GSA proposes MCI debarment

MCI, plagued since last year with accounting scandals and accusations of impropriety, has been suspended today from entering into any new federal contracts while the General Services Administration considers debarring the firm.

If MCI were to be debarred, the company could not take on new federal business for as long as three years. The action would prevent MCI from remaining on the lucrative FTS 2001 telecommunications contract when the next option year begins in January, said David Drabkin, deputy associate administrator for acquisition policy at GSA.

Scandals have rocked the company, ranging from admitted overstatement of profits last year to allegedly misrouting calls in a scheme to duck payment of routing costs to competitors — a scheme that may still be happening.

Critics have been urging GSA to debar the company for months.

Jerry Edgerton, MCI's senior vice president of government markets, has maintained that the accounting scandals did not extend to the federal division. In response to GSA's announcement, MCI issued a statement pledging continued cooperation with the agency and continued support for existing federal customers.

GSA's Federal Technology Service will have to help agencies make the transition from MCI, formerly known as WorldCom Inc., to another provider if GSA debars the company, Drabkin said.

"FTS is already working on plans and coordinating with federal agencies to make sure that they have the coverage they need to meet their telecom needs," he said.

MCI has 30 days to respond to the proposed debarment, Drabkin said. Then GSA's suspension and debarment official, Joseph Neurauter, will determine whether to impose the ban or not. There is no set time for GSA to make that decision, Drabkin said.

Analysts and other industry observers predicted that MCI's debarment would cause chaos as agencies scramble to change providers. "They are basically telling their cabinet-level agencies 'every man for themselves,'" said one industry insider. "If they are not allowed to take an option year, this is going to be a mad scramble."

Drabkin declined to guess how difficult it would be for agencies to change. "It depends on the size of agency and the amount of service MCI's providing," he said. "I don't think anybody can tell you a valid prediction of how long it will take. This is not like switching off your home phone."

In early June, GSA's office of Inspector General urged Neurauter to consider action against MCI. Neurauter, who works under Drabkin, has determined that the company "lacks the necessary internal controls and business ethics" to do business with federal agencies, according to GSA's announcement of the action.

The decision was based on information in reports from former U.S. Attorney General Richard Thornburgh, the Report of Investigation by the Special Investigative Committee of MCI's board of directors, correspondence and slides prepared by the company's ethics office and a June 3 report by WorldCom's outside auditors, KPMG LLP, Drabkin said.

The final decision will partially rest on MCI's ability to convince GSA officials that it is fixing the problems. "The integrity and business ethics is something they've begun to address. There are a number of things they've suggested that they've begun to do, but they haven't finished," Drabkin said.

Analysts said the company may not immediately feel the impact because the company has only been barred from new contracts.

"It's not necessarily that damaging in the near term, because they have so many current contracts and there aren't a lot of big ones coming up near term," said Warren Suss, president of Suss Consulting Inc. "They can continue generating revenue from their existing contracts for many years."

Over the long term, though, MCI could lose a great deal of income. Some media reports have pegged MCI's federal business at $700 million to $1 billion a year.