Delays to FTS 2001 cost taxpayers $74M

Taxpayers are paying an extra $74 million because 27 agencies failed to meet the Dec. 6, 2000, deadline for switching to the $1.5 billion FTS 2001 telecommunications contract, according to a senior General Services Administration official.

Sandra Bates, commissioner of GSA's Federal Technology Service, told the House Government Reform Committee's Technology and Procurement Policy Subcommittee April 26 that the transition to FTS 2001 did not go smoothly. But, she said, the acquisition strategy is "as sound today as it was when we were here discussing it in 1997."

Agencies' delays in moving telecommunications services from FTS 2000 to FTS 2001 resulted in lost revenue for the new vendors and put FTS 2000 providers AT&T and Sprint in a position to jack up prices, witnesses said at the hearing. The slow transition also means that the lag in meeting FTS 2001 vendors' minimum revenue guarantees of $750 million each will delay GSA plans to open the contract to more competitors.

Despite the delays, the government will save money on telecommunications and has learned lessons to apply to future procurements, said subcommittee chairman Rep. Tom Davis (R-Va.).

"Clearly, the delay in implementation here has had a huge cost," Davis said after the hearing. "It means that no one focused on what a delay would cost with minimum revenue guarantees."

The General Accounting Office found that FTS 2001 vendors — WorldCom Inc. and Sprint — will meet those guarantees in late 2005 and 2006, respectively.

WorldCom and Sprint painted the contract as a success at driving competition in the market. But rivals AT&T and Qwest Communications International Inc. lobbed accusations that transition delays and high minimum revenue guarantees promised to the winners are limiting competition. Qwest Senior Vice President James Payne questioned why it will take so long to meet the revenue guarantees, thereby prohibiting other providers from entering the competition.

"What is wrong with the economic model that that much effort is required to fill their buckets?" Payne asked.

John Doherty, vice president of government markets for AT&T, said GSA should eliminate the revenue guarantees or at least offset them by the revenue that would have been available to the FTS 2001 contractors if there had been no transition delays.

Bates said the guarantees were needed to bring vendors to the table at the contract's start but she would re-evaluate their need. When the transition to FTS 2001 ends this summer, GSA will open the market to new entrants, she said.

Bates also plans to implement GAO's recommendations, which include obtaining complete progress updates from WorldCom and Sprint by April 27, tracking the status of FTS 2000 service disconnection orders and resolving all billing issues between the contractors and their agency customers.

Despite the $74 million lost, GSA claims it saved $150 million in fiscal 2000 and will save $250 million this year compared to what it paid for FTS 2000 services. But officials at WorldCom and Sprint said their firms lost $100 million each in revenue because of the delays.