Contract a boon for USPS

USPS

The U.S. Postal Service is $5 million richer this month thanks to an innovative contract that has a vendor cutting the agency's telephone bills and sharing the savings.

The nationwide Managed Voice Services contract is aimed at leveraging USPS' buying power at its larger offices for the benefit of rural areas. It also will help the agency better handle its telecommunications costs, ensuring that unused lines are not billed and offices get the most from existing lines.

By simply signing a contract with SBC Communications Inc. to negotiate on its behalf with local telecommunications carriers, USPS would save a lot of money. But the agency is taking advantage of an innovative contract that requires the vendor to pay for the upfront work in return for a share of the savings realized.

"We didn't have to write a check to get SBC going," said Tom Nicolosi, Managed Voice Services project director at USPS.

This month, SBC turned over the first $5 million of the $15 million in savings it guaranteed USPS by December 2002. SBC will get a percentage of any savings over $15 million, but "we will write a check [to USPS] if we don't hit those numbers," said Doug Dangremond, executive director of SBC Federal Solutions Group.

The share-in-savings or gain-sharing concept is catching on in the telecom and information technology areas of the federal government. That includes an endorsement from President Bush in the fiscal 2002 budget and a potential bill from Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee's Technology and Procurement Policy Subcommittee.

The Postal Service has a long-term program — the Breakthrough Productivity Initiative — to reduce costs within the agency and decided to use the sharing concept because officials felt the local telephone services could yield significant savings, Nicolosi said.

With more than 37,500 sites across the country, many post offices are not in major metropolitan areas and cannot capitalize on the competitive rates negotiated for General Services Administration governmentwide contracts.

The only way to get that kind of savings for post offices in areas suchas the Havasupai Reservation in Arizona — which local mail carriers reachby horse and mule — is to draw on the Postal Service's buying power in largernearby cities, such as Las Vegas.

SBC is heading those negotiations and also evaluating the needs of the 2,500 largest facilities. That includes finding billing and tax errors and examining call traffic "to see if there are any chances for optimization," Nicolosi said.

Getting the most out of local connections is a trouble spot for many agencies, said Warren Suss, president of Suss Consulting Inc., a federal IT consulting firm. If a vendor can accomplish such savings for a network as large and distributed as USPS, it would be worthwhile for other agencies to consider similar share-in-savings contracts, he said.

"This is a very forward-looking approach that the Postal Service istaking," Suss said.

This contracting method is not without drawbacks, officials said. USPS had to work closely with SBC to protect against the inevitable cultural backlash that occurs when a vendor starts making changes.

"We did an extensive cultural assessment of the customer and their willingness to make sacrifices," Dangremond said.

Among the key factors is a commitment from the top management at USPS to explain to its employees the contract's benefits.

One such problem area is the level of local autonomy, because the negotiation swill likely take control away from the 87 districts that currently run the agency's telecom contracts, Nicolosi said.

The USPS contract is for two years, with three one-year options. Nicolosi said the Postal Service is also approaching the contract as a learning experience for future savings.

Share-in-savings explained

Share-in-savings is a form of performance-based contracting that requires the vendor to put up all or most of a system's funding instead of the agency. These contracts are used for programs with measurable savings, and in return for the vendor's initial investment, the agency shares a portion of the savings with the contractor.

This contracting method usually is used when the savings are expected to be large and when it will be a multiyear project that would not easily fit into an agency's budget cycle.