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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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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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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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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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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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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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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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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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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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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
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Representative terms from entire chapter:
fixed prices
