Further down the line

Networx moves into the future, bearing the hallmarks of the past (First of three articles in a Networx special report).

The days when telephone service providers lorded over the federal telecommunications landscape have gone the way of the dinosaurs, right? Perhaps not. The General Services Administration's upcoming Networx program bears an eerie resemblance to its ancestral contracts and could draw a familiar cast of bidders.

The history of GSA's telecom contracts takes on a near-epic sweep when viewed as a whole. From the initial award of FTS 2000 to AT&T and Sprint in 1988 to that contract's replacement by FTS 2001, awarded to Sprint and MCI in 1998 and 1999, and now the impending award of Networx, the agency has learned from mistakes, seen what works and planned its future by drawing from the lessons of its past.

Networx is actually two multiple-award contracts to be awarded in April 2006. The program will emerge in a new era dominated by the demand for managed network services, wireless access and IP-based applications. Procurement practices and industry dynamics have evolved, too. Networx will give federal users more than 50 offerings — everything from old-fashioned toll-free long-distance lines to turnkey voice-over-IP solutions.

But even though it will be infused with new products and services and will hold sway in a distant future — the program expires in 2016 — Networx unmistakably reflects its heritage. Like FTS 2001 and the long-extinct FTS 2000, Networx will be positioned as the contract agencies must consider first when buying telecom services. That will be a disadvantage for vendors that don't get a spot on it and a boon for those that do.

"More continuity than change is what I'm expecting," said David Cheplick, director of the Department of Veterans Affairs' Telecommunications Operations Management Service.

Vendors are certainly interested. GSA officials will soon evaluate bids.

But the world has changed, and GSA is scrambling to change Networx along with it. For instance, the contract emphasizes data solutions — particularly managed services — over existing voice provisions. Gone are the controversial mandatory-use requirements of FTS 2000, but also gone is the flexibility that came with FTS 2001. Agencies won't be required to use Networx, but implicit direction from Congress and the Office of Management and Budget will strongly encourage them to do so.

GSA faces a changing landscape

GSA officials say they are trying to take the best elements of their past efforts and combine them with innovations intended to keep Networx relevant into the future.

"Does Networx represent a departure for GSA? I'd have to answer that 'yes and no,' " said John Johnson, assistant commissioner for service development and delivery at GSA's Federal Technology Service. "We are continuing our tradition of offering exceptional value for network services, but now we are looking to offer different grades of service and advanced applications."

Some argue, however, that GSA is trying too hard to mold Networx to fit the new federal telecom environment, where multipleaward schedule offerings and governmentwide acquisition contracts are attractive networking options for federal buyers.

"Networx does reflect a lot of the changes that have taken place in the telecom industry and in government procurement," said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources, a market research firm. "But when you try to make a contract be all things to all customers — and to all vendors — you might just end up satisfying no one."

Making GSA's job even more difficult is the fact that Networx is taking shape while the telecom industry is in flux. It is a market punctuated by bankruptcies and mergers, and the number of players dwindles daily.

Networx broadens the horizon

Only two companies — MCI and Sprint — won the FTS 2001 contract. A few more used crossover provisions to offer services later. A much broader cast of characters is pursuing Networx or at least considering submitting a bid.

"All of the contracts have been multiple-award, but with Networx, the number of awardees is not predetermined," said Sandy Bates, former commissioner of FTS and now a consultant at Topside Consulting Group. "In the past, there have not been too many players to pick from. Yet there has been a desire among customers not to have their eggs all in one basket."

Now, not only has the number of potential awardees increased, but the types of vendors interested in a seat at the Networx table have changed as well.

"Systems integrators have become a strong force in the Networx procurement," Bjorklund said. "They have the capability to be more competitive and have become pretty good at IP-based solutions, since they've done the work to figure out how to integrate wireless methods into government solutions."

Still, traditional telecom vendors say they doubt the integrators' competition will be strong, especially for Networx Universal, which requires winning vendors to supply a full range of domestic and international service and accommodate all government locations covered by FTS 2001.

"To a large extent, systems integrators are purchasers of network services, which they distribute to their clients," said Jerry Edgerton, MCI's senior vice president for government markets and systems integrators. "They have not made the necessary investments in the technology."

Nor does it look like integrators are entirely ready to invest in a Networx bid, said Bob Woods, former FTS commissioner and now president of Topside Consulting.

"Systems integrators have driven up to the edge, and they have not liked what they've seen," he said. "Right now it does not look encouraging. Prices are low. Margins are low. And integrators know they will have to squeeze income out of their management skills."

Questions also surround the revenue the contract will generate. Networx is free of mandatory-use language, and its minimum revenue guarantees are pocket change compared to those that came with FTS 2001. Networx Universal winners are guaranteed to share $525 million among them, but each company's portion is impossible to predict until the contract is awarded and the number of awardees known. Networx Enterprise winners are promised a total of only $50 million, also shared among all winners. Companies will have to work to earn any amount above those minimums.

When Sprint and MCI won FTS 2001, they were guaranteed $750 million each. Simply put, there is no promise that an interested vendor can recoup the cost of a Networx bid.

"It is not unreasonable for vendors to ask themselves what they win if they bid and win a contract," said Tom Sisti, vice president for law and policy at Washington Management Group.

Even GSA officials acknowledge that chasing Networx is not for the faint-hearted. "These are tough contracts to bid," Johnson said. "But we've had a great deal of interest."

In the end, GSA will likely wind up with a decent set of offers, Woods said. He predicted that traditional telecom vendors will get most or all of the Networx Universal awards, while integrators and smaller networking suppliers will be more heavily represented in the Networx Enterprise awards.

Networx avoids the bargain basement

However, GSA's continued focus on getting deep discounts could potentially squeeze some interested parties out of the running.

"One constant among the contracts has been the emphasis on price," Bates said. "No one ever thought price was everything, but being able to achieve the best price for federal telecom customers has been a hallmark of the contracts."

Price remains a driving force for Networx, but the quest for rock-bottom deals has been tempered slightly, Johnson said. "While price is important, price and quality must go hand-in-hand," he said. "We will continue to leverage price like we have in the past, but we are also going to insist on a higher degree of reliability."

The increased demand for security and reliability is another factor that is softening GSA's fixation on price. Networx is the first major telecom procurement since the Sept. 11, 2001, terrorist attacks, which had an obvious impact on the new contract, said Jim Payne, formerly a senior vice president at Qwest Communications International.

"When FTS 2001 was awarded, we did not know about" the attacks, he said. "Now we do know, so no longer will agencies be solely worried about what they can get for a dollar."

It takes two

An obvious similarity between Networx and its predecessors is GSA's use of two separate procurements. Networx's blend of one big multiple-award deal — Networx Universal — with a related ancillary service vehicle — Networx Enterprise — resembles the pairing of FTS 2001 with the Metropolitan Area Acquisition contracts that provided local services. After two years, MAA vendors could apply for contract modifications that would allow them to compete in some ways with FTS 2001 vendors under a process called crossover.

"But what's interesting about the program today — and this was not an element of the crossover contracts — is the fact that Enterprise vendors will be allowed to submit new services over time," Johnson said.

The provision for new services will benefit customers and smaller vendors trying to bolster networking portfolios, he added. "This way, a few years down the road, Enterprise providers could become as capable as Universal providers," he said. Enterprise vendors won't move to Universal, but they can expand their offerings under Enterprise as their capabilities grow.

Agencies such as the VA are counting on the increased options under the two Networx contracts.

"We will evaluate both Universal and Enterprise and look for the best value," Cheplick said. "My expectation is that we will use the new contract to manage existing services and then make further use of Networx as providers roll out new services."

For instance, the VA will consult both Networx vehicles as it pushes into network management and managed private network services, he said.

Cheplick also said the department is looking for more security options and expects GSA to continue pressuring Networx vendors to offer solutions that will help agencies meet stiff OMB certification and accreditation requirements.

"We need to see more security solutions as driven by OMB, [the Government Accountability Office] and the National Communications System," he said.

Aware that agencies are feeling pressure from the Bush administration to strengthen the security of their telecom infrastructures, GSA is focused on the security offerings contained in Networx, Johnson said.

"The introduction of security in networks is one of the most compelling new features of Networx," he said. "And this is timely in an environment where agencies are having to go to summer school following receipt of their security report cards."

Jones is a freelance writer based in Vienna, Va.


**********

Networx facts

Networx Universal:

  • Provides 41 required and 11 optional services on a national basis.
  • $48.1 billion ceiling.
  • $525 million minimum revenue guarantee to be divided equally among awardees.
  • 10-year maximum term (four years, followed by three two-year options).

Networx Enterprise:

  • Provides 14 required and 40 optional services to localized areas.
  • $20.1 billion ceiling.
  • $50 million minimum revenue guarantee to be divided equally among all awardees.
  • 10-year maximum term (four years, followed by three two-year options).
Steep learning curve

Observers say the General Services Administration can learn from the past and carry those lessons into the future — to a point. But the agency has suffered in some ways from its own structure and from the same issues of entrenchment and intransigence that affect the government overall.

"There's no doubt that in going from FTS 2000 to FTS 2001 to Networx that [GSA officials] have in fact learned a lot," said Phil Kiviat, a consultant with Guerra, Kiviat, Flyzik and Associates. "I think there's been more change between FTS 2001 and Networx than between FTS 2000 and FTS 2001," partly because the industry has gone through more changes lately.

FTS had stable leadership for some time. Sandy Bates became deputy commissioner of the Federal Technology Service in 1997, just before the FTS 2001 contracts were awarded. She was promoted to commissioner in 2000, where she stayed until retiring at the beginning of this year.

But the agency's far-flung nature, with some of its authority at the Washington, D.C., headquarters and some in regional offices, can make it difficult for lessons learned at one office to translate to better practices agencywide, Kiviat said. GSA's ongoing reorganization effort could improve that situation, but the final plan released earlier this month doesn't fix the lines of authority, he said.

Stan Soloway, president of the Professional Services Council, doesn't share Kiviat's concern. He said the new organizational plan does clarify the authority of headquarters over the regions while not overly extending centralized control.

As for learning from the past, Soloway said, "I don't think government in general has a history of learning well from its own mistakes. It is such a large, bureaucratic organization made up of these entrenched cultures, scores and scores of cultures."

— Michael Hardy

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