GSA official: Treasury inclusion in telecom contract won’t lower rates

Four large companies had already submitted final bids to GSA before Treasury agreed to give up solo effort.

A decision by the Treasury Department to procure telecommunications through the General Services Administration is unlikely to have any effect on governmentwide rates, a GSA official said Tuesday.

GSA is poised to award contracts for Networx Universal, the largest part of its acquisition of telecom services on behalf of the federal government, in March. The second, smaller portion of the procurement, known as Networx Enterprise, is on track for awards in May, GSA officials have said.

Treasury's decision to use Networx Universal "won't lower the price," said Karl Krumbholz, Networx program manager, speaking during the second of two GSA-hosted Networx transition summits in Virginia. "It'll have no effect on Universal," he said.

In December, Treasury agreed to kill its in-house acquisition in favor of Networx. Critics of Treasury's solo effort said the department's inclusion in Networx would help create greater economies of scale, translating to cheaper prices for the entire government.

But the four big companies bidding on Networx Universal -- AT&T, Sprint, Qwest and Verizon -- already had submitted their final bids by the time Treasury agreed to give up its own procurement. GSA officials will not ask for another round of Universal bidding, Krumbholz said.

The only way Treasury's participation could conceivably reduce prices for the rest of the government would be if a Networx contract winner decided as a result of Treasury's participation to lower its rates across the board, Krumbholz said. Once a telecom company makes a rate reduction for one government customer, it must duplicate it for the entire government unless the service being offered is not reproducible elsewhere.

But even then, "we would try to make those new services as normalized as possible," Krumbholz said.

Treasury's decision to use Networx has not come without controversy. Treasury negotiated a 50 percent reduction of GSA's Networx fees for services it currently buys through GSA's existing telecom contract, FTS 2001.

Krumbholz estimated Treasury gets about half of its voice and data services through the FTS 2001 metropolitan area acquisition program, through AT&T. Treasury officials at the conference refused to confirm the number.

The decision to offer Treasury discounts to use Networx is not universally popular. John Johnson, assistant commissioner for integrated technology services at GSA's Federal Acquisition Service, has defended the arrangement. In exchange for the lower overhead fee, Treasury will receive far less support from GSA, he told reporters earlier this month.

Johnson and his Networx team didn't come up with the idea of offering Treasury the discount in the first place, according to industry sources. GSA spokesman Jon Anderson confirmed Tuesday that the idea originated from a working group designated by GSA Administrator Lurita Doan and headed by David Drabkin, the agency's associate administrator for acquisition policy. Neither Drabkin nor Johnson could be reached on short notice for comment. Johnson's team was represented on the working group, but was not in charge, according to a GSA official.

Other agencies using the telecom contract likely will look for treatment similar to that received by Treasury, according to industry sources. But GSA already is examining ways to customize fees on a per-case basis, according to one telecom industry source who spoke on condition of anonymity.

GSA charges a 7 percent fee for FTS 2001, but it's unlikely the agency will continue charging across-the-board fees, the source said. Instead, it may create a sliding scale based on the amount of support it offers to agency telecom efforts, charging more in cases where it manages implementation and less in simple cases of contract review.

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