USPS quietly cancels 18-year network outsourcing deal

Network World - The U.S. Postal Service has quietly terminated an 18-year, multibillion-dollar network services contract with Lockheed Martin that was to provide all of its data, voice, video and wireless services.

Dubbed Universal Computing Connectivity (UCC), the contract was awarded to Lockheed Martin with much fanfare in October 2004. UCC had an estimated value of between $3 billion and $6 billion.

The Postal Service terminated the UCC contract in July, saying, "Due to changing business objectives/conditions, USPS and LM have agreed that the UCC contract cancellation is in their mutual best interests, and that it will not preclude the two parties from entering into other contracts in the future."

Lockheed Martin had no comment on the UCC contract cancellation.

Lockheed Martin, a leading supplier of automated mail sorting equipment, was supposed to integrate networks that serve 38,000 postal locations nationwide. On its UCC team were leading network vendors, including BellSouth, Qwest, SBC Communications, Verizon, AT&T, Hewlett-Packard and Hughes Network Systems.

At the time it awarded the UCC contract, the Postal Service was trying to migrate away from a network outsourcing contract held for many years by MCI. Postal Service leadership was reportedly troubled when MCI's parent company, WorldCom, filed for bankruptcy in 2002.

The UCC deal was supposed to be a harbinger of the new role that systems integrators would play in the telecommunications arena. Telecom industry observers say the UCC approach failed.

"Lockheed Martin has a great track record with the USPS for its mail handling systems, but obviously Lockheed Martin screwed up on the telecom stuff," says Ray Bjorklund, senior vice president at Federal Sources, a McLean, Va., market research firm. "USPS has a long-term relationship with Lockheed Martin, but they're not going to be counting on them as a network integrator."

With the failure of UCC, the Postal Service in October extended its Managed Network Services contract with the old MCI, now owned by Verizon Business, for an additional four years. The Postal Service also has awarded contracts to AT&T so it can pursue a dual-sourcing strategy for its network infrastructure.

Jerry Edgerton, group president for Verizon Federal, says the failure of UCC shows that systems integrators are not nimble enough to provide the latest network technologies nor are they as cost-effective as contracting directly with carriers.

"USPS embarked on a process of trying to get an independent organization to be their network services provider," Edgerton says. "But it turns out those decisions didn't totally work out. In the meantime, the telecom industry stabilized. So they turned back to us for the implementation of their core services and for our ability to make investments in technology."

Winning back the Postal Service work is a coup for the old MCI team at Verizon Federal.

"This is very satisfying to the team that supported postal," says Susan Zeleniak, vice president of civilian networks for Verizon Federal. "They do a really good job, and they are happy to be back in business with the Postal Service."