The General Services Administration is reviewing all federal contracts with embattled telecommunications firm Qwest to determine whether the company is capable of doing business with the government, according to a GSA statement. In a one-sentence announcement released Thursday, GSA, which also oversees a series of Qwest's local telephone service contracts, announced that it is "conducting a review of all [Qwest] government contracts and other related information for purposes of determining present responsibility." Responsibility refers broadly to whether a company is financially and ethically able to perform the requirements of its contract. A Qwest spokesman said the company was cooperating with the GSA review. "Qwest and its subsidiaries are presently responsible government contractors who have a fully adequate accounting compliance and ethics program in place to review its compliance with government contracts," he said. Qwest announced Tuesday that the United States attorney's office in Denver has begun a criminal investigation of the firm. A spokesman for the U.S. attorney declined to say what the scope and nature of that investigation is, and a Qwest spokesman said the government hadn't told the company why it was being investigated. Qwest said it would cooperate fully with the inquiry. Qwest is the second major player in the federal telecom market to come under GSA scrutiny this month. On July 1, GSA began a review of the government's contracts with Qwest rival WorldCom, which last month disclosed that it had improperly accounted for $3.9 billion in revenue this year. Members of House Financial Services Committee grilled WorldCom executives Monday, and observers agree WorldCom's ability to do business with the government is in jeopardy. Qwest provides local phone and data transmission services to a number of agencies through contracts with GSA, the Energy Department and the Treasury Department. GSA could bar Qwest from future contracts indefinitely, although GSA officials gave no indication Friday of what the likely outcome of the agency's review would be. The Securities and Exchange Commission is also inspecting Qwest's accounting practices. At issue is the lease of space on Qwest's fiber optic network to other telecom firms. In a transaction known as a "hollow swap," one firm will exchange network space with another and both will count the transaction as revenue. Regulators and lawmakers are questioning whether accounting for the swaps in that manner violates accepted accounting procedures. GSA's review of Qwest further complicates the government's entanglement with telecom and accounting contractors and their potentially criminal business activities. WorldCom, Qwest, Global Crossing and auditor Arthur Andersen have all come under regulatory scrutiny or criminal investigation in recent months. All have held contracts with the government. Andersen was the auditor for both WorldCom and Global Crossing. The value of the government's contracts with WorldCom, Qwest and a host of other firms currently under some form of investigation or in bankruptcy totals billions of dollars. The Bush administration in December scrapped a Clinton-era rule setting labor, environmental and ethical standards for companies doing business with the government. Known by opponents as the blacklisting rule, it defined the legal violations companies must avoid to be eligible for government contracts. Should WorldCom and Qwest be barred from future government work, the government will find its pool of sophisticated telecom contractors diminished. AT&T, WorldCom, Sprint and Qwest are among the leading companies in the market. With two of them gone, agencies would have far fewer options when shopping for advanced communications technologies, the demand for which will almost certainly increase as the Bush administration's war on terrorism continues and a new Homeland Security Department emerges.
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