[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
MAKING NETWORX WORK: COUNTDOWN TO THE RFP FOR THE FEDERAL GOVERNMENT'S
TELECOMMUNICATIONS PROGRAM
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MARCH 3, 2005
__________
Serial No. 109-5
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada BRIAN HIGGINS, New York
KENNY MARCHANT, Texas ELEANOR HOLMES NORTON, District of
LYNN A. WESTMORELAND, Georgia Columbia
PATRICK T. McHENRY, North Carolina ------
CHARLES W. DENT, Pennsylvania BERNARD SANDERS, Vermont
VIRGINIA FOXX, North Carolina (Independent)
------ ------
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director/Communications Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
C O N T E N T S
----------
Page
Hearing held on March 3, 2005.................................... 1
Statement of:
Hogge, Jerry, senior vice president, Level 3 Communications,
LLC; Robert Collet, vice president, engineering, AT&T
Government Solutions; Shelley Murphy, vice president,
Federal Markets, Verizon; Jerry Edgerton, senior vice
president, government markets, MCI; Jeff Storey, CEO,
Wiltel Communications; and Anthony D'Agata, vice president
and general manager, Sprint GSD............................ 68
Collet, Robert........................................... 78
D'Agata, Anthony......................................... 123
Edgerton, Jerry.......................................... 96
Hogge, Jerry............................................. 68
Murphy, Shelley.......................................... 86
Storey, Jeff............................................. 109
Perry, Stephen, Administrator, U.S. General Services
Administration, accompanied by John Johnson, Assistant
Commissioner for Service Development and Delivery, Federal
Technology Service, and Barbara Shelton, Acting Commission,
Federal Technology Service; and Linda Koontz, Director,
Information Management Issues, U.S. Government
Accountability Office, accompanied by James Swedman, Senior
Analyst, U.S. Government Accountability Office............. 11
Koontz, Linda............................................ 32
Perry, Stephen........................................... 11
Scott, Donald, senior vice president, EDS, U.S. Government
Solutions; David Bittenbender, vice president, Network
Services, Computer Sciences Corp., Federal Sector; James
Courter, CEO & vice president, IDT Corp.; Michael Cook,
senior vice president & general manager, Hughes Network
Systems; Diana Gowen, president, Broadwing Government
Solutions, Broadwing Communications, LLC; and Greg Baroni,
president, Global Public Sector, Unisys Corp............... 139
Baroni, Greg............................................. 176
Bittenbender, David A.................................... 151
Cook, Michael L.......................................... 160
Courter, James........................................... 155
Gowen, Diana............................................. 168
Scott, Donald............................................ 139
Letters, statements, etc., submitted for the record by:
Baroni, Greg, president, Global Public Sector, Unisys Corp.,
prepared statement of...................................... 179
Bittenbender, David, vice president, Network Services,
Computer Sciences Corp., Federal Sector, prepared statement
of......................................................... 153
Burton, Hon. Dan, a Representative in Congress from the State
of Indiana, prepared statement of.......................... 194
Collet, Robert, vice president, engineering, AT&T Government
Solutions, prepared statement of........................... 80
Cook, Michael, senior vice president & general manager,
Hughes Network Systems, prepared statement of.............. 162
Courter, James, CEO & vice president, IDT Corp., prepared
statement of............................................... 157
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 202
D'Agata, Anthony, vice president and general manager, Sprint
GSD, prepared statement of................................. 125
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia, prepared statement of................... 5
Edgerton, Jerry, senior vice president, government markets,
MCI, prepared statement of................................. 100
Gowen, Diana, president, Broadwing Government Solutions,
Broadwing Communications, LLC, prepared statement of....... 170
Hogge, Jerry, senior vice president, Level 3 Communications,
LLC, prepared statement of................................. 72
Koontz, Linda, Director, Information Management Issues, U.S.
Government Accountability Office, prepared statement of.... 34
Murphy, Shelley, vice president, Federal Markets, Verizon,
prepared statement of...................................... 88
Perry, Stephen, Administrator, U.S. General Services
Administration, prepared statement of...................... 14
Porter, Hon. Jon C., a Representative in Congress from the
State of Nevada, prepared statement of..................... 201
Scott, Donald, senior vice president, EDS, U.S. Government
Solutions, prepared statement of........................... 142
Storey, Jeff, CEO, Wiltel Communications, prepared statement
of......................................................... 111
MAKING NETWORX WORK: COUNTDOWN TO THE RFP FOR THE FEDERAL GOVERNMENT'S
TELECOMMUNICATIONS PROGRAM
----------
THURSDAY, MARCH 3, 2005
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis
(chairman of the committee) presiding.
Present: Representatives Tom Davis, Burton, Gutknecht,
Cannon, Marchant, Dent, Waxman, Maloney, Cummings, Clay,
Watson, Lynch and Norton.
Staff present: David Marin, deputy staff director/
communications director; Ellen Brown, legislative director and
senior policy counsel; Rob White, press secretary; Drew
Crockett, deputy director of communications; Edward Kidd,
professional staff member; John Brosnan, GAO detailee; Teresa
Austin, chief clerk; Sarah D'Orsie, deputy clerk; Corinne
Zaccagnini, chief information officer; Leneal Scott, computer
systems manager; Kristin Amerling, minority deputy chief
counsel; Karen Lightfoot, minority communications director/
senior policy advisor; Nancy Scola and Mark Stephenson,
minority professional staff member; Earley Green, minority
chief clerk; Jean Gosa, minority assistant clerk; and Cecelia
Morton, minority office manager.
Chairman Tom Davis. The committee will come to order.
Good morning, and welcome to the Government Reform
Committee's hearing and ongoing oversight of the General
Services Administration's Networx procurement, one that carries
with it the potential to be both the largest telecommunications
procurement ever, as well as the one that creates the Federal
Government's first digital, government-wide interoperable
communications network.
This hearing is our third in the committee's continuing
efforts to gather information from industry and other
stakeholders to find out whether Networx program, as it has
evolved from that contained in its request for information
issued last October 2003, and the draft request for proposals
issued last November will become the government's acquisition
infrastructure for information exchange in today's dynamic
telecommunications environment.
First, I would like to briefly set out my expectations for
this program and the role I envision for Congress.
Networx must be the driver that facilitates the deployment
of communications and information technologies effectively
across government. I firmly believe that the communications
infrastructure is the most critical component of the
government's Enterprise architecture, and it is the purpose of
this hearing today to hear how Networx will fit the
government's requirement for an enterprise-wide communications
environment.
Networx must be the agent to enable us to better intersect
technologies with sound management practices and effective
governance principles. To ensure Networx success we need to
provide the leadership and resources for those things the
government should and must do as an Enterprise, such as the
building of a centrally managed telecommunications
infrastructure. Networx must be the backbone of that
infrastructure. Congress must be an engaged and aggressive
partner with the executive branch and industry in ensuring the
success of this program. To ensure this success we must think
about establishing a governance structure that removes the
heavy hand of mandatory use, but puts discipline in the
objective of a centrally managed communications environment.
Now, where are we in this oversight of Networx? Since the
committee's last hearing and the release of the draft RFP, GSA
has spent months listening to industry, customer agencies and
congressional and other stakeholders; as a result, the strategy
has continued to evolve.
During this time my staff and I have monitored the
progression of Networx, conferring with all of the stakeholders
and GSA, and consulting with experts, including the Government
Accountability Office. The committee intends to continue to
monitor Networx closely as it progresses from a strategy to an
acquisition, and on to an operating program.
As it stands now, Networx will be a two-part program, with
both portions to be awarded concurrently. The full-service
portion is called the Universal and will provide the full range
of domestic and international network services. GSA has reduced
somewhat the much-criticized billing and other management
requirements as the strategy has progressed. The smaller, more
focused service portion is called Enterprise. It is designed to
allow participation by providers who offer specialized services
with less extensive geographic coverage than required by
Universal. Enterprise does, however, mandate that its
participants comply with the same billing and management
requirements as Universal.
Both Universal and Enterprise provide for multiple award
contracts with relatively low minimum revenue guarantees. The
current plan is for a total minimum revenue guarantee of $525
million to be shared by all Universal awardees, and a recently
increased MRG of $50 million of all Enterprise awardees. The
contracts are to span 4 years, with three 2-year options. The
planned schedule provides final solicitation to be issued on
April 1, 2005, and for award by April 2006.
So far GSA has made substantial changes to the program as
the comment process has advanced. I am not sure, however, that
the evolution has been sufficient to ensure that Networx will
become the best choice for customer agencies as they design
telecom plans to meet their diverse management challenges.
It is not at all clear that Networx, as currently
configured, particularly Enterprise, will encourage the
broadest participation from industry, include a broad spectrum
of technologies and services, and allow for the introduction of
evolving technologies. I have consistently heard from the
industry that Enterprise, with its single, rather low minimum
revenue guarantee and onerous management and billing
requirements is a barrier rather than a gateway for the
nontraditional innovative segments of the market.
GSA has moved to improve Enterprise. It has increased the
original, rather meager $25 million minimum revenue guarantee
to be divided among all awardees to $50 million, and it plans
to provide for flexibility within Enterprise by allowing
awardees to expand the number of optional services offered
during the life of the program. Nevertheless, these changes may
not be sufficient to rescue the program. I am not sure that
merely providing what is, in effect, Universal with more modest
mandatory requirements and narrower geographic coverage will
get the job done.
Some argue that Enterprise needs to be fundamentally
different from Universal to succeed. They contend that
innovation is stifled by complex management and billing
requirements, by specifying requirements instead of setting
forth a statement of objectives, by dividing the minimum
revenue guarantee among an unknown number of participants.
Finally, while I believe that GSA should be the
government's agent to manage the government's communications
environment, GSA must get its house in order so that it is up
to the task. Because of the revelations of contract management
challenges at GSA, particularly at the Federal Technology
Service, I, along with GSA's top leadership, am reviewing
options to resolve the agency's structural and management
challenges. I intend to further explore issues relating to
GSA's management structure in an upcoming hearing on March 16.
We must be able to assure the American taxpayers that GSA
will provide the kind of leadership and management capability a
program like Networx demands. We must ensure that GSA exercises
financial self-discipline. GSA must not cripple Networx with
exorbitant management fees.
Once the program is ongoing, GSA must consider
administrative and overhead charges regularly, and adjust them
downward as volume targets are achieved. GSA must handle the
selection properly, the transition must be as smooth as
possible, and the right program performance measures must be
developed and consistently applied. I am prepared to take
whatever action is needed to ensure that GSA is up to the job.
We hope to receive enlightenment this morning on these
challenges, as well as others, such as transition, access to
the most current technology, and the impact on the program of
the ever-converging and merging telecommunications marketplace.
We will examine whether GSA has the capacity to advance from
the current planning stage to the execution of what will be a
complex and challenging acquisition.
The key to success here is for GSA to take advantage of the
wealth of information that has been made available to it
throughout the comment-and-discussion process and through these
hearings. It is crucial for GSA to design and implement this
program properly. It is more important for GSA to do this right
than it is to do it on schedule; timeliness is important, doing
it right is imperative.
We have a solid line-up of witnesses today, experts from
industry and government. They have a range of views and a
breadth of experience. I look forward to their input, and I
look forward to working with the government and industry to
ensure that Networx achieves its potential.
[The prepared statement of Chairman Tom Davis follows:]
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Chairman Tom Davis. I now recognize the distinguished
ranking member, Mr. Waxman, for an opening statement.
Mr. Waxman. Thank you, Mr. Chairman.
I am pleased to join you today to assess the
administration's continuing plans on how to purchase
telecommunications services for the Federal Government when its
current telecommunications contract expires. I look forward to
working with you, the administration and the private sector to
ensure that the Federal Government continues to receive the
best price and highest quality service telecommunications
needs.
The telecommunications industry and marketplace have seen
dramatic change over the last decade. A startling array of new
services and technology has become available, everything from
the widespread use of the Internet and cell phone technology to
today's emerging satellite security and voice-over Internet
protocols.
Along with this rapid technological advance have come
changes to the industry as well from the rise of the so-called
Baby Bells to the large-scale pending mergers we read about in
the newspapers. These changes will no doubt continue and may
even speed up. The challenges of structuring an acquisition
that will ensure best value in the complex and evolving
environment are immense, but I believe GSA is meeting this
challenge.
The Federal Telecommunications Service at GSA that has
administered the current Federal telecommunications program,
FTS2001, and its predecessor, FTS2000, were not totally without
problems. These programs have largely been a success. The
Federal Government pays between 1\1/2\ and 2 cents per minute
for long-distance service, well below the best commercial rate.
Over its lifetime the program has saved the American taxpayer
close to $2 billion.
GSA issued a draft request for proposals last fall that
outlines an acquisition strategy for the new program. This was
one step in an ongoing process of consultation between
industry, government clients and GSA that will culminate next
month with the release of the final request for proposals.
GSA has made revisions to its acquisition strategy that
take into account many of the concerns of industry and the
government users, and points at the strategy as retaining two
critical elements, leveraging Federal buying power and
encouraging continuous competition over the life of the
contract.
I thank you, Mr. Chairman. I look forward to hearing from
our witnesses today.
Chairman Tom Davis. Thank you.
Any other opening statements?
Mrs. Maloney.
Mrs. Maloney. First of all, I thank the chairman and
ranking member for holding this hearing.
And just very briefly, more than any other, procurement FTS
network has the potential to greatly impact the way that
Federal Government agencies conduct their missions and interact
with U.S. citizens.
Being from New York, Manhattan and Queens, I understand
firsthand the need for more vigorous continuity of operations,
disaster recovery and security capabilities. As many of you
know, after September 11 the phone system failed for many days
in New York City, and the ability to communicate with
firefighters and fire officers, many believe, could have saved
their lives and more civilian lives. So this is critically
important not only for the utility of government and
communications, but in this time of homeland security threats,
it is absolutely vital to improve on the system.
I look forward to hearing from GSA and industry on how the
procurement will ensure a network program that is responsive to
agency mission and security needs, will deliver on the promise
of better service for my constituents, and leverage the buying
power of the Federal Government.
I would add that oftentimes localities will follow the new
innovations that we bring to the Federal Government; so I
believe it's critically important to the communication systems
to New York City and other areas that may face problems.
Let me close by saying that we've been preparing for
Networx for several years now, and I am concerned that we are
beginning to eat into valuable transition time. I know there
have been a number of mergers, but we need to get this going.
And we need to give agencies ample time for transition if they
are to effectively take advantage of all the new technologies
and benefits and innovations that may be out there to help us
to better communicate.
This is an important hearing, and I thank the leadership
for putting this together.
Chairman Tom Davis. Thank you very much.
Ms. Norton.
Ms. Norton. I thank you, Mr. Chairman, for calling this
hearing, an important hearing, as we move toward Networx. I
have an interest not only in my Federal, but also because the
District of Columbia has used the system with considerable
savings.
Federal Government is in the catbird seed here, and I think
that's really the most important thing for us to remember here.
The savings to the Federal Government and to the District of
Columbia as a result of how the system works and has been
managed is what I look to. It is the bottom line by which I
judge the system.
At the same time, I think GSA deserves credit, given the
complexity of the technology and of the industry it faces,
truly mind-blowing. One wonders after a while, as new
opportunities to use technology comes about, whether we really
need all of this in every agency all the time, but as it comes
out, we've got to be prepared to take advantage of it. This
hearing will be important in assessing whether we are able to
do so efficiently, and with a cost saving that the Federal
Government is entitled to.
Thank you very much, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
It's the policy of the committee that all witnesses be
sworn before their testimony, and we will do that in a minute,
but I want to recognize today our outstanding panel.
We first have the Honorable Stephen Perry, the
Administrator of the U.S. General Services Administration,
accompanied by Mr. John Johnson, the Assistant Commissioner for
Service Development and Delivery, Federal Technology Service;
and Barbara Shelton, the Acting Commissioner of Federal
Technology Service.
We also have Ms. Linda Koontz, who is the Director of
Information Management Issues, U.S. Government Accountability
Office; and Mr. James Swedman is accompanying her as the Senior
Analyst, Government Accountability Office.
Now it's our policy that all witnesses be sworn again, so
would you rise with me and raise your right hands.
[Witnesses sworn.]
Chairman Tom Davis. Commissioner Perry, we will start with
you, and then go to Ms. Koontz.
Thanks for being with us, Stephen, and thanks for your
leadership on this.
STATEMENTS OF STEPHEN PERRY, ADMINISTRATOR, U.S. GENERAL
SERVICES ADMINISTRATION, ACCOMPANIED BY JOHN JOHNSON, ASSISTANT
COMMISSIONER FOR SERVICE DEVELOPMENT AND DELIVERY, FEDERAL
TECHNOLOGY SERVICE, AND BARBARA SHELTON, ACTING COMMISSION,
FEDERAL TECHNOLOGY SERVICE; AND LINDA KOONTZ, DIRECTOR,
INFORMATION MANAGEMENT ISSUES, U.S. GOVERNMENT ACCOUNTABILITY
OFFICE, ACCOMPANIED BY JAMES SWEDMAN, SENIOR ANALYST, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE
STATEMENT OF STEPHEN PERRY
Mr. Perry. Thank you, Mr. Chairman, Mr. Waxman, members of
the committee. Thanks for this opportunity for GSA to present
information about the acquisition of telecommunications
services for the Federal Government agencies.
GSA Acting Commissioner Barbara Shelton is here, as well as
John Johnson, who is GSA's Assistant Commissioner for Networx
Services. And we will respond to your questions, both as they
relate to the acquisition strategy that we are developing, and
as it relates to our work to finalize the request for proposals
that both the government and the industry will have to work
with in order to provide the quantity and quality of
telecommunications services needed by the government at the
best value for taxpayers.
I have submitted a copy of my written statement for the
record, so I will be brief in my opening remarks, but I do want
to take a moment to thank you, Mr. Chairman, and members of
this committee, for holding these hearings, and for your
continuing recognition that telecommunications services are
indeed critical to the success of day-to-day operations of
every Federal agency. And consequently, the telecommunications
acquisition process and this Request for Proposal must be
developed and executed very well, with careful consideration to
many factors involved, with active involvement of Federal
agencies, with active involvement of industry contractors, with
the oversight of this committee, and the input of other
interested stakeholders.
Additionally, GSA must continue to apply every ounce of our
market knowledge, our acquisition expertise, and our judgment
to develop an acquisition process which will yield the quality
services agencies require at best value.
Let me take a moment to mention just four of the highlights
that are in my written testimony.
First, the government has a strong track record for
acquisitions of telecommunications services, which has been
established by GSA with direction and support from this
committee, and with the collaboration of many Federal agencies
and industry contractors. While the new Networx acquisition
builds on the success of its predecessor program, FTS2001, it
is by no means merely an extension of those contracts; rather,
Networx is designed to provide agencies with more than three
times the service offerings that are in FTS2001, and this
includes new technology, and particularly new technology for
security.
Also, the Networx acquisition is designed to attract new
entrants, to meet the revolving requirements of Federal
agencies with the solutions and emerging technologies of
industry, and to move the government's telecommunications
system to the next generation network environment.
Second, Federal agencies have worked together to define and
document their key requirements and program goals that this
acquisition must achieve, and these include service continuity.
There is a zero tolerance for loss of service by agencies
during the transition from FTS2001 to Networx.
Second, highly competitive prices, quality service; the
contracts will include performance measures that will be
constantly monitored to make sure that we are receiving
continuous quality service.
The contracts will provide for access to full-service
providers, as well as access to all alternative sources for
leading-edge technology and services. It provides for operating
support and the need to improve our processes for ordering, for
billing, for inventory management and for accountability. And
then there are provisions for transition support, including use
of the lessons learned from the last transition, including the
need for accurate inventories of services; and then
performance-based contracts with enforceable service-level
agreements.
A third highlight from my written testimony is that since
the request for information was issued in October 2003,
industry review and input has been obtained at conferences,
hearings and other forums, and based on that industry input we
have revised the original plans and improved the Networx
acquisition process on several occasions. We issued the draft
RFP October 29th, and since that date we've continued to
solicit industry feedback, and this has resulted in substantial
additional revisions and improvements.
Last, as you know, the Networx acquisition consists of two
conjoined and simultaneous acquisitions. Networx Universal
meets the needs of agencies needing access to full-service
providers who provide a broad range of services, including 37
mandatory services, and a wide geographic area of coverage.
Networx Enterprise, on the other hand, meets the requirements
of Federal agencies needing access to alternative sources for
leading-edge services, including nine mandatory Internet
protocol and wireless-based service areas. And this will apply
in cases where a broad range of service or wide geographic
coverage is not a primary requirement.
We think this two-pronged approach will, in fact, attract
robust competition from the traditional service providers, from
the emergent new service providers, and from systems
integrators. The competitive participation of all of these
providers is critical to help the government move its
telecommunications system to the next-generation network
environment.
Mr. Chairman, members of the committee, I will conclude my
remarks here so that we can discuss these and other matters,
including the schedule for issuing the RFP, awarding the
contracts, and transitioning to the new Networx
telecommunications system.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Mr. Perry follows:]
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Chairman Tom Davis. Ms. Koontz, thanks for being with us.
STATEMENT OF LINDA KOONTZ
Ms. Koontz. Thank you, Mr. Chairman, and members of the
committee.
I am pleased to participate in today's hearing on GSA's
Networx program.
As you know, GSA's planning for this program is taking
place within an environment of tremendous change in the
telecommunications industry, in underlying services in
technology, and potentially in the regulatory environment. In
this context Networx initiative can be viewed as a significant
opportunity for Federal agencies to acquire and apply
innovative telecommunications services to support mission
needs.
Since we last testified, GSA has made progress in
addressing the management challenges we identified and our
recommendations. GSA has articulated a strategy for addressing
billing concerns and plans to complete transition planning and
training for agencies on the identification of service
inventories by February 2006. It has also drafted performance
measures for each of its program goals.
In the course of our work, we identify three issues that
are critically important to the short-term progress of the
Networx program. If these issues not are resolved, they could
affect the ultimate success of the program.
First, contract size. As you know, Mr. Chairman, vendors
commenting on the draft RFP express concerns about what they
perceived as the relative small size of the Enterprise minimums
compared to the cost of developing proposals and fulfilling the
administrative requirements of the contracts. GSA subsequently
raised the Enterprise minimums to 50 million, and is examining
the administrative requirements to make sure that they are all
needed.
While raising the minimum may help address industry
concerns, uncertainties remain. These include the Enterprise
administrative requirements, the number of awardees, and how
business will be allocated between Universal and Enterprise. As
a result, whether GSA's actions today are sufficient to
encourage robust competition for the Enterprise contracts
remains an open question.
Second, GSA has not yet finalized the criteria against
which proposals will be evaluated and has not shared this
information with prospective offerors. GSA does plan, however,
to provide this information in the final RFP.
Third, GSA has not yet determined the location-specific
traffic volumes required by agencies due to delays in
developing our related system. This information may not be
available until mid to late May.
These uncertainties represent risk to potential offerors
which may inturn affect the quality of their proposals,
particularly their ability to offer the best price to the
government. In addition, delays in establishing evaluation
criteria and traffic volumes could affect GSA's ability to
award the contract by April 2006.
Given the relatively short timeframes before proposals will
be due, leadership from GSA and commitment from stakeholders
will be critical to resolving these issues and ensuring that
the Networx program realizes its potential.
That concludes my statement. I will be happy to answer
questions.
Chairman Tom Davis. Well, thank you very much.
[The prepared statement of Ms. Koontz follows:]
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Chairman Tom Davis. Anybody else want to add anything? You
have your--I think we're ready to move with the questions.
Let me start, Commissioner Perry, with you.
In your statement you indicated that GSA anticipates two
awards on Universal and maybe five on Enterprise; is that
correct?
Mr. Perry. Yes. That is an estimate.
Chairman Tom Davis. It could be three; it could go back and
forth?
Mr. Perry. Yes, it is in that range. But we believe the
service that the government would require, has required, and
will continue to require in the future could be met easily by
the two.
Chairman Tom Davis. But it could be three, it could be
four, could be five, it could be six, correct?
Mr. Perry. Yes.
Chairman Tom Davis. Those are just your estimates.
Did you derive these numbers based on your assessment of
the likely competitive market, or is this just what you would
like to see?
Mr. Perry. No. It's based on the government need and our
sense of the competitive marketplace.
Chairman Tom Davis. You indicated that GSA will raise the
minimum--the MRGs on Enterprise to $50 million for all offerors
and will guarantee $10 million to each offeror in the event
there are five Enterprise awards. What does that mean? Does
that mean that you wouldn't go to six awards and divide it, or
is that, again, a flexible number?
Mr. Perry. Well, the minimum guarantee amount of $50
million would be divided equally among however many awardees
there are; so in your example of five, then it would be $10
million each. The larger number of awardees, that minimum
guarantee would decrease proportionately.
I think on the subject, if I may add----
Chairman Tom Davis. Sure.
Mr. Perry. The things that competitors--and Enterprise, for
example, or for that matter Universal--will look at in making
their determinations to compete first of all will be their view
or their perception of how well their product or service
matches up with the government need. That is going to be
preeminent. The second thing would be for them to take an
assessment of their ability to provide those products and
services to the government in a superior package as compared to
their competitors. If they assess that is the case, then they
go to the third question, which is to see that there is an
opportunity for them to have a profitable return on their
investment by investing. That is the time in which the minimum
revenue guarantees come into place.
Ideally their profit, their return on their investment will
come from the sale of their products and services, not from the
minimum revenue guarantees. The minimum revenue guarantees are
there to ensure that there will be robust competition. Our
assessment is that will be the case at the level that they have
now established.
Chairman Tom Davis. Thank you.
Ms. Koontz, you have been reviewing the program for us for
over a year now. Based on that experience, how would you rate
GSA's overall performance in developing their Networx strategy?
Ms. Koontz. I think that GSA has followed a very good
course of events in developing their strategy. They spent a lot
of time, I think, with industry, they spent time with us in
terms of developing a strategy. I also think that they have
listened to the stakeholders as they have moved forward.
Chairman Tom Davis. Do you think that they have been
responsive, then, to suggestions from industry and from you?
Ms. Koontz. I think they have been; and I think that
they're not done yet. So I don't know what their final proposal
is going to be, but I sense that they are attentive to what
industry is telling them.
Chairman Tom Davis. Do you think that GSA currently has
adequate resources to manage the program and the anticipated
transition; and if not, what else would you think would be
required?
Ms. Koontz. I don't think that we've taken a detailed look
enough at the resources at this point for me to give you a good
answer on that, Mr. Chairman.
Chairman Tom Davis. OK. Compared to the last transition, do
you think--is GSA better prepared for the transition to
Networx? Do you think that GSA will have the transition
management plan completed in time for the award?
Ms. Koontz. GSA seems to have a greater recognition this
time, given what happened last time, of what it is going to
take to transition. They also have a plan this time, they have
a schedule for completing it. If they adhere to what they say
they're going to do, and if they stay on time, they should be
in a much better position to manage the next transition than
the one that we saw a number of years ago.
Chairman Tom Davis. Well, you noted the number of issues
that have been raised concerning the draft RFP regarding such
matters as the size of the minimum revenue guarantees, the lack
of evaluation criteria, the traffic volume data. Do you think
they can resolve these matters and still issue an RFP by April
1st?
Ms. Koontz. Obviously not all the issues will be resolved
by April 1st because GSA has already told us that the traffic
volumes for specific locations won't be available until mid to
late May; however, it seems to us that there is probably enough
information for them to release the draft RFP on April 1st. I
think they need to remain sensitive, though, given the short
time that they have for prospective offerors to do their
proposals, to perhaps looking at having to lengthen that time
if it becomes necessary.
Chairman Tom Davis. Do you think it would be appropriate
for GSA to issue a second draft RFP to allow comment on such
matters as the evaluation criteria?
Ms. Koontz. I don't think that is necessary. I think that
they have heard the comments that they need to have at this
point.
Chairman Tom Davis. All right. Thank you.
Mrs. Maloney.
Mrs. Maloney. First of all, I saw in one of your letters,
the letter to the GSA and your performance accountability
report, that the contracts literally save the government money
in the last term. So I would like to understand the timeframe a
little better. You're going to come out with the RFP on April
1st, and then how long do the contestants have to respond to
it?
Mr. Perry. The request for proposals would be issued on
April 1st, and at that point, as has been pointed out, there
would be some information that GSA would not yet have
available, and we would make that information available in no
later than the end of May, and then the respondents would take
that information and complete that and then submit their
proposals by July 5th.
Mrs. Maloney. By July 5th.
Mr. Perry. Yes.
Mrs. Maloney. And then how long will the government review
these proposals and make a decision?
Mr. Perry. My plan would be to make the review and actually
issue the awards in April 2006.
Mrs. Maloney. In April 2006.
And I understand you are allowing for competition, new
ideas, new innovations in order to move us more into the 21st
century. And if there is a transition period, what is the
length of the transition period allowed for agencies? Say
Homeland Security wants to get into a new system that is more
secure, how much time would they have to get into a system that
may be more secure? And who pays for the transition cost; does
the government pay for it, or does the contractor pay for it?
Mr. Perry. Well, in terms of the time that would be
allocated for transition, we're allocating 18 months.
Mrs. Maloney. Eighteen months?
Mr. Perry. And that would be a period of time that enables
us to complete the transition without having to extend the
existing contracts, which is our plan. As a contingency, we do
have the ability to extend the existing contracts should that
become necessary, but we don't expect that to be the case.
So the last transition that we've talked about took almost
3 years; it took over 2\1/2\ years. We are saying this one will
be done much more quickly not only because GSA has worked with
industry and with customers, agencies to develop a better
transition plan, but because agencies themselves are better
prepared for the transition. So we believe that it all can be
accomplished within the 18 months that's in this schedule as we
projected it, but we have contingencies to deal with----
Mrs. Maloney. And who would pay for the transition?
Mr. Perry. The cost is paid for, in effect, by the
government because we have a fund that GSA accumulates as a
result of the fees that we charge to agencies for
telecommunications acquisition services, and those funds would
be used to pay for transition costs.
Mrs. Maloney. Let me ask you something. You said it took 3
years for the first transition to take place, and now you're
only allowing 18 months. That's a huge discrepancy.
Mr. Perry. It is, it is. But the previous transition had a
number of things happening, including a major strike of a
provider during that period of time. It was not--we didn't have
the benefit of the lessons that we've learned now. So by virtue
of the fact that we started probably at 2 years ago to begin
preparing for this new transition, we have worked to streamline
it, make it such that it can be done more quickly. Still 18
months is more like it.
Mrs. Maloney. I want to say that our country has changed
dramatically since the last time we reviewed these contracts,
and I would say that the priorities have changed dramatically.
I mean, there's more of an emphasis on security and
communications during times of possibly a tragedy, and just
moving into the 21st century, so I question the length of your
contracts.
I'm glad that we're coming back and looking at new
technologies and new security items in these contracts. I
understand you're proposing a 4-year base period, with 32-year
options, and what is the rationale for that particular contract
length, given the speed of change in the telecommunications
industry? It's hard to keep up with all the mergers and what
they mean and how it's going to change the telecommunications
industry, and what you're proposing is a potential 10-year
contract. And is that wise, given the speed with which
telecommunications changes, the speed of new startups and new
ideas and new protocols, or whatever, in the industry? Do we
want to tie ourselves into a 10-year contract given the massive
speed and change of this particular industry, and given the
fact that as we, as a Nation, evolve, our priorities may change
in how we want to communicate in the future, given the world
situation and security and so forth?
Mr. Perry. Let me kind of just briefly, first on the first
part of what you were discussing, namely the transition issue
and the tradeoff that we have to make between how quickly we
launch the award, because, as you pointed out, the more that
gets delayed, the less time we have for a transition, which is
the reason why we do need to proceed.
On your second point--and I'll ask John to followup on this
a bit--even though the contracts have a duration, there is
nothing that prevents the continuous refreshment of technology
during the course of that first 4 years and subsequently. So
technology is not frozen in place; in fact, quite the contrary,
the project is designed--or contracts are designed to allow for
the continuous refreshment of technology as these technologies
emerge and mature.
Mrs. Maloney. But what if the technology comes from a
competitor company? I mean, obviously the company that gets the
contract can build on their technology. Say a new company comes
out with a new technology and patents it, you understand what
I'm saying, and we're tied into a 10-year contract?
Mr. Perry. Well, that would be the case. It probably
wouldn't prevent the government from having access to that
company and that technology, provided that it wasn't available
under the Networx contract.
John, do you want to comment on that?
Mr. Johnson. Let me just add to that. First of all, we've
anticipated the types of security requirements that we believe
are necessary to carry us forward into the future. Now that
being said, we can't anticipate the future completely, so we do
have a very robust modification process to make sure that we
can introduce new technologies and services over time to remain
current, such as we have with FTS2001.
With regard to the new technologies that are security
technologies, for example, that could be introduced, it's
likely that because we will have a robust portfolio of service
providers, those service providers would be motivated to form
teaming arrangements or other arrangements to provide the
requisite services required under the contract to meet customer
demand. So I can't imagine that would be a large problem. If it
were a large problem, however, we would take action to correct
it by perhaps considering an additional contract for security
services.
Mrs. Maloney. My time is up.
Mr. Burton [presiding]. The gentlelady's time has expired.
Ms. Koontz, you indicated that the criteria was going to be
ready when?
Ms. Koontz. The evaluation criteria will be released with
the final RFP.
Mr. Burton. And when will that be?
Ms. Koontz. April 1st.
Mr. Burton. When will the committee get a chance to take a
look at that.
Ms. Koontz. I think that's a question for GSA.
Mr. Burton. Well, I think because of the interests of the
committee, all the members, Democrat and Republican alike, we
would like to see that as quickly as possible so if there is a
problem that we visualize, we would like to respond to it.
Mr. Johnson. We are nearing the completion of the
evaluation criteria, and as was indicated, it would--it's
planned to go out coincident with the release of the final
RFPs, but certainly it could be available for the committee to
review prior to that time.
Mr. Burton. Yes. It would be great if we could have it a
little ahead of time; it would be, you know--the chairman, I'm
sure, and everybody on the committee would like to have that.
I understand that the telecommunications industry has
expressed concern regarding the price management mechanism in
the contract. And some members of the industry feel that the
mechanism, as they understand it, allows the government to
reduce prices unilaterally. Is that accurate?
Mr. Perry. I would not characterize it that way. It's part
of the effort that the government makes as a major purchaser,
not only in telecommunications, but in a variety of other
areas, to attempt to obtain the best pricing that a particular
company offers to any of its customers, if we're their biggest
customer. What the price mechanism enables us to do is to
compare the prices that GSA or the government is being charged
with the prices that same company is charging to its commercial
customers, and in the event that those prices to commercial
customers were as much as 5 percent below the government price,
then we would expect that the government would be offered the
better price. But it's not beyond that. In fact, that's a
concept that's used in our multiple award schedules and a
variety of other government purchasing vehicles; the
expectation is that if we are a large purchaser, as comparable
to their many large commercial buyers, then we try and
negotiate that we get a price that's at least the same as their
commercial customers.
Mr. Johnson. I might add, if I may, that there has been a
criticism about the inclusion of the price management mechanism
based on previous history. And the fact remains that we haven't
had to use the price management mechanism because our prices
have been very attractive. But the uncertainty of the future
market just causes us to believe that the price management
mechanism for the future is much more important because we
don't really know where the industry is headed, and we think
that it is at least a good tool for us to keep prices at bay
and competitive.
And I might also indicate that it's generally not our
practice--or it isn't our practice to unilaterally adjust
prices without negotiation with our service providers. We do
create a dialog to make sure that our perceptions of prices are
accurate, and that the price adjustments that we would want to
make are necessary to maintain attractive pricing.
Mr. Burton. Well, I understand that we want to get the very
best price for the taxpayer, we want to save the taxpayers
money, and we want to make sure that the service is quality,
while keeping the price low; but once those contracts are
negotiated, you know, a company may have a small margin of
profit regardless of what they're charging corporate America.
And so I think it's very important that you don't put some
company--and I know that hasn't happened in the past, but don't
put some company into an economic trick bag that might drive
them out of business because you're arbitrarily and
unilaterally lowering those prices. I mean, the contract should
be negotiated in good faith so that the companies don't have to
worry too much about that.
I understand that the draft RFP doesn't contain a section
M, which is the customary section that spells out the
evaluation criteria that will be used to choose the contract
awardees. Is this accurate; and if so, why was this omitted
from the RFP?
Mr. Johnson. The evaluation criteria, the RFP has not been
released yet. We released a draft RFP that did not include the
evaluation criteria. One of the reasons for that is because
when we released the draft RFP, we knew that as a result of
industry comment, that the RFP would change significantly, and
it has. As a matter of fact, many of the issues that we're
discussing today have been resolved. We received roughly 2,500
comments from industry as a result of the draft RFP, of which
we've accepted about 40 percent in terms of changes that have
been made to the RFPs.
So we knew that we would be making substantial changes, of
which we have. So the criteria that we would develop obviously
would be necessary with regard to the new or the revised RFP,
so we thought that would create a lot of confusion.
The second part is that we just have not completed the
evaluation criteria to be released in time for the draft.
Mr. Burton. Maybe we will see that in advance.
Mr. Johnson. Yes.
Mr. Burton. Who is next up?
Ms. Norton. I think I'm next, Mr. Chairman.
Mr. Burton. Well, then, we will recognize the gentlelady
from the great city of Washington, DC.
Ms. Norton. Mr. Perry, I have a question. I look at pages 4
and 5 of your testimony where you outline the Networx program
goals, the last of the goals is performance-based contracts. As
you know, government has been traditionally far better at
awarding contracts than in monitoring contracts; it's very
difficult to monitor contracts.
We're dealing with a mammoth contract here. We were very
concerned last session in discovering just how difficult it is
and just how easy it is for the contractor to, frankly, get
away with not meeting the expectations of the government,
largely because of the difficulty the government has in
monitoring what the contractor does. Now, that is difficult in
the ordinary ABC contract. I really have a question about this
contract, particularly in light of the GAO report.
We saw, for example, in Iraq huge difficulties; you can see
that there would be larger difficulties there than here, but
the size and complexity here, it seems to me, are of some
concern when it comes to what the GSA says about performance
measures. It says that you have developed draft performance
measures, but it goes on to recommend--the GAO goes on to
recommend that the GSA finalize your efforts to identify--and
here I'm using the GSA's language--identify measures to
evaluate progress toward program goals and develop strategy for
using those measures for ongoing program management.
That is a huge challenge, and I would like you to speak
about how far you are along in identifying measures to evaluate
progress. Are they written down? How are you going about doing
it for a contract this large and complex?
Mr. Perry. Yes. Thank you for that question, and I will
start and ask John to maybe fill in a bit.
You are correct that in any performance-based contract, it
may be difficult to measure. First of all, the first difficulty
is to establish what the metric should be, what are the
indicators as to what are good services being provided? We've
worked together collaboratively with all of the other Federal
agencies to understand what's important to them in terms of
what these goals should be, and then obviously we worked with
the industry to understand their perspective on how they should
be held accountable and what they should be held accountable to
achieve.
Measures are beginning to be developed. We have measures--
maybe these are sort of mundane or routine, but in the
transition period we have measures on various transition steps
that have to occur, and we would be measuring whether or not
those various steps are taking place within the time standard
allowed, and have very high expectations. In many cases the
measure says that 98 percent of the modifications will be made
within the standard time allowed. And then in some measures--in
my own view, the measures should say 100 percent, but a couple
of them are at this point at 98 percent. But those measures, in
this case we are able to track some of them because they are
things like what is the time interval for accomplishing this
modification; and if they are not able to accomplish them in
that time interval, then the record will show that measure was
not achieved, and it will have consequences.
John, you may want to add to your thought there.
Mr. Johnson. I appreciate the recognition of the complexity
of measuring a program of this magnitude. As Mr. Perry
indicated, some of our program measures, such as transition
success or the ability to have alternate service providers and
so forth, have been clearly stated, and the GAO testimony
referred to that in terms of our maturing the measures in terms
of how we class success at some point in time.
But also we have internal operational measures that we use
to evaluate the effectiveness of our operation in terms of
monitoring SLA compliance and other such things; in other
words, making sure that we're getting what we asked for and
paying for what we've asked for appropriately.
Ms. Norton. Do you get feedback from the agencies that use
the service?
Mr. Johnson. Yes, ma'am. And we also receive feedback from
the agencies in terms of the quality of service that they
receive, and the overall operational characteristics of the
program itself.
So we have these measures, and as a result of these
measures, we make adjustments to the program for continuous
improvement.
But I might state that moving from the traditional contract
environment to a service-level agreement environment does
require a certain amount of restructuring, if you will, of
infrastructure in terms of how you manage contracts; and we are
working on that right now in terms of our operational systems.
Ms. Norton. This is a big challenge, and I think this is
where the--this is how the contract should ultimately be
measured.
Mr. Johnson. Right.
Ms. Norton. I thank you very much, Mr. Chairman.
Mr. Burton. I thank the gentlelady.
Mr. Cannon.
Mr. Cannon. Thank you, Mr. Chairman.
Mr. Perry, as you know, agencies are not required to use
FTS2001 for their telecommunication needs, despite the fact
that GSA offers better pricing than other contract vehicles. I
would put some bites in that becoming a commodity; basic
economics suggest that we don't want to factualize the
government's buying power if we're seeking the lowest possible
prices.
One suggestion I heard is that the administration use a
buy-smart approach where agencies would be required to use
Networx unless they provided justification as to why going it
alone would provide a better value for taxpayers. What are your
thoughts on that idea?
Mr. Perry. Well, first of all, I certainly agree that
government agencies should work together, and we should
leverage the purchasing power of the government. And I also
agree that in this area the item being purchased is
sufficiently similar that there shouldn't be wide deviations
from agency to agency.
Now, as to my feeling about that, I think that we are
making really good progress in terms of getting more and more
agencies to recognize just the point that you're making, that
this is the only appropriate and smart way to go. I think some
of the reason why we might not have achieved that to the extent
that we would have liked to up to this point, first of all it
starts, I believe, with a general notion that agencies have
historically had that we are independent, we operate
independently, we don't do things across agency boundaries. But
that is changing; that's changing rather dramatically partly
because in an environment of constrained resources, and in an
environment where agencies recognize that we do have to
collaborate in the future much more than we have in the past,
now that is changing. I think the nature of technology is
enabling that change, not only in the telecommunications arena,
but in financial management systems, in human resource
management systems, in all the e-government initiatives that
the administration has taken on. Agency boundaries have been
crossed in order for agencies to collaborate and get a better
deal. And so all of that serves coming together and making this
an idea whose time has arrived.
And I also would say--I'll compliment our GSA team in not
only engaging with the industry, but engaging very much with
agencies, including some agencies that did not participate in
FTS2001, to help them be a part of crafting this Networx
acquisition, and as a result I think we'll have much more buy-
in from other agencies than we may have had in the past.
Now, without going all the way to a mandatory requirement,
there is a very significant emphasis by OMB on agencies to, in
fact, present a justification if they plan to deviate from a
government-wide acquisition initiative, and I would expect that
would be adhered to on Networx.
Mr. Cannon. So you don't feel that you need us to create a
requirement; OMB, you think, is sufficient for that purpose?
Mr. Perry. I think it starts, again, with the agencies
themselves. I think a lot of this is agency initiation, but I
think OMB is a backstop to that; and hopefully the combination
of GSA, the agencies and OMB would make our compliance happen
even without congressional action.
Mr. Cannon. I'm really excited, I think, as you know, about
Internet protocol and what we can do with that to work with you
there.
What do you see happening with IP and Networx and the
services being made available that way; and what do you expect
happening to cost over time because of new IP services?
Mr. Perry. I will also ask John, as the expert, to talk
about that. But the little bit I know will tell me that we are
moving from a telecommunications system where you try to get
the line cost down as low as you possibly could, and you switch
services, a means of delivering; whereas today, with IP
protocols and with other packet delivery systems, you can have
a very ubiquitous telecommunications system that operates
actually for, I would say, fractions of the cost of what used
to be the case. We've seen the costs come down dramatically
during the period of time of FTS2001, and the expectation is
that some of that will continue as new technology comes on.
Mr. Cannon. John, as you begin to approach that question, I
was talking to a guy in the industry the other day who was very
sure that the cost would be a thirtieth, at least, and after
some discussion sort of concluded that you actually end up with
maybe a hundredth the cost for IP. What do you see that coming
out as?
Mr. Johnson. With industry behind me, I'm afraid to answer
that question, but certainly I think there are many
opportunities to save on the cost per megabit, if you will, of
delivery, whether it be voice, video, data, as a result of
converging our traditional applications toward an IP-based
environment.
And as we all know today, for example, as was mentioned in
the chairman's opening comments, voice, for example, is between
2\1/2\ and 2 cents per minute, and as that voice migrates over
to IP, it could be that it is far less than that. I don't know
what the actual cost per minute would be if that were the
measure.
The idea is that by moving all of our applications to an
NPLS IP environment, it will allow us a great opportunity to
save on each service that's migrated that path, as well as on
infrastructure costs that's traditionally developed and
maintained in terms of managing each service separately.
So I think that there is great promise in savings for both
government and industry in the cost per delivery.
Mr. Perry. Congressman, if I may add to that question just
a second.
A lot of the emphasis that we were just talking about is as
it would relate to industry bringing forth technology at
reduced cost. Some of the opportunity for savings is also on
the customer side; that is, that as agencies are smarter in the
use of this technology and telecommunications area, the same
thing will happen.
You've already mentioned the issue of agencies
collaborating and participating fully. That will help. But the
other is that agencies will move from handling each of their
bureaus independently, going to agencywide or enterprise-wide
acquisitions for both their voice data and video, and that will
also bring savings to the government.
Mr. Cannon. And perhaps save us some travel; that would be
good.
Thank you very much. I see my time has expired, Mr.
Chairman. I yield back.
Chairman Tom Davis. The Chair will recognize Mr. Clay.
Mr. Clay. Thank you very much, Mr. Chairman.
Let me hear from anyone on the panel. What are the unique
benefits of a centrally managed telecommunications acquisition
program that could not be obtained in other models; in other
words, is there a firm that can do it all? Could somebody
attempt to answer that?
Mr. Perry. I'll start with that. But the way we would
interpret the phrase ``centrally managed telecommunications
system'' is centrally within the government; that is, that as
opposed to each of the agencies independently acquiring their
own telecommunications system and operating it and maintaining
it separately, we are following a model, and have for some
time, that tries to centralize that, at least to the extent
that GSA and a collaboration of the agencies form this
centralized operation. It's not that one company would be asked
to do it, but that the government would act in unison in
acquiring its telecommunications services.
Mr. Clay. And you think that is more efficient?
Mr. Perry. Yes, I certainly do. I think that's a model that
has been successful in a variety of organizations that are
complex and far flung; that if you have a particular activity
that's occurring in 20 or 30 places, if you can consolidate
that expertise and at the same time continue to be sensitive to
the needs of those 20 or 30 end locations, if you can do both
sides of that equation, then, yes, it can be very effective. If
you centralize and lose sight of the needs of those independent
units, then you have a big problem; but if you do both, you
can.
Mr. Clay. I see. Thank you.
Can anyone give us your best estimate of the number of
companies that will be able to compete for Networx? Does anyone
want to take a stab at it?
Mr. Johnson. I am fairly confident that there are a large
number of companies that can compete for Networx. I would have
to answer that question by the responses that we received to
the draft RFP, which we received responses from 40 companies
with regard to their interest and making comments. So I would
say that there is the potential for very robust competition.
Mr. Clay. Can you name several of them today and then just
give me the names, which ones are they? I mean, which ones just
pop up in your head?
Mr. Johnson. I could name many of them. They range from
large carriers to systems integrators, as well as some of the
traditional smaller carriers; but it's across the board, quite
frankly, in terms of who those companies are and who responded.
Mr. Clay. You don't want to say specific names? That's
fine.
Mr. Johnson. I'd prefer not to.
Mr. Clay. Let me say that GSA has indicated that relatively
small minimum revenue guarantees will be provided to winning
contractors, $525 million for Universal and $50 million for
Enterprise. These MRGs will be split equally among all
awardees. Would you please explain the rationale for these
decisions on minimum revenue guarantees to the committee?
Mr. Perry. Yes, if I may, Congressman, I will try to put it
in context. What we are trying to achieve in this is robust
competition, and to make it attractive to not only the
traditional carriers who have provided telecommunications
services to the Government, but also to the emerging companies
that may have leading-edge technology to participate in this
arena.
And to my mind, there are two or three things that a
company would think about before they would decide to
participate in this competition. One is that they would see a
match between the Government's needs and requirements and their
own products and services. And as John says, there are at least
40 companies who potentially see a match there.
A second issue they would look at before they get to MRGs
would be whether or not they would be, in their judgment, able
to compete in offering a value proposition to the government
that would be superior to that of some of their competitors. If
they get past that hurdle, then they would say, is there a way
in which I can do this and do it profitably and derive a return
on my investment. That is where the MRG may come in. And I
think they would want their profit on their investment to be
derived from the sale of their products and services, not
necessarily from a guaranteed minimum revenue amount.
However, we believe that the minimum revenue guarantee
needed to be added in order to sweeten the whole proposal, if
you will, so that some companies who have a high hurdle in
terms of the cost of putting together a bid proposal, and there
is--and they would confront a great deal of uncertainty as to
whether or not they would be able to generate enough revenue to
make this all worthwhile, the minimum revenue guarantee is
intended to bring those people into the competition.
We think having established that the way we did is
reasonable. We took the projected total revenue and then we
divided that, 95 percent to the Universal group and initially 5
percent to the Enterprise group, and subsequently increased the
Enterprise group to $50 million. But hopefully in that context
one would say, OK, if all of those other things are in place,
if companies believe they can compete, they have a product,
they have a value proposition, and there is some assurance that
they will be--have at least some amount of minimum revenue, we
believe that will generate the robust competition that we need.
Mr. Clay. OK. I thank the panel for their response.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Mr. Marchant, any questions?
Mr. Marchant. No.
Chairman Tom Davis. Mr. Lynch, any questions?
Mr. Lynch. Thank you, Mr. Chairman.
The ability of customers to utilize new technologies and to
have that flexibility in cost-saving technology as well
depends, I think, in part on the ease of transition to actually
adopt some of those technologies and, if necessary, to change
carriers.
The last time that we were here on this matter, I know Ms.
Koontz had identified some transition challenges that we
still--at that point I believe your statement was that GSA had
not developed procedures or a time line or contractor support
to allow people to actually transition to the advantage of the
customer and use some of these new technologies and change
carriers.
I am wondering, have we made any progress on that? And do
we see any other obstacles that need to be addressed with
respect to that transition occurring?
Ms. Koontz. Since we we last testified on this subject, I
think GSA has made some progress; first, in mapping a schedule
out and mapping a strategy for preparing for the transition. I
also think that one of the things that was a very fundamental
problem in the prior transition was the lack of service
inventories or adequate service inventories so that agencies
had identified exactly what services needed to be transitioned
to the new carriers.
I think GSA, based on the experience that they had last
time, have a recognition that this is important. They spent a
lot more time in developing service inventories, and again they
have a strategy and a deadline for getting those completed in
time for the transition.
Mr. Lynch. OK. Just going back just to the lessons learned
from previous transition efforts, what have we learned? What
were the major obstacles or major challenges in transition
before, and how have we overcome these obstacles going forward?
Ms. Koontz. Again, I thought one of the issues was the lack
of adequate inventories, but I can--do you have anything to add
about the challenges?
Mr. Swedman. There are a few more. A lot of it has to deal
with the agencies, just recognizing the scope of the challenge,
recognizing that it is hard. And there has been a lot of talk
within the Interagency Management Council. GSA has been putting
in some contractor support to help them with their portion of
the transition management. There are a few things, and GSA is
working on a plan on that. They expect that to be finished by
February 2006, which would put it in place a few months before
the transition has to actually begin.
Mr. Lynch. OK. Thank you.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
Mr. Burton.
Mr. Burton. Mr. Chairman, thank you.
I just have one quick question. You said in these contracts
you were putting in minimum revenue projections to help entice
bidders to bid; is that correct?
Mr. Perry. That is correct.
Mr. Burton. Now, can the government reduce that minimum
revenue projection unilaterally?
Mr. Perry. No.
Mr. Burton. They cannot? That is a floor?
Mr. Perry. It would be in the proposal, the document.
Whatever we determine it to be, once that is final, then we
would not change it.
Mr. Burton. OK. Thank you very much.
Chairman Tom Davis. Let me just followup on that. If you
intend to keep the minimum revenue guarantees pretty much where
they are, and to maintain substantially the same level of
management and operations requirements, is it realistic to
expect to obtain robust competition, particularly in the
Enterprise, from a market that almost universally maintains
that the expense of competing is prohibitive?
Mr. Perry. Thank you very much for that question. The first
point is that some of the continued changes that we are making
in the area of management and operation requirements are not
even yet known to the industry, because we haven't had an
opportunity to communicate that to them. In other words, we are
continuing to look at the objections that they have raised in
these areas, and we are continuing to bring that number down so
that we have fewer and fewer government-specific requirements
in that area.
My hope is that when they see the changes that we have made
or the changes that we will continue to make that will make
this less onerous, and at the same time meet the needs of the
Government, that they will find that we have met or certainly
moved a great distance toward meeting their expectation in that
area.
I think that is going to be good news. That obviously then
takes some of the pressure off of the minimum revenue
guarantees, because if we take some of the onerous things that
are driving up their costs, then that should help. So I would
hope, while we would look at all aspects, everything is still
on the table, we would look at all of those things, I would
hope that they are going to see a much better balance than was
in the RFP that they have in front of them now.
Chairman Tom Davis. Also, just one other issue, it is a
concern to me the fees that GSA charges its customer agencies.
Do you have any plans to review the process GSA uses to
calculate the management fees charged to the agencies under
Networx?
Mr. Perry. Yes. We do review them annually now, but the
review that we have in the future, I think, will be much more
substantial, because certainly, as you know, Mr. Chairman, we
are doing some things--first of all, let me back up and say
that the fees that we charge are intended to cover our out-of-
pocket or our total expense of providing acquisition services,
nothing more than that. In fact, we have no incentive to charge
anything greater than that. It is not the way we operate. It
should be a break-even operation.
We are doing things that we believe will help to
continuously improve the efficiency of our agency, which would
help continuously reduce our own costs, which will have some
impact on the fee. In fact, in the schedules area, over the
last couple of years we have reduced those fees already once,
and we will reduce them again in 2006.
The review that will happen as a result of the efficiency
changes that we make in GSA as a whole will also be reflected
in the next time that we take a look at what that charge should
be. We expect it will continue to be contained.
Chairman Tom Davis. OK. Also knowing that there is a
tendency in agencies to avoid transition difficulties by just
keeping their incumbent vendors, how do you feel about the
Enterprise acquisition being successful, and why are the
mandatory Enterprise services also mandatory on Universal? Does
that reduce the chance that the agencies would use the
Enterprise? That is my concern.
Mr. Johnson. The services on both contracts are very
similar, as you indicate, but the mandatory offering on--or the
services on Enterprise, in terms of how--the number of them
that are mandatory are fewer than in Universal. The reason for
that was that we wanted to open up competition and give some of
those service providers that do not have the full breadth and
scope of ability to meet our broad demands the ability to enter
the marketplace.
It is hopeful, however, that based on the services that we
have cited as mandatory, the advance technology such as IT and
wireless services, VPN-type services and what have you, that
the agencies will be motivated to move toward that technology
to improve their infrastructures and their operations.
So I think that it allows industry, one, to enter with
relative ease as compared to Universal, and also it hopefully
will motivate agencies to look seriously at the Enterprise
providers because of the emerging technologies that they offer.
Mr. Perry. Let me just add to that. If you look at it from
the point of view of--let's say of a potential Enterprise
contractor, if the only thing we had available was Universal,
with 37 mandatory requirements, there would be some companies
who would have a particular sweet spot among those 37, but they
wouldn't be able to take on all of them.
So we go to Enterprise and say, OK, you don't have to take
on all 37; you only have to take on 9. Now, yes, they are nine
that are also on the Universal, but from the Enterprise
contractor that gives them the opportunity of saying, OK, well,
I do not have to worry about those other 26 and/or 28, and I
don't have to worry about wide geographic application, I can
bid in my sweet spot area.
Chairman Tom Davis. Who knows where technology will be 4 or
5 years down the road? The real question is that the more
vendors you have, the more opportunity you are going to have to
take care of that down the road.
So those are, I think, all of the questions that I have for
this panel. Anyone else want to ask a question? If not, I will
dismiss this panel. I appreciate very much your continuing to
work with us. I know you are going to be listening to all of
the testimony today so that we can factor that into the final
RFP.
Linda, thanks for being with us. We appreciate all of the
work that you're doing. And, Mr. Swedman, thank you.
We will take a 2-minute break and get our next panel up.
[Recess.]
Chairman Tom Davis. We are ready to move to our second
panel. We have Mr. Jerry Hogge, senior vice president, Level 3
Communications; Mr. Robert Collet, who is the vice president of
AT&T; Ms. Shelley Murphy, vice president, Federal Markets,
Verizon; Mr. Jerry Edgerton, senior vice president, Government
Markets, MCI; Mr. Jeff Storey of WilTel Communications; and Mr.
Anthony D'Agata, who is the vice president and the general
manager from Sprint.
It is our policy that we swear everyone in.
[Witnesses sworn.]
Chairman Tom Davis. Thank you very much.
Your entire statement is in the record. Not only do we read
it, but we are making sure that GSA reads it as we go through
this. If you could try to hold it to 5 minutes, we can try to
move through this quickly and then get into questions.
Jerry, we will start with you, and we will move straight on
down the line. We appreciate your patience in being with us
today.
STATEMENTS OF JERRY HOGGE, SENIOR VICE PRESIDENT, LEVEL 3
COMMUNICATIONS, LLC; ROBERT COLLET, VICE PRESIDENT,
ENGINEERING, AT&T GOVERNMENT SOLUTIONS; SHELLEY MURPHY, VICE
PRESIDENT, FEDERAL MARKETS, VERIZON; JERRY EDGERTON, SENIOR
VICE PRESIDENT, GOVERNMENT MARKETS, MCI; JEFF STOREY, CEO,
WILTEL COMMUNICATIONS; AND ANTHONY D'AGATA, VICE PRESIDENT AND
GENERAL MANAGER, SPRINT GSD
STATEMENT OF JERRY HOGGE
Mr. Hogge. Thank you. Good morning, Chairman Davis and
members of the committee, and thank you for inviting me here
today to speak about the Networx program. My name is Jerry
Hogge, and I am senior vice president and general manager of
Level 3 Communications, Government Markets.
In prior testimony, Level 3 praised the GSA for revising
its Networx strategy for incorporating the best elements of
past programs' successes while building in flexibility and
choice for the future. We believe that GSA has taken positive
steps in many areas of this procurement, and that Networx,
through the competitive benefits of both Universal and
Enterprise, holds great promise for realizing the Government's
stated goals of encouraging competition, creating new sources
of supply, and achieving the best value for the taxpayer's
dollar.
In its current form, however, the draft RFP requires two
fundamental revisions. First, the minimum revenue guarantee for
Enterprise awardees should be increased to ensure vigorous and
broad-based participation by existing and new entrants.
Second, the final RFP should clearly describe the mechanism
that will be used to ensure full and fair competition between
and among Enterprise and Universal contract awardees,
especially the fair opportunity process that will be used to
transition from FTS2001 to Networx.
In our judgment, unless those issues are properly resolved,
Networx is not likely to achieve the best value for the Federal
Government, and is not likely to attract aggressive competition
from new bidders.
In order for Networx to achieve its stated goals, they must
be structured to encourage competitive bids from a wide range
of potential bidders. Incumbent and nonincumbent bidders are
most likely to compete vigorously for a Networx contract if an
award carries with it a reasonable expectation of business
commensurate with the market opportunity and appropriate to the
unique costs and investments associated with complying with the
contract requirements.
Based on our understanding of the draft RFP, Networx will
require bidders to make a substantial amount of program-
specific investment, as well as incur sufficient upfront bid
and proposal costs. As such, Networx will attract bidders,
particularly new entrants, only if success in receiving a
contract award carries with it a corresponding assurance of
business through the contract.
The threshold measure of this business expectation is the
contract's minimum revenue guarantee. Accordingly, Level 3
recommends a minimum revenue guarantee of at least $25 million
for each Enterprise award, to be satisfied over the base
contract period. An MRG of this size is appropriate to the size
of the market for Enterprise services, does not present undue
budgetary risk to the government, and is necessary given the
unique investments and costs required.
Even more important than the government's minimum
expression of business commitment is the successful bidder's
expectation to be given a fair opportunity to compete and win
business throughout the life of the program. GSA's acquisition
strategy acknowledges this important aspect to the program in
the deliberate and substantial overlap that has been created
between the Universal and Enterprise RFPs.
Level 3 fully supports this concept, but believes that the
expected competitive benefits of the program will be realized
only if Universal and Enterprise are formally linked. The need
for a formal direct linkage is essential, particularly for
purposes of transition-related fair opportunity bidding. Agency
decisions made during the FTS2001-to-Networx transition period
will significantly impact the ultimate value of each Networx
contract.
In our judgment, a direct linkage can be achieved either by
reforming the procurement at the outset, by designing a single
contract vehicle with multiple vendor categories, or by keeping
the separate contracts for Universal and Enterprise, but
linking the two sets of contracts through a cross-over approach
similar to that used to connect the FTS2001 and MAA contracts.
As we noted in our formal comments on the draft RFP, ample
precedent exists for both approaches.
Finally, the RFP must define a clear process for ensuring
that the competition among and between Universal and Enterprise
contracts is robust and fair. The fair opportunity process
should not only set forth clear guidelines to require agencies
to solicit fair opportunity proposals from all Universal and
Enterprise winners capable of meeting the stated requirements,
but it should also set forth objective guidelines for how bids
will be evaluated and how the results will be tracked and
communicated. Such a process will allow both Universal and
Enterprise winners to compete on a level playing field for
agency business post award. An equitable approach would make it
unnecessary, indeed would not permit a single company to
receive prime contract awards for both Universal and
Enterprise.
Properly resolving these key issues, as well as the many
detailed issues raised by the comments GSA received in response
to its draft RFP, is at the heart of the Networx program's
future success. We are less than a month away from the schedule
release of the final RFP, and the two fundamental elements I
described remain either partially or wholly unresolved. Other
essential information, such as the evaluation criteria, the
instructions for proposal preparation, a detailed site
inventory, and GSA's response to over 2,500 detailed comments,
has not been released.
As a prospective nonincumbent bidder, it is certainly our
preference for this procurement to move forward without delay.
However, given the profound nature of the issues I have
discussed, I believe it is even more important to take
reasonable time for these issues to be properly resolved before
a final RFP is issued. The strategic importance of the Networx
program in terms of its estimated $10 billion value, its broad-
based agency use, and 10-year duration require elevating
substance over strict adherence to a predetermined time line.
Accordingly, I recommend that GSA clarify its final position on
these issues in the form of a second draft RFP. Doing so will
minimize the number and complexity of amendments that would
otherwise be required, and ensure that all potential bidders
are presented with a comprehensive and clear statement of GSA's
requirements.
In summary, GSA has listened to industry, to the Federal
agencies, and has made many improvements to the initial
procurement strategy. However, a few strategic issues remain to
be resolved. Left unchanged, these issues are likely to
significantly limit the success of Networx, particularly
Networx Enterprise, and potentially deter both existing and new
bidders from pursuing these contracts.
Level 3 is hopeful that the leadership of GSA and this
committee will recognize the importance of these issues, and
that they will be favorably resolved before Networx moves
forward. Level 3 looks forward to continuing to work with GSA
and Chairman Davis and the
Government Reform Committee to ensure that Networx is a
success.
Thank you, Chairman Davis and the committee, for your time
and consideration, and I am happy to answer any questions.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Mr. Hogge follows:]
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Chairman Tom Davis. Mr. Collet, thank you for being with
us.
STATEMENT OF ROBERT COLLET
Mr. Collet. Well, good morning, Mr. Chairman and members of
the Committee on Government Reform. My name is Bob Collet, and
I am leading AT&T's FTS Networx proposal team. AT&T has been
asked by the committee to provide our views on the Networx
procurement.
The strategy and vision contained in the draft RFP are
consistent with our view of both the government's needs and the
industry's evolution. The message I am here to deliver is that
GSA got it right, and it is time to move forward with the
procurement; let's not delay.
Today I want to highlight three reasons why the acquisition
strategy is the right one. First, it increases competition.
Second, it brings to the Federal agencies new and much-needed
capabilities. And, third, it is the right procurement for the
times. Let me briefly address each of these points.
First, the procurement's three-part structure, Universal,
Enterprise and schedules, maximizes competition and choice for
the Federal customers, assuring the Federal Government the
opportunity to leverage the combined buying power of the
agencies.
We believe the number of Universal offerors will be greater
than experienced in FTS2001. By cultivating cross-over
contractors, GSA has expanded the pool of viable Universal
competitors; consequently the Government can expect vigorous
competition for Universal awards.
GSA and the Interagency Management Council's Networx
acquisition strategy further maximizes competition by means of
the procurement's Enterprise component. Enterprise opens up a
whole new set of opportunities for competition by giving
companies without geographical service scope a way to meet
evolving government needs and enhance competition. In addition,
we expect spirited competition from system integrators because
of declining costs in telecommunications and information
technology that have reduced the barriers to Enterprise market
entry.
Finally, for those providers that cannot be responsive to
Enterprise requirements, GSA's intent to establish a
telecommunications multiple awards schedule results in yet
another contract vehicle to enable agencies to obtain
telecommunications services. Therefore, with the Universal,
Enterprise and schedule vehicles, Federal agencies will have a
wide variety of acquisition options.
The second reason that the procurement is ready is that it
brings significant new capabilities to the agencies. These
agencies' capabilities include enhanced security solutions,
technologies to meet agency needs, and to advance information-
sharing among the agencies. These enhancements will enable
mission performance gains to ensure that agencies have the
security and survivability tools they need to guard against
cyberattacks and to facilitate continuity of government during
emergencies.
The third reason is that the procurement is right for the
times because it anticipates and accommodates industry
evolution. Since the inception of the Networx strategy several
years ago, GSA and the agencies anticipated that industry
structure could and indeed would change and evolve. The
multivehicle, multiple award structure of Networx reflects this
thinking and positions Federal agencies to reap the benefits of
industry consolidation and rationalization.
So while GSA and the Interagency Management Council should
be commended for developing a responsive and forward-looking
acquisition strategy, we do recommend a few adjustments in the
procurement. We believe, however, that these adjustments can be
made without delaying the release of the RFP. These suggested
adjustments are detailed in my written testimony.
Notwithstanding these modest suggestions, we believe the
procurement is on target and ready to be released. GSA should
move forward now to issue the RFP. A delay would result in loss
of cost savings likely to flow from competition of Networx
awards. In fact, the delay would necessitate an extension of
the incumbent contracts, and recent experiences indicate that
incumbents will seek major, major price increases as the
agencies will have no practical alternatives.
The benefits of the procurement are clear: improved agency
access to integrated security solutions, improved mission
performance, improved e-gov capabilities and efficiencies, and
improved cost savings. For all of these reasons the procurement
is sound.
In addition to the benefits the government will reap by
moving forward in an expeditious manner, I want to underscore
the investment that we have made to prepare for this
procurement. Industry has invested significant financial
resources in human capital to get to this point, and we
continue to make these investments in anticipation of the April
RFP release. Simply put, the acquisition strategy is sound, and
GSA and industry are well prepared to get on with the
competition.
So, thank you, Mr. Chairman, for the opportunity to
participate in today's hearing. I welcome any questions that
you or other members of the committee may have.
Chairman Tom Davis. Thank you.
[The prepared statement of Mr. Collet follows:]
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Chairman Tom Davis. Ms. Murphy, thanks for being with us.
STATEMENT OF SHELLEY MURPHY
Ms. Murphy. Mr. Chairman and members of the committee, my
name is Shelley Murphy, and I the president of Verizon Federal
Markets. Verizon continues to be pleased with the open
communication by Congress and the GSA during the Networx
procurement process.
Although we appreciate that the GSA has listened to the
concerns expressed by industry, the draft RFP show that issues
still remain. A major concern is the tens of millions of
dollars that each awardee will have to spend on billing and
back-office systems. Verizon's position is that to maximize
competition and reduce prices, the GSA must either bring those
requirements into line with industry practices or go forward
with a separate procurement for a GSA-provided billing system.
The issue surrounding the requirements for back-office
systems are especially concerning from a wireless perspective.
The GSA is on record stating that the Universal and Enterprise
programs are designed to provide multiple options for both
technologies and vendors to the government. Based on the draft
RFPs, the procurement's current structure does not serve the
stated GSA purpose.
By GSA's design, more companies can bid on the Enterprise
RFP than on the Universal RFP, but because of this design, the
major mission-critical networks will most likely be competed
for under the Universal contract. Once an agency decides to use
the Universal contract, vendors holding only the Enterprise
contract are precluded from bidding on those agency's
requirements, even if the Enterprise vendors can meet those
requirements. With no direct way to compete for Universal
business, the Enterprise contract does not provide the
government with sufficient options and makes the contract less
attractive to potential bidders.
This issue could be corrected by allowing direct
competition by Universal and Enterprise awardees for an
agency's requirements, or by the ability to graduate from the
Enterprise to the Universal contract. Enterprise awardees would
have an incentive to expand their services to match those of
the Universal contract offerings. Either approach would benefit
the government by providing a large expanding pool of companies
that could compete for Universal business over the term of the
Networx contracts. These approaches are similar to the current
successful GSA practice under FTS2001.
The current structure of the draft RFPs requires vendors to
bid to a predefined set of feature service level agreements and
prices. This commoditizing of services will result in fewer
options for the agencies and potentially increased prices. As a
result, agencies may decide not to use Networx and instead
issue their own separate procurements.
With more commercial-like offerings, agency choices will
increase, and prices will remain low. Individual agencies can
then determine which combination of features, service level
agreements and prices meets their individual requirements,
thereby providing more flexibility and lower costs using the
Networx contracts.
Another issue that may limit competition and increase cost
to the government is that the mandatory performance
requirements of the Networx draft RFPs are generally more
restrictive than in the commercial marketplace. These
restrictive requirements are pervasive through the draft RFPs,
especially in the required standards, the service level
agreements, and the pricing format. The structure of the
Networx draft RFP is directly opposite the Federal Government's
goals of reducing expense and gaining flexibility by adhering
to commercial practices.
Emerging services create an additional issue when the GSA
tries to predefine combinations of features and service level
agreements and then requires 10-year pricing. Features for
these emerging services are still evolving, and, more
importantly, the pricing structures are not fully developed.
Verizon is concerned that the GSA may move the procurement
forward too quickly in order to meet an artificial deadline.
Approximately 2,500 comments were submitted by the industry
on the draft RFPs. Due to the importance of Networx over the
next decade, after incorporating any changes, the GSA should
issue another set of draft RFPs. This will help ensure that the
GSA sets forth an RFP which will maximize competition and
minimize cost of service to the government.
To summarize Verizon's main points, in order to get
sufficient competition and reduce expenses that would be passed
on to the government, the billing and operating system
requirements should either mirror industry practices, or the
billing system should be made separately by GSA.
To maintain competition and flexibility for the largest
systems, Verizon believes that the relationship between the
Universal and Enterprise contract should be tighter with a way
for Enterprise awardees to either directly compete with or
graduate to the Universal program.
Letting the commercial marketplace establish feature and
service level agreement requirements at market-driven prices
will provide the government with significantly more price-
competitive options. Such an approach will also encourage
agencies to maximize the use of the Networx contracts rather
than establish their own procurement vehicles.
And, finally, the GSA needs to issue another set of draft
RFPs. This will result in clearer, higher-quality final RFPs,
and will expedite the overall procurement process.
I thank the committee for the opportunity to discuss the
Networx procurement and would be pleased to answer any
questions.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Ms. Murphy follows:]
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Chairman Tom Davis. Jerry, welcome back.
STATEMENT OF JERRY EDGERTON
Mr. Edgerton. Thank you, Mr. Chairman.
Mr. Chairman and members of the committee, good morning. My
name is Jerry Edgerton, and I am the senior vice president of
MCI's Government Markets Division. Thank you for the
opportunity to provide you MCI's perspective on Networx.
MCI applauds the committee for its continuing leadership in
overseeing this important Federal program. In the 6 months
since I last testified before this committee on this matter,
MCI has continued to aggressively prepare for the Networx
procurement. For example, we have analyzed the draft RFP and
submitted detailed comments and suggestions for improvement to
the GSA.
We have assembled a top-flight Networx team so that we can
expertly provide all of the 53 products and services desired by
agencies by partnering with highly regarded small and large
businesses, emphasizing the use of minority businesses, and we
have invested in developing the complex service order billing
and operating systems that are required under this procurement.
MCI strongly believes that the Networx structure being
proposed by GSA will continue to provide the competitive
environment, flexibility, innovation, technology refreshment
and, more importantly, value that the agencies need to perform
their mission-critical operations.
MCI is currently one of the largest telecommunications
providers to the U.S. Government, both as an FTC vendor and as
a provider of numerous other Federal contracts. MCI supports
more than 75 Federal agencies and has designed and implemented
some of the most complex government networks in the world.
Our guiding principle is to make sure that Government users
get the full benefits of competition on which MCI thrives:
world-class service, quality, the best available technology,
and innovative problem-solving all at a competitive price. And
MCI has delivered, providing quality innovation and over $1
billion of savings over the life of the FTS2001 contract.
MCI has thoroughly evaluated the Networx draft RFP. The
Networx strategy demonstrates a careful, detailed examination
of the comments and issues that have been raised by interested
parties in order to minimize cost, maximum efficiency and
technological advancement. Because it properly focuses on the
needs and expectations of the agency customers, we encourage
GSA to maintain the base structure of the Networx strategy,
specifically compete two separate network contracts, Universal
and Enterprise; demand continuity of services on the Universal
contract; streamline the requirements for the management and
operations support requirements; and mandate a fixed set of
service capabilities for both Universal and Enterprise
contracts.
There are three major areas of unresolved issues that can
adversely impact the effectiveness and the viability of the
Networx program, and the ability of government to attain the
best possible prices. GSA has not clearly set forth the number
of awardees either under the Universal or the Enterprise
procurements. GSA has not offered many details on the proposal
to add telecommunications services to the Federal supply
program. And GSA must resolve the lack of clarity on how
agencies will use the two contracts if the contracts provide
duplicative services.
On these outstanding issues, we make the following
recommendations. GSA should set clear limits on the number of
Networx contracts awarded. Networks like FTS2001 can provide
agency users with the lowest possible prices by aggregating the
massive volumes of service demand for much of the Federal
Government onto a single contract vehicle.
GSA should maximize competition by encouraging as many bids
as possible from potential service providers. At the same time,
GSA must limit the number of awardees in order to make each
contract award financially viable for the successful
contractor. Unless they are meaningful limits, the industry
will not be able to give GSA its best prices. In order to lock
in rock-bottom prices for the contract's 10-year term,
providers must be confident in their ability to win a certain
level of revenue. The greater the number of awardees, the less
each business will be able to capture, and the more the
government purchasing power is diluted.
While MCI supports the GSA decision to award large minimum
revenue guarantees, the absence of high guarantees necessitates
a limited number of awardees in order to assure that each
awardee has a significant portion of traffic.
GSA must strike a balance between giving agencies as wide a
choice of providers and coaxing the lowest possible prices from
industry and set a meaningful limit on the number of awards.
GSA should also place limits on the number and types of
services that will be included in the Federal Supply Schedule.
GSA has discussed a major change in policy by including
telecommunications services on the multiple award program. MCI
supports the inclusion of commoditylike services on the FSS,
but it is important that clear limits be placed on the numbers
and types of services that are included in the FSS.
For example, simple inbound 800 toll-free services have
become well established as commodities and could be included in
the FSS. However, more complex, enhanced services like those
using intelligent routing should not be treated as a commodity.
Instead they should be placed into the Networx umbrella to
ensure service quality, enable comparisons among vendors, and
allow GSA oversight of vendor performance.
Furthermore, in the absence of clear, precise definitions,
the FSS program will create uncertainty for Networx bidders by
creating an unpredictable and uncontrollable back-door path for
entry into the Federal telecommunications space. Again, in
order to make the business case of the lowest possible prices,
bidders must have a level of certainty as to the number and
types of services, and thereby the potential revenue under the
contract.
GSA should also ensure that agencies can obtain services
from Networx awardees. The current Federal Acquisition
Regulations prohibit an agency from using two different
contract vehicles to procure the same services. Under the
program currently outlined by GSA, an agency will have to
select between the Universal and Enterprise contracts during
the fair consideration portion of the procurement process. This
will effectively prevent the awardees of the nonselected
contract from competing for that agency's business, thereby
reducing the competitive options for the agencies. GSA should
ensure that an agency has the ability to obtain services from
all of the Universal and Enterprise networks.
Some of you have expressed concerns that Networx does not
encourage the creative integration of complex services into an
Enterprise solution. I believe this is inaccurate and contrary
to practice of the government agency. Agencies are now using
FTS2001 to procure and implement telecommunications solutions
that integrate a full range of services, capabilities and
performance measures. For example, the Department of Justice,
with the assistance of GSA, used the FTS2001 contract to
compete, award and begin the implementation of the JutNet
Program, a complex network design requiring a full range of
traditional integrator services and capabilities.
MCI has used FTS2001 to deliver a series of integrated
solutions for the Department of Interior that include a new
private IP Wide Area Network, a dedicated Network and Security
Operations Center, and 20 security engineering and program
management employees.
Networx, with its greatly expanded number of potential
services will allow agencies and providers to meet any need for
integrated and complex solutions.
Although this issue is somewhat beyond the scope of the
hearing, I would be remiss if I did not address the industry
consolidation issue and its effect on Networx and the Federal
Government. As you know, 2 weeks ago Verizon and MCI announced
an agreement to merge, which followed similar announcements by
Sprint and Nextel and SBC and AT&T. And Qwest has resubmitted a
competing offer for MCI.
The Networx procurement is presently structured to take
full advantage of the competitive forces that exist in the
marketplace today, and that will exist in the marketplace
following the contract award. MCI plans to build on the Networx
procurement and will do so as a completely independent entity.
MCI has teamed with Bell companies on other procurements,
and any teaming arrangement on the Networx procurement will be
at an arm's-length transaction. In fact, the timing of the MCI-
Verizon merger and perhaps other mergers as well as relate to
the Networx procurement is such that the contracts for the
Networx procurement are likely to be awarded long before these
transactions are consummated. Accordingly, GSA need not delay
the procurement process as a result of the recent merger
announcements.
Networx is structured in a manner that accommodates and
takes full advantage of the changes in technology in the
marketplace. Like FTS2001, it is designed to be a dynamic
program that allows for the inclusion of new offerings as well
as new offerors. Government customers will see the benefits of
future advancements, both anticipated and unanticipated.
Furthermore, consolidation--
Chairman Tom Davis. Jerry, can you sum this up? You are 4
minutes over.
Mr. Edgerton. OK.
In conclusion, I wanted to show the committee that MCI is
fully committed to participating in the Networx program. MCI
has maintained steadfast communications with our government
customers, and we have delivered superior network performance
and customer service and will continue to do so.
I will be glad to answer any questions.
[The prepared statement of Mr. Edgerton follows:]
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Chairman Tom Davis. I just want to remind everybody, your
entire statement is the record. So we are ready to go ahead.
Jeff, thanks for being here.
STATEMENT OF JEFF STOREY
Mr. Storey. Good morning. My name is Jeff Storey. I am the
president and CEO of WilTel Communications. Thank you for
inviting me to speak this morning. We appreciate the
committee's dedication to ensuring the Networx program
encourages the widest possible participation. By broadening the
program's scope to include specialized network providers like
WilTel, both government and taxpayers will reap the benefit of
an intensely competitive market. We look forward to working
with the committee and GSA to provide government greater
choice, innovative services and competitive prices.
WilTel is headquartered in Tulsa, OK, and specializes in
wide-area networking for carriers, enterprises, media and
entertainment companies, and the government. We provide a full
suite of data, voice, IT, video, management and professional
services across our 30,000-mile next-generation fiberoptic
network.
Drawing on 20 years of experience in engineering
specialized solutions to solve our customers' complex
networking needs, WilTel is an ideal telecommunications
supplier for the Federal Government. Nationwide telecom
carriers, broadcast television networks, Fortune 100
businesses, and Internet giants, companies whose entire
business is their network trust WilTel.
Although not a household name, WilTel provides
telecommunications carriers with the capability they need to
serve over 40 million voice and data customers and video
transport for major events like the SuperBowl and the Academy
Awards. Just last month, WilTel outdistanced many of the
government's incumbent suppliers to provide DISA critical high-
capacity services between mainland military bases and bases in
Hawaii and Japan, the program known as TOT-P.
Networx represents a tremendous opportunity for the Federal
Government to access the most reliable, innovative and cost-
efficient network solutions available. To realize this
potential, however, the current process must change. Instead of
simply extending the practices followed in prior FTS
procurements, Networx must foster the introduction of new
technology and promote new methods of procurement by engaging
new industry partners with specialized expertise.
Although improvements have been made, the Networx program
still creates barriers that preclude nonincumbent suppliers
from successfully competing for government contracts, even when
they offer the best solution. These deficiencies lie in three
key areas. First of all, we need a level playing field that
fosters competitive bidding so that specialized providers like
WilTel can participate.
Because of the small minimum revenue guarantee for new
Enterprise vendors, the detailed mandatory technical service
features discourage involvement of new providers. These
requirements favor the incumbents and Universal providers with
much higher revenue guarantees.
Second, the regimen and pricing table and structures
currently embodied in the Networx program strongly favor
incumbent solutions. To encourage competitive pricing the
government should use the same method employed by commercial
enterprises across the country, define the communications
problem, allow firms to bid solutions, and evaluate them based
on the total cost of ownership.
Also, replacing the burdensome price management mechanism
with a streamlined commercial-based price renegotiation
arrangement allows providers to craft innovative pricing that
will lower the government's cost to purchase Networx services.
Finally, the government can benefit greatly by adopting
commercial service standards instead of nonstandard government
procurement mandates which impose unnecessary costs and force
providers to fundamentally alter their services. These
increased costs preclude government agencies from obtaining
cost-effective, secure and reliable services commonly available
to large enterprises.
By adopting the recommendations detailed in my written
testimony, the Networx program can be much more attractive to
new providers, enhancing competition and ensuring that the
government will realize better prices and more innovative
services. By addressing these important issues, the government
will achieve its objective of upgrading its communications
solutions in a timely manner and at the most competitive
prices.
WilTel wants to compete, and we are well positioned to meet
the needs of the government if given a fair opportunity to win.
Thank you.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Mr. Storey follows:]
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Chairman Tom Davis. Mr. D'Agata, thank you. Last but not
least.
STATEMENT OF ANTHONY D'AGATA
Mr. D'Agata. Thank you, Mr. Chairman. Good morning, members
of the committee. My name is Tony D'Agata. I am the vice
president and general manager of Sprint's Government Systems
Division. I would like to express my appreciation for the
opportunity to share with you Sprint's views on Networx, the
follow-on program to FTS2001.
Sprint appears before the committee today in a unique
position as the only provider to have served both FTS2000 and
FTS2001 customers over the last 16 years. Today we probably
serve 314 agencies, provide service to well over a million
government employees, and deliver over 500,000 circuits to
Federal agencies.
Although we support the Networx program structure, today I
must report that the draft takes the program further down the
road of a government-unique path and makes it even more
difficult, if not impossible, for the contract to achieve a
positive financial position.
Sprint wants to continue to serve our customers well into
the future. However, at this time I cannot recommend that our
share owners assume the risk inherent in the current Networx
draft.
Our concerns are as follows: The draft management reporting
and billing requirements exceed commercial requirements. The
FTS2001 requires the delivery of 14 monthly reports to GSA and
user agencies; however, the Networx requires up to 240 reports
for each agency. This would result in the Government mandating
that Sprint provide up to 75,000 reports per month.
The draft also increases the notice reporting that must be
provided to the government. Notice reporting informs the
government of the status of new service installations. Whereas
FTS2001 requires three separate notifications be provided to
the government for each service installation, the Networx
requires the contractor to provide five separate notifications
to the government for each service installation.
In addition, the draft qualitatively increases the
reporting obligations. It mandates that the contractor produce
reports on the performance elements of services not required by
anyone else in the marketplace.
The draft RFP substantially increases the billing
requirements beyond FTS2001 and current industry commercial
requirements. This will require substantial systems development
in the tens of millions of dollars before an award.
The draft service performance requirements exceed
commercial requirements. The draft contains 240 requirements
for services specified; 87 percent exceed the performance
requirements of the equivalent commercial service. Over half of
all of the requirements are either unachievable or not
measurable given the current state of technology.
The draft contains onerous business terms and conditions.
The credit provisions of the draft do not conform to commercial
practice. The failure to provide just one of the five
installation notices mentioned earlier will result in
forfeiture of the entire recurring charges for the month for
that site. This is true even if the site was installed on time,
and the government enjoyed all of the beneficial use of the
service.
The credit provisions for failure to comply with the
service performance requirements are no less punitive. A
network outage will result in forfeiture of one-quarter of the
entire recurring monthly charges for the affected agency.
Finally, the draft contains a price management mechanism
that gives the government the unilateral right to set prices
for all services.
The draft simply asks too much. It requires tens of
millions of dollars of capital investment to deliver
noncommercial products, and provides special billing and
management reporting required by no one else in the
marketplace. In addition, the government has the discretion to
assess punitive credits and unilaterally set Networx prices.
Mr. Chairman, we sincerely hope that the Networx draft is
modified in a manner that will enable Sprint to continue its
partnership with the GSA, the agencies, and this committee on
this vital government program.
I would be happy to answer any questions that you might
have.
[The prepared statement of Mr. D'Agata follows:]
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Mr. Burton [presiding]. Is there anything about this thing
you like?
Mr. D'Agata. Well, we do like the fact that we are able to
serve a lot of government agencies today. And we are, you know,
hopeful that we can continue to provide services to them in the
future.
Mr. Burton. You said that--how many reports per month?
Mr. D'Agata. 75,000.
Mr. Burton. I had 7,500. I thought that was high; 75,000. I
hope GSA is listening; 75,000 reports a month. My gosh, the
paper alone would negate making a profit.
Mr. D'Agata. Mr. Chairman, 240 to each billing entity.
Mr. Burton. Do all of you agree with that? Is that what you
figure, 75,000 reports a month or a large amount?
Mr. D'Agata. It depends, Congressman, on the volume of
business that you have today.
Mr. Burton. Well, everybody is going to be bidding and so
we don't know who is going to get what.
Mr. D'Agata. Potentially, if they have as much as Sprint,
they would have to provide as many reports.
Mr. Burton. Does everybody agree with that?
Mr. Collet. I know the number is a very large one, but I
think most of that would be delivered electronically from
automated systems. So it is true that investment is necessary
in the operational support systems, but we have not concluded
that it was overly excessive. We are making investments in the
systems right now, in anticipation of having to pass an
operational capabilities demonstration 2 months after award.
Mr. Burton. So AT&T does not think the reporting mechanism
is excessive?
Mr. Collet. Oh, it is, it is excessive, and there will be
some costs associated with it, and that cost will be recovered
in the prices.
Mr. Burton. So the costs will be borne by the taxpayers,
ultimately.
Mr. Collet. Ultimately, yes.
Mr. Burton. And it is not necessary. Do any of you agree
that it is not necessary to have that many reports?
Mr. Collet. Agreed. There are too many reports. We have
been in some dialog with GSA, and the response we received is
that this is going to change. Everybody is trying to be
reasonable and meet agency requirements.
Mr. Burton. Is anybody still here from the GSA? I hope you
are making notes, because it seems like, to me, that is
excessive. You may need more than one sheet of paper.
You said something, Mr. D'Agata, about reports that others
don't have to report. I guess you are talking about commercial
entities?
Mr. D'Agata. Yes, sir.
Mr. Burton. I wish GSA was up here. I would like to ask
them why they are requiring reports that the private sector
does not report, and if you are making notes back there, I
would like to have personally, as former chairman and one who
has been interested in this for a long time, I would like to
know why they are asking to report and issue reports that are
not required in the private sector, because we are trying to
make government more business-friendly instead of more
bureaucratic.
You said that the cost is high before an award. What kind
of cost are you talking about in the bid process?
Mr. D'Agata. I am talking about investing millions of
dollars, sir, on operation support systems that one really has
to develop now, before award, so you really have to spend the
money in advance of an award to be able to demonstrate at award
or right after award that you have the capabilities.
Mr. Burton. Mr. Storey, you have a smaller company than
AT&T, Sprint and MCI. How does a smaller company afford the
costs that are incurred before they make the bid?
Mr. Storey. Well, it is very difficult, and that is why, in
my comments, I said that the onerous provisions that are on
small companies make it difficult for us to win business,
especially with relatively small minimum revenue commitments.
So we will have to make these decisions on a speculative
basis. We will have to decide that this is something that is
worthy of the investment of our dollars and with a hope of a
return.
Mr. Burton. It is like shooting craps in Vegas, only higher
stakes.
Mr. Storey. Yes, it is.
Mr. Burton. You are talking about millions of dollars to
prepare for the bid, and you have all of these reports, and
then you don't get it, so you are out of luck.
Mr. Storey. Right.
Mr. Burton. We use stronger language than that back in
Indiana, but I will not go into that right now.
It seems like, to me, that GSA ought to try to make this as
user-friendly as possible while trying to make sure that they
are trying to get the best price for the taxpayer. And to
literally force smaller companies that might be able to provide
very, very good services to the government and agencies are
priced out of the market because they can't come up with the
money to make the initial bid. So I would like for GSA, if you
would make a note of this, to respond to that as well. I mean,
why is it that the cost of proposing a bid is going to be so
high that some companies that could provide good services will
not be able to be involved in the bid process?
Let's see. Mr. Storey, you had some other questions here or
comments. The minimum revenue guarantee for the network
enterprise is too small. Can you go into that in a little more
detail?
Mr. Storey. Well, it is related to the same issue. We have
huge investments to win this business, to make a proposal.
Mr. Burton. How do you think they should come up with a
minimum revenue guarantee, or should they even have one?
Mr. Storey. You know, I think that they should have one,
because it gives us encouragement to bid and to prepare
proposals knowing that we will have something. I think that
they should look at the percentage of the traffic that they
have that will go to nonuniversal providers, and I think they
should increase that level of percentage.
Mr. Burton. Could you give the committee some kind of a
formula that we can look at and see what would be good in
coming up with a minimum revenue bid? I don't know if you can
do that or not, but if you are talking about raising the
minimum revenue bid or guarantee, rather, minimum revenue
guarantee, we have to have something as laymen up here to take
a look at so we can say to GSA, you know, maybe they are right.
Do you see what I am talking about?
Mr. Storey. Yes. I don't have a formula for you today, but
I would suggest that more of the business be committed to
Enterprise as opposed to Universal, and that will increase the
pool of Enterprise businesses that are out there.
Mr. Burton. One of you, I can't remember which one it was,
said that you ought to be able to bid on both Universal and
Enterprise. Can you explain to me why? I would like to know why
you can't.
Ms. Murphy. Mr. Burton, I think the issue is during the
period of fair consideration, an agency has to decide whether
they are going to recompete their business under Universal or
Enterprise, and once they have chosen one, then only awardees
under that particular contract are in a position to compete for
the business.
Mr. Burton. I see.
Ms. Murphy. So even if there are subsequent requirements
that an awardee, for instance, on Enterprise might be able to
meet, if the agency has selected Universal as their contract
vehicle, then that Enterprise awardee is prohibited from
competing. So our position is that lessens overall competition
for the government.
Mr. Burton. I see. And you think that is good?
Ms. Murphy. No, I think that is bad.
Mr. Burton. I thought that was what you were going to say.
So I would like to say to GSA, can you explain to me why
that is the case, and if you could, let us know. I mean,
remember that I am a neophyte in this, even though I have been
working on this for about 7 or 8 years as chairman and now on
the committee, but I would like to know why, since they brought
this up, industry has brought that up, why that is a problem?
Let's see what else we have here. You guys came up with so
many problems here.
I think, Mr. Storey, you said there is a bias, or you
indicated that there was a bias toward larger companies who
have more resources so that they can be more competitive and
biased toward companies that might already have part of the
market share with government already. Can you go into that in a
little more detail?
Mr. Storey. Sure. The bias is incumbent in the technical
requirements that are in the proposal. When you specify that
every company has to be able to do every product in a certain
way with the operational support system requirements along with
it, it creates a set of products that not every company has. We
do not provide every product. WilTel does not provide every
product out there that the government might want to use. We
provide some products extremely well, and it may be the best
solution for the government for those products, but when you
tack on a whole series of other products, other requirements,
it just makes it too onerous to compete.
Mr. Burton. Well, once again, if GSA could give the
committee or me in particular, if you want to, the reasons why
smaller companies that don't provide all of these services
can't be competitive, I would like to see that. There might be
a reason for that. You might say that the overall pricing
structure is going to be lower if one company can provide all
of the services; I don't know what the answer is, but I would
like to have an answer to that if we could get that as well.
I see my time has expired. Mr. Marchant, do you have any
questions at the moment?
Mr. Marchant. I would like to address the issue of the
amount of money that it takes to prepare the bid. I think the
gentleman from Sprint was--you are saying basically that, in
order to even approach the bid, you have to in essence make
sure that you can have the support systems, if you do get the
bid in place, virtually before you get the bid.
Mr. D'Agata. Yes. There are two forms of expenses,
Congressman. One is the actual labor costs that you have
internally to prepare the bid itself that, I think, all of us
are, you know, more than willing to spend to prepare the bid.
The other is the operation support systems requirements. One
needs to be able to demonstrate soon after award that you have
the capabilities that were specified in the contract. To do
that requires a lot of time and software changes and
development activities that, to make the deadline or the
schedule that is laid out by the government, you really have to
spend that money in advance of an award to be able to meet
those requirements when you are asked to demo.
Mr. Marchant. Well, do you foresee a situation where a
company would come in and scrape up enough money to put
together the bid, get the business and then really not have the
capital or the internal capital in the company to put those
systems in place and virtually have to drop out, back out or
prove that they couldn't meet that standard after they had
already won the bid?
Mr. D'Agata. I would hope that they would, you know,
solicit from their leadership that they have the money before
they submit the bid, because you become committed to the extent
of your proposal, and so you better have that authority before
you submit your bid.
Mr. Marchant. And then the other question I had goes back
to Ms. Murphy's comment about the billing system and your
suggestion that maybe the billing function could be taken over
by GSA.
Ms. Murphy. GSA has recently released a sole-source request
for billing systems and there has been a lot of conversation
here about minimum revenue guarantees versus the operation
support systems and billing systems requirements. So there is a
couple of different ways to solve that. Yes, you can raise the
minimum revenue guarantee; you can also alleviate the billing
requirements and the operation support system requirements such
that minimum revenue guarantees are not such an issue.
So if the GSA were willing to look at handling going in a
different way, then that would be a solution that we would very
much be in favor of.
Mr. Marchant. Is that a solution that you specifically
would be in favor of, or is there some consensus on that among
the other panel members?
Mr. Collet. I don't see how a system like that would be
practical, because billing is intimate to how a network is
constructed and operates. If GSA had to operate as a Universal
biller, then they would have to get really close to all of the
internal systems of all of the operating carriers, and I think
it would be an absolute disaster, a nightmare for them to do.
Mr. Marchant. They would have to have a lot of proprietary
information about your company and your systems to even get to
that point, wouldn't they?
Mr. Collet. Agreed. Agreed. I mean it is difficult enough
to meet government requirements with commercial systems, even
within a vertically integrated company. It would be extremely
difficult, and I have spent most of my life as an engineer, so
maybe I am a little more terrified of it than others would be,
but it would be very, very difficult and, operationally, I
think very impractical.
Mr. Marchant. If I could just raise one more question, Mr.
Chairman.
The whole issue in this bid process, RFP process, do you
feel like that the process begins to intrude on your
proprietary information to the point where you would not bid on
this because there is too much information that has to be
divulged about your systems before you can even win the bid?
OK. Thank you.
Chairman Tom Davis [presiding]. Thank you very much. I am
trying to think of where to start.
We have heard varying positions on the network's draft RFP
from all of you. Your concerns with the draft RFP, I will just
go down and ask each of you, do you think they can be resolved
before releasing the final FRP on April 1?
Mr. Hogge. Well, our recommendation is that if there is a
document that is ready, that it be released as a second draft.
I mean, there were 2,500 or so detailed comments, some
fundamental issues that have been raised in this forum that if
the document is ready to be released, one more go-around
through a second draft I think would overall abbreviate or make
sure that the overall procurement process occurs in accordance
with an endpoint that is useful to GSA and to industry.
Chairman Tom Davis. Thank you.
Mr. Collet. We believe it should be released on time. Over
the last several months, GSA has evaluated approximately 2,500
comments, as disclosed earlier, and has expressed an
inclination that I think up to 40 percent of those comments
were being accepted. I think most of those would be in the
operational support system area. So we are hopeful that these
comments will reflect well in the operational support system
requirements, and if they do not, then the cost of those
additional requirements simply get reflected in the price of
the service that is presented to the government.
Ms. Murphy. Mr. Chairman, we favor an additional draft RFP,
and we think it could actually lead to a more concise final RFP
process. In any major procurement, you always end up with a lot
of questions once the final RFP comes out, and there are
usually amendments that lead to delays. We feel that with one
more round of draft RFP, many of those issues could be put to
rest before the final RFP, and we could stay on schedule even
with an additional round.
Mr. Edgerton. We are committed to the process. If April 1
is the date, we are going to meet it. However, I think, as a
result of the hearings and other comments, that there will
probably be some delays, which will actually reflect a more
improved RFP.
Mr. Storey. In general, I think that we would like to see
the RFP come out on time. However, we would like to see it
right, so if we can delay a little bit and get a much better
competitive environment where all competitors can compete and
bid on business, that would be a better outcome for us.
Chairman Tom Davis. You don't care if it comes out on April
1, as long as it is right.
Mr. Storey. Exactly.
Mr. D'Agata. We think it is absolutely possible for GSA to
incorporate our comments into the final RFP and deliver it on
schedule. I think one of the difficulties that industry has
right now is that we provided to the GSA numerous comments. We
don't know how many of those have been incorporated into the
final version, so we are--you know, right now, we don't know
what will be acceptable.
Chairman Tom Davis. We heard today that location-specific
traffic volumes won't be made available until mid to late May.
How does that impact your ability to develop your proposals? I
will start with you, Mr. D'Agata, and move on down the line.
Mr. D'Agata. Mr. Chairman, it is less of a factor for us in
that we enjoy an incumbent status, so we pretty much know the
volumes at each agency.
Chairman Tom Davis. So mid-June is fine with you.
Mr. Storey. The more information we have, the better able
we are to make a competitive bid that makes sense. Being a non-
ubiquitous provider like some of the others, the geographic
information is important to us. So the sooner that is
available, the better off we will be in making sure that not
only will we make competitive offers, but once we win an award,
we will be able to really satisfy that demand.
Mr. Edgerton. I just need to know Tony's volumes.
Chairman Tom Davis. Do you want to ask him right now?
Ms. Murphy. As a relatively new crossover entrant and
really playing a new entrant role on the network's procurement,
that traffic information is really critical to us to finalize
our strategy.
Chairman Tom Davis. Does this give you enough time?
Ms. Murphy. It makes it more difficult. If you have an RFP
that comes out in April and your traffic information isn't
available until mid-May at the earliest, that means you--we
really aren't in a position to finalize business decisions
about even whether we can or can't bid until we really get our
hands on that data.
Chairman Tom Davis. OK.
Mr. Collet. We have been doing our homework, so we have a
pretty good idea of what the traffic is from our competitors
but, in general, there is a lot of work that is necessary to
complete the technical volume, the management volume, the
business volume responses. So if we can get that earlier rather
than later, that will certainly help in the development of the
proposal. If we obtain volume information let's say mid-May, we
would certainly have to confirm or review it vis-a-vis what we
already know, and then we are looking at perhaps a month and a
half to produce a final pricing proposal. It will be tight, but
I think it will be manageable.
Chairman Tom Davis. OK.
Mr. Burton. Mr. Chairman.
Chairman Tom Davis. Let me yield to Mr. Burton.
Mr. Burton. I just wanted to followup on that. It seems to
me, and any of you can answer this question, that the amount of
traffic is important if you are going to be able to bid on
this. And for one company, even though they are great people,
to have that information gives them the real inside track.
So, Mr. Chairman, it seems like to me that GSA or whoever
it might be ought to make the information available to all of
the bidders so that they can be--so that there is fairness in
the bid process. If one of them has it and the others don't,
they know what the problems are, they know what the costs
involved are, and they have a real leg up in the bid process.
So it just seems like, to me, that the ones who are going to be
legitimate bidders ought to have access to the same
information. That should not be something that is held secret.
Chairman Tom Davis. OK. Thank you. Mr. Hogge.
Mr. Hogge. Yes. As another potential nonincumbent bidder,
knowing the traffic and where it originates and terminates is
absolutely fundamental to developing our business case which is
fundamental to committing the corporation and the capital
required to do this. If memory serves, last time around, it
took many weeks, if not many months, to get the traffic models
to work right. So getting that information, having an accurate
forecast of what the requirements are and where they come from
is absolutely essential. So it is impossible to sit here today
not knowing any of that to tell you whether or not we have
enough time to meet the deadline if it comes out in mid to late
May.
Chairman Tom Davis. Mr. Hogge, you stated that for Networx
to be successful, there should be clear guidelines that would
require that agency customers consider proposals from both
Universal and Enterprise awardees. Would such a ``crossover''
process allow Enterprise awardees who can enter Networx with a
much smaller commitment of resources than Universal
participants cherry pick the most desirable requirements to the
detriment of the Universal awardees?
Mr. Hogge. Well, what we are advocating is a full and open
task order process. As I said in my prepared remarks, there is
a deliberate overlap in the service content from Universal to
Enterprise. The Enterprise is a smaller set designed to entice
smaller or next generation competitors into the mix. Post-
award, when vendors go through their vendor process through
fair opportunity, that is the point at which competition
really--the rubber hits the road; it is the point at which it
is not just a transition of like for like, potentially like for
a new product converging or converting a circuit switch service
to an IP-based service, an MPLS service. That is the point at
which technology infusion, innovation, and new competition from
new entrants comes into play. We are simply advocating that we
get a shot to participate in that process post-award.
Chairman Tom Davis. Mr. Burton.
Mr. Burton. If I might make a formal request--and I don't
know to whom I direct this, Mr. Chairman, but you are the boss,
so maybe you can help us out with this--I would urge that the
information that will create a level playing field regarding
the traffic involved, that be given to all of the legitimate
bidders, and if GSA is the one that has that information, I
would make a formal request that they do that. And if they
can't, I would like for them to contact me as former chairman
and as a member of the committee and let me know why they can't
do that. If there is a reason you can't, I would like to know
the reason why.
Chairman Tom Davis. I will ask the staff to followup on
that. That is appropriate.
Do you want to add anything else?
Mr. Hogge. No.
Chairman Tom Davis. Mr. Collet, let me ask you, in your
statement, you recommend that GSA award only the number of
contracts that it can manage well, which I think is
appropriate. They have asked two Universal, maybe five on the
Enterprise. Do you think that is reasonable?
Mr. Collet. I think it is very reasonable at this point.
Chairman Tom Davis. Would AT&T consider submitting offers
on both Universal and Enterprise?
Mr. Collet. Absolutely.
Chairman Tom Davis. OK.
Mr. Collet. I think it is a prudent option on our part.
Chairman Tom Davis. Ms. Murphy, you suggest that GSA needs
to make some major alterations to the service order, billing
and reporting system requirements before you could reasonably
compete on this. Is that correct?
Ms. Murphy. Yes.
Chairman Tom Davis. And that these requirements should more
closely mirror commercial practices. Any particular
requirements that you want to focus in on that you find
problematic?
Ms. Murphy. Well, we really focused on the billing
requirements as one area of particular concern. Certainly, we
addressed detailed comments to GSA in these areas when we
submitted our response to the draft RFP. So, you know, I think
the problem that Mr. Storey mentioned earlier, we have
certainly been open with our comments. We are just not quite
sure how much of our comments, how many of our comments will be
accepted and what the magnitude of the changes will be.
Chairman Tom Davis. You also suggested that Networx should
allow Enterprise contractors to be able to graduate into
Universal.
Ms. Murphy. It is a process that seems to have worked well,
if you look at the FTS 2001 crossover. The contract has been in
place for a number of years now. The number of services
provided under the contract have expanded. I think it has more
than doubled, and it has managed to keep competition robust and
prices very competitive over that time.
Chairman Tom Davis. OK. Mr. Edgerton, do you think--I
gather from your comments that you think GSA should set a clear
limit on the number of contracts to be awarded under Universal
and Enterprise. You heard Commissioner Perry earlier talk about
maybe two Universal, five Enterprise. Do you have a number in
mind, or do you just think they----
Mr. Edgerton. That is the first time we have heard a
definitive number.
Chairman Tom Davis. Do you think that is a reasonable
number from your perspective?
Mr. Edgerton. Yes.
Chairman Tom Davis. You note that, as Networx is currently
configured, Universal awardees can't participate in Enterprise
requirements and vice versa. You state that GSA should ensure
that a customer agency has the ability to obtain services from
all of the Universal and Enterprise awardees. Do you have any
suggestions on how to accomplish this?
Mr. Edgerton. I think there is a prohibition that needs to
be looked at as to how the process takes place.
Chairman Tom Davis. OK. Mr. Storey, how can the GSA justify
reducing the Universal MRGs in favor of Enterprise when the
Universal program, with its far more extensive list of
mandatory requirements and geographic coverage, will likely
generate more revenue? That is your question, isn't it?
Mr. Storey. Yes. And I think that the Enterprise sector is
the place where innovation is going to come into the
government. If you look at the Universal, that is going to be
the incumbents and the large companies, and if there is going
to be innovation and new technology introduced to the
government, it will come through the Enterprise part of this
contract.
Chairman Tom Davis. You mentioned that GSA's small business
subcontracting goal of 39 percent would be unduly burdensome
for a smaller company like yours. What would be a reasonable
goal for small business subcontracting?
Mr. Storey. The 20, 25 percent range.
Chairman Tom Davis. All right. Thank you. And Mr. D'Agata,
in your statement, you indicated that Sprint may not
participate in Networx as presently configured since the
program requires too much capital investment for noncommercial
products and special billing and management reporting. In your
new company, that concerns us, in that an incumbent such as
Sprint would not submit an offer.
Have you shared these concerns with GSA prior to today.
Mr. D'Agata. Yes I have, sir.
Chairman Tom Davis. And what was their response?
Mr. D'Agata. That they would look into those issues in the
final RFP.
Chairman Tom Davis. And is this both Universal and
Enterprise?
Mr. D'Agata. Yes, it is, although we are primarily focused
on Universal, but it would apply to Enterprise as well.
The other thing, sir, that is of concern are the service
level provisions where a number of them just are not
achievable. They defy the laws of physics and are not
achievable.
Chairman Tom Davis. OK. I think those are the questions I
wanted to ask. Do you have any more, Dan?
Mr. Burton. No, Mr. Chairman.
Chairman Tom Davis. Does anybody want to add anything
before we go on to the next panel? This has been very helpful
to us. I hope it has been helpful to GSA as well, and I
appreciate everybody's taking the time to come here. As I added
before, your entire statements will be in the record and made
part of the record, and we will continue to work with you. And
we would like to have you all in here at the end. Thank you.
We will take a 2-minute recess as we move to the next
panel.
[Recess.]
Chairman Tom Davis. The hearing will come to order.
This is our final panel. We have Mr. Donald Scott, the
senior vice president of EDS for government solutions; Mr.
David Bittenbender, vice president, Network Services, for
Computer Sciences Corp., Federal Sector; Mr. James Courter, a
former member of this body and CEO and vice president of IDT
Corp.; Mr. Michael Cook, senior vice president and general
manager of Hughes Network Systems; Ms. Diana Gowen, president,
Broadwing Government Solutions, Broadwing Communications, LLC;
and Mr. Greg Baroni, president of the Global Public Sector,
Unisys Corp.
It is our policy we swear you in. If you would rise with me
and raise your right hands.
[Witnesses sworn.]
Chairman Tom Davis. Again, your entire testimony is in the
record and questions are based on that and that will all get
put into the permanent record. So if we can just take 5
minutes, I am going to try to beat our votes on the House floor
so we can dismiss you and not have to keep you. Thank you for
your patience, and thank you so much for being here.
STATEMENTS OF DONALD SCOTT, SENIOR VICE PRESIDENT, EDS, U.S.
GOVERNMENT SOLUTIONS; DAVID BITTENBENDER, VICE PRESIDENT,
NETWORK SERVICES, COMPUTER SCIENCES CORP., FEDERAL SECTOR;
JAMES COURTER, CEO & VICE PRESIDENT, IDT CORP.; MICHAEL COOK,
SENIOR VICE PRESIDENT & GENERAL MANAGER, HUGHES NETWORK
SYSTEMS; DIANA GOWEN, PRESIDENT, BROADWING GOVERNMENT
SOLUTIONS, BROADWING COMMUNICATIONS, LLC; AND GREG BARONI,
PRESIDENT, GLOBAL PUBLIC SECTOR, UNISYS CORP.
STATEMENT OF DONALD SCOTT
Mr. Scott. Thank you, Mr. Chairman. I have a good bit to
say, but I will try to be as brief as possible. I am offering
EDS's recommendations in the interest of making Networx more
effective now and in the future. I have submitted a more
complete copy of course for the record.
First, I want to commend the committee for the continued
high level of interest that you have in this program. We know
you have a broad scope of responsibilities, but you have seen
fit to give Networx a good bit of attention, and we appreciate
it. And we also commend Administrator Perry and the FTS program
for their diligence in getting to the optimum contract.
Chairman Tom Davis. I take it everybody commends the GSA
for this. I mean, we all have to bid on this, so I am just
going to assume everybody does that.
Mr. Scott. However, the two contracts are not where we
think they should be at this point in time. For example, in the
focus on wireless communications, we find that they have kind
of stuck to primarily voice services rather than look forward
to broadband wireless, PDAs, etc., that is now becoming widely
available.
Also, on the security requirements, we felt like they were
offered in a very narrow manner in the draft and that they
should, in addition to having preventive methods like
firewalls, they ought to have also more aggressive efforts to
prevent them happening and detecting intrusion and that sort of
thing.
However, adding these new features such as I just mentioned
to Networx will not be enough to make it effective for the
future. The program also must support the new next generation
era, and the Networx that we have today are not built for that
purpose. Technology change has taken us from legacy telecom,
which existed to provide transport and connectivity, to the
world of next generations, which exist to provide effective
information handling and sharing. This is a world in which
Networx procurement will function in the next decade.
These new Networx are distance-insensitive, wired and
wireless, packet driven, IP-based with converged services, and
are solutions-oriented. The key concepts driving next
generations within this information-sharing business model are
end-to-end solutions, convergence, collaboration and ease of
information sharing.
We are becoming customer and information focused in an
information society. We demand that information be easily
obtained and shared, and we expect effective information
convergence, storing and processing, messaging and
collaboration. The challenge GSA faces is how to offer the
services needed in this future, facing procurement, but also
how to offer the legacy services that are still required by
many of the government agencies.
EDS recommends a strategy which should have little impact
on the timely release of the final RFPs. GSA should structure
Enterprise to enable the procurement of information solutions.
Legacy services along with other services traditionally offered
by carriers would be offered on Universal.
EDS recommends that Enterprise become a performance-based
contract using solutions-focused models which can be premised-
based or network-based. Task order requirements would be
provided in the form of statements of objectives. This can
provide GSA's customers the benefit of a full complement of
innovative solutions found in the commercial next generation
marketplace. The components, transport, last-mile access,
wireless and security, for example, would be incorporated in
these solutions. The agencies will obtain total solutions
needed to satisfy their objectives and their mission
requirements rather than obtain the individual components of
the solution. Taken together, these recommendations define a
program that will enable Networx to offer next-generation at
the same time it provides components for the legacy generation.
EDS's approach would lead to more satisfied government
agencies, greater contract volume, and become the foundation of
the administration's goal of a common government IT
architecture.
To summarize, Enterprise and Universal should provide two
tracts: the Universal to take care of the legacy stuff, and the
Enterprise to take care of the forward-looking.
So, Mr. Chairman, EDS looks forward to participating in
this competition as soon as possible. However, we recommend
that GSA concentrate on getting it right. EDS believes that
restructuring the network procurements according to our
recommendations will increase competition by enabling more
carriers, integrators and small businesses to compete.
Mr. Chairman, thank you for the opportunity, and I look
forward to your questions.
[The prepared statement of Mr. Scott follows:]
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Chairman Tom Davis. Thank you very much. Mr. Bittenbender.
STATEMENT OF DAVID A. BITTENBENDER
Mr. Bittenbender. Mr. Chairman, members of the committee,
we appreciate the opportunity to appear here today. I am here
on behalf of Computer Sciences Corp. where I work as vice
president of Federal Network Services, but I am also here as
former chairman of the FTS 2001 Interagency Management Council
and as a former government telecommunications executive. I
personally feel very strongly about the effective use of
communications and information technologies in contributing to
a more responsible and responsive government.
Mr. Chairman, you set the vision for such a government at a
breakfast we attended just a few months ago. There, you spoke
of the need for a communications infrastructure, one that meets
new and demanding national security and economic
competitiveness demands imposed on an effective, 21st century
government. Yours is a strong and important vision and message,
and I applaud you for it.
For a myriad of reasons, your vision will not be easy to
achieve. Important and substantial initiatives rarely are. GSA,
though, is to be commended for its attempt to structure so
major a procurement in such turbulent times internal to its own
organization and across government as well.
Networx can and should be the flagship initiative for
government to dramatically improve its ability to share
information. It has that potential. To achieve that potential,
the procurement should move from its current position as
essentially an enhanced schedule of stove-pipe commodity
services, to a horizontally defined standards-based initiative
that can evolve with a rapidly and dramatically changing
communications industry.
Leaders in the communications industry today may not be the
leaders of tomorrow. Twenty-five years ago, when the GSA first
considered replacing the original FTS contract, there was only
one service provider. At the time of the FTS 2000 procurement
in 1988, there were three providers. Today, there are dozens,
many offering services that did not exist in 1988. And the
original service provider of 25 years ago will likely not exist
when Networx is awarded. This trend continues apace, and the
government must develop procurement structures that adapt to
this environment.
We do not believe that the Networx procurement in its
present form encourages the objective of a government-wide, or
even system-wide integration of communication services. This is
not so much the fault of GSA as it is the reality that GSA
faces in its customer market. Like it or not, stove-pipe
culture in government and the telecommunications industry is
strong. Yet, this culture must be addressed in terms of
communications infrastructure if we as a government are to
truly be able to share information across boundaries and
jurisdictions.
We believe Networx suffers from some of the same weaknesses
as its predecessors. Although the procurement mandates a
standards-based service solution and specifies
interoperability, many aspects of service provisioning,
operation and management make seamless interoperability among
the Networx service vendors impracticable and, actually, not
readily supported even by the vendors themselves.
In addition, the requirements of the Enterprise component,
which is essentially a subset of the Universal requirements,
present significant barriers to innovation and to the entrance
of small and other businesses who could offer niche service
with significant potential value to the government.
The Universal component, which is largely commodity
services, can and probably should move forward, given the
impending expiration of the existing contracts.
However, we believe that government would be better served
through restructuring the Enterprise component as a statement
of objectives rather than a statement of requirements. It is
the Enterprise procurement we believe that offers the greatest
potential to the government for innovation, contract
flexibility, and sound infrastructure management over the
duration of Networx.
CSC supports a delay in the issuance of the Networx RFP or
certainly the Enterprise component, so as to allow its careful
and adequate consideration by the GSA, Congress, this committee
in particular, and by the broader government and industry.
Networx is moving forward with a rapidly evolving realization
at senior levels of the executive branch and Congress, a
realization fueled by this committee, that our infrastructure
today is not adequate. A brief time-out might be in order.
Mr. Chairman, once again, I thank you for the opportunity.
I look forward to any questions you may have and working with
you in any manner that is appropriate.
[The prepared statement of Mr. Bittenbender follows:]
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Chairman Tom Davis. Thank you much. Mr. Courter.
Mr. Burton. Mr. Chairman, I would like to welcome our
friend, Jim Courter. He was a former colleague of ours and he
has not aged a bit since he left.
Chairman Tom Davis. He hasn't, has he? That is because he
is not here. He is in the private sector.
Whatever your secret, Jim, you look great, and good to have
you here.
STATEMENT OF JAMES COURTER
Mr. Courter. Mr. Chairman, it is good to be here on a
different venue.
Obviously, I was on the Committee on Armed Services and did
not often testify. I will not read my statement. Obviously, it
is there for the record. There are a few things that I would
like to point out that I think are very important in the next 2
or 3 minutes.
First of all, although our company has been successful, and
both of you know something about our company; we started about
10 years ago. We are a very small company. Six and a half years
ago when I went there, revenue was $52 million; now it is $2.2
billion. There was less than 100 people 6 years ago, we have
4,500 now in 18 countries around the world, and we have a very
strong balance sheet.
We are a diversified company. It is a good thing we are.
Otherwise, I would not be here today. If we just stayed in
telecommunications, traditional, plain old telephone, not going
into voice, VOIP, without a transaction that we had with our
good friends at AT&T a few years ago in selling a controlling
interest of net-to-phone, which was one of the premier voice-
over IP telephone companies in the United States, we would have
gone bankrupt with so many others, because of the MAA contract.
And so I am speaking to you from--I am the poster child. You
know, it wasn't individuals' fault. Everybody at GSA was well-
intentioned, but it was a catastrophe for our company.
One, we bought Windstar out of bankruptcy 3 years ago and 3
months ago. I remember very specifically. We were overjoyed by
our success in buying it out of bankruptcy. We thought it would
be the perfect fit for our network. We are basically an
international telecommunications provider. We route telephone
traffic, voice traffic for all of the major PTTs, including the
ones in the United States, and all of the RBOCs around the
world. What we did not have was that last mile of connectivity
that would make us a real national and global player.
So we bought Windstar out of bankruptcy for $52\1/2\
million, and the good part of it was that day, after that, we
realized we were in a heck of a situation because the
expectation of the amount of revenue and the expectation of the
amount of traffic that we were going to route for the Federal
Government under the NAA contract was woefully less than
anybody anticipated, thus making it inevitable that we would
burn significant sums of money each and every month. To this
very day, and it is almost 3\1/2\ years later, IDT is losing in
the government sector with the GSA contracts $2\1/2\ million a
month.
We had 4-year contracts with four 1-year options to renew.
We went to GSA and said, we can't renew this; we can't continue
to burn hundreds and hundreds of millions of dollars, because
we are not getting the revenue, we are not getting the traffic
under this program. GSA some time ago told us they, in fact,
were going to extend and exercise their option year after year
after year for 4 more years, so we could sit here and burn an
additional $2\1/2\ million a month for 4 additional years.
Now, I have sat down with Mr. Perry. He understands that we
have a terrible situation. He understands the fact that IDT and
other companies like it were terribly misled by the Federal
Government as to the quantity of business we would get, and he
assures us that we will work something out with the Federal
Government.
So my basic message is, there has been a lot of testimony,
a lot of comments about the amount of business and the amount
of traffic. No. 1, bidders have to know the amount of traffic
that they are going to get. It cannot be a secret, because you
don't want to turn innovative communications companies, like
IDT and some at this table and some on the prior panel, and put
them in a situation where they are forced to go bankrupt again.
It happened because of the fact that--I will give you one
example. In Atlanta, in the city of Atlanta where we still are,
the maximum GSA estimated was $520 million of business for IDT;
now, of course, Windstar. The estimated value, and that is the
one that contractors look at, was $170 million of revenue in
Atlanta for Windstar, old Windstar. Our gross revenue is $1\1/
2\ million. Now, how can you make money under those types of
circumstances?
So my point here is, you have an opportunity to get it
right this time, and indeed, I hope that you do.
There is another comment I would like to make, and that is,
there has been great talk about Universal and Enterprise, and
we look at Enterprise. of course, we will be very cautious this
time and very circumspect, and we will be looking very
carefully as to what the real traffic numbers are going to be;
we will not be deluded a second time. It seems to me, under
Enterprise, it is more the equivalent, as far as I am
concerned, if the government is going to get the best product
at the best price, it is not the decathlon. You do not need a
company to be expert in nine different areas. I understand
there are nine categories, nine requirements when it comes to
Enterprise. If you want to win the 100-yard dash, you don't put
a shot putter in the Olympics. You got someone who is the very
best at that particular event. So I would suggest that GSA
review the nine requirements when it comes to the Enterprise
program.
So one is lessons learned, and the other is, you have a
chance to do it right this time. If you need additional input
from myself, I am obviously at your disposal. Thank you very
much.
[The prepared statement of Mr. Courter follows:]
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Chairman Tom Davis. Jim, thank you very much. Mr. Cook.
STATEMENT OF MICHAEL L. COOK
Mr. Cook. Mr. Chairman, thank you very much.
My name is Michael Cook, and I am senior vice president of
Hughes Network Systems and general manager of the Government
Markets Group for Hughes. So, Mr. Chairman and members of the
committee, I appreciate and value the opportunity to appear
here today and talk on behalf of Hughes Network Systems about
broadband satellite services.
You have made it clear, Mr. Chairman, in recent months how
important it is to improve communication amongst government
agencies and departments, and you have been equally clear in
setting your belief that Networx must be the gold standard on
which government communication requirements are based.
My purpose here today is to urge that satellite broadband
technologies and that satellite services be equally treated
with the other prominent broadband technologies; that is DSL
and cable. The inclusion of satellite services is where the
Networx procurement needs to be modified and improved, and this
is the purpose of my testimony today.
Broadband is today's powerhouse communications technology.
It is driving the economy and will continue to do so for the
foreseeable future. Networx recognizes this. In both the
Universal and the Enterprise Networx component procurements,
bidders are required to provide DSL and cable services.
However, in both procurement processes, satellite broadband
stands as an optional offering. This does not make sense for
the government as a customer, either today or over the
projected duration of Networx. Nor does it reflect the reality
of today's and tomorrow's communications environment.
Regardless of claims, hopes or even spin, terrestrial broadband
technology such as DSL is simply not available to every
consumer, business or government location throughout the United
States.
Satellite broadband is not a niche technology nor an
emerging one. It is here. It is real. It is reliable. It is
everywhere. It is in wide-use in commercial, consumer and
government markets, and its use will grow significantly over
the coming years. Over 20 million consumers appreciate
satellite-delivered TV, and these numbers are growing rapidly
as people are embracing new high-definition technologies.
Already today more than a quarter of a million Americans rely
on satellite broadband communications at home, and these
customers primarily reside in rural and suburban areas where
DSL and cable are not available.
A further 200,000 business locations rely on satellite
broadband for mission-critical communications. Hughes alone
transports over 6\1/2\ million credit card transactions each
day across its satellite Networx. If you are a business or a
government agency, large or small, satellite gives you the
communications capabilities that the 21st century, commerce,
and egovernment demand: high speed, high quality service and
availability everywhere.
Critical large-scale business operations depend on
satellite communications. Chances are that you as individuals
benefit from satellite communications every time you fill your
car with gas. Over 90 percent of all gas stations in all 50
States of virtually every major oil company employs satellite
communications at the pump for the electronic transaction
purposes and in the back office for stock control and
monitoring. The retail industry, the hospitality industry, the
automotive industry, the financial services industry, the
broadcast industry all rely on satellite broadband. Why should
government be any different? Well, it isn't. Government
departments and agencies, including, among many others,
Agriculture, Interior, Homeland Security, the Department of
Defense, the National Weather Service, and the Postal Service,
are all using satellite technologies and services for day-to-
day Enterprise applications.
Also remember that, as a back-up network, satellite
communications is essential in a world where heightened
national and homeland security risks are ever present, as well
as natural disasters. As an example, in Hendry County in
Florida last year, hard hit by four hurricanes, the county
director of operations coordinated all county activities for 4
days from his home using HNS's DIRECWAY broadband satellite
communications services. The landbased communications network
was completely incapacitated by the weather for those 4 days.
Satellite broadband is also the most portable of technology
choices, and we have supported many emergency situations, such
as the search for parts of the space shuttle Columbia with
small, portable, fly away units.
My point with these examples is this: Satellite
communications is a viable technology. It is widely deployed.
It is deployed in consumer, commercial and government sectors,
improves communication for primary communications, for backup
and continuity of operations function as well as for audio and
video applications and others.
If Networx requires broadband technology, it should require
all technologies now in wide commercial and government
deployment. Satellite broadband offerings should stand side by
side with DSL and cable in this procurement, and satellite
broadband is not, nor should it be, optional.
Now, I know that Networx or rather the GSA procures
satellite through other contract vehicles, but our point is
this is the most important telecommunications procurement for
government as we go forward, and it is essential that satellite
broadband is there alongside all of the other technologies.
Mr. Chairman, thank you very much.
[The prepared statement of Mr. Cook follows:]
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Chairman Tom Davis. Thank you very much.
Ms. Gowen, you may be our last speaker.
And, Mr. Baroni, we may need to go vote.
If it is agreeable, we will recess for an hour, because we
have a series of votes and everybody can get some lunch, and we
can wind it up, and we can do questions.
Can everybody do that on their schedule?
You will be our final speaker, and then, Mr. Baroni, you
will have an hour to prepare your testimony.
STATEMENT OF DIANA GOWEN
Ms. Gowen. Good afternoon, Chairman Davis, and members of
the committee. Thank you for the opportunity to be here. I am
Diana Gowen, president of Broadwing Government Solutions,
Broadwing Communications.
Broadwing, while small relative to legacy carriers here
today, is a robust, wholly owned, all-optical, nationwide
network. Because of our advanced technology and size, we are
nimble and innovative in ways some of the legacy carriers
cannot be. So we applaud GSA for showing clear vision in
creating an Enterprise version of Networx to improve the
government's access to new technologies. While a new entrant in
the Federal space, it provides advanced networking solutions to
very sophisticated customers such as General Electric, AT&T
Wireless and Bank of America. They entrust their mission-
critical Networks to us.
However, in spite of the trust those large commercial
customers place in us, we approach Networx with some
trepidation. The risks are large, and the market uncertain but,
more critically, we see an uneven playing field. The GSA has
been working for 2-plus years on this acquisition and has very
consistently sought council from all quarters, and there are
marked changes that have resulted. Yet, some fundamental issues
remain: The competitive playing field is not level. Universal,
while it is the continuity of service contract, is unduly
favored in many ways. The MRGs, fair consideration, the ability
to modify the contract early on, fair opportunity or
consideration across two separate and unequal contracts is our
greatest concern.
The major objective for Universal is continuity of service,
and a major objective for Enterprise is new and innovative
technological solutions. Because of the agency's well-founded
concerns with continuity of service, the dominant contract
vehicle in all probability will be Universal, and agencies
could miss opportunities to avail themselves of creative
technological solutions when upgrading their networks.
Consider the case of a new innovative network service,
QPLS, offered only by Enterprise providers, and one of the
Universal providers, in this case the agency's incumbent
carrier. The agency could either provide the incumbent a sole-
source award or abandon its incumbent and issue a task order
under Enterprise. A sole-source award certainly would not
promote the benefits of competition. But, at the same time, the
incumbent, if able to provide, should be able to compete with
the Enterprise bidders.
Networx should be changed from two separate and unequal
contracts to one, either conceptually or in reality, by
adopting some of the following approaches: Structure the
contract along the lines of the Millennia Light and
Connections, or GSA could administratively direct an agency to
consider all network awardees, regardless of whether they are
Universal or Enterprise. The current FTS 2001 and MAA contracts
offer a good example. JUTNET, AT&T, and Qwest, MCI and Sprint
all competed. AT&T and Qwest were MAA awardees, and Sprint and
MCI were FTS 2001 awardees. Networx could adopt a version of
this strategy to broaden the competitive playing field during
the fair opportunity competitions, or GSA could approach the
Office of Federal Procurement Policy and request a modification
or exception to the Federal acquisition regulations.
We have all recommended that the government accept
commercial capabilities and eliminate many of the noncommercial
requirements, yet many agencies remain firm in their
noncommercial desires, so that GSA should pay for the unique,
government-only development through special cleanse or
increased revenue guarantees. If GSA chooses the MRG path, then
the MRGs are too low for Enterprise. The operational support
requirements are exactly the same for both Enterprise and
Universal, and there is room to expand the MRGs, since the
combination of the proposed MRGs today is less than 1 year's
revenue under the current FTS 2001 contract and well below the
government's estimates of how much will be spent under this
program.
Our last concern is forbearance from modifications to the
Enterprise contracts for the first 24 months. These are the
innovation contracts, yet Universal awardees will be allowed to
modify their contracts.
The contract modification process under FTS was
successfully streamlined; the number of mods negotiated doubled
on an annual basis, so I think GSA knows how to modify
contracts. Tech change is not going to slow down for 2 years,
and therefore, both Universal and Enterprise should be able to
modify their contracts as necessary.
So Broadwing is eager to work with you, Mr. Chairman, and
the members of the committee and with the GSA to help bring
about a fair and balanced competitive environment for Networx.
Thank you.
[The prepared statement of Ms. Gowen follows:]
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Chairman Tom Davis. Thank you very much.
We are going to recess now. It is 1 p.m., we will come back
here at 2 p.m., give everybody a chance to eat lunch except for
you, Mr. Baroni. I know you will be preparing your testimony.
Thanks.
[Recess.]
Chairman Tom Davis. Well, Mr. Baroni, have you had enough
time to prepare your remarks?
Mr. Baroni. I think so.
Chairman Tom Davis. Well, we're ready--at least I'm ready.
STATEMENT OF GREG BARONI
Mr. Baroni. Well, Mr. Chairman, many thanks for the
opportunity to appear before you today to share Unisys' views
on GSA's proposed government-wide telecommunications program,
Networx.
My written testimony, which you've already included in the
formal record, highlights Unisys' best practices in the
telecommunications and networks services, the challenges facing
the current legacy procurement vehicles, such as FTS2001, our
analysis of the Networx draft RFP and recommendations to
improve Networx services.
Unisys is uniquely qualified to be a key partner in this
acquisition, and I believe, given the fact that we are a major
global solutions provider to 9 of the top 10 telecommunications
organizations--and I say that recognizing that it's rapidly
dwindling--we are, in our view, very expertise in this area.
In addition, we've been a global leader in delivering
highly complex managed services and network services, both to
the private and the private sector, under performance-based
contracting arrangements, the most notable of which is the
Transportation Security Agency, where we established an
innovative approach to link our performance directly to mission
outcomes.
Let me briefly outline the challenges associated with the
current network or the legacy network contracts and the need
for transformation.
Current procurement vehicles typically provide legacy voice
and data services that traditionally have been offered by the
commodity vendors who supply hard-wired physical networks and
are not well-suited to deliver converged communications.
Unisys believes that the GSA Networx contracts should be a
key enabler of this transformation that balances world-class
services with innovation in a cost-effective manner. Networx
must address these challenges faced today with the FTS2001
contract, such as access to a limited number of direct
commodity telecom providers unable to exploit full convergence,
the inability to access value-added services, and, of course,
the billing issues and the lack of flexibility in reducing
pricing over time.
As you requested, and I'm sure you've surmised by now, we
have a few comments on the draft Networx RFP. First, for the
Universal contract, as proposed, a robust network footprint in
competitive pricing will be the minimum required for a winning
proposal. Because systems integrators and outsources typically
do not own the underlying assets, and because margins are
typically razor thin on these kinds of awards, we believe it's
unlikely that modern transformational service providers are in
a position to make a competitive bid relative to traditional--
to large traditional telecommunications service providers.
Second, for the Enterprise contract, significant
impediments still exist because of the complex billing and
back-office system requirements for Networx. Billing and back-
office systems requirements appear to be similar for both
Universal and the Enterprise procurements. In both cases
vendors are being asked to conduct an operational capability
demonstration of their operation support systems that will
require very robust and government-specific requirements,
thereby adding significant upfront investment for an
opportunity that in the case of the Enterprise solicitation
appears to have limited initial opportunity for significant
revenue.
Third, the minimum revenue guarantee which, admittedly, was
increased from $25 to $50 million still offers little
motivation to move customers from the Universal to the
Enterprise contract. Given bid proposal and investment
requirements, the business case for a systems integration to
prime the contract is, at best, very challenging.
Fourth, an effective transition to the Networx contracts
will be vital. As pointed out by GAO, the transition elements
will need to be specifically taken into account to include the
transition from the FTS contract to the new Networx contract,
from circuit centric solutions to IP and value-added solutions,
and from circuit billing and support systems to a more managed
services billing and support system.
Finally, it appears GSA is looking for more next-generation
and modern solutions. It seems, though, that the Enterprise
contract favors legacy firms--i.e., the carriers--that can
provide robust and cost-efficient network connectivity
solutions because the majority of the core services are, in
fact, connectivity centric rather than complex value-add
services.
In summary, Mr. Chairman, Unisys is very supportive of the
government's approach and strategy for telecommunication and
network services. We acknowledge the significant progress GSA
has made, and emphasize the following recommendations.
The Networx contract should be designed with a
transformational approach, balancing the value of added
services to the clients with optimal price points, as opposed
to being merely a commodity-priced vehicle favoring the
carriers.
Second, increase the minimum revenue guarantees for the
Enterprise contract to significantly higher than $50 million so
that the incentives to use the contract are in place. Further,
specific minimum revenue guarantee goals in the first 2 years
of the contract will greatly increase the incentive for
innovation and cost-effective long-term solutions.
Third, reduce the burden on contractors by simplifying the
overall billing requirements, limiting the requirements during
the operational capability demonstration to required core
services, and only those services that the vendor plans to
implement in the initial 2 years of the procurement.
And finally, the government should consider options such as
performance-based managed services contracting and critical
security services by not limiting the Networx contracts to
vendors with legacy and commodity telecommunications services.
Also, we recommend that greater weight be given to the
evaluation process to critical value-added services such as
security.
Thank you for the opportunity and inviting us to share
observations and recommendations. I look forward to any
questions you might have.
[The prepared statement of Mr. Baroni follows:]
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Chairman Tom Davis. Well, thanks for bearing with us.
Let me start the questioning.
Mr. Scott, you state that Networx should be reconfigured so
that Universal and Enterprise provide different tracks. Under
your plan, as I understand it, Universal would maintain its
current form, but Enterprise would be transferred to a next-
generation network, information-sharing, solutions-based model,
which I think that's an interesting concept. How long do you
think it would take GSA to transform the Enterprise strategy
into a viable next-generation network acquisition vehicle?
Mr. Scott. Are you saying to change the contract
requirements?
Chairman Tom Davis. Right.
Mr. Scott. I would think they should be able to do that in
3 or 4 months, at the max.
Chairman Tom Davis. OK. Could they do that while the
Universal acquisition goes forward?
Mr. Scott. Well, I think that could happen, and perhaps
even Universal could go forward as scheduled; but I have some
concern about getting Universal in place and then the other one
drags on, I have some great concern about that.
Chairman Tom Davis. I do, too.
How do you think that the next-generation network could be
different from what FTS provides today?
Mr. Scott. As I said in the testimony, it's focused more on
solutions, which you've heard from some of the other speakers
here today. And it will supply solutions, total solutions, and
not just a telecommunications component. The telecommunications
component would be a part of it, along with the other elements
of the total solution; the total solution being to provide some
sort of capability from user to user, a total capability which
provides information sharing among them.
Chairman Tom Davis. OK.
Now Mr. Bittenbender, do you think your company is likely
to participate in Networx if Enterprise were not restructured
as you suggest?
Mr. Bittenbender. Do I think we would? We would not be able
to be prime in the contract. We would, you know, we would have
to presume that we would take a subcontractor role with one of
the components.
Chairman Tom Davis. What are the special technologies that
you all would bring to a procurement like this?
Mr. Bittenbender. Well, on top of bringing innovation, we
bring the ability to manage large numbers of disparate services
and bring them together into a coherent service delivery
mechanism.
Chairman Tom Davis. So it's more of an integration role?
Mr. Bittenbender. Yes.
Chairman Tom Davis. OK.
Mr. Courter, based on your firm's unfortunate experience
under the GSA's MAA program, you expressed concern about
whether GSA has realistically estimated the agency requirements
in Networx, so that was an eye opener, I think, to some of our
members.
Do you think that the $50 million MRG in Enterprise is
realistic?
Mr. Courter. I think it's too small. You're talking terms,
it's my reading of what I have read is $50 million, it could
be, as the testimony was set up----
Chairman Tom Davis. Cut up five ways. Five contractors.
Mr. Courter. Over 5 years? It's minimal, I mean, it's not--
and if you add the cost of preparation and that which you need
as far as back office to support this, it's probably not
something anybody could make money on. And my greatest fear
right now is that I know there's going to be crossovers, so the
large enterprises, you know, the large incumbent carriers who
are going to probably take the whole thing and nothing will
have changed.
Chairman Tom Davis. Mr. Cook, you make a good case for the
treatment of satellite broadband equal to DSL and cable in the
Networx procurement. I know it's hard to forecast, but do you
see satellite broadband 3 years from now in consumer,
commercial, and government markets?
Mr. Cook. Very definitely, yes. We in the industry are
spending a lot of efforts, a lot of R&D money, continuing to
develop the technology. We're continuing to see the performance
of the services increase in terms of speed and capabilities.
The costs are coming down. We're making more efficient use of
the spectrum that we're using.
And certainly in about 2 years' time we will have a brand-
new type of satellite to use as well. We're building something
called Spaceway, which, again, in terms of spectrum efficiency,
is about 10 times more efficient than the sort of satellites
we're using today; and that in itself will help us to drive
down costs and so on. So we definitely see that the market for
satellite broadband is going to be significantly bigger in 2 or
3 years' time than it is today.
Chairman Tom Davis. If you look at the draft RFP as it is
today, would you consider participating as a prime under
Enterprise the way it is today, or would there have to be
provisions probably----
Mr. Cook. I think the answer is we would like to, but it's
very difficult today for us to participate as a prime for many
of the reasons we've heard, all the way through from billing
systems through to coverage of the services and so on.
Chairman Tom Davis. Now, Ms. Gowen, let me just ask you for
your company. You talked about a number of changes that GSA
could make in Networx, Enterprise, raising the minimum returns,
allowing Enterprise and Universal awardees to compete for
agency customer requirements, permitting firms to offer only on
Universal and Enterprise, but not both. Which is most important
for your firm to keep you in the bidding?
Ms. Gowen. The most important thing for us is to get a
level playing field post-award; and to me that means that the
fair consideration process has to be different than the way
it's outlined in the draft. An Enterprise awardee who is
qualified for the offer, as well as the Universal, should both
be able to compete, just as I cited in the example of JutNet
with the MAA providers, as well as the FTS providers. And our
position is if the GSA can figure out administratively how to
adjudicate fair consideration across both contracts, then we
are a happy bidder of Enterprise.
I would add that it would be nice to see higher MRGs if
we're going to have all these noncommercial requirements remain
in the contract.
Chairman Tom Davis. Right. I think a couple of previous
panels ago that Commissioner Perry talked about knocking those
requirements down, and that obviously--I don't know what the
correct mix is, but that would make it a little more palatable,
I gather?
Ms. Gowen. Well, right now in just billing alone there are
194 requirements; 54 of them are noncommercial requirements,
just to give you an example. So if we get rid of the 54, then I
think we could all be happy.
Chairman Tom Davis. Now Mr. Baroni, both of the Networx
RFPs include managed network services among the list of
mandatory services. Could you provide the same types of managed
services you offer to private customers using these provisions?
Mr. Baroni. At this point, no; because again, the
requirements, as was just pointed out by Diana, that even if
you looked at things as simple as the billing system, the
complexity added to that almost becomes prohibitively expensive
to get in that game.
You know, the thing that I'm concerned about is that when
you look at the way the RFP is currently drafted, it is
requirement-centric, not outcome-centric. And when you think
about managed services, you're really oriented much more toward
a performance-based contracting model; and that's really not
embedded in this current RFP.
Chairman Tom Davis. I asked this of the previous panel--we
heard today that location-specific traffic volumes won't be
made available until mid-to-late May; how does this impact your
ability to develop your proposals?
Mr. Baroni. Can you repeat that again?
Chairman Tom Davis. Sure. We heard the location-specific
traffic volumes are not going to be available until mid-to-late
May; how does this impact your ability to develop your
proposals?
Mr. Baroni. Rather significantly, because you really need
to--in order to properly price any solution, you really have to
understand scope. And so that becomes a necessary ingredient.
Chairman Tom Davis. OK. I assume everybody is on the same
wavelength----
Ms. Gowen. I have a slightly different position there.
You know, Enterprise is principally a data-centered
requirement set, it's Universal that has the voice requirements
in them. And it is absolutely required, in order to do a voice
bid, that you have all the traffic data, the to's and the
froms. In a data-centric environment I think they probably have
the right data for us today. If they don't, then we all really
need the data before you can price your proposal and develop
your solutions.
Chairman Tom Davis. OK. Mr. Cook.
Mr. Cook. Again, I think I would agree. The only, again,
addition maybe I would make to it is this is a long-term
contract, and traffic patterns change and data changes. So to
some extent the proposals that we all make are going to have to
take into account those changing patterns over time. What we
need to do is have a real good understanding of where we start
from.
Chairman Tom Davis. Mr. Courter.
Mr. Courter. Yes, I 100 percent agree, you need that data
in order to price your bid properly.
Chairman Tom Davis. Or you end up with the Atlanta
situation.
Mr. Courter. Exactly.
Mr. Bittenbender. As an integrator it's critical to us,
because we don't deliver telecommunications services, we choose
the appropriate company that delivers them and then put all
those appropriate companies together. Not knowing what the
geographic footprint is does not give us the ability to choose
what we believe to be the best supplier.
Chairman Tom Davis. So basically the government is not
going to get their best offers----
Mr. Bittenbender. The longer they wait, I believe that's
true.
Chairman Tom Davis. OK. Mr. Scott.
Mr. Scott. Mr. Chairman, as he says, going beyond just the
capability of bidding, it is seriously impacting the teaming
process because people can't decide whether they want to bid or
whether they want to prime or whether they want to sell. That
is, along with the evaluation stuff, affecting that decision
process.
Chairman Tom Davis. Anyone else want to add anything?
Basically my questions as we walk through this thing.
Mr. Baroni. I guess I would say under the current
construct, I can't imagine any integrator prime in this bid.
And maybe, Don, you may say otherwise, or Dave----
Chairman Tom Davis. That's what I read from hearing the way
it's currently structured. And we want to have integrators,
obviously, looking at this thing. OK.
Mr. Courter. Congressman, Mr. Chairman, if I could just add
one further thing. I think it was Congresswoman Maloney was
talking about on September 11th, communication redundancy. And
as you know, and I have spoken to you about it, Congress did
pass legislation to start the process of requiring redundant
connections, physically diverse redundant connections for
safety reasons in certain Federal buildings. And I would hope
that the specifications would give GSA the ability in certain
circumstances that require a redundant connection for safety
purposes.
Chairman Tom Davis. That's a good point. And I will make
sure that we emphasize that with GSA.
OK. Anything else?
I want to thank you all for being patient and sitting
through this. And the meeting is adjourned.
[Whereupon, at 2:42 p.m., the committee was adjourned.]
[The prepared statements of Hon. Dan Burton, Hon. Jon C.
Porter, Hon. Elijah E. Cummings and additional information
submitted for the hearing record follows:]
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