Fed delay on net buy will cost carriers

An unexpected delay in the award of a 10-year, $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.

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An unexpected delay in the award of a 10-year, $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.''