DOD Gives The Nod To Fees

<H1> DOD Gives The Nod To Fees</H1>By Cheryl Rosen

<I>Washington, D.C. </I>- Developing the nation's largest model for an automated booking-through-expense-reporting system, the Department of Defense has proposed changing its guidelines to allow travel agency providers to charge fees to the federal government for the first time in history.

The point of the change, according to DOD's Col. Albert Arnold III, project manager of the new Defense Travel System, is to encourage competitive bidding-especially partnerships between agencies and technology developers-for 12 regional travel contracts covering $4 billion worth of government travel. The first of the bids will go out at the end of the summer.

Some insiders suggest that paying for the development of an automated travel system is the only feasible option, but the $300 million volume of each region will limit the possible bidders to only the very largest players.

DOD is accepting industry comment on its proposal over its travel-related World Wide Web site, at http://www.dtic.mil/travelink, before it issues RFPs for contracts in each of a dozen regions 10 domestic and one each in Europe and Asia-to include both travel management services and seamless, paperless booking-through-expense-reporting systems.

The first RFP will go out to the North Central region of 11 midwestern states this August.

Arnold said that with more agencies moving to fee-based contracts in the private sector, "we have recognized that the current no-fee structure may not be the way to go. The exact words out for comment say that the use of no-cost contracts as the sole pricing structure for these contracts is not appropriate. If we mean what we say about following the best industry practices, this is what we need to do."

DOD is looking for two separate automated systems-one primary and one backup-where soldiers can enter a destination; select from approved air, hotel and car options; forward the request to their supervisor for approval; be reimbursed electronically and have charges to their American Express card paid by electronic funds transfer.

American Express currently holds an exclusive travel-related contract with the federal government, but the General Services Administration announced last week that it plans to allow federal agencies to choose their own vendors when that contract expires in 1998 (see story, page 6).

The technology solution offered by the winner of the first regional contract will become the primary system for all DOD travelers worldwide, and the one offered by the second regional winner will become the backup, so that some degree of continuity will be assured even if the first system fails.

Despite Arnold's assurance, industry players are protesting that the way the contract is being handled is anticompetitive in nature. Omega World Travel vice president Dan Bohan said that allowing the single winner of the first $300 million contract to become the DOD standard nationwide limits the possible players to American Express, Carlson and SATO, and the choice to the agency that "puts the most B.S. in its proposal, not the best system in the field."

While Omega will bid on the initial contract, Bohan is trying to convince DOD to break the contract into three smaller pieces to give to separate vendors for a two-year trial, with the best technology then being adopted for all. "That's the way all the other defense technology contracts are awarded," he said. "We need prototypes for these systems, and we don't have them yet."

"Dan is absolutely right about this, and I don't agree with Dan very often," quipped another agency executive. "Allowing fees might encourage us to bid, though traditionally it is impossible to make any money on government accounts; you don't even get airline overrides. But a $300 million account-and one that takes 120 or 180 days to pay its bills-will drain the resources of any agency but the three he mentioned."

Carlson's Travel Group president, Travis Tanner, has been a leader in the movement to fee-based contracts since the airline commission cap. He pooh-poohed the notion of fee-based contracts being allowed for Carlson's benefit, although he noted that the company handles about a billion dollars worth of government travel a year, more than any other single agency, and that it already has an integrated booking-through-expense-reporting system, called ActOne, on the market (BTN, May 20). He called DOD's decision to reconsider the fee question "good news that puts back into perspective who the customer is."

Bohan agreed that the model of fee-based contracts will prevail among large accounts in the corporate market, but that variety will exist for smaller, non-technologically oriented customers. "Contracts over $20 million will without question be paying fees," he said. "But I think rebates will remain in small companies that don't care about automation. In between, there will be a lot of variety-cost plus, flat rebates, variable rebates, maybe a 3 percent rebate if you use an automated booking system and a 2 percent rebate if you call the agency."

SATO president Mike Premo said that while the Navigator system is currently available for commercial customers, he is "discussing a technology partnership even as we speak" in preparation for the DOD bid, although he declined to cite names. Premo said DOD is "considering fees only to address the acquisition of technology, because they don't want to lay out millions for the software up front-they'd rather pay it out per transaction."

In any event, it will be a while before the DOD contract sets any kind of standard. Arnold said his mission is not to be the first adopter of travel technology, and that it could take as long as a year after the RFP is issued until the first contract is awarded, and another year for the system to be deployed. "I want to ride the travel industry's bow wave into technology-I don't want to steer the ship," he said.

On the expense reporting side, DOD plans to move from a 100 percent audit to a "stratified random sampling," in keeping with the corporate trend away from auditing every receipt. With this method, only expense reports for the highest amounts-perhaps 1 or 2 percent of the total-will be fully audited, and a small percentage of others will be audited randomly.

Unlike the average company, however, DOD is talking with the IRS about not collecting receipts at all. As a non-taxpaying arm of the government, it does not need to document travel and entertainment expenses for tax write-offs-and asking travelers to hold onto their own receipts will significantly simplify the automation process. But Arnold said the IRS is "concerned about setting a precedent it does not want to set," and might not allow the change.

DOD hopes to hold a "continual information exchange" to give agencies and technology vendors time to consider their proposals and develop partnerships. Comments can be directed to Joyce Grudzinski over the Website, via e-mail at [email protected] or by phone at 703-681-3515.