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4 REACHING AGREEMENT WITH THE OFFICE OF MANAGEMENT AND BUDGET In which GSA and OMB reach agreement to proceed but a seed is sown that will come back to haunt the project. EARLIER GSA AND OMB RELATIONSHIPS The problems between GSA telecommunications and OMB predated the FTS2000 project and went back at least to the end of Telpak in 1981. At the time of Telpak's demise, GSA had gone to OMB acting as a spokesman for its customer agencies to seek a supplementary appropriation for the almost $100 million shortfall due to AT&T's tariff raises. OMB did not accede to that request, placing the shortfalls on the shoulders of the agencies, effectively causing them to question FTS cost and service. Deregulation had advanced enough that the climate was right for OMB to question GSA's role in providing telecommunications centrally to the government. OMB also questioned GSA's control over the fund used to operate the FTS. The Federal Telecommunications Fund was a revolving fund used to pay all costs associated with the system and it was reimbursed on a prorated usage basis by the customer agencies. Inevitably in time of centralization and monopoly, such funds can be loosely managed. OMB pressured GSA to undertake long-range telecommunications planning as early as 1981. For various reasons this was not accomplished until 1984 and annual pressure on GSA by OMB to reveal its plans brought little by way of answers or tangible results. Adding to this fertile ground for discord was the fact that the powers of the two agencies overlap. This conflict and overlap had been exacerbated in the area of information resources by passage of the Paperwork Reduction Act in 1980, which increased OMB's role in managing information technology. Also, as previously mentioned, the largest and most powerful customer agencies of the FTS, dissatisfied with GSA, had begun to petition OMB for permission to leave the FTS and go their own way. This situation had become acute with the major cost increase due to Telpak's termination. All of these interplaying forces set the stage for a rocky relationship between GSA and OMB in the early 1980s in the area of telecommunications policy and management. 26 l

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27 Things first came to a head at GSA's budget hearings with OMB in the fall of 1983. The OMB team was well organized and well prepared to question the telecommunications program. GSA was not well prepared to defend itself. This event was quickly followed in December 1983 with a letter from OMB to GSA indicating that the FY 1986 budget cycle would mark deregulation of FTS--in ether words, terminate FTS and get out of the business (Note 1~. It seems in retrospect that these disagreements were mainly contained to the permanent civil service level rather than initiated by the political appointees. The disagreement took on the characteristics of a civil service feud and, while GSA was leaderless from when Carmen left in February 1984 to June 1985 when Golden arrived, OMB staff took advantage of this vacuum (Note 2~. The December letter was to be only one of many from OMB, though all were signed by highly placed political appointees ready to let their staff handle the FTS in the intervening time before GSA gained a new administrator (Note 3~. GSA held many meetings with OMB to explain the complexities associated with shutting down the old FTS. However, no one at OMB seemed to appreciate the issue or to guide the staff, which had little, if any, background in telecommunications and management at that time. OMB pressed steadily onward, against the greater efforts and wishes of GSA, to issue in April 1984 a deregulation bulletin in the Federal Register. In response to this, GSA wrote directly to Stockman in May 1984 indicating that this action caused much apprehension and GSA had serious reservations that this would best serve the government or was appropriate (Note 4), but to no avail. This was the foundation of OMB/GSA relations on which the FTS2000 project was to be built. KALBA BOWEN, THE PANEL, AND GAINING OMB SUPPORT In retrospect, Kalba Bowen's project team, while being knowledgeable in telecommunications policy, were not experienced in the nature of large private networks. This made GSA's task in explaining their strategy very difficult. The blue-ribbon panel, on the other hand, was constituted of members with strong credentials in managing and running large networks for government and for private sector corporations. It included members from Westinghouse and General Electric, corporations that run two of the private networks nearest in size to the FTS. The panel also included the ex-head of telecommunications at the Department of State, and the retired head of the Defense Communications Agency (DCA) (who after his retirement was CEO of American Satellite and also sat on several National Research Council committees). Another member was the retired head of development of networks for AT&T, and no doubt the most knowledgeable person about state-of-the-art technology. The panel was rounded out with members from academe, one of whom acted as the chairman (Note 6~.

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28 In many ways, during the intervening time of preparing the panel and the Kalba Bowan contract, Golden reached a high level of comfort with the FTS2000 approach. Consequently, while both served as an important mechanism for the checking, exploration, and debate that brought him to 100 percent confidence, their biggest contribution was probably their role in helping GSA reach agreement with OMB. Golden was a member of the Reagan administration's establishment and so he had access to, and the confidence of, decision makers at OMB. The process he described of independently evaluating FTS2000 for himself before reaching a conclusion satisfied the OMB management and provided a procedure for all parties to reach agreement, including a participatory mechanism for the OMB permanent staff. The panel was given access to all documentation concerning the FTS2000 project for their detailed analysis. It then first met for a two-day session on February 13 and 14, 1986. The first session was to hear from a variety of sources as to FTS replacement issues and alternative approaches. Golden attended the panel deliberations throughout their proceedings. There were several formal presentations: the stage was set with the history of the FTS, then the panel heard from Howard Anderson of the Yankee Group who in general terms endorsed the approach (particularly fully integrated services). BellCore discussed ISDN and endorsed FTS2000's integration of services. A speaker from the Gartner Group outlined various AT&T alternative approaches, such as the AT&T intelligent network and an Electronics Tandem Network based system. There were other speakers: General Motors/Electronic Data Systems (GM/EDS) described its approach to network replacement and ETI also made a presentation of unfolding public policy. The final presentation covered the GSA approach. Key steering committee members from Treasury, the Veterans Administration, and the Department of Energy attended in support of the project and to advise from the users' perspective. Golden invited OMB and it sent representatives from each of its three divisions: budget, regulatory affairs, and government-wide management. Meanwhile, Kalba Bowen began interviewing the FTS2000 team in January 1986, and the GSA team led them through the logic of the FTS2000 approach. In lengthy discussions, questions were answered and misconceptions were eliminated, leading to findings that began to parallel GSA's own. However, a bombshell was dropped in the draft final report at the end of April. Kalba Bowen presented four major conclusions. They had concluded (as had GSA) that the system should not be decentralized with each agency going its own way. Secondly, they rejected any approach that reduced the menu of services from the full menu of FTS2000 (endorsing GSA's move from only voice to integrated services). They also endorsed the FTS2000 general approach on a cost basis. But in a fourth recommendation, which was a surprise to GSA, they indicated that the best choice would be to take the FTS2000 approach but to make two awards to two independent vendors. The GSA team could not understand the origin of the recommendation or see how to implement it. Questions immediately were raised: How did two awards make better sense than one award when there were only

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29 three companies who had declared that they would definitely bid on FTS2000? Wouldn't this make the Government more captive to the vendors? How could GSA break up the requirements into two bid packages? When GSA ended up with two networks, how would they manage interconnection, both normally and in times of emergency? And, the most severe problem, how would they transition two systems with the attendant risk of adding complexity to an already risky transition? These questions were disturbing in themselves, but more so as Kalba Bowen was not able to address them and could not describe the basis for their recommendation. As a supplement to their draft report delivered on April 22, and in response to GSA concerns with the recommendation to make multiple awards, Kalba Bowen provided a detailed rationale for their decision in a May 30 memo to GSA (Note 7) at the time of delivering their final report. This memo indicated that the issue of competition was paramount in obtaining good service prices. They further indicated that in their opinion AT&T would enjoy an overwhelming competitive advantage over other potential bidders and that the procurement would thus not yield the low bids GSA expected. They also discounted the competitive pressure of agencies being voluntary participants in FTS2000 and thus being able to continuously seek better prices elsewhere. Hence, they said, there would be little pressure to maintain low rates throughout the contract life. In conclusion, they said that the multi-vendor strategy would ensure considerably more competitive bidding and increased competitive pressures on the winning vendors following contractor award. They admitted that the change would result in slowing the procurement and introducing new complexities which could reduce the efficiency of the procurement and the system transition. The effect of these complications and delays could be to reduce the overall benefit which the government would achieve from the FTS replacement. On August 17, the blue-ribbon panel met for their final session to listen to the Kalba Bowen findings and recommendations, to deliberate, then to advise the administrator on the proper course of action. Their reaction to Kalba Bowen was very much the same as GSA's: What is the advantage of doing this? How can it be implemented? The answers were not forthcoming. The panel retired to deliberate, then met with Golden and was unanimous in advising Golden that GSA proceed with FTS2000 as structured and that GSA should not consider breaking up the procurement into two awards. With the panel's recommendation and Golden's acceptance of it, GSA's relationship with OMB became positive, with each side communicating concerns and answers in a spirit of trying to reach agreement and get the REP issued as soon as possible. OMB's remaining concerns were serious ones and ones that GSA also had deeply ~ considered. The first of OMB's concerns was how GSA would manage FTS2000 once it was awarded. In correspondence with OMB, GSA formally proposed a solution that had been worked out with OMB staff in previous weeks. GSA would develop a tripartite management team consisting of: (1)

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30 GSA's own management and technical resources; (2) a federally funded research and development center consisting of multidisciplined experts in management and telecommunications to support GSA's management; and (3) reliance on a technical assistance and management services (TAMS) contractor for technical support. The second item that concerned OMB was the most difficult and serious. It became the heart of all remaining conflict in the program: How does the government avoid being locked-in to a single contractor and ensure ongoing competition within the program? This question had been recognized at the very beginning of the project as a pivotal issue. GSA's approach to ensure ongoing competition was rooted in a belief that agencies would make rational decisions about consuming FTS2000 services and that a free market would bring sensible actions on their part. It was also one that recognized the transition from the old network was a uniquely difficult problem, one that was complex enough to be considered paramount. Consequently, GSA's tack was to: 1. Award the contract to a single prime contractor. This would not only ensure the lowest possible initial prices but would make the program more manageable, particularly during the difficult transition, but also throughout the life of the contract; 2. Offer only a minimum guarantee to the successful contractor, namely, the traffic expected to be consumed during the transition period. Any revenues after that would have to be earned by the prime contractor keeping the customers satisfied and providing low-cost and high-quality service. This was possible because the industry had excess capacity and was highly competitive; and 3. Make participation in the FTS2000 service entirely voluntary so that customers could walk away from the service if they were not satisfied. This was feasible because there would no longer be a dedicated system. Voluntary participation would ensure competition from outside FTS2000 (Note 8~. The focus of GSA's strategy for ensuring ongoing competition rested on these points. Experience with the old FTS had shown that a locked-in vendor was definitely harmful to the customers and did not ensure low-cost, high-quality service. However, GSA had observed that, even in the case of the old mandatory FTS, when user agencies suffered enough from high-cost and low-quality services they were prepared to take the drastic actions needed to remove themselves from the system. GSA felt that if this was true under the inflexible environment of a mandatory hardware system, it would be even easier under the proposed services contract. Agencies leaving the FTS2000 service would present minimal transition problems and minimum impact on remaining agencies. This was an important part of the strategy that was later to be changed by Congress. OMB was satisfied with GSA's approach to its concerns and, with minor modifications, accord was formally reached in a series of letters culminating in Golden's final notice to OMB that all issues were settled (Notes 9 and 10~.