GSA proposes MCI debarment

The General Services Administration has temporarily banned telecommunications provider MCI from taking new federal contracts, while it considers whether to debar the company. If GSA debars MCI, the firm could be blocked from taking new federal business for up to three years.

MCI, formerly WorldCom, has 30 days to respond to the proposed debarment, then GSA will decide whether to impose the action. If MCI can convince GSA officials that the company is on the verge of solving the problems, it could be spared.

MCI's chief executive officer, Michael Capellas, pledged that the company will carry on with its support for its existing contracts. "We will continue to keep all our resources in place. We will continue product development," he said last week in a conference call for reporters. "We are going to work as aggressively and diligently as we can to resolve the issues."

If MCI is debarred, most of its federal customers will have to choose another provider when their existing contract expires. That could be disruptive, said David Drabkin, GSA's deputy associate administrator for acquisition policy. In certain cases, if the head of an agency determines that MCI is providing something unique or critical enough to justify staying with the company despite the debarment, the agency can do so.

Agencies are considering their options. "The Army has a number of commercial information conduits besides MCI and so we do not expect to see any interruption in our ability to provide global and pervasive information for the joint decision-maker," said Lt. Gen. Steven Boutelle, Army chief information officer. The communications giant has about 30 percent of the Defense Department's existing communications business, said a DOD spokesman, but may not have a chance of receiving large contracts that are on the horizon. The department is set to issue its request for proposals this month for companies to build and manage the telecom infrastructure in Iraq for two years.

GSA officials believe MCI has not adequately dealt with the internal ethical lapses and control weaknesses that allowed the company to overstate its profits in a scandal revealed last year. WorldCom later filed for bankruptcy and is hoping to emerge from it this fall.

Recently, competitors aimed new charges at MCI. The company, competitors claim, has been ducking fees owed to competitors for long-distance calls by concealing their origin and routing.

MCI hired a Washington, D.C., law firm to investigate those charges. The firm did not affect GSA's decision, Drabkin said. However, Joseph Neurauter, a GSA suspension and debarment official, is aware of the allegations and may consider information about them when making the final determination.

Competitors have been eyeing MCI as it comes closer to emerging from bankruptcy with much of its debt stripped away, said consultant Frank Dzubeck, president of Communications Network Architects Inc. If MCI does emerge from bankruptcy, it will have a strong advantage over the competition, he said.

"MCI being allowed to basically wipe out its debts is in a different position than AT&T or Verizon. MCI can come and bid 50 percent less than anybody else," he said.

MCI critics who have been calling for its debarment expressed appreciation for GSA's proposal.

"The GSA has made the right decision in taking decisive action to protect the American taxpayers from doing business with a company that has demonstrated a flagrant lack of ethics," wrote Sen. Susan Collins (R-Maine) in a statement.

Dan Caterinicchia and Matthew French contributed to this report.

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So much to lose

One large chunk of business at risk for MCI is the FTS 2001 contract. The contract does not expire until 2006, but MCI may not be eligible in January 2004, when the next option year kicks.

* All told, 195 total agencies/departments have signed contracts through FTS 2001, 82 of which have chosen MCI.

* MCI earned $332 million in fiscal 2002 through its FTS 2001 contracts.

* The company has earned $273 million in fiscal 2003 (as of June) through FTS 2001.

MCI's FTS 2001 customers include:

* Transportation Department, $160 million

* Agriculture Department, $150 million

* Commerce Department, $100 million

Sources: MCI and the General Services Administration