Two Washington area firms involved in the bidding for the federal government's $10 billion-plus FTS-2000 telecommunications project may have been dealt a blow by the General Services Administration's decision last week to divide the controversial contract between two bidders instead of awarding it to a single bidding team.
Bidding for the contract was called off last summer amid controversy and protests from the potential contractors and Congress. The GSA now plans to award the contract next September, although some analysts believe that dissatisfaction with the new plan could cause further delays.
Analysts say the GSA's action will have more of an effect on the bidding consortium that is headed by Bethesda-based Martin Marietta Corp. and includes Washington's MCI Communications Corp. than it will have on the other two teams competing for the contract. One of those teams is led by American Telephone & Telegraph Co. and Boeing Co., and the other is headed by Electronic Data Systems of Dallas and U.S. Sprint, a key competitor of MCI.
The GSA first asked for bids to build a vast new telecommunications network for the U.S. government two years ago. The system, whose cost has been estimated by the government at $10 billion and by others at more than twice that, would handle calls, data, and video transmissions.
But the bidding collapsed last summer after the EDS group pulled out, and a number of members of Congress -- led by Rep. Jack Brooks (D-Tex.), chairman of the House Government Operations Committee -- argued that the contract was too large to give to one company. The GSA then agreed to change the rules.
Under a 21-point plan released last Thursday, the FTS-2000 contract will be split up, with the winning bidder receiving 60 percent of the business and the second-place finisher the remaining 40 percent.
Analysts said that hurts the Martin Marietta-MCI team, which had been considered by some to be in a good position to win the whole contract. "I think that Martin Marietta thought that under the old rules they could win the whole contract," said Robert Ellis, president of the Aries Group, a telecommunications consulting firm in Rockville.
According to Ellis, even though the Marietta team now has a good chance of winning at least a piece of the split contract, that won't nearly be as profitable as winning the project under the old rules.
"The cost of setting up the entire phone business for the government and just setting up a portion of it are substantially the same," Ellis said. "Only now, the winner only gets 60 percent of the revenue to cover his expenses."
"I think Marietta would have preferred to go head to head and let the chips fall where they may," said David Dellinger, an industry analyst with Washington Analysis Corp. in Washington.
David Wonderling, a spokesman for Martin Marietta, said the company was "comfortable" with the new regulations, but he added that it has concerns about how much new work would have to be done and how much delay there would be in meeting the new requirements.
"We've spent nearly $50 million pursuing this contract. Any delay continues to have an impact from a cost standpoint," Wonderling said.
At a meeting of New York securities analysts on Thursday, Martin Marietta President Norman Augustine hinted that if the bidding process dragged on too long or proved too complicated, the firm might consider pulling out entirely, according to analysts at the session.
Analysts also say that the contract changes could rob Martin Marietta, MCI and the rest of the team of a chance to demonstrate to large commercial telecommunications users that there is an alternative to AT&T.
"If a firm like Martin Marietta had succeeded in winning a government contract like this one, it would have been the greatest single benefit in terms of competitiveness that you could think of," said Joaquin Gonzalez, vice president of the Gartner Group, a Connecticut-based consulting group. "There would have been an alternative for long-haul networking in major industries. That was the one thing AT&T was scared to death of."
Martin Marietta may still win a large chunk of the business, but Gonzalez doubts whether the effect will be the same. "AT&T's major competitive threat has now been minimized," Gonzalez said. Thus, the new rules are beneficial to AT&T, analysts said, even if the phone giant wins only 60 percent of the business.
And should a fight over the new rules delay the awarding of the contract, AT&T would benefit further, analysts say, because the telecommunications giant manages the existing federal phone system under contract terms that experts say are very favorable. "Every day that goes by benefits AT&T," Dellinger said. "They're making far more money on the present contract than anyone will under a new one."
Perhaps the biggest winner under the plan is the EDS-Sprint team. Last summer, the two companies decided they couldn't compete against the other bidders and pulled out. But EDS and Sprint made it clear some months ago that if the contract were split up, they would reconsider their position.
Some analysts suggested that EDS and Sprint's interest in a split contract prompted Brooks to lobby GSA for the new plan. "EDS is from Texas. And Brooks is from Texas. There's a clear connection here," Ellis said. "It was his boys that got shot off the saddle."
But other analysts dismissed that theory, noting that just a year and a half ago Brooks' committee undertook a major investigation of EDS.
Brooks' office declined to comment