Davis wins Treasury telecom battle

The Treasury Department has killed its Treasury Communications Enterprise (TCE) contract, terminating the deal with AT&T and pledging to use General Services Administration contracts to fulfill its needs.

The decision, which David Grant, director of Treasury's Office of Procurement, outlined in a May 20 letter to the Government Accountability Office, represents a victory for Rep. Tom Davis (R-Va.), who had been pushing the department to use Networx, a sweeping network and communications contract vehicle that GSA will award next year. Grant's letter does not specifically name the Networx contract, but industry analysts say it is the only realistic option for Treasury to match what TCE would have provided.

Davis, chairman of the House Government Reform Committee, sent a letter to Treasury Secretary John Snow in March, urging him to drop plans for TCE and use Networx instead. The letter cited the dangers of isolated, individual systems in an age when information sharing is crucial.

Davis has also publicly expressed those wishes.

A committee spokesman, however, declined to comment on Treasury's final decision.

But Grant's letter does not address what Treasury will do before Networx is awarded in April 2006.

Treasury officials could extend the Treasury Communications System contract, held by Northrop Grumman, until GSA chooses the Networx vendors and that contract takes effect. They also could transfer their network needs to FTS 2001 or other GSA contracts. Treasury officials declined to comment on that issue.

"It's evident that what they're trying to do long term is to roll their requirements under Networx," said Bob Woods, president of Topside Consulting. "The difficulty that they face is that they've got roughly a two-year gap," he said, while they wait for the Networx award and then transfer their telecom business to the Networx contract.

Woods identified three concerns for Treasury officials as they move into that gap.

First, they need to ensure that they have some type of contract in place until Networx is available, he said. They also face a cost risk, in which they must keep costs from going up despite the absence of a long-term pact. Lastly, they must manage an operational risk of losing some network capabilities.

Treasury's mission-critical systems have to be available around the clock, especially during the peak tax season. All of that means the department has less flexibility than its leaders might wish in making contract transitions.

The decision is also a victory for several companies that had protested the AT&T award. GAO upheld the protests in March. Immediately before awarding the TCE contract, Treasury officials agreed to consider moving it to Networx after the initial three-year base period. Losing vendors argued that their bids had been prepared with the understanding that TCE would likely run its full 10-year course and that they deserved an opportunity to revise their proposals because of the eleventh hour agreement.

"Obviously, there are a bunch of happy companies out there," said Warren Suss, president of Suss Consulting.

Several companies that had been involved in the protests issued brief statements late last week, all pledging to continue working to win or keep Treasury's business.

"Treasury's decision does not surprise us," said Tony D'Agata, vice president and general manager of Sprint's Government Services Division. "We hope to be able to continue to serve our Treasury customers with leading technology well into the future."

Tony Bardo, senior director of civilian agency sales and marketing at Qwest Communications International's Government Services Division, issued a similar statement, saying that Qwest supports the decision and endorses the use of governmentwide contracts rather than agency- specific deals to meet government needs.

Natasha Haubold, an MCI spokeswoman, said the company is waiting for more information on what Treasury plans for the short term before the Networx award.

TCE, which could have been worth up to $1 billion over 10 years, was intended to do more than replace the current Treasury Communications System contract. In 2003, Treasury officials said the contract would have moved the department to a managed services model, allowing individual bureaus to decide to what extent they wanted to outsource their networks. Vendors' performance would have been measured by service-level agreements with built-in performance incentives.