BearingPoint could face scrutiny in federal market

The bankruptcy filing by technology consultant BearingPoint on Wednesday should not measurably affect government contracts the company holds, but federal procurement professionals said agencies could shy away from awarding future business to the company.

BearingPoint, one of the 100 largest federal government contractors, filed for Chapter 11 after it submitted a debt restructuring plan with the U.S. Bankruptcy Court in the Southern District of New York.

More than one-quarter of the company's revenue comes from the federal government. BearingPoint ranked 93rd on Government Executive's Top 200 federal contractors list last year, with more than $516 million in revenue in fiscal 2007. The company counts the Agriculture, Defense, Homeland Security, Justice, Transportation and Treasury departments among its clients and holds numerous schedule contracts with the General Services Administration.

GSA and DHS officials declined to comment for this story. Other federal agencies could not be reached for comment.

"We're not expecting that it will [affect our federal contracts]," said BearingPoint spokesman Aaron Bedy. "We intend it to be business as usual. Our first day's motions [filed with the court] include a lot of provisions that should allow us to serve our clients exactly as we always have." Court approval of the motions is pending.

"Ideally, the financial restructuring is designed to make us much more competitive," Bedy said, adding the company planned to contact clients on Wednesday to discuss the filing. "Government is our bread and butter, and our main goal is to keep that business in effect the way that it is. This is a financial restructuring, designed to fix a balance sheet problem. Our underlying business is strong and has been improving."

Companies typically file for Chapter 11 as a first step to shore up finances, but the move is usually accompanied by negative reaction from the market. In BearingPoint's case, some federal agencies might avoid doing business with the company because it is so deeply in debt, procurement sources said. Agencies that consider awarding BearingPoint new contracts likely will want to conduct financial reviews to make sure the company can meet a contract's requirements, said a procurement expert who asked not to be named.

"History of this marketplace shows that there are lots of times that federal agencies do business with companies in bankruptcy," said Ray Bjorklund, senior vice president and chief knowledge officer for the FedSources, a consulting firm in Mclean, Va. "We all remember WorldCom," which filed for Chapter 11 bankruptcy in July 2002, then merged with MCI two years later to form MCI WorldCom.

"In general, the contracting officers are supposed to make sure that every contractor is financially responsible," he said. "And filing for bankruptcy is a step toward financial responsibility. But it does raise concern, and that's where the contracting officer needs to use his own best judgment to think through all the possible ramifications of doing business with the company."

In addition, BearingPoint's revenue might decrease from its existing contracts, many of which are blanket purchase agreements or indefinite-delivery indefinite-quantity contracts that pay out only when agencies or prime contract holders award a contract to a company on the approved list of vendors.

A spokesperson from CSC, which counts BearingPoint among its subcontractors for the Army's CECOM rapid response program, said BearingPoint does not provide support on any current CR2 task order, nor will it likely provide support in the future. The spokesperson did not say why CSC did not intend to ask BearingPoint to partner on future contracts.

"Just because a company is on a contract doesn't mean it's bringing in tons of business from that contract," said Shawn McCarthy, research director for government vendor programs at IDC Government Insights. "Once that contract is awarded, the contracting officers have some leeway to choose whoever they want. Would [a bankruptcy filing] influence them? Hard to say, but it might."