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6 THE LONG HOT SUMNER AND COLD HARD WINTER OF 1987 In which the bon eymoon is over. The vendor-battles for position begin. GSA fights Brooks and loses. Some of the vendors get their way. But three good proposals come in and success is in sight. THE HONEYMOON IS OVER The spirit of the press conference, held at GSA on January 7, 1987, to release the REP, was definitely one of a honeymoon. With hindsight, it is clear that the reporters and congressional staff in the audience were harbingers of future problems. The honeymoon lasted only one day. If the GSA team had had any experience with huge procurements, they would have known in advance that with so many dollars at stake, so much market position open, so many jobs to be won or lost, there would inevitably be a donnybrook of magnificent proportions. It has been said that nothing attracts a crowd as quickly as a fight and that in all political conflicts there are at-least-two groups--the actual participants and the audience. In Washington, perhaps more than in any other city, the audience is kept well supplied by the press. In the case of FTS2000, in the next 15 months the press, so carefully cultivated as a positive tool to build up momentum in the early days, demonstrated its double edge. As with real fights, there were other participants than the antagonists and the audience. There were those who would take advantage of the fight to rob the wounded or otherwise advance their own causes. Also, as with real fights, there were not only the visible soldiers but also snipers in the trees, hiding who they were and where their shots came from. There were also fifth columnists within organizations. As with the tactics of proper battles, these paper battles had diversions to hide real purposes, and exercises to keep GSA busy on one front while a second front was opened. Instead of rocketry and shells, the ordnance would prove to be a barrage of adverse press articles, a rain of aggressive letters from Congress, and the massive explosion of a descending report from GAO, the congressional General Accounting Office. 36

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37 Skirmishes kicked off the day after the press conference with headings in the Washington Times such as "Federal Offices to Get Police State Phones'' and "That You Ivan?" implying that the REP contained state secrets given to the Russians. FTS2000 was described as an espionage tool and the ever-present government official who "asked that he not be named" called FTS2000 "a police state security officer's dream." Quickly seizing on this Rep. Don-Edwards (Democrat, California), chairman of House Civil Rights Subcommittee, announced, "The concept they have in mind is frightening and really unacceptable." Meanwhile, union officials at major federal employees unions also expressed concern about possible abuse. "We could have a system where Big Brother is going to move in." Each article coincidently gave Golden bad publicity (Note 1~. This initial skirmish should have alerted GSA to prepare for larger battles but everything quieted down again for almost four months. Instead of mentally preparing for the new climate, GSA continued by the book, collecting and answering questions from the vendors in expectation that they, the vendors, were vigorously writing their proposals against the June 30 submission date. GSA also worked with the agencies finalizing each side's commitments so that the transition could be properly planned and the requirements could be finalized. The Departments of the Army and Navy were the only customers of any size on the existing FTS system that indicated they did not wish to be included in FTS2000. Army and Navy prepared to leave the existing FTS system. Army proceeded to procure long distance services from public tariffs on a local switch basis. Navy proceeded to decentralize long distance communications to each base as a budgetary strategy. The long term future for both departments was seen as the Defense Switched Network being implemented by the Defense Communications Agency. With the exception of the Departments of Health and Human Services (HHS) and Treasury the civil agencies signed up for the transition and after some clarification and negotiation, HHS and Treasury joined too (Note 2~. By April, over 1 million subscribers were voluntarily committed to the new service--all of the civilian agencies. Until this point Congress had not been a player. There had been little, if any, briefing of committees and staff, other than as potential users of the FTS system. The FTS2000 Steering Committee had several times raised the question of what strategy was being pursued by GSA to bring Congress into the project. This was discussed as these questions were raised, but the advice was to wait until Congress expressed interest, then respond to that specific interest. As a result, two committees (House Government Operations and Senate Government Affairs), which were to prove key to events before proposals would eventually be submitted, were neither consulted nor informed of the nature of the project. This was to be the first major miscalculation on the part of GSA. A second miscalculation concerned the vendors and their motivations. THE IMPORTANCE OF WINNING GSA had no idea just how important winning FTS2000 would be to AT&T.

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38 GSA knew that AT&T's annual revenues from the old FTS system would be an incentive to compete. However, GSA did not realize that FTS2000 would be a pivotal piece of competition for the AT&T corporation. In defense of this naivete, it is doubtful whether AT&T itself knew the importance until after the REP was out and a broader corporate perspective came to bear. An AT&T senior manager was to admit later that year that AT&T had found itself behind in their preparations when it had actually begun to examine the REP from a corporate point of view. First of all, 90 percent of AT&T's business service revenue, and nearly all of its profit from providing services to businesses, flow from less than 10 percent of the business customer base. Within this 10 percent, there is even more concentration, and in fact fewer than 300 giant customers generate fully 25 percent of AT&T's business revenues (Note 3~. In essence, the largest portion of AT&T's business service profits come from its top 300 accounts and the largest of these was GSA. These accounts also were the ones most able to follow OSA's leadership if other arrangements than buying AT&T proved to be the least expensive. That was one reason AT&T had to win. If this fact was not recognized by GSA (and maybe not completely by AT&T Federal Systems) it was recognized by knowledgeable analysts in the industry. They felt that losing the contract would definitely hurt the AT&T stock, would be a big blow to AT&T's prestige all around the country, would badly damage its credibility, would be a major setback, and would imply that AT&T services were not up to those of other companies (Note 4~. In addition, in early 1987 AT&T was a corporation under stress. When James Olsen became CEO in 1986 he had to face up to eliminating 27,4QO members of the 321,000-member work force. Also, a $3.3 billion write-off nearly wiped out all 1986 earnings, and AT&T's share of the long-distance market slipped to 63 percent from nearly 68 percent after the 1984 breakup (Note 5~. At some point early in 1987 the message came strong and clear from the corporation to its troops, win at all costs. An imposing set of resources could be set in motion: technically such entities as Bell Labs, and legally- and politically the engines that had established dominance through the regulatory and political process over nearly a century. In addition to the resources it could muster, AT&T also in effect had a war chest that made delays, or even cancellation of the FTS2000 program, a no-risk situation for them. AT&T still recouped $225 million in revenue from the old FTS system which, even at average rates of return, represented a war chest of more than $30 million dollars a year in margin. Martin-Marietta, on the other hand, had already invested heavily in the program (later estimated by them at $50 million) with, as yet, no revenues coming in (Note 6~. From a resource perspective there was no doubt that as a corporation it had major capabilities in data communications and had sufficient experience with the government competitive market to have major resources to devote to the political and legal process. The question later became, could they marshal them? US Sprint meanwhile was not having a good year and was behind in developing an FTS2000 strategy as it was still attempting to recover from the merger of its two component parts. US Sprint was small compared with

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39 AT&T, accounting for only 6.5 percent of total national minutes of usage compared with the 77.8 percent of AT&T. The revenue picture was similar, with US Sprint accounting for only 7.4 percent versus AT&T's 79.2 percent of total national revenues. In addition, Sprint suffered a $700 million loss in the prior year and securities industry forecasters predicted that US Sprint had lost probably half a billion dollars in the first half of 1987. To make matters worse, billing problems, fraud, and other collectibles comprised 32 percent of US Sprint's accounts receivable in the previous year (Note 7~. Sprint also had trouble deciding who to team with and had a problem living with its eventual teammate, EDS. Following the RFP release on January 9, 1987, US Sprint and EDS made a public announcement that they would jointly bid and Sprint's senior vice-president even indicated that GSA had amended earlier drafts according to-Sprint concerns and hence all objections had been lifted (Note 8~. But US Sprint and EDS parted on June 9, 1987. Publicly, EDS blamed it on GSA's "recent changes in the rules" and the possibility of further disruptions, evolving regulatory policy, uncertainty in timing, and the finality of any contract awarded. US Sprint was unsure whether they could go it alone at that point. It was left with much work to do that it had not planned on doing (Note 9~. Following a pretax charge of $260 million due to write-downs and $76 million pretax for uncollected bills, US Sprint said on July 8, 1987, that it would not bid. In that same week Charles Skibo, President of US Sprint, resigned (Note 10~. US Sprint's withdrawal inevitably was trouble for GSA as it reduced potential bidders to two. Throughout the final phases of the program, the threat of either remaining vendor not to submit a proposal could be strong leverage to change the specification, as a single remaining vendor implied a sole source procurement--a politically unacceptable situation in this case. With this exposition of the vendor's positions as a backdrop, the events of the summer of 1987 began to unfold. Three sets of events took place. First, AT&T began to refine the terms and conditions in the RFP to ensure they could compete; second they began to attack the strategy of Martin-Marietta and-their Bell subcontractors; and third, Rep. Jack Brooks, the chairman of the House Government Operations Committee, began to take a hand. ROUND ONE: HOW FIXED CAN A FI=D PRICE BE? On February 19, 1987, GSA received a letter from Martin-Marietta drawing attention to the fact that tariffs took precedence over contracts for regulated common carriers and that hence, as the RFP was written, AT&T would have unfair advantage in implicitly offering less than firm fixed prices. In response to this, GSA, on the advice of their legal staff, amended the RFP to require fixed prices (clause L.7.d; Note 11~. This was not a change of intent on GSA's part. GSA had had a long-term concern (as had many users of telecommunications) regarding how prices could be fixed for; telecommunications. Unlike the deregulated

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40 computer industry where a fixed price commitment by a company meant price protection for a customer, tariffs could be adjusted in transactions between the FCC and the regulated carrier without involving the customer in the decision. GSA had had experience with this in its business transactions on the old FTS and watched in dismay as prices rose out of their control. Fixed prices were a point GSA was particularly concerned about in FTS2000 for two reasons: first of all, a main objective was to get stable, predictable prices; and second, meaningful competition was impossible without evaluating bids bound by the same terms and equally fixed prices. The only company that raised a major issue was AT&T. Both Martin-Marietta and Sprint were able to enter into fixed price contracts similar in structure and commitment to contracts in the ADP industry. GSA, like other users of telecommunications, hoped and expected that deregulation and divestiture would bring the same abilities to the regulated AT&T and expected to be able to bind AT&T to the same kind of fixed prices. The state of deregulation and the interpretation of-the Modified Final Judgment (MFJ) were still fluid at that time (and continue to be so). The MFJ, as with any complicated tampering with a major industry, though clear at the macro level but unclear at the micro level. Interpretation was proceeding slowly on a case-by-case basis and GSA had expected that FTS2000 might test the bounds of the MFJ and require interaction with the FCC or Judge Greene's court. Following divestiture, AT&T had moved closer and closer toward fixed price commitments. One major step had been Tariff FCC Number 12: Custom Designed Integrated Services, with the Defense Commercial Telecommunication Network (DCTN) as the first service in that tariff. More recently this had been extended in a contract with General Electric (GE) for an internal corporate network (Note 12~. However, the DCTN agreement constituted a contract for plant and facilities rather than services. Not only that, the DCTN tariff fell far short of a fixed price commitment. As for the GE case' no public details were available. GSA was looking for more concrete fixed priced ~ fully recognizing that this would be new ground that was to be broken. The question was, who would break it, AT&T or GSA? GSA's tack in developing the procurement was to induce the bidders to do the detailed work. This was not reluctance on GSA's part to devote resources but rather a realistic view that the most knowledgeable resources to solve new problems lay with the vendors. Consequently, GSA expected AT&T, with their long experience and broad capabilities in the regulatory and legal area, to seek the resolution to the question of how fixed the prices could be. Once this had been determined, these terms would become the basic rules for all bidders to ensure that the playing field was level. AT&T expressed concerns to GSAts procurement staff on this point and discussions continued until May 6. However, AT&T could offer no alternative to a DCTN-type of business arrangement. GSA knew this was not satisfactory and kept pushing AT&T to find something better. It was not clear to GSA why AT&T could not bid fixed prices through a subsidiary, or service terms than it had seen be new ground that was to be broker it AT&T or GSA?

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41 by having their teaming partner Boeing serve as the prime contractor, or by some other arrangement. If it meant approaching the FCC or Judge Greene, then AT&T should do so--the onus was on them. These discussions were all held between AT&T and GSA's contracting officer. They were not escalated until AT&T submitted a letter on May 6, requiring GSA to confirm that a DCTN-type of tariff would be satisfactory. They indicated that if it was not they must hear by noon on May 11. A meeting was called for that day and senior management attended the meeting, appropriately headed by the contracting officer (Note 13~. There seemed to be a failure to communicate as GSA left that meeting believing that AT&T would try again to determine a more suitable proposal for terms and conditions related to fixing prices. In fact, AT&T decided it was not getting what it needed through orthodox channels and that same day filed a protest with the General Services Board of Contract Appeals (GSBCA) that AT&T was being excluded from bidding (Note 14~. Escalation then began in earnest. A GAO report based on a survey of GSA's telecommunications some 18 months earlier but never released was transmitted to GSA under a cover letter from Rep. Brooks (Note 15~. GSA's attention was certainly caught and the message was unambiguous as the Washington Times headline, "Brooks Blasts GSA Over Phone Purchase" arrived ahead of GSA's copy of the letter (Note 16~. Brooks' letter stated, "GAO concludes that projects designed to provide centrally managed telecommunications services, such as FTS2000, WITS, and ASP, are not supported by adequate analysis and, as a result, their successful implementation is highly questionable." The letter went on to state, "it has recently come to my attention that AT&T, one of the major vendors interested in bidding on the FTS2000 contract,-has filed a bid protest against the procurement. Apparently the company is alleging that it is being denied a fair opportunity to compete for this award. Needless to say, it is difficult for me to understand how GSA, after years of preparation, could be faced with this situation just two months before bids are due." Finally, the letter said, "The GAO report coupled with this protest may undermine GSA's credibility with user agencies and the vendor community as well. . . . I urge you to take forceful action to deal with the problems at hand to ensure that this important project will be successfully implemented." The House Government Operations Committee was now firmly in the loop. Meanwhile, the Senate Government Affairs Committee was also alerted and became publicly involved later (Note 17). The protest filed with the GSBCA said the FTS2000 REP Improperly restricts competition by requiring an offeror to certify that its proposal does not constitute a common carrier service subject to regulation under Title II of the Communications Act of 1934 and that the offeror is able to enter into a binding and enforceable fixed price contract not subject to tariff precedence, tariff revision, or tariff pass throughs." The protest went on to say, "GSA . . . violated applicable procurement statutes and regulations restricting full and open competition, . . . violated regulations requiring fair treatment, . . . violated regulations requiring that both tariffed and non-tariffed suppliers be permitted to submit offers, and . . . failed to provide time for offerors to respond to L.7.d

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42 before submission of proposals are required. n In essence, GSA demanded fixed prices. AT&T said they could be ordered to raise prices by the FCC and so were being excluded from bidding. The GSBCA, an independent body that hears contract disputes, scheduled a hearing quickly for June 15 and 16, and Judge LaBella said he planned to deliver a decision by July 15--15 days before the due date for FTS2000 bids. As a consequence, on May 18, GSA delayed the submission deadline to an unspecified date while the problem was sorted out with AT&T (Note 18~. At this point the project was firmly escalated to the administrator's office rather than IRMS and the day-to-day strategy was formed by a team consisting of the administrator's staffed the IRMS staff, with the case being presented to, and the major decisions made by Golden. From the project perspective this was advantageous as it brought to the team the power to marshal legal, procurement policy, and congressional liaison resources. Discussions with AT&T centered around GSA's concerns about fixed prices, AT&T's concerns about clause L.7.d., and both agreeing on a process to determine an outcome satisfactory to both sides. This 'focused on two items: a set of terms that GSA was willing to fall back to if better ones were not approved by the FCC, and an agreement by AT&T that GSA would seek alternatives with the FCC. None of this was new, all of it was reasonable, and there should have been no reason for the same decisions not to have been made through normal and proper channels without the Brooks and GSBCA escalation. On May 20, GSA agreed with AT&T as follows: GSA would accept either a fixed price or a fixed price tariff. An acceptable fixed price tariff would be a 10-year-term tariff with fixed rates approved by the FCC, the carrier (AT&T) would agree to waive rights to seek tariff increases, and the carrier would oppose any increase in the fixed price tariff (at no additional cost to the government) if the FCC mandated a raise. If the FCC forced price increases the carrier would ensure that they would not be passed to government but come out of stockholders' profits. Finally, GSA could break the contract without penalty if the tariff was increased. In return, AT&T agreed to drop the protest with the GSBCA. GSA agreed that it (not AT&T) would ask the FCC to make a determination (an expedited declaratory ruling) that FTS2000 constituted non-common-carrier services and hence was not subject to Title II under the Communications Act. If FCC declared in GSA's favor, then AT&T would submit an orthodox fixed price bid (Note lay. GSA announced new submission dates of July 30 and then later August 30 to allow resolution of this and other miscellaneous items. The enforceability of the fallback clause was debatable. For example, the commitment not to seek an increase did not have much meaning as any party, not just AT&T, could initiate action to seek such an increase. Also, it was doubtful that in practice the customer, GSA, could ensure that losses came out of the stockholders' profits rather than being passed to GSA. Finally, cancelling the contract was very unlikely to happen once the government was relying on the services. GSA's concerns that the regulators could conceivably bail out AT&T if it underbid still remained. The action turned to the FCC, and to GSA's concern comments submitted

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43 by parties not directly involved pushed for making this a major test case for many significant remaining deregulation issues--a very long and involved process that could substantially delay FTS2000. However, the FCC ruled on July 28, turning down GSA's plea to have FTS2000 declared non-common carriage. The FCC could not rule at that time as issues were not sufficiently concrete to permit it to decide how regulatory authority might be implicated. The issues would not be concrete, in fact, until bids could be examined. So GSA was left with the fall-back clause and the government was left with a problem. ' ROUND TWO: THE EBBS AND NARTIN-MARIETTA Meanwhile, in a June 15 letter, AT&T asked the Department of Justice to investigate that Martin-Marietta's bid called for the BOCs to perform services that were not legally permissible (i.e., interLATA switched services which included interLATA traffic aggregation, and sorting and routing functions). AT&T claimed that these functions constituted providing interexchange services that Judge Greene's court (under the MFJ) had emphasized may not be undertaken by a BOC. This action was a continuing step in an old battle between AT&T and ' the BOCs in the area of long-distance switching. This had impacted the old FTS but, more seriously for AT&T and the BOCs, it concerned the dividing line between AT&T and the BOCs in the general long distance market. It also concerned the timing of the BOCs entry into that market at some~date in the future. In the parallel, but lesser priority, program that GSA was pursuing to extend the life of the old FTS there had been contention about the BOCs ability to provide switches for the FTS following divestiture. An earlier letter from AT&T had asked the Department of Justice to investigate U.S. West providing illegal switching in the old FTS. Justice had not stopped U.S. West from providing''the less costly switching arrangements in that case, but rightly termed it a very difficult issue (Note 20~. ~ Following a letter to Justice on July 17, 1987, AT&T filed a motion with the federal district court of Judge Greene asking for an emergency order barring the BOCs from providing certain switching services to FTS2000. This was another potential delay outside the control of GSA. However, a spokesperson for the court said they hoped to get a decision before the bidding deadline--which at that point in time was August 30 (Note 21~. ~ This action by AT&T highlighted an aspect of the vendor competition that GSA had missed. GSA had understood and anticipated that AT&T would be concerned about Martin-Marietta potentially getting a major start in its marketplace, but missed AT&T's concern that the BOCs equally could do so through Martin-Marietta's bid. This concern in keeping the BOCs out of its market as long as possible was probably much more serious from an AT&T corporate point of view, much more of a stimulus for winning,'much more likely to cause a battle, and much more at the root of later actions by AT&T. '

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44 The issue as to which switching services the BOCs could provide was difficult, as it seemed clear from prior rulings that if the customer determines where the traffic is routed then the BOC can provide the switch. AT&T indicated in their action that this might be all right for the customer but not for an integrator like Martin-Marietta. Martin-Marietta and the BOCs would claim that the customer was still, in this case, making these determinations. So began a spat with all of the characteristics of a family feud. Southwestern Bell indicated it had already proposed (at AT&T's request) a similar arrangement to be included in AT&T's bid and that this arrangement had been signed off on by AT&T. AT&T initially denied having sought such services, then recanted, saying there was confusion. Meanwhile Bell Atlantic directly accused AT&T of trying to get rid of its only FTS2000 competitor, Martin-Marietta (Note 22~. There was no doubt in the minds of the industry that AT&T was pushing hard to prevent regional access in order to protect its private network business. Caught in the midst of this dispute was the FTS2000 program and the easy target of GSA. AT&T's next move was to tell the FCC that Martin-Marietta should be regulated as a reseller when it bid on FTS2000. With AT&T the only regulated carrier in the business, this raised some eyebrows. Martin-Marietta in a reply letter to the FCC said that AT&T were trying to use the regulatory process as a barrier to marketplace competition (Note 23). As a further step in this dispute, on August 10, the Department of Justice, in comments submitted to Judge Greene, said the seven BOCs would not be violating the 1984 consent decree in providing certain switching functions as part of Martin-Marietta's bid and urged the court to disregard AT&T's request (Note 24~. Judge Greene, however, declined to rule on the legality until, and unless, Martin-Marietta submitted a winning bid (Note 25~. Then, in an unexpected move in November, Judge Greene authorized Martin-Marietta to use the long-distance switching services of regional telephone companies if it won its bid. He did not, however, rule whether the BOCs would violate the consent decree by providing switching services generally (Note 26~. ROUND THREE: GSA FIGHTS BROOKS The activities previously described, while bringing discomfort and disorder and delaying the submission date, had no serious impact on GSA or the FTS2000 strategy as originally developed. The major impacts were: to initiate the escalation of the project within GSA's organization, to fail to produce a good way to ensure fixed prices, and to somewhat weaken Martin-Marietta by delaying the schedule and causing them to incur more bid and proposal expenses. The courts were not to be the arena for the main events of the summer. It was instead to be in the offices of Brooks and his staff in the Rayburn House Office Building on Capitol Hill. The antagonists were essentially to remain the same. The goals, however, were to unfold to

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45 reveal some new ones. Jack Brooks, then chairman of the House Government Operations Committee, was in some ways the main government watchdog (he now heads the House Judiciary Committee). In his wide-ranging jurisdiction as head of "Gov Ops" he could probe virtually any federal contract. This made him one of the most powerful men in the House. He was known for his forceful style. Brooks was also synonymous with information technology interests on the Hill. His 1965 Brooks Act remained for 15 years the major single piece of legislation concerning automated data processing. It gave GSA central authority for ADP and in many ways out of that Act came the view that GSA was Brooks's agency and information technology was his territory. He was joint architect of another important piece of legislation concerning information technology, the Paperwork Reduction Act of 1980, and was the prime mover behind the Competition in Contracting Act of 1985, which mandated full and open competition (Note 27~. Brooks's key contribution to the project was to engineer the splitting of the procurement into two awards, controlling the process to help ensure that at least three proposals were submitted, and controlling the process to help ensure that the project was not derailed by other interests. Without him it is highly doubtful that the government would ever have closed the procurement. Brooks was drawn into the procurement by vendor concerns. Much influence came from AT&T, who had conducted a high-powered lobbying effort handled directly by the AT&T vice-president for legislative affairs (Note 28~. US Sprint reentered the scene clandestinely at this point. Even before it officially withdrew from bidding, US Sprint started lobbying Brooks in hopes of getting back into the bidding. The Kansas City, Mo., based company had long cultivated ties to the Texas lawmaker. US Sprint had started as a Dallas-based company, U.S. Telephone Inc., hired Texans as lobbyists, and had teamed with Dallas-based EDS for the aborted bid (Note 29). These were not the only interested parties talking to Congress. Congress is intended to be the forum for representation and debate and all are encouraged to express themselves and participate. Consequently, there may have been many other participants and interests represented, all of whom could only be inferred by GSA by examining communications from the Brooks staff. Following the attention-getting action of sending the GAO report, the Brooks agenda quickly focused on a list of eight items provided to GSA in face-to-face meetings with his staff. After several exploratory meetings these were embodied in a letter from Brooks to Golden on July 27, 1987. The letter requested that GSA: 1. Provide for outside participation in the source selection board. 2. Refine the evaluation criteria to give the bidders a clearer understanding of the selection process. 3. Charter an in-depth, government-wide telecommunication requirements study. 4. Clarify those sections of the REP concerning national security and emergency preparedness requirements.

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46 5. Conduct a new bidders' conference to present and explain changes made in the procurement's approach. 6. Obtain, if possible, pre-award assurances from'the bidders indicating their satisfaction that the procurement was conducted in a fair and open manner. 'The letter went on to say that there were two remaining issues that had not been resolved:- the first was that Golden should become the source selecting official for the award of the contract; the second, and more troublesome, that the single vendor approach would not only concentrate enormous economic power in one company but would effectively lock the federal government into that one company's service for 10 years. In an attachment, the letter went on to say that this could reduce the number of competitors in the marketplace and arrest the growth of the entire industry. As a matter of public policy, the government should not let this happen. Breaking this contract up into multiple awards would reduce the risk of this occurring and promote a strong, diversified industry capable of meeting the government's needs in the future. These eight items presented various concerns to GSA, some simple and, to GSA, unimportant, some transparent as to their origin, some very obscure both as" to intent and origin, and some of the utmost seriousness. GSA dispensed with the less important items quickly in a letter from Golden to Brooks on August 3. In it, he agreed to the six numbered items. The two'unresolved items were serious and reflected two major concerns on the vendors' part: 1. AT&T did not trust GSA. 2. Both AT&T and US Sprint wanted the risk of losing decreased and the chances of winning increased. AT&T DID NOT TRUST GSA The merits of AT&T's distrust of GSA can be argued. Previous chapters have described the decaying relationship between both parties that stretched far into the past. AT&T could, and did, present a case that GSA made deliberate moves to disadvantage it and showed an anti-AT&T bias in a related procurement to obtain switches for the old FTS. GSA could, and did, present a case that the perceived bias was only the normal practice of requiring vendors to perform and compete within government regulations. (This is dealt with later in this chapter.) In fact, GSA made every effort to demonstrate a level playing field, a fair process, and a willingness to add any mechanisms that vendors felt added to this. As a consequence of AT&T's distrust, the project was moved out of IRMS into the immediate organization of Golden and all team members were instructed to report accordingly for project purposes. Golden agreed to become the selecting official. GSA had already, in the previous year, prepared plans for sunshine mechanisms in the form of an oversight committee composed of agency officials. This was expanded to include membership from outside of government. Chairmanship of this oversight

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47 board was also moved from inside GSA to an external member. GSA's evaluation and award plans~already included the formal, rigorous, auditable process for scoring, evaluating, and awarding the contract; as well as-the secure facility and security procedures for carrying out the control of bidding and evaluating documents. There had been little publicity given to these plans up to this time, as is the normal procurement procedure, but they were now given prominence to help address AT&T's concerns. Finally, the evaluation team was broadened to include not only GSA and its evaluation support contractor, the MITRE Corporation, but also representatives of the user agencies. In response to a personal appeal by Golden (reinforced by Brooks), agencies assigned many senior staff to the evaluation term. In terms of process and resources, the new arrangements represented the strongest teem that the government as a whole could field. The remaining unresolved issue was whether to award a single contract or split FTS2000 between two providers. TWO AWARDS OR ONE From GSA's perspective, two awards were simply unacceptable. In his letter to Brooks of August 3, Golden said that dividing the procurement into two awards would result in: A-delay of 12 to 24 months; Agencies moving--off the system to satisfy their own needs (because of the delay); Additional costs of $150 million to $250 million by continuing the existing system longer than necessary; Numerous problems in managing a complex and difficult transition; and Lost economies of scale and increased overhead in having two vendors. In addition, Golden was seriously concerned that only two bids would be received and that two awards to two bidders would mean no competition and hence very high prices. Sprint at that time had ruled themselves out of the competition and, with Sprint's recent corporate performance, GSA had severe reservations that it would be a viable competitor even if it bid. With Brooks reputation as a formidable opponent, the question has often been raised, "Why did GSA not just simply fold and immediately agree?" There has been speculation about this including the idea that it was an ideological thrust by the free marketers in the White House (Note 30~. The fact was that-Golden simply believed that two awards was the wrong answer for the government and would result in more costs and a more difficult management situation. This was not a new issue to Golden. He had studied it extensively himself in the prior year. Having thought the issue carefully through and come to his own decision, he saw no reason to change it and felt that proper;presentation of clear arguments to Brooks would change his mind. ~-

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48 Until this point, controversy over the project was largely limited to the Washington Times and the local trade and government press. However, a dispute between Golden and Brooks was something worth watching by everyone and so the press coverage went national. The situation was dramatically described by the Washington Post as, "one in which Brooks and Golden have each drawn a line in the sand and the one with more key players lined up behind him by the end of the week may force the other to yield" (Note 31~. - A senior official at OMB in the 1970s said that to win an argument in Washington depends on how good the substantive position is and how much elbow grease you can put behind it (Note 32~. On the former point--the substantive position--there were technically and economically good arguments on both sides and an outside observer would have probably felt it was, in total, a judgment call. In most similar cases, particularly in industry, the organization that would actually have to implement the arrangement would have been given the benefit of the doubt. However, this was not a technical or project economics issue, this was a battle about money, markets, and the risks of losing them. Hence, there was no possible debate regarding "substantive positions" and the outcome clearly was to be determined by how much elbow grease could be mustered. In this, GSA (and Martin-Marietta who wanted the single award left intact) was completely and utterly outgunned by Brooks, AT&T, and US Sprint (who wanted to split the contract up) (Note 33~. GSA did not have any way to marshal support in its favor and hence the only hope for maintaining a single award was if Martin-Marietta could counter-influence Congress against the influences of AT&T and US Sprint. Martin-Marietta could not marshal the support and so capitulation became inevitable (Note 34~. ~ The submission deadline slipped again to September 30 to allow time for negotiations and to buy time for a possible political compromise between GSA and Brooks (Note 35~. Meanwhile GSA was kept busy on all fronts: working with GAO concerning the damaging report it had issued to obtain a second version that said GSA should go ahead with FTS2000 (Note 36~; dealing with dozens of Congressional letters, meeting with Congressional staff, answering questions, and preparing documents (Note 37~; dealing with the emotional pressure of constant press criticism from the Washington Times, New York Times and the Cal l Street Journal (Note 38~; Martin-Marietta threatening to withdraw (Note 39~; and dealing with questions concerning the resurrected Kalba-Bowen report. All of these were calculated to wear GSA's soldiers out. But Golden was a tireless leader and troop morale remained high even as they tired. In the :

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49 last week of September the final shot came from Rep. Glenn English (Democrat, Oklahoma) saying "stop work and submit all your documents." This was really a shot across GSA's bows implying that if the agency did not structure the bidding the way Brooks suggested, a congressional investigation was likely (Note 40~. At the end of the day on September 25, 1987, FTS2000 was suspended and Golden agreed to split the awards per Brooks' direction. In a letter that day from Golden to Brooks, he said "it is apparent that we cannot secure congressional support for a new system unless we agree to adopt a multivendor strategy and it is our belief that their support is essential to a successful procurement." Golden also said he continued to believe that choosing a single vendor for the project was the most efficient and economical approach. With this agreement several events happened: . GSA undertook engineering modeling of how to minimize the deleterious economic, operational, and transition effects of splitting the network (Note 41~; Brooks began to insist that GSA drop voluntary compliance with the system and compel the Pentagon and other hesitant agencies; Martin-Marietta indicated that it felt disadvantaged (Note 42~; Sprint joined with EDS again and once more entered the fray (only to part company again before US Sprint submitted a proposal) (Note 43~; GSA committed to releasing a modified REP for two systems by the end of January and in turn vendors committed to Brooks that they could bid by the end of April 1988 (Note 44~; Brooks said, "I fully support GSA's new plan for restructuring the FTS2000 procurement"; and AT&T obtained most of what it wanted (Note 45~. THE COLD, HARD WINTER As mentioned earlier, in parallel with the FTS2000 project, GSA had been soliciting competition for a number of its high-cost switches in the old FTS to determine if Electronic Tandem Network (ETN) switching arrangements from the BOCs would be less expensive than AT&T's. The latest of these efforts involved 12 switches totaling some $55 million over a 30-month period. This was large money on one hand, but a low-priority and low-profile project for GSA senior management, and one assigned little attention. This procurement became the most notorious of the events during this phase of the FTS2000 procurement by providing what every audience seems-to love--scandal. On October 19, 1987, as the FTS2000 team was coming to terms with having conceded victory to Brooks in splitting up the procurement, GSA awarded contracts for several switches previously leased from AT&T to BOCs (Note 46~. Immediately AT&T protested to the GSBCA the award of the switches (Note 47~. AT&T charged that GSA had discriminated against AT&T

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50 in seven awards and that some were improperly and unlawfully made. It said that GSA had applied different evaluation standards to AT&T. Finally, they alleged that one or more GSA officials had leaked sensitive bid materials prior to the best and final offer. And so began an episode out of which no one emerged proud or unbloodied, an episode more characterized by the tastes of yellow journalism than the proceedings of major corporate and governmental organizations. It marked the nadir of AT&T's distrust of GSA and if the allegations of deliberate unfair and unlawful treatment had been true and had been extended to FTS2000, this would have marked the end of the FTS2000 project. It was the most unpleasant episode in the experience of all GSA staff concerned, as the press brought sensational slogans to breakfast tables nationwide: . "Rumor of private dinners, meetings and exchanges of sensitive bid information"; "Bribery suspected in U.S. phone contracts'; "In return for information GSA officials received cash, promises of future employment, and in one case cocaine"; "High GSA official vows to use fifth amendment"; ''Bell Atlantic, BellSouth admitted to getting secret bidding data"; "AT&T also obtained confidential info"; and "Grand jury to sift evidence of wrongdoing within GSA'l (Note 48~. For two months there was a fight between the pieces Of the old Bell System in a battle rooted in AT&T's mistrust of GSA (Notes 49 and 50~. The case eventually came to resolution. Whether there were, as AT&T's lawyer indicated in his opening statement, "[signs of GSA] bias against AT&T" or whether AT&T "didn't know how to compete in a competitive situation" as claimed by GSA's counsel, the judges ruling had something for everyone. AT&T had four wins and a possible win concerning the reversing of the award of the switches. The award of the Washington, D.C., switch (the largest switch by far) remained with Bell Atlantic. Most important for GSA and FTS2000, the board found "no specific intent to harm AT&T" but that "[GSA personnel] operated with less than a masterful understanding of solicitation terms and conditions" (Note 51~. In other words, the definitive ruling after numerous weeks of investigation by GSA's inspector general, investigations by the Federal Bureau of Investigation, depositions and investigations by AT&T's lawyers, and by numerous other depositions, investigations, and hearings in the court was that GSA may have lacked competence but it was not corrupt. If this was a victory for GSA, it was a pyrrhic victory as the loss to the organization and to individuals would sustain indefinitely. Also, the public image it created meant GSA was at a constant disadvantage in any discussions with Congress in the unrelated, yet infinitely more important FTS2000 procurement. The ETN court case had a chilling effect on GSA's organizational dealing with FTS2000 that continued to its disadvantage.

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51 To some extent, this effect spread throughout the Leleco _ ications co _ ity of the government. But with this last episodic the long' ho; summer and cold, hard winter were over. The final version of thy REP for two contracts was issued at the end of J _ ry 1988 and three proposals were received by April 29, 1988. s . ,. . . - , , . ~ :. . .