FTS 2000:

GSA Must Resolve Critical Pricing Issues

IMTEC-91-79: Published: Sep 11, 1991. Publicly Released: Oct 3, 1991.

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Jack L. Brock, Jr
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Pursuant to a congressional request, GAO assessed the effectiveness of General Services Administration (GSA) efforts to obtain competitive rates for telecommunications services under the Federal Telecommunications System (FTS) 2000 contracts.

GAO found that: (1) the government will continue to pay more than commercial prices for FTS 2000 services until the next fiscal year, unless prices are reduced; (2) FTS 2000 prices will exceed commercial rates for switched-voice service by $148 million over fiscal year (FY) 1991 and FY 1992; (3) prices for data services were significantly higher than commercially available prices and will make up about 20 percent of the vendors' FTS 2000 revenue in FY 1992; (4) FTS 2000 requires the vendors to provide a number of unique services that are beyond typical commercial services, but GSA cannot presently quantify the incremental effect of these additional services on FTS 2000 prices; (5) GSA notified both vendors that they were exceeding the mandated price caps and has had some success in getting FTS 2000 switched-voice prices reduced; (6) GSA has been negotiating with both vendors to obtain agreement on a price-cap index for nonswitched-voice services and both vendors have either offered or agreed to provide discounts on certain data transmission services; and (7) GSA plans to issue a draft price redetermination and service reallocation solicitation to the two vendors for their review and comment, and expects the price redetermination process to be completed by December 1992.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: GSA agreed with the recommendation. GSA used the results of a study comparing FTS 2000 and commercial service prices in making its price redetermination decision. GSA completed negotiations with vendors on mechanisms to keep FTS 2000 rates comparable to commercial rates. GAO reviewed these mechanisms, found them reasonable, and concluded that they should ensure the government pays competive rates.

    Recommendation: The Administrator of General Services should direct the FTS 2000 program staff to develop an accurate measure of comparable commercial rates that takes into account the value of any services provided under the FTS 2000 contracts that are not typically provided under commercial contracts. This measure should then be used during pricing redetermination to evaluate the vendors' bids. Further, GSA needs to make sure that it has an effective process in place to keep prices at a favorable rate throughout the life of the contract.

    Agency Affected: General Services Administration

  2. Status: Closed - Not Implemented

    Comments: GSA was satisfied with the results of price redetermination and thus, did not consider other options proposed by GAO. GAO reviewed GSA's price redetermination process and found it to be reasonable. GSA expects prices resulting from price redetermination to save about $450 million over the final 6 years of the contracts.

    Recommendation: If price redetermination fails to yield prices that are favorable to the government in comparison to commercial prices, GSA should consider alternatives, including reallocating all FTS 2000 traffic to one vendor if appropriate or conducting a new, full, and open competition.

    Agency Affected: General Services Administration


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