Treasury to outsource network services

By the end of the year, Treasury Department officials expect to award what could be the federal government's largest telecommunications contract for managed services.

The new contract will be based on service-level agreements, which private-sector officials increasingly view as the most efficient way of buying telecom services. "We want obviously the best service for the cheapest price, as any organization would," said Mike Parker, acting chief information officer at Treasury.

Department officials said they expect to use the managed services contract to

acquire such advanced network capabilities as IP multicast, IP Version 6, IP telephony and optical-wavelength service. IP multicast is a way to broadcast video signals via networks that use relatively low bandwidth.

The contract will cost Treasury as much as $1.5 billion, but it will get the agency

out of the telecom business. It will no longer own the network assets on which it will depend.

"It's all about managed services that integrate both business and technical aspects of service delivery," said Drew Ladner, who recently left his position as Treasury CIO and is now director of Clasis Capital LLC, an investment company specializing in software and telecom.

Ladner said Treasury's proposed service-level agreements reflect the requirements of the department's business operations. Often, such agreements are too heavy on technical specifications, and the paperwork ends up being a foot high, he said. "That might be good from a legal standpoint, but from an operational and practical standpoint, it's often unsatisfactory," he said.

By opting for managed services, Treasury officials are charting a different course from that which Defense Department officials have chosen, said Warren Suss, president of Suss Consulting Inc. DOD leaders, he said, want to own network assets, including transport lines, to guarantee enough bandwidth for the new generation of weapons systems.

"They're buying dark fiber, they are buying their own transmission gear, the optical switches — it's almost like building their own phone company," Suss said. DOD officials are motivated by the same desire that motivates Treasury officials: "to drive down costs," he said.

Using managed services, Treasury officials think they can reduce their program management costs, which are fairly high under the current telecom contract. But there is also a risk that they may have been too severe in their efforts to control costs, Suss said.

By wrapping virtually all of the bandwidth, encryption, network management, help-desk and reporting requirements into fixed-priced, contract line items, Treasury officials are shifting most of the risk onto the telecom vendor, Suss said.

"It's possible the vendors will try to protect themselves from some of that risk by charging somewhat more than they would for these other related services," he said.

But Ladner said fixed prices are important. "A fixed price introduces and enforces a discipline in the delivery of services that flexible pricing simply does not," he said. Given the tendency of prices to rise with "no market explanation for their going up, a fixed price can be very helpful," he added.

Treasury's 10-year telecom contract with Northrop Grumman Corp. expires in September 2005. It has provided the agency with what is said to be the largest private secure civilian network in the United States. The network has 215 customized system interfaces and more than 4,200 circuits in about 1,000 locations in the United States, Europe, the Bahamas, Bermuda and Guam.

In the new request for proposals, Treasury officials describe the state of the department's networking and what they hope it to be in the future. Moving from a secure network that supports IBM Corp. Systems Network Architecture protocols from the 1980s to a system of network services based entirely on IP will be a challenge for the winning vendor, according to Treasury officials. They envision network services that offer secure remote access for employees who telecommute. The network services must be reliable enough to support the operations of Treasury and its bureaus during a national crisis, which might bring down the public switched telephone network.

The managed IP network services will be used for many department activities, such as bill paying, personnel transactions and sharing information with law enforcement and financial institutions. Treasury officials also plan to expand the range of online transactions they conduct with citizens and businesses, including the filing of tax returns and bill paying with electronic invoices.

Officials are asking for a smorgasbord of managed services that at the upper end includes 10 Gigabit Ethernet service with a 99.99 percent service guarantee or less than 1 percent downtime in a year. They also will require the contractor to ensure that Internet access service has a latency no greater than 150 milliseconds at least 98 percent of the time. Latency, which refers to delays in processing network data, is the amount of time it takes for a packet of data to travel from its source to its destination and back.