GAO: Memo changed Treasury telecom deal

Treasury Department officials erred when they entered into an agreement regarding the Treasury Communications Enterprise contract that made it "significantly less likely" that officials would exercise options to extend the $1 billion contract beyond its three-year base period, according to the Government Accountability Office.

GAO officials this week upheld the protests of losing TCE bidders and recommended that Treasury officials allow vendors to submit new proposals. Treasury officials had agreed just before awarding the contract that they might move the agency's requirements to the forthcoming Networx contract at the end of TCE's base period.

That approach was reflected in a memorandum of understanding among Treasury, the Office of Management and Budget's Office of Federal Procurement Policy and Office of Electronic Government, and the General Services Administration's Federal Technology Service.

The protestors argued that the agreement represented a "fundamental and material change" in the method Treasury officials would use to determine whether to exercise the contract's option years beyond the three-year base. GAO officials agreed.

The original request for TCE proposals outlined a specific process that Treasury officials would use to determine whether to extend the contract based on the contractor's performance. GAO auditors concluded that the memo with OMB and GSA changed that system and asserted that Treasury and FTS officials would conduct an analysis to determine whether extending the contract or moving to Networx would be the better bargain.

Treasury officials should have informed the bidders of the change in approach and allowed them to submit revised bids based on the new information, GAO auditors concluded.

Lou Addeo, president of AT&T Government Solutions, which was initially awarded the TCE contract, issued a written statement expressing disappointment with the ruling.

"We're disappointed in the GAO's decision, but we fully intend to compete vigorously to retain this award as the Treasury Department amends it and collects additional information from bidders," Addeo said. "We strongly believe we submitted far and away a superior solution to Treasury's networking needs."

Northrop Grumman Information Technology, the company that holds the Treasury Communications Systems contract that TCE will succeed, was one of the protestors, as was Qwest Communications International, which subcontracts to Northrop Grumman. The other protestors were MCI, Broadwing Communications and Level 3 Communications.