on his threat not to fund the program until the IRS produces a detailed blueprint.

Meanwhile, the General Accounting Office, in its review of Treasury's May report outlining the future of TSM, concluded that the IRS is not ready to proceed with the multibillion-dollar program. Although the IRS is taking "positive steps" to rescue the program, the agency "has not made adequate progress correcting its management and technical weaknesses, and none of our recommendations have been fully implemented," GAO said.

In a response from Treasury included with the report, deputy secretary Lawrence Summers said, "There is evidence of appreciable change over time and acceleration of change in the last six months." He said Treasury had revised its budget request for TSM from $850 million to $664 million, a 4 percent cut from the current budget "based on an updated assessment of where we are in the modernization process."

Summers alluded to "points of disagreement" between Treasury and GAO, but he did not elaborate.

Sources familiar with Treasury's position said the disagreements involve how much progress the IRS could be expected to make toward complying with GAO's recommendations - made last July - in only a few months.

GAO said it could not assess the IRS' new contracting strategy because it "is still in the early planning stages."