GSA defends deal with Treasury

GSA will halve management fee, but only for some services

The General Services Administration has agreed to give the Treasury Department a price break for dropping its planned telecommunications contract and using GSA’s Networx instead, but only for those services that Treasury would have obtained through its own contract.

Word of the 50 percent discount for Treasury, which leaked before GSA publicly clarified its intentions, had led many analysts to predict that other large agencies would soon clamor for the same sort of deal. But John Johnson, assistant commissioner of GSA’s Federal Acquisition Service, said the agency isn’t worried. The reduction does not apply to services that Treasury gets through GSA’s FTS 2001 contract.

For those services that Treasury had planned to provide itself through the now-abandoned Treasury Communications Enterprise contract, the agency will pay half-price and get a much lower level of service from GSA, Johnson said.

“Our support will be limited basically to scope determination and some education on how the program is constructed,” he added.

The standard management fee for agencies using Networx will be 7 percent of the cost of orders, according to a GSA spokesman. Treasury will pay 3.5 percent for those services covered by the agreement.

That still gives some analysts pause.

“GSA’s overhead charges have been a matter of controversy for years,” said Warren Suss, president of Suss Consulting. “Agencies look at that overhead percent and see it as a cost that could be eliminated.”

By limiting the discounted fee, GSA has reduced the risk that other agencies will come looking for a similar arrangement, but it hasn’t eliminated that risk, he said. The situation calls attention to the larger issue of management fees.

It also means that Treasury is getting special treatment, Suss added. “By favoring one agency — and there certainly are a lot of circumstances that pushed GSA in this direction — they’ve created a lot of sibling rivalry,” he said. “It’s going to be hard to get that back in the bottle. It’s going to be hard for agencies to stand by and accept that there’s a favored child.”

Phil Kiviat, a partner at Guerra Kiviat, said the degree to which other agencies may demand similar special arrangements depends on Treasury’s special circumstances.

“If the deal that was structured is unique to Treasury’s situation, then it won’t have any effect on the rest of the government,” he said. “But if it’s similar to what everybody else is doing, [GSA] will be under tremendous pressure to reduce rates.”

There are other provisions of the agreement, signed Dec. 20, 2006, that analysts found less worrisome. GSA agreed to help Treasury cancel the TCE procurement, which the agency has not yet awarded. GSA also agreed to help cover any legal fees that might arise from the cancellation.

GSA is close to awarding the Networx contracts. The agency plans to award Networx Universal in March and Networx Enterprise in May. Universal includes a long list of mandatory services that all awardees must offer, while Enterprise is for companies offering fewer services in more localized areas.
Inside the agreementSome of the important points in the agreement between the General Services Administration and the Treasury Department regarding the cancellation of the Treasury Communications Enterprise contract include:

  • Treasury will get a 50 percent reduction in the management fees it pays GSA for those services it had planned to purchase through TCE. GSA will provide a lower level of service. The discount kicks in only after the transition to Networx is complete.
  • GSA’s Office of General Counsel and other employees, as needed, will help Treasury defend the cancellation of TCE, including splitting any costs owed to companies that filed proposals.
  • GSA will assess the possibility of additional fee reductions during the course of the contract, based on the prices of services and analysis of the actual operating costs over time.
  • Treasury has the option at any time of agreeing to pay a higher fee in exchange for a more complete range of services from GSA.
Source: General Services Administration/ Treasury memorandum of agreement

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