Deal to lure Treasury may alter pricing of telecom contracts

The deal that resulted in the Treasury Department abandoning a solo telecommunications procurement effort late last year could alter the pricing structure of the governmentwide contracts Treasury decided to use instead.

Treasury agreed to drop its telecom procurement effort, the Treasury Communications Enterprise, in exchange for using the General Services Administration's pending Networx contracts, which will be available to multiple agencies upon their award later this year. Treasury will get a 50 percent reduction in the service fee on Networx for the next 10 years.

According to the memorandum of agreement between Treasury and GSA, signed Dec. 20, 2006, GSA will evaluate the potential for further reductions in the fee, based on prices negotiated for the Networx contract and an assessment of the operating costs for GSA network services.

The discount is one of several concessions that have rankled officials at other large agencies that buy telecommunications through GSA. The deal also requires GSA to help defend the cancellation of a request for proposals that Treasury issued before it dropped its solo effort. GSA will need to offer the services of its general counsel office and will share equally in costs incurred by Treasury after March 16, 2005. According to industry sources, at least three companies bid on TCE and each spent about $1 million on proposals.

John Johnson, assistant commissioner for integrated technology services at GSA's Federal Acquisition Service, said GSA is interested in bringing in as many agencies as possible to negotiate the best price possible for its 100-plus agency telecommunications customers. He said Treasury's decision to use Networx could have a positive influence on the contract's pricing because Treasury is expected to add an additional 5 percent of volume to the overall requirements package. Johnson said he could not reveal where GSA plans to find the money to help Treasury defend the cancellation of TCE.

Johnson said that in exchange for the lower overhead fee, Treasury will receive far less support from GSA. He said GSA has a strong relationship with its other customer agencies and they understand that the agreement with Treasury is good for everyone involved.

GSA officials long have intended to look at the pricing structure with the idea of creating tiered fee arrangements after the transition to Networx, Johnson said. The agency is looking several years ahead to determine whether new pricing models need to be introduced according to various degrees of services provided by GSA.

GSA has said that it will award the first set of Networx contracts in March and another set in May. Within 30 days of the first awards, GSA will allow Treasury to have access to and place orders under Networx, the December agreement stated.

Karen Evans, administrator for e-government and information technology at the Office of Management and Budget, said Treasury's agreement to use Networx is "good government on both parts."

But Warren Suss, president of Suss Consulting Inc. in Jenkintown, Pa., said the agreement is causing dissension among other federal agencies using GSA's telecom offerings. "This really opened up a can of worms for GSA's current customers," he said. "The overhead fee is a very sensitive area even though the agencies are getting a good deal."

Suss said large agencies are going to ask GSA for a similar discount, but that it would be very difficult for GSA to make any additional reductions in its revenues without endangering its ability to serve its customers.

The revelation of the deal between GSA and Treasury came after a years-long saga in which Treasury had stubbornly refused to abandon its solo attempt despite criticism from Capitol Hill, particularly from former House Government Reform Committee Chairman and current ranking member Tom Davis, R-Va., who said last week he met with GSA chief Lurita Doan.

But Davis' spokesman said he does not want to talk about the agreement. "We're glad Treasury chose Networx, but it's not our place or wish to micromanage how it happens."

While GSA is explaining to its 100-plus agency customers why Treasury is receiving a discount on Networx, Treasury is likely to gain handsomely, industry sources said.

Treasury will not only receive the discount and financial and legal assistance, they said. The department will also likely select its telecom provider of choice, AT&T, which was seen as the front-runner to win TCE and is expected as an option under Networx. A late 2004 award of the TCE contract vehicle to AT&T was canceled following a sustained bid protest, but under the Networx request for proposals, protests are not permitted.

Treasury spokeswoman Eileen Gilligan would not comment on the agreement and said the department believes that utilizing Networx makes the most sense for the taxpayer and the department.