GSA bars MCI from federal contracts

The General Services Administration late Thursday moved to bar bankrupt telecommunications company MCI from winning new government contracts. The company has 30 days to respond to GSA's proposal.

GSA had been considering whether to debar MCI (which is still legally known as WorldCom) from federal contracting. Thursday's decision comes amid a series of recent contract wins for the firm, whose federal income stands at $800 million this fiscal year, according to a report in The Washington Post. The decision doesn't affect MCI's current contracts with the government. The company holds contracts with nearly every federal agency.

MCI chief executive officer Michael Capellas, in a conference call Thursday, emphasized that the company still has a chance to avoid official debarment. "Until we have resolved and corrected some actions, we will not be able to bid on new contracts," Capellas said.

Under federal acquisition regulations, if MCI can demonstrate that it has resolved GSA's concerns, the agency need not make the debarment final. The GSA determined that MCI lacks "necessary internal controls and business ethics." Under federal regulations, such a finding is grounds for debarment.

MCI must resolve "internal controls and weaknesses" identified by its outside auditor, KPMG, Capellas said.

The GSA decision comes days after MCI's competitors alleged in news reports that the company had avoided paying hundreds of millions of dollars in fees it owed to its rivals for use of their phone lines. AT&T alleged that MCI had improperly routed long-distance calls placed from federal agencies through Canada to avoid paying those fees.

GSA administrator Stephen Perry said in a statement, "It is important that all companies and individuals doing business with the federal government be ethical and responsible. GSA has rigorously followed the federal acquisition regulations and has acted to protect the interests of the government and taxpayers."

MCI's federal business had been a bright spot in the company's attempts to emerge from the largest corporate bankruptcy in U.S. history. The company has won a $17 million contract with the House of Representatives and a contract to provide mobile phone service in Iraq since filing for bankruptcy last July. GSA also renewed a major long-distance contract with MCI last November. That contract is potentially worth billions of dollars.

Asked whether the company's executives had spoken with GSA about the debarment before Thursday, Capellas said, "We did have conversations with GSA, and I think one of the things we've always committed to is to fully cooperate and be brutally honest" about MCI's internal problems.

Capellas said an "expert panel" has been appointed to oversee MCI's efforts to establish an ethics control system.