WorldCom’s federal contracts in jeopardy

Embattled telecommunications firm WorldCom's position in the federal market appears in jeopardy amid growing concern by industry observers that the Defense Department and the General Services Administration will prohibit the firm from future work with the government and will suspend some of its most valuable federal contracts.

Telecom industry observers and executives now expect that WorldCom will lose a Defense contract to run a high-speed research network. The Defense Information Systems Agency (DISA) awarded the contract to WorldCom in April after rescinding a previous award to another troubled telecommunications giant, Global Crossing.

A DISA spokeswoman said the agency will make a decision "shortly" on whether to suspend WorldCom's contract.

On Friday, Global Crossing filed a protest with the General Accounting Office, asking to be reconsidered for the contract.

"In light of recent developments in the telecommunications industry, we have filed a protest…asking [Defense] to reconsider its elimination of Global Crossing's eligibility for the contract," company officials said in a statement.

The firm claimed it has "completed most of our restructuring activities" and that "we are well on our way to completing a successful reorganization…We believe that our stability and outstanding performance warrants the reconsideration."

The DISA spokeswoman said officials had received Global Crossing's protest and are evaluating its merits.

Given the recent spate of corporate accounting abuses and President Bush's call for greater integrity in the private sector, Defense officials might feel compelled not to go forward with WorldCom. If the department rescinded the award, it would likely have to hold a third round of competition.

However, the contract could also be brought under the umbrella of a different Defense operation, avoiding the need to compete it again and extracting DISA officials from a political tangle that has crossed paths with some of the worst bankruptcies and corporate accounting scandals in history.

WorldCom is also bidding on a multibillion-dollar telecommunications contract with the Federal Aviation Administration, which the agency is scheduled to award this month. But while WorldCom has been considered a main contender for that award, prospects appear dim for the embattled firm, according to an industry source familiar with the contract who spoke on condition of anonymity.

Compounding the firm's worries, a $7 billion contract to create a global computer intranet for the Navy and Marine Corp is under fire from lawmakers who want to limit its growth while officials make more accurate estimates of the number of outdated computer applications that need to be transitioned onto the new system. WorldCom provides network services for that contract, known as the Navy-Marine Corps Intranet.

Asked to comment on WorldCom's future position, a Navy spokeswoman said, "The Department of the Navy doesn't have a contract with WorldCom. We have a contract with EDS," the lead contractor, which hired WorldCom. "We expect EDS to provide the services that meet our…agreements," the spokeswoman said. It would be up to EDS to determine whether to keep WorldCom as a partner, she said.

EDS officials couldn't be reached for comment.

In testimony on Capitol Hill Monday, WorldCom president and chief executive officer John Sidgmore told members of the House Financial Services Committee that his company is "a key component of our nation's economy and communications infrastructure." Sidgmore listed some of the contracts WorldCom holds with federal agencies, including Defense, the FAA, the Social Security Administration, the Postal Service and "virtually every government agency" through its FTS 2001 contract for long-distance and data services.

"Today, WorldCom needs the support, understanding and patience of our customers, our suppliers, our lenders and the American people. And we need your support," Sidgmore told lawmakers.

Committee members, though, spent most of the afternoon lambasting WorldCom executives. Several members of the panel said executives who are found guilty of the kind of financial deception WorldCom is accused of should serve federal prison sentences. Chairman Michael Oxley, R-Ohio, called the company's actions, which would constitute the biggest corporate fraud in United State history, "another example of the decline of ethics in American culture during the 1990s."

President Bush is scheduled to make a speech Tuesday from Wall Street in which he is expected to address corporate abuses. Sources familiar with the president's speech have indicated he will call for prison sentences for executives in cases of corporate fraud.

In cases of major ethical lapses by corporate executives, it is "a legitimate role of government to step in and hold people accountable," Bush said at a news conference Monday.