Contract’s future uncertain as Global Crossing declares bankruptcy

A contract to upgrade the Defense Department's high-speed research network is in limbo--some say because one of the contract's primary bidders has declared bankruptcy. The Defense Information Systems Agency had planned to announce last Friday an award for upgrades to the Defense Research and Engineering Network (DREN), a fiber-optic network linking more than 5,000 scientists at Defense laboratories, universities and military bases. However, no announcement was made. The following Monday, Global Crossing, one of five companies bidding for the work, filed for the fourth-largest bankruptcy in United States history. Global Crossing, a Bermuda-based telecommunications giant that built the largest undersea fiber-optic network in the world, won a contract for upgrades to DREN in July. DISA rescinded that award, however, when the losing bidders-Sprint, AT&T, MCI WorldCom and Qwest Communications-protested that Global Crossing couldn't fulfill the contract's security requirements to handle classified information, sources familiar with the protests told Government Executive. The competing companies also raised concerns about awarding management of one of the Defense Department's most advanced technologies to a foreign-based company, sources said. Global Crossing bid $137 million for the work, and stood to reap $400 million if DISA exercised all options over the life of the contract. Industry analysts and sources close to the competition said that Global Crossing, now saddled with $12 billion in debt, viewed the DREN contract as the company's last hope for financial survival, and had postponed formal bankruptcy declarations to wait for an award announcement. DISA's plans to announce the award last Friday were detailed in a November memorandum from a contracting officer that was sent to the bidding companies and obtained by Government Executive. Telecommunications analysts confirmed that corporate and government officials were aware of Global Crossing's potential collapse as early as last June. Pat Comack, an analyst with Guzman & Co. of Miami, Fla., officially lowered the company's rating in October. At that point, Comack said he advised prospective investors that if they put their money in the company, "[they] were playing with fire." A source who worked on the first DREN award expressed fear that Global Crossing had overstated its own technical capabilities to government officials and appeared to be "on a path toward implosion." The source wasn't aware that anyone in the government had challenged Global Crossing's accounting practices. However, a source close to the current competition said the government asked Global Crossing to produce a statement of "fiduciary responsibility" in mid-January. DISA officials didn't respond to a request for an interview. Mary Moore, who identified herself as a spokeswoman for the Global Crossing's government practice, declined to comment on the contract or the company's bankruptcy until an official award announcement is made. A DISA spokeswoman said last Monday she was "not aware of any announcement that was to be made" about DREN. In theory, Global Crossing could still win the DREN contract. The government isn't prohibited from doing business with a bankrupt company. But analyst Comack said "there's no way" that will happen. Besides Global Crossing's financial insolvency, one of the two companies that intends to buy the defunct network builder is headquartered in China. Sources agreed that the potential national security implications of having a Chinese company operating a Defense Department high-speed Internet network could destroy any chances Global Crossing has of winning the contract and staving off its creditors. Hutchison Whampoa Limited, a Hong-Kong based international conglomerate with telecommunications interests, and Singapore Technologies Telemedia have offered to purchase Global Crossing for $750 million. If approved by Global Crossing's creditors, the acquisition would render shareholders' stock worthless.