Auditors question GSA's telecom transition cost estimates

The General Services Administration plans to announce the recipients of its massive Networx telecommunications contract on Thursday.

The announcement may provide a clearer picture of whether the agency's projections for the costs of switching to the new agreements are on target, though the awards still are subject to bid protests.

In a study (GAO-07-268) of GSA's preparation for the long-awaited contract, the Government Accountability Office said agency officials erred in using overly conservative figures to decide how much funding to set aside for helping agencies move to new providers.

GSA officials told auditors they developed their cost estimate of $151.5 million using a worst-case scenario. The agency had, at the time of the report, set aside $142 million of that, slightly short of the goal.

But auditors said $142 million would be adequate to cover costs with a 96 percent confidence level, and the agency was wrong to budget based on the higher estimate.

"While GSA's intentionally conservative approach minimizes the risk that it would have inadequate funds to pay for committed transition costs, it increases the risk that GSA will retain excess funds that could be used for other purposes," auditors said.

GAO described the approach as not sufficiently accurate to constitute a good estimate.

For estimation purposes, GSA assumed that 76 percent of the services provided under the current telecommunications contracts, known as FTS 2001, would move to a different provider under Networx. They used a projection that 60 percent of services would be shifted involuntarily, based on the incumbent not winning the right to compete for business as part of Networx, and that 16 percent of services would shift because agencies selected a new vendor.

Auditors said those figures were unreasonably high, given that Verizon Business, the largest contractor, provides about 50 percent of services, so a 60 percent shift would require that both Verizon and another incumbent be left out of Networx. Further, they said, the projected 16 percent voluntary shift rate far exceeds the actual rate of 3 percent change that was seen during the last contract turnover.

GAO's own analysis found that if all incumbents win awards under Networx, GSA's transition costs could be as low as $40 million. But if Verizon Business does not win an award, pushing agencies to find a new provider for half of all services, the costs could be about $136 million, they said.

If GSA ends up with extra transition funds, the agency could be allowed to keep them in the revolving Acquisition Services Fund or be required to return the money to Treasury.

The auditors recommended that GSA develop policies for producing cost estimates and revise the Networx projection. Administrator Lurita Doan concurred with both recommendations.