<DOC>
[DOCID: f:44262.wais]
OVERSIGHT OF THE POST-FTS2000 TELECOMMUNICATIONS CONTRACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
of the
COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
APRIL 30, 1997
__________
Serial No. 105-46
__________
Printed for the use of the Committee on Government Reform and Oversight
U. S. GOVERNMENT PRINTING OFFICE
44-262 WASHINGTON : 1997
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South JOHN F. TIERNEY, Massachusetts
Carolina JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
ROB PORTMAN, Ohio
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Government Management, Information, and Technology
STEPHEN HORN, California, Chairman
PETE SESSIONS, Texas CAROLYN B. MALONEY, New York
THOMAS DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida MAJOR R. OWENS, New York
MARSHALL ``MARK'' SANFORD, South ROD R. BLAGOJEVICH, Illinois
Carolina DANNY K. DAVIS, Illinois
JOHN E. SUNUNU, New Hampshire
ROB PORTMAN, Ohio
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Mark Brasher, Professional Staff Member
John Hynes, Professional Staff Member
Andrea Miller, Clerk
David McMillen, Minority Professional Staff Member
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on April 30, 1997................................... 1
Statement of:
Barram, David J., Administrator; and Robert Woods,
Commissioner, Federal Telecommunications Services, General
Services Administration.................................... 6
Letters, statements, etc., submitted for the record by:
Burton, Hon. Dan, a Representative in Congress from the State
of Indiana, letters referred to............................ 20
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York, prepared statement of............... 12
Stevens, Hon. Ted, a U.S. Senator from the State of Alaska,
prepared statement of...................................... 3
Woods, Robert, Commission, Federal Telecommunications
Services, General Services Administration:
Information concerning awards............................ 9
Information concerning language.......................... 32
Letter from the Industry Advisory Council................ 17
OVERSIGHT OF THE POST-FTS2000 TELECOMMUNICATIONS CONTRACT
----------
WEDNESDAY, APRIL 30, 1997
House of Representatives,
Subcommittee on Government Management, Information,
and Technology,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2154, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn, Sessions, Davis of Virginia,
Maloney, and Davis of Illinois.
Ex officio present: Representative Burton.
Staff present: J. Russell George, staff director; Mark
Brasher and John Hynes, professional staff members; Andrea
Miller, clerk; and David McMillen and Mark Stephenson, minority
professional staff members.
Mr. Horn. A quorum being present, the Subcommittee on
Government Management, Information, and Technology will come to
order. I apologize for the delay, but we are having a meeting
of the Conference at this time, and a lot of us had to be tied
up there.
The drafting and negotiating stage of the Post-FTS2000
telecommunications process is finally coming to a close, or so
we hope. Today, we will hear from the two people who have been
intimately involved throughout the long process, who can tell
us whether or not that is the case.
In the past, I have noted that a high level of attention to
this matter is clearly warranted. This is a multibillion dollar
procurement. The General Services Administration must do what
is in the best interests of the taxpayers. GSA observed in its
December 1996 report to Congress that the future environment is
uncertain. Maybe we can learn today whether this uncertainty
still exists.
Now that we are on the verge of the new contract, we look
forward to hearing from the key agency on how it maximizes
competition and leaves the Government the flexibility it needs
in order to take advantage of the quickly changing
telecommunications environment. We are going to hear from David
Barram, the acting Administrator of the General Services
Administration. After a successful career in Silicon Valley,
Mr. Barram has joined the Department of Commerce as Deputy
Secretary, Chief Operating Officer. He has been acting
Administrator at the General Services Administration since
March 4, 1996.
Mr. Barram is accompanied by Robert Woods, who is
Commissioner of the Federal Telecommunications Service of the
General Services Administration. Mr. Woods knows this issue
backward and forward. He has appeared before this committee a
number of times, and we salute his diligent efforts on the
Post-FTS2000.
A word of thanks is also due to Chairman Burton, who will
probably be along shortly when the Conference adjourns. He has
devoted careful attention to this issue over the past several
months.
We welcome our distinguished witnesses. As you know, under
the traditions of this committee, we would ask all witnesses to
be sworn in. So if you will raise your right hands?
[Witnesses sworn.]
Mr. Horn. Thank you. We are inserting in the record at this
point a statement of Senator Ted Stevens, who cannot make it.
Without objection, that is inserted in the record.
[The prepared statement of Hon. Ted Stevens follows:]
[GRAPHIC] [TIFF OMITTED] T4262.001
[GRAPHIC] [TIFF OMITTED] T4262.002
[GRAPHIC] [TIFF OMITTED] T4262.003
Mr. Horn. Is there an opening statement from Mr. Davis of
Illinois?
Mr. Davis of Illinois. No, thank you.
Mr. Horn. I thank the gentleman.
We will proceed then, however you would like, Mr.
Administrator.
STATEMENTS OF DAVID J. BARRAM, ADMINISTRATOR; AND ROBERT WOODS,
COMMISSIONER, FEDERAL TELECOMMUNICATIONS SERVICES, GENERAL
SERVICES ADMINISTRATION
Mr. Barram. Thank you Mr. Chairman, and good morning. If I
could make an opening statement, I would appreciate it.
On March 12, you initiated a process that had as its
purpose achieving a consensus strategy that would allow the
Post-FTS2000 program to proceed. You asked us, under your
leadership, to meet with industry to forge this consensus.
Moreover, you requested this be accomplished within a 30-day
period so as to minimize the effects of potential delay to the
program.
Thank you for that, by the way.
Mr. Chairman, I am here to report to you on the outcome of
this process. At the outset, please permit me to offer a
perspective on what is ahead for us all.
Nothing I know will better describe the new world order
than how we use and how we cope with telecommunications.
Everything we do in our regular work, and probably our lives,
will be affected by the changes ahead. We have been very
successful with FTS2000. It has given us excellent services and
great prices.
The next step would not be possible without the platform we
built with FTS2000. But I believe the next step, which is
FTS2001 and the MAA, will be exciting, unpredictable,
satisfying and challenging. Because we all want a Government
that works better and costs less, this is the right step to
take. We will save money, provide productivity-enhancing
services and give Government employees the tools to do their
jobs as this country turns or as we cross the bridge to the
21st century.
You know that famous bridge; it is a big deal to us and to
the industry. Companies will merge, make alliances, get in and
out of markets, innovate and generally keep all of us on our
toes. If history is our guide, we will all benefit as these
changes occur.
Mr. Chairman, I believe the consensus-building process of
the last month has worked and that we have achieved success.
Under the leadership of this committee, representatives from a
broad range of industry, the Interagency Management Council,
various congressional committees and the General Services
Administration attended the consensus development session.
Collectively, we reviewed and considered the concerns and
comments of industry and the FTS users. There was considerable
discussion on the detailed provisions of strategy, and my staff
provided clarification on these provisions as needed.
Based on the comments and suggestions offered at the
consensus development session, we formulated enhancements to
the February 1997 refined Post-FTS2000 program strategy. These
enhancements were incorporated as specific changes to the FTS
program statement of principles and were presented in writing
to the industry and Government representatives on April 4,
1997. A followup discussion among all parties was held on April
7, to explain the changes and seek additional comments.
Copies of the statement of principles and the supplement
developed following the consensus development session have been
provided to the committee. I am satisfied, Mr. Chairman, that
the program principles, as supplemented by the consensus
development process initiated at your direction, continue to
allow the future FTS2001 and metropolitan area acquisition
contractors to move toward offering true end services. As of
this moment, these final provisions are being incorporated
within the contractual language of the solicitation documents
and we are prepared to proceed with release of those documents
on schedule this Friday, May 2.
Mr. Chairman, the concerns and comments of all interested
industry and user parties have been heard. An important
illustration of this give-and-take process occurred when
industry suggested that we incorporate a prequalification
process within the MAA program to increase the speed and
enhance the competitiveness with which MAA contracts may be
awarded. That was an excellent suggestion, Mr. Chairman, and we
have heard industry and incorporated this process.
With this suggestion and others, I believe we now have a
strategy that is in the best interests of the American
taxpayer, the Federal Government users, and the industry
providers. In consultation with the attending congressional
staff, we believe it is time to release the final FTS2001
solicitation and a draft MAA solicitation on May 2. Release of
the FTS2001 RFP should ensure that the FTS2001 contracts are
awarded and transition planning is under way prior to
expiration of the current FTS2000 contracts. As we move
forward, we will continue to receive and consider industry
comments and questions as a normal part of the Federal
acquisition process.
There are times in life when we need to get on with it.
This is one of those times. We have been listening and we will
keep on listening. We have insisted on broad, deep and fair
competition, and we will keep on insisting.
Mr. Chairman, we have constantly aimed to achieve
innovation, and we will keep on aiming for that innovation.
Again, let me thank you and the committee for your leadership
during the March hearings and the April meetings. Bob Woods and
I will be happy to answer any questions you may have.
Mr. Horn. We thank you for that statement.
Mr. Woods, do you have anything else to add to that?
Mr. Woods. No, Mr. Chairman, I don't.
Mr. Horn. Let me just go through a few questions. We are
going to take 10 minutes to a side; I don't think this is going
to last too long.
Just for the record, does the current strategy you have
described represent the acquisition structure which will best
promote Federal interests and get the best deal?
Mr. Woods. Mr. Chairman, I believe that it will. We have
worked hard with the industry and with our customers, and we
believe that the refinements will add. So we are quite
confident that the enhancements made serve the interests that
were broad, and that we worked those in a way that I think will
serve this Government well.
I think the Administrator said it well when he said we have
got a good base and the current program has been successful.
But if we don't change in this environment, the next generation
won't be. So we have had to change from a base of success, and
sometimes that is awfully hard to do.
When you fail, change is fairly easy. We have been
successful, and this change has come in consultation with a lot
of interested parties. So we have a lot of confidence in what
has been done.
Mr. Horn. Have any segments of the industry expressed
reservations regarding the current strategy, and what are their
concerns? Would you like to respond to them?
Mr. Woods. I think as we go along in this, it is not so
much whether they express reservations as it is a matter of
dimension. They agree with most of it, but there are some parts
of it they don't agree with. You are always going to get some
of that. If I am representing my organization effectively,
whether I am in industry or in Government, I am always going to
want the part that is good for me.
My job and the Administrator's job is to represent the
Government's interests well. As we have gone through this, I
don't think anybody got the whole loaf, but I think they all
got something out of it; and I think we will always have some
reservations, and there are always going to be some fine points
that have to be worked out. That is going to happen.
Mr. Barram. Let me add just one comment. The Federal
Telecommunications Act and our proposals here are both designed
to respond to an incredibly different environment, where long
distance providers can offer local service and local can offer
long distance, and there are all kinds of new technologies.
So this is a time of incredible change. It would be
illogical not to have everyone wondering just how they are
going to play in that new environment.
What we have tried to do is concoct a program with all
kinds of consultation that gives everybody a chance to compete,
which is what we found really works, and that is no surprise,
and that we end up with the best service for our customers, the
Federal Government agencies.
Mr. Horn. When do you expect to make the awards for the
FTS2001 contract?
Mr. Woods. Right now, we are looking at early next year,
next calendar year. We have not announced a formal time on
that, although our web page does show dates for those, and we
could get you, for the record, those exact dates.
Mr. Horn. Without objection, it will be inserted at this
point.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T4262.004
Mr. Horn. When do you anticipate migrating the traffic from
the incumbents to the FTS2001 winners?
Mr. Woods. After the award of the new 2001. At that stage,
you have really got to sit down and take stock. You have to
have a sense of what you have got and who the current providers
are and who the new providers are going to be.
At that stage, we anticipate it is going to take anywhere
from 3 to 4 months to put together a transition plan; that is
ambitious. We have staff working to do everything they can do
without knowing who the players are. And then, from that point
on, from that 3- or 4-month planning period, it will take, we
think, about 12 months to do the actual transition.
Mr. Horn. Can you predict how long distance rates will go
under the proposed FTS2001 contract?
Mr. Woods. How far they will go in terms of reduction?
Mr. Horn. I am sorry, predict how low long distance rates
will go under the proposed FTS2001 contract?
Mr. Barram. Don't look at me. Zero.
Mr. Woods. I hope very low. I think the economics of this
business are that you have very high capital investment and you
have very low operational unit costs. So as you buy volume,
your rates would go down substantially.
We have not predicted at this point, Mr. Chairman, what
might happen, but my personal belief is that the industry is
sitting on top of tremendous capacity that is unsold, and I
think as we begin to sell the rest of the capacity, that some
areas, like switch voice, will begin to decline significantly.
When we say 5 cents a minute and 2 cents a minute on-Net, I
still believe those rates are going to come down.
Federal agencies--and I spent 20-some years, 25 years, in
Federal agencies as a customer of this type of service; I still
believe that the agencies are looking for declines in those
kinds of prices, and they are either going to get them from us
or from other sources. So I believe the expectation of
customers is for continuing declining prices.
Mr. Horn. Just as the last general question, perhaps a
softball question, how did you arrive at the changes
encompassed in the current strategy?
Mr. Woods. Well, as we went through it--and I think both of
us have something to say on that--but as we went through the
development of the strategy some 3 or 4 years ago, we have
genuinely tried to bring the customer into this process as
deeply as we can, and it is in fact part of how I got to be in
this job; I sort of got lured into being one of those customers
who participated heavily. And the customers 3 or 4 years ago
said, your main requirement in the next generation is
flexibility. They were concerned at that time about the great
changes that were coming.
So we got here by trying to read where the industry is
going; and, quite frankly, the changes have been significant,
as you know, over the last 18 months. As we have listened to
different groups and moved ahead with interpretations of the
Telecommunications Reform Act and others, we made those changes
based on the best interpretations we could find from the people
that actually were there and actually worked it.
So it happened by nature, its very nature of consultation
with Congress, with the industry, and with customers.
Mr. Horn. When you look at the contract, is there a thought
on what is the total limit of time of that contract? Or do you
think smaller time periods will permit more flexibility in
taking advantage of technology? How do you deal with that
problem?
Mr. Woods. My personal belief is that--and this sounds like
a very Washington answer--you have got to do both. There are
some services in which you need long-term stability.
Switch voice is going to be here in some form forever. Will
it be here in the form exactly as we have today? Probably not.
So for some things, that kind of service, especially advanced
800 routing where you call in to the Social Security office at
5 o'clock in the afternoon and it starts switching you to
different offices that are still open in order to save money
and still provide the service, those are very complicated
arrangements. You can't take agencies in and out of those
contracts at the drop of a hat.
There are other services, we believe, that should be much
more dynamic and much more responsive. So we really have to mix
that.
We can't take one silver bullet and hope for the best. We
have got to go after the contract length that matches the
product. As the Administrator said, we found competition works
and we are going to continue to bring that to bear; as we move
ahead, we will bring new players in.
Mr. Barram. Let me add one thought. I think one of the
powerful and exciting opportunities we have ahead of us is
trying to keep some stability while we are dramatically
changing the way people use telecommunications. I have a hard
time imagining after the turn of the century that most of us
will not be carrying our telephone with us most of the places
we go and have numbers that are identified with us.
This is different than we operate today. So we will have a
lot of different kinds of switching.
The providers who get contracts are going to have to play
in that arena, because that is what is going to be happening.
So they are both going to want some stability and have to be
making dramatic changes within what they are doing.
We are going to have a real challenge managing this, and we
are going to have to be very focused on the services rather
than facilities on our own side, so that we don't end up with
what we call ``stranded investment.'' We want the providers to
be telling us what the next great thing is, and there will be
enough competition that I think we will keep getting the next
great thing.
Mr. Horn. That is very helpful.
I now yield 10 minutes to the ranking minority member, the
gentlewoman from New York, Mrs. Maloney.
Mrs. Maloney. First, I would like to ask that my opening
statement be put in the record, as read.
Mr. Horn. Without objection, it will be put with the rest
of the opening statements.
[The prepared statement of Hon. Carolyn B. Maloney
follows:]
[GRAPHIC] [TIFF OMITTED] T4262.005
Mrs. Maloney. I would like to really congratulate GSA for
winning one of Vice President Gore's Hammer Awards for lowering
the price for long distance phone calls from 27 cents a minute
to 5.5 cents per minute today. It is an extraordinary
achievement and what is really the largest procurement contract
ever undertaken by Government, a staggering 10-year, $25
billion contract.
But in that process, you succeeded in lowering the cost to
the American taxpayer, and I congratulate you.
I would like to really ask some questions about the outcome
of the task force that Chairman Burton put in place to reach a
compromise on the final stages; and particularly I would like
to talk about the prequalified bidders list and the use of a
prequalified process for the metropolitan area acquisition
program, which is intended to increase speed at which contracts
can be awarded and to ensure that the telecommunications
services will be subject to fair competition.
First of all, how are you going to devise this prequalified
list and how will this prequalified bidders list increase speed
and increase competition?
Mr. Woods. The idea behind the prequalified list came out
of the task force work sessions that we held up here, that
Chairman Burton's staff hosted. The suggestion actually came
from the industry side over their concern that if every one of
these procurements--and there are going to be about 20 or so,
or maybe more--that it was going to take too long a period of
time; that every time we did one of these, they would look 90
percent like the last one, but you would be going through the
whole process from the start.
The idea here is not to exclude anyone or that you get some
exclusive list. It is simply to try to do some front-end work
that lets you say that company X, that is qualified technically
from a managerial standpoint in the first city certainly hasn't
lost that qualification when you get to the third city.
So the idea was that we would develop this list, it would
allow the Government to move fairly rapidly in getting through
what is 90 percent of the routine work that it takes to do the
evaluation.
Mrs. Maloney. Do all the industry groups support the pre-
qualified bidders list concept? Are they on board on that?
Mr. Woods. I think they are. We have heard no objection to
that yet. Its function does not exclude anyone.
Let's say we have eight people, eight companies on the
list, and a qualified company comes along and wants to bid.
They can either get prequalified ahead of time or they can bid
at the time of the solicitation.
Mrs. Maloney. So it is not anticompetitive. People can come
into the process.
Do you have to have certain qualifications to get on the
prequalified list? Do you set a standard that people must reach
before they can get on the list? That cuts down Government's
work, too, by not having to look at contractors' bids that
cannot handle the job.
Mr. Woods. That is correct. The only caveat I would see
there is that we would not take it forever. In other words, if
you get prequalified and 4 years later you have had doubtful
performance, the Government has left itself the option that we
may go back to a specific company and say, we would like to see
you requalified because we have had some problems.
But other than that, it really does make our work a lot
easier.
Mrs. Maloney. Do you have sort of a list of qualifications
to make this fertile to the prequalifying?
Mr. Woods. Yes. Essentially what we do is take the
qualification and take everything but the specifics for the
particular city, and they have to pass the technical marks for
everything within that basic solicitation.
What is happening is, they are almost doing what they do on
a bid on a regular proposal, but they do it as though they are
bidding to a specific city. In fact, when we bid the first one
in New York, it is very possible that companies that come in,
they will in effect be prequalified during that actual bidding.
So we would keep them prequalified.
Mrs. Maloney. This sounds like a good solution of
Government and private industry working together to come up
with a solution that will solve many of the six questions we
went over at the last hearing.
As you know, I am interested in having GSA conduct a pilot
project which would test the feasibility of allowing State and
local governments to purchase telecommunications through the
FTS2000 program or any successor to it. You have been so
tremendously successful for Government on the Federal level, I
was thinking probably some of our localities would likewise
like to benefit from your work in this area.
First of all, is this something that GSA has the legal
authority to test, without legislation?
Mr. Woods. Without trying to get out of my bounds and get
into the legal arena of trying to be an attorney, the basic
rules to date are that, under our current programs, we do not
have specific authority to sell to States, and without the
specific authority, we are precluded from doing it.
In the next generation, 2001 and MAA, we have said in the
solicitation we will sell to State, local and other Government
entities as the law permits. So we have left our door open from
a contracting standpoint to do this.
I would have to tell you that not a month goes by that I
don't get a letter, a call, an inquiry from a State or local
government about the use of FTS2000.
Mrs. Maloney. I have some draft legislation that would
allow some pilot programs across the country for localities. I
would like to know if you could look at it and get back to me.
And also could you get back to the subcommittee with sort
of general pricing data so that we can begin to gauge the
possible benefits to State and local governments?
Mr. Woods. We would be happy to do so, and we have, in
fact, run some traffic from States that compare the current
prices with our prices. So we have actually done that on a
request basis from several States already.
Mrs. Maloney. Great.
Mr. Woods. We would be happy to present that to you.
Mrs. Maloney. I would love to look at that.
Mr. Barram. Could I add one comment? The whole idea of
selling not just telecommunications, but a lot of stuff we are
involved with, to States, is an important issue that I think we
need to resolve in the next year. As you know, we are in
suspension on an overall procurement opportunity for States to
buy off our schedules; and so I think we need--I think it is
inevitable, and we need to get moving on that.
Mrs. Maloney. Prior to the latest round of meetings, the
regional Bell Operating Co.'s expressed some concern that the
long distance companies would be able to offer local services
as unevaluated options after winning a FTS2001 contract. At
those latest meetings, Mr. Woods emphasized the fact that this
was not accurate and that any options would be evaluated as
contract modifications.
How will these contract modifications be evaluated by GSA,
what is the normal process, what is the existence of
prequalified bidders, enhanced competition, in this process?
Mr. Woods. There were in fact two issues at stake when we
talked about this. One was, you are the winner of a contract,
and immediately that region can be opened to competition from
other companies. In other words, if I won, what have I won?
During the negotiations and the work sessions with
industry, we have decided to go into a forbearance period for a
year in which the winner of a contract has time to get on board
and sell and have a minimum revenue guarantee.
The idea that we would just add service without evaluating
it, our answer on that before dealt with just what you said,
that we would not do it without evaluating it. In effect, if we
already have providers in an area, which is what we are talking
about, and we are talking about other providers being offered
the opportunity to do that, first of all, you would have to
start out with the idea if you don't offer better terms than we
currently buy at, the Government would not have any interest in
pursuing it.
So we look at what we pay, we look around the industry and
we do a price analysis. So we do evaluate it and we evaluate
quite carefully.
If we had service offered in, say, the Washington, DC,
area, and we paid $13 a line and somebody comes in and tries to
sell it for $16, we just will not buy. We will look at this
strictly as a business.
So we will evaluate. They are not unevaluated options.
Mrs. Maloney. Some people complain to my office or argue
that the February 1997 strategy violated the Competition and
Contracting Act. What is your reading of that law's
requirements in light of the latest revisions?
Mr. Woods. I believe we are on solid ground. Our counsel
has been involved in this probably more than they wished, but
we have been into this in great depth, and we believe we are on
solid ground with the Competition and Contracting Act and we
are prepared to move forward.
So we have gone over this issue, we have listened to the
specific arguments from different companies. We have sat and
listened to the line-by-line argument, not the sort of general
idea, but we have gone into that. Our counsel is confident that
we have done what it takes to move ahead.
Mrs. Maloney. And when you have the final draft RFPs, will
you make them available to this subcommittee?
Mr. Woods. Yes, we will, and we will make them available
both electronically on our web site and make them available in
paper, if needed.
Mrs. Maloney. Since the last meeting and the conclusion and
the strategy that was put in place then, have you received a
lot of statements, pro and con, on that; and, again, could the
committee look at those statements?
Mr. Woods. We are happy to share any of those. We, in fact,
received late yesterday from the Industry Advisory Council,
which represents some 200 of those companies, a letter in
general about the process; and in fact they thought it was open
and worked, and they in fact were lauding our efforts on this.
We have listened. We will continue to listen. We have taken
comments without the sort of supposedly open and closed comment
periods that you see in some procurements. We have taken them
whenever we have gotten them, and we have gotten a lot.
[The letter referred to follows:]
[GRAPHIC] [TIFF OMITTED] T4262.006
Mrs. Maloney. Well, congratulations. My time is up.
Congratulations on your Hammer Award. You are up for
another one. Having 5 cents a minute is quite an achievement. I
congratulate you over this long process. I think GSA has done
an excellent job.
Mr. Woods. Thank you.
Mr. Barram. Thank you.
Mr. Horn. I now yield 10 minutes to our distinguished
chairman, who has come from another subcommittee. We would
welcome his thoughts on this.
Mr. Burton. Thank you, Mr. Chairman.
Let me state at the outset that I strongly endorse the
GSA's plan to release the FTS2001 RFP and the MAA draft RFP on
May 2, 1997. I believe Congress, the GSA, and the vendors have
done an outstanding job, and I want to commend all of you,
because there was some controversy over this in crafting these
proposals that allow this process to move forward.
At our last hearing, I asked all the interested parties to
sit down and attempt to narrow their differences, to negotiate
in good faith and come up with an agreement that would result
in the RFPs being released.
When I initially became involved in this issue, I stressed
four principal goals that this procurement must meet in order
to move forward.
First and foremost, it must be the best possible deal for
the American taxpayer.
Second, it must take advantage of emerging market forces in
the telecommunications industry.
Third, it must allow as many vendors as possible to compete
for it while ensuring a level playing field.
Fourth, it must take advantage of the leverage provided by
the Federal Government's purchasing power.
Through working together, I believe we have met these
conditions, providing the American taxpayer with the most
technically efficient and cost-effective telecommunications
system, and I am pleased to see that this process is going to
move forward. This procurement promotes competition and
innovation in order to secure lower prices and higher quality
services for the Federal Government and the taxpayer.
I sincerely want to commend my good friend and colleague,
Mr. Horn, for his outstanding work. He has shown tremendous
leadership on this subject. I also want to thank our colleague,
the senior Senator from Alaska, my good friend Ted Stevens and
his staff, my committee staff, and of course Commissioner Bob
Woods of GSA and his staff, all of whom displayed
professionalism and tremendous patience throughout this entire
process.
I thank Mr. Barram and Mr. Woods for appearing before us
today, and, I have one quick question for Mr. Barram. Has the
criteria I laid out been met?
Mr. Barram. Yes.
Let me also thank you, Mr. Chairman, for your leadership in
getting us to build this consensus strategy in and the work of
your staff. It has been a really very profitable activity. I
think we are--I am convinced, I am satisfied we are operating
from the principles you laid down.
This is the best deal for the American taxpayers, and it
will be very competitive. We have got a structure in place that
will let us do that--we have talked a little bit about that
today and have been very successful in the FTS2000 program that
gives us a platform to build on for this one.
Second, because this is a services-based contract, it meets
your principles of innovation and using technology well.
Because we are focused on services, as I mentioned earlier, we
will not end up with what we call a ``stranded investment'' in
the Federal Government, so that as things change, as services
change, we will be able to get them from the service providers.
As I said in my opening statement, there is nothing as
powerful to describe the new world order as telecommunications,
with all the innovation and changes that are taking place. So
we are going to have a lot of competitors in this business, and
that is one of your principles as well.
It has worked for us in the past, and we are going to have
some significant factor times the number of competitors we had
in the past.
Finally, the strategy has always been predicated on
leveraging the Government's purchasing power. That is why we
have been able to get great prices and great services. The
combination of two is great value, which is what we are heading
for.
So, I think this consensus process has really done a great
job of strengthening our ability to make a more powerful
proposal for a contract. We are going to have, I think, very
great success in the marketplace for our Federal Government
customers.
So I think it passes your principles, the strategy, with
flying colors, and we thank you very much for your leadership.
Mr. Burton. I thank you. Mr. Woods had to put up with an
awful lot. Once again, thank you for all your help.
Mr. Chairman, thank you very much.
[The letters referred to follows:]
[GRAPHIC] [TIFF OMITTED] T4262.007
[GRAPHIC] [TIFF OMITTED] T4262.008
[GRAPHIC] [TIFF OMITTED] T4262.009
[GRAPHIC] [TIFF OMITTED] T4262.010
[GRAPHIC] [TIFF OMITTED] T4262.011
[GRAPHIC] [TIFF OMITTED] T4262.012
[GRAPHIC] [TIFF OMITTED] T4262.013
[GRAPHIC] [TIFF OMITTED] T4262.014
Mr. Horn. We thank you again for your leadership in getting
this consensus-building put together. I think everybody is
happy with the result, and ultimately that result is what will
satisfy the American taxpayers that pay all the bills around
here.
I now yield 10 minutes to the gentleman from Illinois, Mr.
Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
I, too, would want first of all to commend and congratulate
GSA on what I would consider to be an outstanding job, not only
in terms of what we appear to be seeing at the bottom line, but
also in terms of the process itself. I think that those
involved in the industry would have to be pleased with the
process, even if it turns out that they are not absolutely
excited about all of the outcome in terms of where they are.
I think it is one of the most fascinating approaches to
arriving at a conclusion that I have seen, and I hope that it
is one that we will continue to use, not only in Government,
but also I think it can be used in the private sector as well.
I also would want to commend and congratulate Chairman
Burton for his outstanding leadership on this issue in terms of
helping to bring it to where it is at, and certainly to you as
well, Mr. Chairman.
The question that I have as we look at where we are is
whether or not we are certain or we are comfortable that
adequate safeguards have been built in that will allow small
businesses, women-owned businesses, minority businesses to
actually have a real shot at a piece of the action.
So that is the question: Are we comfortable with those
kinds of safeguards built into the process?
Mr. Woods. I believe we are. We have, in fact--I think you
have been briefed or brought into this before, that we have a
number of procurements that fit under this mantra of Post-
FTS2000, and it includes everything from professional services,
to cable and wiring, to international services, and so forth.
We have made not only conscious efforts to make sure that
there are small business contracting plans in any bid that
comes in. We have on several of these services made sure that
there were small business awards and that we encouraged small
business to participate.
We believe, as we did in FTS2000 where we exceeded the
goals we set by a large margin with AT&T and Sprint, that this
is not something that you get satisfied with and that you sit
on. You have got to keep at it, you have got to stay diligent
and moving ahead.
So we not only believe the safeguards are there in terms of
the contracting, but we believe the attitude is there in terms
of staff and the program and we are going to continue to go
down that path. So we have in fact lately talked about some of
the other procurements coming. And although 2001 is an enormous
procurement and, as Chairman Horn said, one of the biggest in
the Federal Government, we have got some others coming that are
also likewise very complicated and very large in their size;
and we intend to make sure that small business is part of that.
So we work very closely with our Associate Administrator
Dietra Ford in that area, and we have held public forums for
small business and others, and continue to do that. So we are
committed to it.
I don't think just language in a contract is enough. I
think you have to go beyond that, and we are.
Mr. Davis of Illinois. I certainly appreciate that
position, because I too don't believe it is something that we
can leave to chance. It is not something that will ever be
accomplished, unless we are diligent and unless we actually
pursue it and stay on top of it.
I also note that the FTS2001 contractors will be able to
offer and price local services by interconnects; that is, the
three-digit local exchange, and not across the entire MAA. By
structuring and setting up the options this way, does that open
GSA up to the charge of allowing for cherry-picking or maybe
during the basketball season, crimp-shooting?
Mr. Woods. My Administrator is a great basketball fan, so I
am afraid he may want this one.
I would say on that, that is one way to look at it. But
this is a question that is often referred to as the ``universal
service'' or ``ubiquity'' issue; if you provide one spot you
have to provide everywhere. Our sense is, that is a barrier to
entry for other competitors.
We in fact are protecting the initial awardees that have
competed for that area by having a 1-year cooling-off period
where no one else can move in on that territory. It is our
belief that we have to allow competition, and by allowing us to
go in at that three-digit level that you referred to, we
believe that that functionally meets our customer requirements.
The new entrant must compete and attract away the customer. The
customer is already an incumbent somewhere else.
So we believe it is a good balance, and we believe
requiring ubiquity-type service throughout an area really
constitutes a barrier to entry and decreases competition.
So we believe it is a reasonable balance. We are protecting
the initial awardee for some period of time, for a year, and we
are giving them a minimum revenue guarantee. And we believe
that is enough. We believe if you guarantee it forever and you
don't allow anyone else to compete, that is not good for our
customer and not good for the prices we pay. So we have
consciously thought about that issue and we believe it is best
to do it at the three-digit level.
Mr. Davis of Illinois. Thank you. I notice that GSA has
maintained that the February 1997 strategy was required due to
the Telecommunications Act of last year, and I assume that the
revisions we are talking about and the changes we are talking
about today are also consistent with that law. I guess the
question is, could you elaborate on that in terms of the
consistency of where we were, as well as where we are?
Mr. Woods. Well, as you will recall, the Telecommunications
Reform Act was passed about this time last year, in fact
February 1996. And as with any new law that comes out, and it
was one that replaced one that was decades old, it has taken
some time to decide what specific parts of that law mean. A lot
of what we went through in the February timeframe was looking
at interpretations of that, that had never been challenged and
never been dealt with.
So when we got some questions from the other Chamber, it
was along the lines of what was intended in the act, and we sat
down, listened to that, went through it; and from our
perspective legally, we could have gone either way. I mean, we
were not in violation of any law no matter which way we went.
The question was, what is in the spirit of the law, what is
in the best interests of the Government; and those things, they
are sometimes deep subjects with not easy answers. As we went
through it, it was our sense that the industry is going to
allow this, offerings from one sector into the other sector and
so forth, the contractor was going to be around for a while or
set of contracts. We wanted to be flexible enough to do the
same thing that the private sector was going to do. That was
the issue.
After a lot of deliberation, we agreed with that point of
view that we ought to be flexible and let each segment of the
industry offer other services, and then we at that point
restructured to meet that.
So we not only believe it is in compliance with the letter
of the act, we believe it is in compliance now with the spirit
of the act. So that is really what we were doing, was fine-
tuning at that point.
Mr. Davis of Illinois. Again, I think you have demonstrated
a high level of flexibility and the ability to work with the
industry, the ability to bring the industry together. Overall,
it is an outstanding piece of work, and I certainly commend and
congratulate you, and also would reiterate, Mr. Chairman, the
commendation to you for the outstanding role that I think you
have played in the process.
That concludes my questions. I thank you very much.
Mr. Horn. I now yield 10 minutes to the gentleman from
Texas, Mr. Sessions.
Mr. Sessions. Mr. Chairman, thank you.
Mr. Barram, Mr. Woods, I would like to pile on with the
nice words that have been put on you today, not only by
Chairman Burton, but also by other members of this
subcommittee, including our subcommittee chairman, Mr. Horn.
Mr. Barram. Please do.
Mr. Sessions. Please take from the tone of my message that
you should be patted on the back. This has been a difficult
process and you have made good progress, and as an outsider
looking in, let me say you responded to my letter very nicely.
Thank you, Mr. Woods.
I would like to, if I could, just direct my comments in two
specific areas. When I first walked in, I heard the word
``forbearance,'' this 1-year period of time we are talking
about where a person, the winning contractor of the FTS2001
contract, at the end of a 1-year period would be allowed to get
in.
Can you define for me--and I know I have got this
agreement, this statement of principles in front of me which is
wonderful, as Mr. Davis suggested. Can you tell me, when does
this year start and what the process is?
I know when someone signs a contract, it may take a period
of time before they are on line, before revenue starts. When
does the gun go off?
Mr. Woods. Typically, from a contractual standpoint and a
legal standpoint, we have started at contract signing, which
means the day you sign the contract, the time at that point
would be ticking. But contractually you have a lot of
flexibility.
A lot has to do with what you agree to ahead of time.
At this point, we have not nailed that down totally, and
from my perspective, I think we would rather get you back the
best answer we can. I am just telling you typically what we do,
but we have not drafted that language.
That language is not set yet, so contractually the
Government has not entered into a contract. So until we do
that, it is kind of what you say it is, and what you agree to.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T4262.015
[GRAPHIC] [TIFF OMITTED] T4262.016
[GRAPHIC] [TIFF OMITTED] T4262.017
[GRAPHIC] [TIFF OMITTED] T4262.018
Mr. Sessions. I guess my comment would be that I would
encourage you to get closer to understanding what that means,
because in some instances, there may be a statement of
principles that is easier to read than some of these.
You may have a different circumstance in a different area
based upon a switch performance or ordering. Someone may order
some set of services, the switch, outside an operating entity's
ability; something may come into play. I would encourage you to
look at defining that, and probably--maybe the preference would
be after you have begun billing, when the first bill goes out,
because there may be some line of demarcation.
I would encourage that to be within either a statement of
principles or more clearly, closely defined.
Second, I think my words--and I heard your response to this
cream thinking or cherry picking, is it possible that you would
have one--I will wait until this buzzer finishes.
Is it possible that you would have one of your customers
within an area paying one set of prices and another FDS or
Federal Government entity paying a separate set of prices? And
do you think that this would mean that this would be in the
best interest of the taxpayer or not? Or how do you view that
circumstance that potentially could occur?
Mr. Woods. First of all, in answer to your question,
Congressman Sessions, it is absolutely possible and happens
today. We have, within rock throwing distance of this Capitol,
agencies who pay different rates. And that happens.
What we try to appeal to from a GSA standpoint is good
business sense that you're getting what you pay for and more.
And that is, in fact, what I believe our competitive advantage
is, that we offer the best deal in town.
When someone here in this city pays greater than $13.73 a
line for dial tone service on the desk a month, I'm looking to
hound them, because I believe they're not getting the best
deal, because that's what I sell it for.
So we have that. We have, in fact, created within our
reinventing effort this competitive atmosphere. We are
encouraging agencies to go after the best deal. They have gone
at it, I think, with great energy. But I--there's no guarantee
that you won't get different rates. And sometimes they believe
they're getting greater value with greater rates--with higher
rates if other services are there.
And with all your years in this business, you know how
selling that ends up. You've got to convince that customer that
you get greater value.
Mr. Barram. Let me interject one thought. As you know,
these are nonmandatory services.
Mr. Sessions. I am sure.
Mr. Barram. They will not be. So that has a big effect.
And the rest of our business at GSA, we have a lot of
nonmandatory activities, which is very powerful for us to be
better and very good for our customer. So that will help too;
that will probably ensure that there may be, that there will be
different rates at different places. But if we think about
value, price, and service, if we think about value, price may
not be the determinant.
Mr. Sessions. Good. I am completely satisfied that both of
you and the people who work for you, as well as those people in
the process, feel like it has been fair, it has been open.
One thing that I am concerned about and the reason why I
talked about in the first place about this forbearance period,
just know what the deal is that was cut.
Mr. Woods. Yes.
Mr. Sessions. There is nothing worse than walking out to
signing a deal and then walking out later saying, ``I wonder
what we really meant in a certain circumstance.'' So I
encourage you to be open in this period, also to take
everybody's comments about cutting the tightest deal that you
can, not only on behalf of yourself and those people who are
competitors, but the taxpayers of the country.
Mr. Chairman, thank you so much for your time.
Mr. Horn. Quite welcome. I now yield 10 minutes to the
gentleman from Virginia, Mr. Davis.
Mr. Davis of Virginia. Thank you very much. And this is a
much different hearing than some of the ones we have had
before. And, again, thank you very much for the work. I know it
has been difficult.
Let me ask a couple questions. Tell me how Bell Atlantic
comes out under this, under the MAA, and how the District of
Columbia and their ability to use this? In the past, they have
declined to sign up. What are their options now? And what
savings can they accrue?
Mr. Woods. Well, the District has, unlike Mrs. Maloney's
question about State usage, the District of Columbia actually
can use our services today. And so they have, in effect,
special privilege in that regard.
We have over time, as you know, put some effort into trying
to get the District on board with what we're doing because we
believe there not only are savings but, Congressman Davis,
there are functional differences. We have at least the legend--
and I have not personally observed it--the legend is we still
have rotary phones in many of the schools.
Mr. Davis of Virginia. That is accurate.
Mr. Woods. Well, we believe we can take them beyond rotary
phones very quickly. But we also believe that distance
learning, how speed telecommunications capabilities and other
things that we're planning for the next generation for agencies
and the Department of Defense, and so forth in this exact
geographic area should be made available to them. And we need
them on the planning team to do that. So we're offering that up
to them. And we're working that fairly hard.
In the Bell Atlantic set of questions, as a regional Bell,
they will obviously be competitors for a number of our
metropolitan area acquisitions. And we hope as time goes on and
they deregulate, they will be competitors for other services
we've got. But they are a very large provider.
And the merger with NYNEX will cover a trail of territory.
And I believe over time will--they're in the position to be in
60 percent of our long distance market; about 60 percent of our
service is in that geographic territory.
Mr. Davis. Super. Well, thank you very much. I thank both
of you very much.
Mr. Woods. Thank you.
Mr. Horn. I thank the gentleman very much. I have one last
question. Mention was made of large purchases in the future and
we might apply the same technique.
Could you give us an idea of what areas those are?
Mr. Woods. I believe that when you look at 2001, as
significant as it is, we have some coming attractions that I
think are going to be significant in the Federal arena. Right
now, one that we are moving forward with is something called
seat management. And I know that that term will probably invite
some ridicule. But its idea is to provide desktop computing
services on a service basis. And it, in effect, says you're not
going to lease it. You're not going to buy it. You are, in
effect, going to buy the service.
The Gartner Group today projects at about $12,000--it costs
about $12,000 a seat. And the reason you use seats is most
organizations have more seats than they've got people. And so
you're paying for the computer that sits there.
And our belief is we can buy those seats on a service basis
for a lot less than $12,000 a seat. Our rough and very crude
estimates at the moment are that that's a roughly $10 billion
Federal market. If we bring those prices down 10 percent, I
don't have to do the math, I think you'd see that's a very
significant area. So we believe that is an area we need to move
ahead on.
The second area I believe is very significant is the
Washington area communications ability. Washington, DC,
represents one-third of my local telephone service business.
And if we don't do this well, we don't do anything else well.
And so as we provide high-speed capability for the next
generation, I believe we ought to be linking up with the
District. We ought to be linking up with our partners in
defense and we ought to be making that a model for what the
rest of the Government looks like.
So we're ambitious to do that well. And I have deep
appreciation for what we've been through with 2001 to get it to
the market as well as the MAA's, but there's more coming. It's
going to be significant for this Government. And it's going to
take leadership on all our parts to make it work.
Mr. Horn. Well, would Commissioner or----
Mr. Barram. No, I'd just--I agree with Bob. There's a lot
of things that are going to happen in the next couple of years
that are huge changes in the way we all function and work and
these are two of them.
As soon as we get this RFP out, we take a deep breath and
work on the next big complicated issue.
Mr. Horn. Well, I want to thank you in particular, Mr.
Administrator, and Bob Woods as Commissioner, also. And I hear
some of his fine staff is in the first row right behind him.
And I know these things would not have happened in building a
consensus if it wasn't for Commissioner Woods and his staff
taking the time to sit around the table with congressional
staff, as the various people that have a real stake in this
come in. And you are representing the stake of the taxpayers.
And so I want to thank you two first and your staff.
And then I would like to thank the congressional staff that
participated in these meetings on both sides of the aisle.
Starting with Bill O'Neil, the director of procurement for the
full committee reporting to Mr. Burton. And Earl Comstock is
here who is the legislative director for Senator Stevens, who
also participated. And then nothing happens on this
subcommittee without the leadership of J. Russell George, the
staff director and counsel right here. And the gentleman on my
left and your right, Mark Brasher, is our specialist in this
area, who is seated next to me. And then Patricia Delgado
represented the ranking Democrat on the full committee, Mr.
Waxman. Mark Stephenson, professional staff member for the
subcommittee, minority, headed by Mrs. Maloney.
And then in preparation of this hearing, we also thank John
Hynes, who is the professional staff member in communications.
And Andrea Miller, our clerk. And we thank the reporters who
have to try and untangle what we are saying: Vicky Stallsworth
and Bob Cochran.
Also thank you to Janet Javar who is working with the clerk
on the minority side. So thank you all. And with that, this
hearing is adjourned.
[Whereupon, at 11:12 a.m., the subcommittee was adjourned.]
-