Fed delay on net buy will cost carriers

An unexpected delay in the award of a 10-year, US$20 billion federal network deal will cost U.S. carriers millions of dollars in lost revenue and lack of productivity from key staff, industry analysts say.

In a surprise move, the U.S. government announced last week that it would delay for nine months the award of Networx, which is one of the largest network bids up for grabs in the world. The Networx program will provide legacy and leading-edge voice, data and video services to all U.S. federal agencies.

All major U.S. carriers – AT&T/SBC, Qwest, Sprint Nextel and Verizon/MCI – submitted bids on the main piece of the program, which is known as Networx Universal. The federal government also delayed the award of Networx Enterprise, a leading-edge effort that reportedly received bids from these four carriers along with Level 3/WilTel, Sprint Wireless and Verizon Wireless.

Telecom industry analysts say Networx bidders will lose millions of dollars during the delay as they hold key personnel on their project teams together while awaiting the awards.

“My ballpark estimate is that it would be a $2.4 million to $3 million expense to hold the whole team together,” says Bob Woods, president of Topside Consulting, which specializes in the federal government IT market. “Even if a carrier were able to hold its expenses to half that amount, we’re talking about all of these bidders losing at least $1.2 million. And that doesn’t include not making their revenue projections.”

“It’s probably at least $1 million a year per team,” agrees Ray Bjorklund, senior vice president of market research firm Federal Sources. “Exactly how much money it will cost depends on how many continuing discussions or iterations the government wants to conduct. It could be 10 people or more that you have to have hanging around dealing with the ongoing procurement.”

The Networx delay will have a ripple effect across the U.S. telecom industry because of the number of subcontractors involved in the massive project. For example, AT&T/SBC is using Cingular Wireless and Global Crossing on its Networx bid, while Verizon/MCI is using Comtech Telecommunications and Proxim Wireless Networks.

The Networx delay came as a shock to the industry. The General Services Administration (GSA), which oversees Networx, issued RFPs for Networx Universal and Networx Enterprise last May. Bids were submitted in October.

GSA originally planned to award Networx Universal in April 2006, but the schedule slipped last year to July 2006 for the award of Networx Universal and September 2006 for the award of Networx Enterprise. The new award dates are March 2007 for Networx Universal and May 2007 for Networx Enterprise.

“Networx offers exceeded our expectations in terms of the number and array of services proposed,” GSA said in a statement. “Additionally, the scope of the acquisition coupled with the industry response has added unforeseen challenges and additional time to our evaluation schedule. Thus, more time will be required for government-industry discussions and negotiations to ensure that GSA continues to offer agencies the best value contracts they have come to expect.”

Industry analysts question GSA’s explanation for the Networx delay, which is longer than normal for a federal IT contract award.

“This is a high-stakes contract, and it means a lot to the federal customer base,” Bjorklund says. “It also means a lot to the telecommunications community because the Networx Enterprise program has attracted a whole bunch of companies. With something of this magnitude, I could see it slipping a few months but not this long.”

Woods says that the conventional wisdom among federal IT circles was that the GSA would receive between 10 and 15 bids on Networx. GSA should have staffed up and been prepared to evaluate the 11 bids that were submitted, he says.

“It was pretty well known how many offers there were going to be,” says Woods, a former commissioner of the GSA and longtime IT executive with the Transportation and Veterans Affairs departments. “I don’t believe the number of bids was unexpected. I do believe that the bids are probably more complicated than expected. But the government wrote the RFP. . . . The government knew this thing was complicated.”

The Networx delays also hurt civilian and defense agencies that were looking to this program for upgrades or transitions to new technology, particularly VOIP. Barry West, CIO of the Federal Emergency Management Agency, told an audience of IT executives last Wednesday that he was unhappy about the delays and uncertainty surrounding the project.

“I’ve heard comments from federal IT executives that they weren’t told about the Networx delays,” Woods says. “They made budget plans for their network transitions. They’ve gone to Congress and gotten transition money, and now they have to go back and get it moved into another budget.”

U.S. carriers remain confident that Networx eventually will be awarded and will prove to be a good opportunity for the winners.

“Nine months may sound like a long delay, but we’re talking about a 10-year contract with 53 services that is worth billions of dollars,” says Susan Zeleniak, vice president for civilian affairs at Verizon/MCI. “I’ve never been involved in a government procurement with this big of a delay, but I’ve never been involved with a government procurement this big either. If the delay means that the quality of the evaluations and awards and decision making is improved with time, that’s a benefit for the whole industry.”

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Jim Love, Chief Content Officer, IT World Canada

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