It was more important for the Treasury Department to keep AT&T (NYSE: T) as its tele-communications contractor than "to take the proper steps to either obtain satisfactory performance from the contractor or to terminate the contract," says the Treasury office of inspector general.

AT&T has been the incumbent telecom contractor at Treasury since at least 1995; the department awarded the company a new contract in September 2007 under the General Services Administration's Networx telecom contract vehicle.

Inadequate contractor performance has since resulted in additional costs totaling $33 million, the inspector general report says, adding that auditors believe the department should consider filing for damages in court. Treasury officials told auditors they don't believe legal remedies are possible, a position auditors say should undergo re-evaluation.

Implementation of the new AT&T Networx network, dubbed TNet, was supposed to have begun in October 2007, but a number of delays pushed the start date to August 2009. The report places responsibility for much of the delay on AT&T and procurement managers at Treasury, stating that "Treasury officials were reluctant to take action against the contractor for failure to meet the transition schedule."

"Overall, we found that TNet delays resulted from what we can only describe as inept leadership and ineffective communication in putting together the statement of work, followed by poor contract and project management," the report adds.

For example, in April 2008, Treasury modified the contract to include a number of security requirements, including an Office of Management and Budget mandate to reduce the number of connections to the public Internet known as the Trusted Internet Connections initiative. But the modification did not change the duration of an originally planned for 9-month transition state from the old contract to TNet, allowing "AT&T to essentially deliver TNet on an ad hoc basis."

With the original transition schedule invalidated by the modification but with no new schedule in place, AT&T could not be held responsible for implementation, the report says.  

In addition, the TNet statement of work was essentially copied from an earlier, failed Treasury solicitation called Treasury Communications Enterprise, the report says. That earlier statement of work did not include a reference to certification and accreditation under the Federal Information Security Management Act, and it wasn't until August 2009 that Treasury officials modified the AT&T contract to explicitly require that TNet be classified as a "high" risk level system.

Version 2.0 of the TNet transition plan fixed Oct. 21, 2008 as the deadline for AT&T's submission of a certification and accreditation package, but three subsequent contract modifications pushed delivery out to July 22, 2009.

"Treasury issued task order modifications that extended deliverable dates without determining whether the delays were caused by inadequate contractor performance," the report says. The supporting documentation for one modification even stated that "throwing in the penalty language may just make this more contentious and put AT&T on the defensive," the report says.

For more:
- download the report, OIG-11-106 (.pdf)

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