GAO punts decision on controversial Defense contract

The General Accounting Office has declined to rule on two protests of a controversial Defense Department contract awarded to bankrupt telecommunications firm WorldCom, citing a lack of jurisdiction.

GAO announced Tuesday that it had dismissed the two protests filed in early July by WorldCom rivals Sprint and Global Crossing. Both companies had lost a competition in April for the Defense Research and Engineering Network (DREN), a high-speed Internet used by Defense scientists. The companies' protests of that award alleged that the Defense Information Systems Agency (DISA), which manages the contract, relied on inaccurate financial information from WorldCom when it decided the company was capable of working for the government, according to GAO's findings.

GAO declined to rule on the Sprint and Global Crossing protests because "the totality of circumstances make [sic] it inappropriate…to review this matter," according to General Counsel Anthony Gamboa, who wrote the finding. However, GAO did find that "[DISA] relied on grossly inaccurate financial information in making a determination that WorldCom was a responsible contractor." The government uses the terms responsible or nonresponsible when describing a company's financial status.

In June, almost three months after WorldCom won the DREN contract, company officials announced improper accounting of almost $4 billion in revenue from 2001 through the first quarter of 2002. The next day, the Securities and Exchange Commission filed a complaint against the company, saying it had defrauded its investors. In July, WorldCom filed for the largest bankruptcy in U.S. history. The next month, officials announced more financial irregularities, bringing the total misstatement to $7.6 billion.

Gamboa wrote that GAO had previously decided that an agency may cancel a contract if the award was influenced by misrepresented financial information in the vendor's contract proposal, which an agency reviews when deciding whether the vendor should win the work. Such misrepresentations could justify a finding of nonresponsibility.

However, Gamboa continued, the alleged misrepresentations in this case weren't contained in WorldCom's proposal, but rather were made during a "pre-award survey" of the company's finances that DISA requested after proposals were received. Because the allegations concern the survey and not the proposal, they are matters of contract administration and fall under DISA's authority. GAO's jurisdiction is limited to irregularities in proposals.

Gamboa cautioned that if a company wanted to challenge an agency's responsibility finding directly, it would have to show "possible bad faith on the part of government officials or that definitive responsibility criteria in the [government's] solicitation were not met, which showing has not been made" by Sprint or Global Crossing.

Gamboa elaborated, saying, "Far from possible acts of bad faith on the part of government officials, it appears that [DISA] had no knowledge of the inaccuracies in WorldCom's financial statements until after award, thus making this matter more one of contract administration (a matter beyond our…authority)."

This finding could prove key to the future of the DREN contract and WorldCom's position on it. GAO effectively told DISA that it didn't need an outside blessing to deal with WorldCom's alleged financial misstatements. The agency "has authority to address the alleged impropriety as part of contract administration," Gamboa wrote.

DISA could find that WorldCom is no longer financially responsible and rescind its award. Ironically, DISA had planned to award DREN to Global Crossing, not WorldCom, but found in March that Global Crossing was no longer financially responsible. At that time, Global Crossing's declaration of bankruptcy and concurrent investigations by the SEC and FBI into its accounting practices made it a financial liability to the government, DISA found. WorldCom was DISA's second choice, and so the agency requested the pre-award survey at that time to review the company's finances. WorldCom then received the DREN award.

It was unclear Tuesday whether Sprint or Global Crossing would protest the award again on different grounds. A Sprint spokesman said, "We're disappointed with the outcome," and added that GAO's decision "acknowledges unusual circumstances."

"We only have a determination that the matter was not appropriate for review by the GAO," he said. "We're presently reviewing this in order to determine our course of action."

A Global Crossing spokeswoman said the company believes "our financial stability is superior to that of [WorldCom's], as we are well along in the process of emerging from Chapter 11 protection."

"We are reviewing the decision and evaluating the possibility for further action on our part," she said.

WorldCom defended its record. "The real issue in this matter has always been…performance and capabilities. The record shows that WorldCom has met or exceeded expectations in both categories to date and will continue to do so in the future," a company spokeswoman said. Despite GAO's findings that WorldCom supplied "grossly inaccurate financial information" to the government, and despite the company's ongoing financial breakdown and pending legal actions against its executives, a DISA spokeswoman said that WorldCom "is satisfactorily performing the DREN contract. The best interests of the government are served by [WorldCom's] continued performance."

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