MCI haunted by vocal critics

First interim report of Richard Thornburgh

The General Services Administration's inspector general's office has told the agency to consider suspending MCI as a contractor — the latest in a series of blows to strike the tarnished telecommunications provider as it struggles to emerge from bankruptcy.

James Henderson, GSA's assistant inspector general for investigations, sent a memo June 2 to Joseph Neurauter, assistant deputy associate administrator for acquisition policy, recommending that Neurauter take a close look at scandal-plagued MCI, which recently changed its name from WorldCom Inc.

A GSA spokeswoman declined to comment last week on the recommendation's status.

MCI has come under renewed siege in recent weeks as it tries to maintain its reputation as a trustworthy contractor. Jerry Edgerton, senior vice president of MCI Government Markets, maintains that MCI's government division had nothing to do with the ethical lapses.

Two reports released last week examined the accounting problems that led the company to admit last year that it had misreported its income by more than $9 billion, a scandal that led to the ouster of top officials, a $500 million Securities and Exchange Commission settlement and a bankruptcy filing. Former Attorney General Richard Thornburgh wrote one of the reports at the bankruptcy court's behest. The other was MCI's own internal report, which attorney William McLucas — of the law firm Wilmer, Cutler & Pickering and former SEC director of enforcement — prepared for the company's board of directors.

The reports put much of the blame for the scandals on founder and former chief executive officer Bernard Ebbers and former chief financial officer Scott Sullivan. Sullivan is charged with fraud; Ebbers so far has not been charged with any crime.

In a written statement, MCI board member Nicholas Katzenbach said of the McLucas report, "It is clear that the actions of a confined group of former executives and employees had a significant impact on the company, its 55,000 employees, and its shareholders, creditors and business partners. This issue is now in the hands of our country's justice system to run its course."

Members of Congress, meanwhile, are also questioning whether GSA took a close enough look at MCI's fitness to continue to serve as a federal contractor. Sen. Susan Collins (R-Maine), chairwoman of the Senate Governmental Affairs Committee, has been exchanging letters with GSA Administrator Stephen Perry, demanding that the agency put MCI under greater scrutiny.

Her first letter, in May, questioned the scope of GSA's investigation into the matter. MCI was delivering above- average performance to government clients, Perry said in his response — providing 99.9 percent network availability when 99.8 percent is required, and taking 3.1 hours to make repairs when GSA's standard is four hours.

Collins fired back a June 6 letter, saying that GSA should have launched a thorough evaluation of whether it was suitable for MCI to continue to do business with the government.

"Instead, GSA focused on the narrower question of whether [MCI] was performing its contractual obligations to GSA in a satisfactory manner," she wrote. She cited the recommendation of the inspector general's office in her second letter.

The Federal Acquisition Regulation allows federal agencies to suspend contractors to protect the government's interests, and agencies can consider a company's integrity and honesty in determining whether they will continue to do business with a firm, she noted.

"From your response, it appears that GSA did not seek to determine whether there was any evidence of a violation that might have led to a suspension," Collins wrote.

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Thriving business

MCI's accounting scandal hasn't prevented federal agencies from seeking its services. The telecommunications carrier, formerly known as WorldCom Inc., has won several contracts since alleged accounting fraud was revealed in November 2002:

Department of Veterans Affairs — Contracted with MCI to provide long-distance services to more than 175 Veterans Medical Centers and outpatient clinics.

General Services Administration — Exercised a contract option that allows MCI to stay on the FTS 2001 contract, a sweeping governmentwide contract for voice, data, Internet, videoconferencing and communications services.

State Department — Awarded MCI a 10-year contract to provide advanced communications services to department facilities.