GovernmentExecutive.com

By Gautham Nagesh

What is It?

The largest government telecommunications program in history, Networx is a 10-year governmentwide contract valued at more than $68 billion. It replaced the FTS2001 contract, which expires Jan. 1, 2008, and offers more advanced telecom technologies and services, such as IP telephony and managed e-authentication services, which FTS2001 did not.

The General Services Administration manages the Networx contract, which is a way for 135 federal agencies operating out of 191 countries to buy services from the largest telecom companies in the United States, including voice and phone-related services, Virtual Private Networks, IP telephone and IP-related services, managed firewalls, e-authentication and other security services, cell phone and wireless services, video conferencing, web conferencing, storage and other management and application services.

Agencies are not required to buy off the Networx contract, but the GSA hopes that by pre-qualifying telecom vendors to offer services to government, agencies will choose Networx to avoid having to conduct their own procurements and therefore save money. GSA charges agencies a fee (equal to 7 percent of the order).

The Networx program is divided into two contracts: Universal and Enterprise. The Universal contract requires telecom vendors to provide a full range of telecommunications services both domestically and internationally at the lowest possible prices, similar to its predecessor, FTS2001. GSA awarded the Universal contract, valued at $48.1 billion, in March 2007 to AT&T Government Solutions, Verizon Business Services and Qwest Government Services. Each contract has a four-year base with three two-year options, and each company is guaranteed minimum revenue of $525 million.

GSA designed the Networx Enterprise contract as a way for smaller telecom companies to offer services. It requires companies to offer a minimum of nine IP-related services, such as Voice Over IP and network-based VPNs. It does not require the full range of telecom services that the Universal contract calls for. (Standard phone service and wireless services are not included, for example).

Enterprise vendors also are not required to offer the services worldwide. GSA requires them to provide a secure, managed IP network nationwide, saving money for agencies not requiring an international network. GSA awarded the Enterprise contract, valued at $20.1 billion, in May 2007 to Level 3 Communications and Sprint, in addition to the three companies on the Universal contract.

Why Should I Care?

Networx is the largest and most ambitious government telecommunications contract to date. Its aim is to make all voice, data, wireless and IP-related solutions available through one convenient contract. GSA and IT managers expect it to transform federal telecommunications systems, providing wider access to advanced technologies such as VoIP-based systems.

Networx was designed under the theory that it can provide the latest technologies at the lowest prices because it drives the billions of dollars that agencies spend on telecom through one contract, therefore cutting prices through economies of scale. That's what happened under GSA's predecessor telecom contracts. Over the past 10 years, the cost of making a long-distance phone call on a government land line using the FTS2001 contract dropped from more than 25 cents per minute to about a penny per minute.

GSA executives also believe Networx will improve the telecom procurement process by being able to offer better billing accuracy, reducing delays and service outages, on-time provisioning (which requires a vendor to credit an agency with the installation charges if the deadline is not met), increasing network security by standardizing solutions, and reducing other process risks.

How's It Going?

When GSA awarded the larger Networx Universal contract, it excluded telecom provider Sprint, which was one of two companies that had offered telecom services on the FTS2001 contract. Under it, Sprint had supplied about 30 percent of the government telecommunications services, and the loss brought into question Sprint's viability as a telecom provider in the government IT market. Sprint still services several agencies, including the departments of Defense, Homeland Security and Transportation. The company announced in April it would not protest the decision.

However, GSA awarded Sprint a smaller Networx Enterprise contract, which gave the company a valuable foothold in the government telecom market. GSA has guaranteed each of the five vendors on the Enterprise contract a minimum of $10 million in revenue over the next 10 years.

GSA's 7 percent fee to purchase off Networx will eventually give way to a tiered payment system. Agencies that go through GSA for services such as contract billing will pay a higher rate than those that bill and pay directly.

For Networx to offer the lowest prices, GSA must offer large volumes of purchases, which means convincing agencies to buy telecom services off Networx and not developing individual contracts. One such contract was the Treasury Communications Enterprise, a $1 billion contract which the Treasury Department was developing on its own. But in January 2007, Treasury executives agreed to cancel its development in exchange for a 50 percent cut in GSA's Networx fee. The deal eliminated one of the main competitors for Networx but drew criticism from the heads of other agencies over what they said was preferential treatment for Treasury. GSA said that in exchange for the reduced fee, Treasury will receive less support than other agencies.

Another large customer GSA sought to attract was the Defense Department; in May 2007, the agency got its wish. That month, Defense announced its plans to be the largest Networx customer, allaying fears that the department would instead turn to its own Global Information Grid program for all voice services. Defense is expected to maintain its same levels of voice traffic on Networx as it did for FTS2001, for which it was the largest customer.

The Government Accountability Office released a report in March 2007 concluding that the GSA overestimated the amount that agencies would have to spend on the transition to Networx. The GSA forecast that under the worst-case scenario, it would cost $151 million to move from FTS2001 to the Networx contract. The GAO, calling the GSA's estimates "overly conservative," concluded that the $142 million GSA had budgeted would cover all costs.

In November, the GSA's National Capital Region awarded the Washington Interagency Telecommunications Systems 3 contract to Verizon Business Network Services and Level 3 Communications. It is expected to complement Networx and allow agencies in the Washington area to access many of the same services offered off Networx at the lowest possible rates.