Pentagon Nixes program that favored SDBs for telecon work

In an anticlimactic end to one of the most bitterly opposed
contracting policies in recent years, last month the Pentagon eliminated its 10 percent
evaluation preference program for small, disadvantaged businesses (SDBs) that provide DOD
with long-distance telephone lines and circuits.

Eleanor Spector, director of Defense procurement, issued the final rule. The decision
was not a surprise. Spector said this spring she probably would cancel the preference for
long-haul telecom buys handled by the Defense Information Technology Contracting Office.

The change amounted to an admission that the program had been abused by industry, that
the smaller companies often acted as fronts for large telecommunications providers and in
some cases failed to perform at least 50 percent of the contract work, as required by law.

The decision to kill the preference followed a report from the Pentagon inspector
general that concluded that the program was forcing DOD to pay millions of dollars in
unnecessary premiums to SDBs [GCN, May 1, Page 1].

"It was a long, intense battle,"' said Craig Brooks, president of Electra
Ltd. Inc. in Bethesda, Md. He led an informal coalition of telecommunications companies
that had fought for an end to the program since 1992.

"We probably lost $20 million in lifecycle contract opportunities" to SDBs
during that time, Brooks speculated.

Only a handful of SDBs regularly benefited from the program by bidding for contracts on
the Defense Information Systems Agency's Defense Acquisition Bulletin Board System
(DABBS). Executives from these companies have long maintained that the preference program
was crucial to helping them penetrate an industry where infrastructure and capital
requirements can make it nearly impossible for small companies to gain a foothold.

"It's hard to compete with companies that can buy satellite space [for telecom
transmissions] wholesale. They get better volume discounts," said Louis Bransford,
chief executive officer of Esatel Inc., an Arlington, Va., SDB and long-time DABBS bidder.
"Where the profit margin is thin, we just can't compete."

But Bransford also acknowledged that preference-based DOD awards were "only a
small part of our overall business" and that Esatel won many DABBS contracts through
full-and-open competition.

Mark Bell, director of operations for United Native American Telecom Inc. in
Burlington, Wash., another DABBS regular, painted a similar picture. "We weren't
really relying on (the evaluation preference) that much," he said. "Around 15
percent of our contracts came under it. The rest were full and-open wins."

Still, Bell said he worried that the rule change would narrow an already tiny window of
opportunity for small players in the DOD telecom market. "You have to start somewhere
to become a value-added network services provider, and now they've taken one more
incentive away from small companies," Bell said. "You're not going to find any
new entrants getting into this business. DOD is going to have to make do with what's out

In the short term, however, Brooks and his SDB competitors face a common concern.
Brooks and Bell said that in the two months since the Defense Information Systems Agency
awarded an extension to the Defense Commercial Telecommunications Network to incumbent
AT&T Corp., contract opportunities on the DABBS have virtually dried up [GCN, Sept.
4., Page 43].

Brooks cited an Aug. 25 memo from Daniel Lee, chief of DISA's procurement management
division, that directs contracting officials to meet new telecom circuit needs through the
DCTN extension or other "common-user system contracts," ostensibly as a means of
saving money and smoothing the eventual transition to the Defense Information Systems
Network (DISN).

Brooks said that close to 70 circuit solicitations that were in progress on the DABBS
at the time of the DCTN extension have since been canceled. He said AT&T ultimately
has won contracts for many of those circuits at prices considerably higher than what
Electra and other companies would have bid.

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