AT&T, GSA fight over millions

Officials from AT&T Government Markets and the General Services Administration believe each owes the other millions of dollars as a result of contract disputes arising from changes in service during the last price and service recompetition of the FTS 2000 contract. Sources close to the negotiations believe GSA's Board of Contract Appeals will be asked to decide if GSA owes AT&T more than $120 million.

AT&T claims GSA's Federal Technology Service (FTS) failed to transition all the Treasury Department's traffic promised when the FTS 2000 contract was recompeted in 1995. In a claim filed with the FTS 2000 contracting office in August, AT&T officials said the low pricing they offered following the recompetition was based on the assumption that the company would receive all of Treasury's FTS 2000 traffic, which Sprint previously handled.

Because of problems moving the department's traffic from Sprint's FTS 2000 network to AT&T's, Treasury officials last year said they would not allow GSA to move most of Treasury's data services to AT&T. AT&T's complaint to the contracting officer said that decision cost the company nearly $122 million in lost revenue.

The FTS 2000 contracting officer, Nicholas Hinko, responded this month with a ruling that pinned the blame on AT&T for the failed transition. In addition, GSA claimed AT&T must pay GSA nearly $44 million in lost savings that the government would have accrued had AT&T not botched the transition.

Other telecom vendors expressed disbelief that AT&T would attempt to extract money from FTS as the agency prepares to award its next-generation long-distance contracts, on which AT&T has bid. "For a vendor to say, 'I want all my discounts back for the last three years,' I think that takes enormous chutzpah," one telecom executive said.

Consultant Warren Suss, president of Warren H. Suss Associates, Jenkintown, Pa., said AT&T's action may be due to underbidding on federal contracts. "Given the low rates on FTS 2000 and other AT&T contracts, I'm not at all surprised AT&T is under pressure to recover costs wherever [it] can," Suss said. "You can't continue to bid at those levels and be profitable."

Officials from both sides of the dispute downplayed the significance of the disagreement and described it as a normal aspect of contract negotiations. "This isn't unusual in terms of a contract this large," said Sandy Bates, deputy commissioner of FTS. "We're working through it."

John Doherty, AT&T's vice president for FTS 2000 and civilian markets, said the dispute is typical of issues that arise as long-term contracts such as FTS 2000, which will expire in about two months, draw to a conclusion. But Doherty added that AT&T officials are "still looking at our options." He declined to comment on what other options the company is considering.

Doherty also refused to comment on Hinko's decision. But he said AT&T has been attempting to work through the issue with FTS officials since the transition problems began. He said the number of organizations involved with the transition— including Treasury, its bureaus, GSA and Sprint— made the process extremely complex.

He added that AT&T submitted its transition plans as requested by FTS in a timely manner, although he said some had to be revised as new requirements "were discovered."

According to Hinko's ruling, AT&T's plans "were often lacking in detail and often required extensive revision." He said four of the plans, covering services such as videoconferencing and the Internal Revenue Service's toll-free phone lines, were presented five months late.

Hinko also argued that the cutover to AT&T, while incomplete, gave AT&T about 72 percent of all the FTS 2000 traffic, which nearly reached the objective of the recompetition. "To the extent that the target revenue split has not been met [a 5.52 percent shortfall], it is a self-inflicted wound which AT&T should endure without remedy," Hinko wrote in his ruling.

Former FTS Deputy Commissioner John Okay, senior vice president at Federal Sources Inc., said AT&T first brought up the issue in 1996. He said former FTS Commissioner Bob Woods dismissed the claim and urged AT&T not to pursue it.

Okay expressed doubts that AT&T, with all its telecommunications expertise, would have hinged its pricing on the prospect of a successful Treasury transition. "They put together an aggressive bid," Okay said. "It would surprise me if they based it on a very quick and trouble-free transition, given that it's a complex and massive job."

FTS Commissioner Dennis Fischer said he has responded to a letter from Rep. Dan Burton (R-Ind.), chairman of the House Government Reform and Oversight Committee, to GSA Administrator David Barram requesting information on the dispute. As of late last week, the letter was awaiting Barram's signature.

Officials from Sprint, who were forced by FTS to lower their prices to the level of AT&T's following the recompetition, declined to comment on the dispute.