Using this methodology, GSA estimated that it would need a total of $151.5  million for a 30-month transition, most of which would be used to  reimburse agencies’ transition costs. The analysis was not sufficiently accurate  because it is largely based on the assumption that agencies will transition  76 percent of the services acquired under the current FTS2001 contracts to  a different provider under Networx—an intentionally conservative  scenario that GSA program officials believe is unlikely to occur. Further,  the analysis has not been updated after a nearly 2-year delay in the  contract award. While GSA appears to have included all pertinent costs, it  may have double-counted a cost, calling into question the  comprehensiveness of its analysis. In addition, GSA did not document  significant assumptions and data. While an intentionally conservative  approach minimizes the risk that GSA would have inadequate funds to pay  for committed transition costs, it increases the risk that GSA will retain  excess funds that could be used for other purposes. However, according to  program officials, the 76 percent “transition traffic factor” is intentionally  conservative and represents a worst-case scenario that is unlikely to  occur. However, it did not document significant assumptions. GSA did not validate its analysis against an independent cost estimate or  perform an uncertainty analysis. GSA Does Not Have a Policy to Ensure That Cost Estimates Are Sound

The weaknesses in GSA’s analysis can be attributed in part to the lack of a  policy requiring cost estimates to be developed using best practices. As of fiscal year-end 2006,  GSA accumulated approximately $142 million in a reserve dedicated to  costs associated with the transition from FTS2001 to Networx. By varying the transition traffic factor,  our analysis indicates that the $142 million already retained should be  adequate to cover expected expenses 96 percent of the time. The merger of the IT and General Supply Funds provides GSA with  additional flexibility, further reducing the need to retain the entire amount  of the estimate. With Networx contracts scheduled to be awarded starting in March 2007,  GSA will soon be in a position to reassess its main assumption, the  transition traffic factor, and the resulting level of funding needed to meet  anticipated commitments. Despite the weaknesses in its analysis, GSA has accumulated adequate  funding to support its anticipated commitments related to the Networx  transition. Our analysis indicates that it is highly unlikely that GSA will  need more than the $142 million it has already accumulated. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine (1) the soundness of the analysis the  General Services Administration (GSA) used to derive the estimate of  funding that would be required for the transition and (2) whether GSA will  have accumulated adequate funding to pay for its transition management  costs.
Why GAO Did This Study

The General Services Administration (GSA) and its customer agencies are preparing to transition new governmentwide telecommunications contracts known as the Networx program. GSA estimated the costs for which it is responsible to be $151.5 million. This report addresses (1) the soundness of the analysis GSA used to derive the estimate of funding that would be required for the transition and (2) whether GSA will have accumulated adequate funding to pay for transition costs. In performing this work, GAO reviewed cost estimation best practices, analyzed relevant GSA documents, and performed an uncertainty analysis on GSA's estimate.

What GAO Found

GSA did not use sound analysis when estimating the amount of funding needed to meet its transition-related commitments. Specifically, its analysis was not sufficiently accurate, comprehensive, documented, or validated. A primary weakness is that the estimate is largely based an assumption--known as the transition traffic factor--that 76 percent of the services provided under the current contracts would be moved to a different provider under the Networx contracts. However, according to program officials, this assumption is intentionally conservative and represents a worst-case scenario that is unlikely to occur. Additionally, GSA may have double-counted a cost and did not update its analysis to reflect a nearly 2-year delay. Finally, GSA did not document significant assumptions and data sources used in its analysis, or validate it. These weaknesses can be attributed in part to the lack of a cost estimation policy that reflects best practices. While GSA's intentionally conservative approach minimizes the risk that it would have inadequate funds to pay for committed transition costs, it increases the risk that GSA will retain excess funds that could be used for other purposes. GSA has accumulated adequate funding to support its anticipated transition costs. As of fiscal year-end 2006, GSA had approximately $142 million in a transition reserve. GAO analysis of the estimate indicates it is unlikely that GSA will need more than it has already accumulated to fund the transition. Specifically, the $142 million already retained will be adequate to cover anticipated costs 96 percent of the time. The recent merger of two GSA funds gives the agency additional flexibility that reduces its need to accumulate the entire $151.5 million it estimated would be needed. With Networx contracts scheduled to be awarded starting in March 2007, GSA will soon have the information necessary to reassess the main assumption underlying its estimate--the transition traffic factor--and address the weaknesses GAO identified. Once this has been accomplished, GSA can reevaluate the funding needed to meet anticipated commitments.