Treasury telecom contract protested

Northrop Grumman Information Technology Inc., Qwest Government Services Inc. and Broadwing Communications LLC have protested to the Government Accountability Office an award by the Treasury Department, made last week, to AT&T Corp. to run the Treasury Communications Enterprise, which would provide service and technical support to the department at more than 850 locations.

The TCE contract is potentially worth more than $1 billion. Northrop Grumman has been providing the services under an older contract. The company was the first to protest the award last Friday. Qwest and Broadwing filed protests Monday.

GAO didn't comment on the reasons for the protests, but telecom industry sources have speculated that the losing companies would pursue legal options. The protests could come on a number of grounds, sources said.

Treasury awarded TCE after receiving only one round of offers from the bidders, which included A&T rival Sprint Co. The department had reserved the right to seek only one round, but industry observers have noted that it's rare not to ask for multiple offers on a contract as technically complex and lucrative as TCE. A second round of offers might give the government a better range of service prices, they said.

There's also concern in the industry about an agreement that Treasury reached with the General Services Administration and the Office of Management and Budget, prior to the TCE award, under which Treasury will consider using a GSA telecom contract for the department's telecom needs, once that contract is awarded next year. It's unclear whether or not Treasury officials notified the TCE vendors that the agreement, known as a memorandum of understanding, had been brokered.

Rep. Tom Davis, R-Va., who chairs the House Government Reform Committee, which oversees federal telecom issues, said at an industry event last week that when GSA awards its $10 billion Networx telecom contract, Treasury will revisit its decision to procure its own telecom services through TCE.

If the bidders hadn't been notified that Treasury's future telecom strategy had materially changed, and if they weren't given an opportunity to respond with modified proposals, that may have prompted their protests, according to industry sources who asked not to be identified because of the sensitivity of the situation. Other grounds might include whether or not Treasury applied evaluation criteria identically to all proposals, the sources said.

Sources indicated that other protests would be forthcoming, but as of Monday afternoon, GAO had only received three.

Calls to Northrop Grumman went unanswered Monday, and a spokesman for AT&T said the company hadn't yet read the protest documents, and so had no comment.

Qwest spokeswoman Claire Mylott said the company had protested based on its belief that the government had not received the "best value" from the winning bidder. She also said, "Treasury did not engage in discussions with Qwest after we submitted our proposal," and added that the company wants a chance to submit a new offer.

Mylott also contended that Treasury changed the technical requirements of the contract while it was evaluating offers, but would not comment further on how Qwest discovered that information or how the requirements were changed. Treasury officials didn't respond to requests for comment.

AT&T has a troubled history with Treasury. In the mid-1990s, the company provided the department toll-free services. In 1996, Treasury officials reportedly were so dissatisfied that they didn't want to use AT&T's network for the Internal Revenue Service, which was then gearing up for the tax filing season.

At the time, AT&T provided services to Treasury under a contract managed by the General Services Administration, called FTS 2000. In October of that year, James Flyzik, then the director of Treasury's Office of Telecommunications Management, wrote in a letter to the GSA official in charge of the contract, "As you are now well aware, Treasury is very dissatisfied with the performance of…AT&T." Flyzik noted that the company's equipment hadn't worked satisfactorily after it was installed, and that AT&T was unable to determine the cause of the problems.

AT&T shared the FTS 2000 contract with Sprint. GSA had the authority to assign certain agencies to use one of the two carriers, and had planned to steer 60 percent of the revenue to AT&T, under an official revenue sharing agreement, government documents show.

However, in 1994, the government began plans to reallocate the revenue sharing, moving some agencies from one carrier to another. The government planned to require transitions within six months. AT&T was concerned about its competitive position relative to Sprint, as well as a potential loss of revenue.

GSA decided to move Treasury and the IRS to AT&T's service, but Treasury officials expressed concern about the move's feasibility, since it would occur during the tax season, from December to May.

The transition went ahead, but it was beset with problems, as Flyzik noted in his 1996 letter. Two years later, AT&T filed a claim for restitution against GSA for discounts the company said were taken from its billings to the government after the Treasury transition was ordered, according to documents filed with the U.S. Court of Appeals for the Federal Circuit.

AT&T claimed that "various Treasury organizations delayed for long periods and/or flatly refused to transition to AT&T's network," the documents show. AT&T claimed that the government received discounts without ensuring that Treasury transferred to its network within six months. Treasury claimed the slow transition was AT&T's fault, and issued a claim for damages against the company.

The government ultimately denied AT&T's restitution claim after a 16-day trial in 1999. The GSA Board of Contract Appeals concluded that the government didn't breach its contract and that Treasury and AT&T shared the blame for the botched transition, the court documents show.

AT&T unsuccessfully appealed the decision in 2002, according to the documents.

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