Treasury telecom provider drops out of contest for new contract

The Treasury Department's incumbent telecommunications provider has decided against bidding for a new telecom contract, a company spokeswoman confirmed Wednesday.

"It's in our best interest not to bid on the contract," said Christy Whitman, a Northrop Grumman spokeswoman. She declined to elaborate.

The company's McLean, Va.-based information technology sector was one of seven original contenders permitted to rebid on the Treasury Communications Enterprise contract after the Government Accountability Office ruled that the award process was flawed.

Proposals for TCE are due at 10 a.m. Thursday.

There have been several dramatic twists and turns in the TCE procurement, the most notable of which was Treasury's August decision to resurrect the contract despite having apparently laid it to rest following the March GAO ruling.

Rep. Tom Davis, R-Va., and officials at the Office of Management and Budget had pressured Treasury to instead rely on the General Services Administration's Networx telecom contract.

The department plans to make a final TCE award by April or May, but expects that the transition to the new contract will be delayed by another round of bid protests. "If somebody has 37 cents, they can protest," a Treasury official said on condition of anonymity.

GAO is closely monitoring the award process, and in an attempt to be scrupulously fair, Treasury already has delayed the final bid date twice in order to accommodate industry needs.

But "we know it's going to be protested," the official added. Treasury extended the current telecom contract -- called the Treasury Communications System and held by Northrop Grumman -- until September 2007. The department will phase in its new contractor's services, avoiding an instantaneous conversion over to the TCE provider, the official said.

Northrop Grumman's decision to withdraw from the TCE contest probably is unrelated to Davis' hostility to TCE, said Phil Kiviat, a government information technology market consultant. "I wouldn't think that would be a reason, to stay on Tom Davis' good side, but who knows?" he said.

Northrop Grumman was the only systems integrator to make an original bid on TCE; the other contenders were telephone carriers.

Incumbent contract holders can be at a bid pricing disadvantage because "often they will bid more than everybody else, because they know what the problems are," Kiviat said.

AT&T, which won the TCE bid that GAO later rejected, submitted a $1 billion proposal. Northrop Grumman could have decided there was no way to match or better that offer, Kiviat said.

However, a common criticism of TCE is that AT&T submitted a low price, expecting to later raise its costs. An AT&T spokesman had no comment.

The structure of the TCE procurement also places systems integrators at a disadvantage, said Warren Suss, a federal telecom analyst. The contract requires the winner to shoulder many of the fixed costs associated with telecom networks.

The Treasury official said TCE and the current contract differ in terms of ownership of the infrastructure equipment. Currently the Treasury Department owns the equipment and Northrop Grumman is the manager. With TCE, the winner will either accept ownership of existing equipment or submit a bid proposing to provide its own equipment.

Telephone carriers can shoulder the associated costs more easily because of economies of scale, Suss said.

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