GSA fails to disclose local phone service fees to agencies

The General Services Administration charges agencies local phone service contract management fees ranging from 28 percent to more than 80 percent of the value of services and should disclose those rates to its customers, according to the General Accounting Office. In a July 27 memorandum to Rep. Tom Davis, R.-Va., chairman of the House Subcommittee on Technology and Procurement Policy, Linda Koontz, director of information management issues at GAO, answered Davis' questions about GSA's management of Metropolitan Area Acquisition (MAA) contracts for local area telecommunications services. Davis posed the questions to GAO at a June 13 hearing on the contracts. The current design of the MAAs requires contractors to embed the GSA fees in the service pricing that they disclose to agencies during marketing activities, as well as on the invoices submitted for payment of services, Koontz said. "As a result, agencies do not have complete information to help them determine whether using GSA's services is their most economical option." GSA's Federal Technology Service charges customers two kinds of fees to recover its own contract management and administrative costs. Contract management fees are standard costs that all agencies buying through the MAA program must pay to cover GSA's program, acquisition and contract management activities. Full-service fees pay for a more complex range of offerings, including service ordering, contract planning and coordination, as well as billing. The full-service fee is assessed on top of the basic contract management fee. Koontz cited an agency in St. Louis as an example of how agencies could lower their MAA service costs significantly by doing their own service ordering, billing and administration instead of paying GSA. Agencies in St. Louis currently pay a contract management fee of 9.5 percent, Koontz said in her subcommittee testimony in June. Full-service is another 15.79 percent, for a combined fee to agencies of more than 25 percent of the cost of service per phone line. However, when agencies don't know what they're being charged for those services, they cannot determine whether it's cheaper for them to buy local service on their own or to purchase through GSA while handling their own support activities, Koontz said. Jim Payne, vice president of Qwest's government systems division, acknowledged that telecommunications companies are hiding GSA's management fees from agencies. However, he said that GSA has historically told companies to keep such information secret. Payne said he believes GSA is charging high rates on MAAs to make up for the lower contract management fees associated with the FTS 2001 telecommunications contract, a process he referred to as "cross-subsidization." The Interior Department's GovWorks acquisition center will enter into direct competition with GSA in the next three to six months when it offers a contract of its own to provide long-distance, local and data services to agencies. David Sutfin, chief of procurement operations for GovWorks, said the agency wants to offer customers better deals than the ones they now get from GSA. While Sutfin hasn't revealed the exact amount GovWorks will charge agencies for managing their telecom contracts, observers point out that in order to stand a realistic chance at competition, GovWorks' offering will have to include fees far below those of the MAAs. As of June, GSA had awarded 37 MAA contracts in 20 metropolitan areas. The transition from other GSA contracts to the new MAAs is ongoing.