Cutting Edge Gov't Cards Run Into Rollout Snafus

<B> Cutting Edge Gov't Cards Run Into Rollout Snafus</B>

By Lynn Woods

Confronted by access codes that don't work properly, the inability to retrieve online reports with new software programs and other difficulties related to their electronic payment systems, federal government agencies are having a tough time implementing their new charge card programs.

The new contracts, which went into effect Nov. 30, 1998, represent an enormous volume of business--approximately two million travel and entertainment, purchasing and fleet cards, expected to generate more than $100 billion in spending over the next decade.

Of the five competing vendors, NationsBank and CitiBank were awarded the bulk of the government business, each receiving approximately 30 percent of the total volume. Citibank issued 580,000 cards to more than 130 federal government agencies, including the departments of Labor, Navy, State and Treasury, and the Veterans and General Services administrations.

U.S. Bank issued 125,000 cards to three agencies--procurement cards to the Department of Defense (worth $9 billion, the largest account in the government for purchasing) and the U.S. Postal Service, as well as all three card lines to Health and Human Services. First National Bank of Chicago won the contract for three cards used by the Department of Justice, representing a spend in excess of $500 million and 90,000 cardholders. A fifth vendor, Mellon Bank, is issuing only purchasing cards.

It's not volume alone, though, that accounts for the extraordinary challenges confronting the four vendors. Heralded as the next wave of credit card innovations, the government contracts include a number of groundbreaking requirements. As of Jan. 1, all government payments were to be processed electronically. Vendors also agreed to provide enhanced electronic reporting capabilities, the option of an integrated T&E, purchasing and fleet card, the ability to issue stored-value and smart cards, and, further down the road, the development of electronic malls as a purchasing tool.

Citibank, NationsBank and U.S. Bank developed new electronic reporting systems to meet the contract requirements. But due to a limited timeframe--the GSA, which oversaw the bidding process, announced the selection of the vendors last February and some contracts weren't awarded until late last summer--none initiated pilots at any of the agencies before the rollout. The exception was the brief testing of Citibank's CitiDirect system at the Veterans Administration with a select group of cardholders prior to implementation.

Adding to the chaos was the fact that the new card programs were activated simultaneously on the Monday after Thanksgiving, following the expiration of the government's contracts with its three long-time suppliers, American Express for T&E, U.S. Bank for purchasing and Wright Express for fleet. Amex was initially one of the vendors qualified by the GSA to bid for the new contracts, but dropped out of the bidding process last spring.

Under these conditions, "the extensive nature of the GSA implementation would be a significant and difficult undertaking for the best of vendors," said consultant David Hillman at Deloitte & Touche in Parsippany, N.J. Rumors, which could not be substantiated, were circulating that one supplier hadn't yet released all its cards and two of the other vendors were considering scrapping their automated systems entirely and rebuilding them.

GSA spokesperson Sue Mciver, who likened the task of implementation to "building an aircraft engine while the plane was in flight," said that tests and pilots had been planned, but weren't implemented because "the contractors weren't ready." The GSA currently is collecting comments from the agencies about the types and extent of problems. Mciver said the government plans to "negotiate compensation from the banks" in cases involving failure to comply with the federal stipulations.

All the agencies had problems with their new card programs and are at different stages of implementation, with some still using paper, some getting reports electronically and some using a combination of both, according to Mciver. Some of the problems involving Citibank's CitiDirect and EAGLS, NationsBank's new automated system, included the following:

<ul><li>Access codes that didn't allot payments properly. Hierarchies within the agencies determine who can and cannot make certain purchases or changes to accounts--restrictions the access codes were supposed to indicate, but in some instances did not.

<li>In the case of new integrated cards, the failure to embed data indicating which purchases are tax exempt is critical to the "split billing" function that separates procurement purchases from T&E transactions.

<li>Problems with merchant category codes, so certain types of purchases were incorrectly blocked. For example, an employee staying at a resort or using the spa at a hotel would be blocked from making the purchase.

<li>Problems with government firewalls, which were preventing the transmittal of key data.

<li>The lack of necessary hardware at some agencies.</ul>

Reactions to the immediate challenges ranged from utter frustration to optimism. Eight weeks into the implementation, an official at the U.S. Department of Transportation, which had chosen NationsBank as the issuer of its 20,000 purchasing cards, complained about the inability to do online maintenance of reports using EAGLS. "It's pretty much worthless," he said. "I don't know if they understood our requirements."

<B>Interior "Sees Progress"</B>

But the attitude at the U.S. Department of Interior--which is implementing 65,000 new integrated NationsBank cards, combining all three functions--was more hopeful. "We're begininng to see a lot of progress," said Ted Woronka, deputy director of the office of financial management.

Initially, emergency cards had to be issued because of problems with data migration. "The old contracts did not contain the right information," said Woronka. Another stumbling block was the inability to reconcile bills, which resulted in delayed billing. But Woronka said solutions were forthcoming and called his agency's relationship with the bank "excellent." Ultimately, Interior's commitment to a one-card solution was a wise choice, he said. "We'll pay good dividends for the future."

Richard Guyer, director of fiscal policy at the U.S. Department of Agriculture, which is using NationsBank for 63,000 T&E cards, also complained about accounts set up incorrectly and problems with delayed billing. "We have no monitoring capabilities right now," he said, but expressed appreciation for some immediate benefits.

"We can initiate new cards and set up new accounts online, which is so much better than the procedure before, when we had to make calls," he said. Furthermore, Guyer said, USDA's prior experience with new card programs showed that glitches are to be expected. Referring to NationsBank and his agency's two previous T&E card providers, American Express and Diners Club, he noted, "We had problems with all three vendors, in part because of certain federal restrictions that don't exist in the commercial marketplace." Overall, Nationsbank offered "a much better contract, with much improved services, than we received in the past."

<B>VA's Pilot Lessens Problems</B>

One agency that experienced a relatively smooth conversion process was the Veterans Administration, which awarded the contract for its 55,000 cards--35,000 of them purchasing and the remainder T&E--to Citibank. Martha Orr, the VA's chief of financial program services, attributed that to testing the new Citibank purchasing card at four medical facilities beginning in November. Several glitches were revealed in the pilot, including the issuance of cards without the embossed alphanumeric code used to identify the funding source or for accounts that had been terminated. Citibank identified and fixed the problems before the general rollout.

Orr said CitiDirect is being phased in gradually and is up and running at 12 program coordinator facilities, out of a total of 300 that eventually will use it. Coordinators have had problems changing card profiles and performing other functions online, but Orr said, "progress had been made," noting that the data fields were finally appearing. The central payment feature also isn't yet working correctly. "We still have issues with reconciliation and matching the internal obligation numbers" that issues funds for travel expenses, she said. "Sometimes it works and sometimes it doesn't."

VA is unusual in that it has operated its own automated reconciliation system for two years. CitiDirect, which is being used for management reports, is linked to the internal system, which sends out and processes cardholders' reports. Orr said that being familiar with the electronic mode had helped VA effectively evaluate the functionality of CitiDirect during the pilot. "We knew what we needed to see and the right questions to ask," she said.

<B>USDA Keeps Internal Accounting</B>

The U.S. Department of Agriculture also is keeping its own electronic system for its 18,000 purchasing cards. For its system, in which bank transactions will feed seamlessly into the internal system, the federal agency chose NationsBank because of "a great rebate and great prices on convenience checks," used at locations where credit card acceptance by merchants is marginal, said Sue Poetz, program manager for the procurement modernization team. The agency will continue to rely on its internal automated system because it generates 1099s.

For their part, the vendors said they were hampered by delays in getting complete information from the government and previous card vendors. "We were converting data from one company that chose not to participate in the program," said David Rada, vice president of federal card product management at First National Bank of Chicago. "What incentive was there to provide all the data?"

It was "immensely difficult to manage the conversion in such a short period of time," Rada said, and the task was complicated by the fact that some agencies told the bank not to get their data from Amex, but rather from the agency itself.

Citibank said "there were delays in the award of the master contract, and delays in receiving incumbent files, as well as "compatibility issues between the existing and the new systems."

Similarly, NationsBank stated that the majority of challenges were "related to data and the data migration process." Both providers have appointed teams to work with the agencies to solve the problems as expeditiously as possible.

Mark Coronna, senior vice president of U.S. Bank's interactive commerce group, said his company is phasing in the functionality of the new government cards gradually. "We still allow government agencies to use First Link or First View (U.S. Bank's desktop software payment system), since not all government employees have access to the Internet." The electronic reporting function will be up and running this month, he said.

The vendors also had to deal with a complicated set of requirements, which varied not only by agency but in some cases by agency service bureau. While the departments of Defense and Health and Human Services are using U.S. Bank's new Care system, for example, the Postal Service is sticking with its own platform. And at DOD, U.S. Bank has to accommodate different types of file formats at each different service bureau, Coronna said.

<B>Vendors Provide More Data</B>

Along with innovations in the payment process, the government contracts also mandated more detailed reporting. The bank associations have been rebuilding their databases to meet the new requirements, which include the ability to report up to 16 airline flight segments.

MasterCard, which in September upgraded its system, now can break out up to 98 air segments, as well as taxes and surcharges, and provide departure and arrival times. It also can report the length of car rentals and has the capacity to provide data on hotel folios, though the data itself is not available in most cases.

"We've updated and upgraded our systems to carry all the information the government wants," said Al Diamant, MasterCard's vice president of corporate products. "However, bodies outside of MasterCard are still upgrading their systems to provide the information as part of the card transaction. The records are delivered to our issuers as completely as we receive them." Diamant said MasterCard is working with third-party organizations to help obtain data that isn't readily available, including buying air data from the CRSs.

Corporations too will reap the benefits of these enhancements. "We will extend this capacity to the commercial market as we build it," he said.

Visa now has the capacity to break out airline flights up to 32 segments, said senior vice president of commercial products Bruno Perreault. It also can provide departure and arrival times, origin and destination airports (including stopovers), fare codes and anything else having to do with reservations. As for hotels, "the government wants to exclude taxes from the rate when government employees are exempt," and to obtain hotel folio information.

Perreault said Visa is making this enhanced data available to corporate customers, though "the amount of data is large and not everybody wants it." Big companies probably would want to "use tools to do analysis" after receiving all the data.