WorldCom loses multi-billion dollar FAA contract

Telecommunications company WorldCom on Tuesday lost a Federal Aviation Administration contract to upgrade the country's air traffic control communication system. The contract was worth a potential $3.5 billion.

FAA awarded the massive contract to Harris Corporation of Melbourne, Fla. Harris led a team of brand name telecom firms, including "Baby Bells" Verizon, SBC and BellSouth Corp., as well as Defense contractor Raytheon Technical Services Company. The Baby Bells are the companies formed after the court-mandated breakup of AT&T in 1984.

FAA Administrator Jane Garvey called the upgrade program, known as FTI, "a critical element of our overall plan to modernize the national airspace system." The agency has made technology modernization a top priority.

The blow to WorldCom's extensive federal business comes a month after the company revealed it had improperly accounted for $3.9 billion in expenses this year, and amid a review of all its federal contracts by the General Services Administration.

WorldCom was the incumbent contractor, and telecom industry observers said the company was the clear favorite to win this most recent competition--until the firm fell into a financial tailspin last month. An FAA spokesman said financial information wasn't taken into account in the decision not to award the contract to WorldCom. However, he couldn't say whether contracting officers considered more general information about the company's financial situation that could have been gleaned from media reports in recent weeks.

WorldCom was resolute that the loss doesn't mean the company can't work in the federal market. "Our long-standing relationship of 13 years and numerous awards from the FAA for the quality of our service shows that we have the expertise and technological capabilities to meet the FAA's requirements," a WorldCom spokeswoman said.

Asked whether the company plans to protest the award with the General Accounting Office, which hears contract disputes, the spokeswoman said, "WorldCom is going to explore its options."

WorldCom also could lose a $450 million contract to run a high-speed research network for the Defense Department, and could be debarred from future government work by GSA. According to news reports, the company was fired from a state contract in New Jersey this month, and last week was taken out of the running for a $1.9 billion communications contract in Georgia.

However, Federal Communications Commission Chairman Michael Powell told The Wall Street Journal this week that the federal government should continue its contracts with WorldCom to keep the company stable. Financial experts have said that WorldCom's massive accounting restatement would constitute the biggest fraud in U.S. history.

The FAA-winning Harris team includes Qwest Communications, which is under criminal investigation by the Justice Department. The U.S. attorney's office in Denver hasn't released any details about the scope and nature of its inquiry, and a Qwest spokesman had no comment about the matter Tuesday.

A Harris spokesman said the firm has "no concerns at all" about Qwest's viability on the contract given current events. GSA could ban Qwest from future government work if it finds the company incapable of doing it.

James Payne, who leads Qwest's government division, downplayed that possibility. "I think there's a danger to overstate what the GSA is doing," he said. Payne thinks the review is a cautionary reaction to turbulent developments in the telecom industry in recent months.

But a GSA spokeswoman said the agency's review isn't a simple formality. "It's what GSA feels it's obligated to do, given that the Justice Department has decided to look into [Qwest]…to make sure things are above board," she said.

Sprint, another major federal telecom player, will provide long-distance telephone service for more than 5,000 FAA locations. Sprint government division chief Anthony D'Agata said the 15-year contract is one of the lengthiest agreements the company has won to do business with the government.