Defense awards controversial telecommunications contract

Nine months after the Defense Department rescinded a high-profile fiber optic network contract awarded to now-bankrupt telecommunications firm Global Crossing, the department announced Thursday that telecom giant WorldCom has been awarded the work, which is valued at up to $450 million.

The contract, known as the Defense Research and Engineering Network (DREN), is for a high-speed Internet link for more than 5,000 Defense scientists and engineers across the country. Controversy has surrounded competition for the contract ever since some of the nation's biggest telecom firms alleged that Defense had unfairly awarded the contract to Global Crossing in July. The losing bidders, AT&T, Sprint, WorldCom and Qwest Communications, charged that the department relaxed the contract's terms so that Global, a relative newcomer to the government market, had a winning advantage.

The companies protested that Global Crossing and its employees failed to meet certain security capabilities and clearances spelled out in the government's requirements. Officials with the Defense Information Systems Agency (DISA), which oversees the contract, rescinded the award to Global Crossing rather than submit to an audit of the procurement by the General Accounting Office.

DISA officials have steadfastly denied that terms of the DREN agreement were eased to favor Global Crossing. A new award announcement was expected on Jan. 25 but never came. Global Crossing declared bankruptcy three days later. DISA then delayed the contract award once more. In the interim, federal regulators began investigating Global Crossing's accounting practices.

Telecom industry insiders had speculated for the last four months that Defense would still award the contract to Global Crossing. But in the end, those observers said, the financial and legal heat bearing down on the company was too much for Defense to stomach.

Industry executives and analysts had said that winning the prized DREN contract could have given Global Crossing the financial wherewithal it needed to continue operating and would have strengthened the company's reputation in Washington.

Global Crossing spent considerable amounts of time and money currying political favor inside the Beltway, and DREN was the firm's biggest foray into the highly competitive federal telecom market. Led by Chairman Gary Winnick, a former junk bonds salesman, the company contributed $2.9 million to political parties and candidates during the 2000 elections, according to the Center for Responsive Politics. That figure exceeded the $2.4 million in contributions made the same year by bankrupt energy trading giant Enron Corp. But while Enron's donations tended to favor Republican candidates, Global spread its wealth evenly. In 1998, the firm split $3.6 million almost evenly among Democrats and Republicans.

The Securities and Exchange Commission and the FBI continue to investigate whether Global Crossing improperly accounted for sales of space on its massive undersea network in order to artificially overstate its revenue. Global's chief financial officer Dan Cohrs told the House Financial Services Subcommittee on Oversight and Investigations in March that the company accounted for those sales using a model designed by Arthur Andersen, the auditing firm that the Justice Department has indicted on obstruction charges for shredding documents related to the accounting work it performed for Enron.

Rep Billy Tauzin, D-La., has asked Global Crossing executives for all documents and materials related to its bid for the DREN contract in preparation for an upcoming hearing that will further examine the company's accounting practices and Washington operations. Defense officials had said the department wasn't looking into Global Crossing's accounting standards in its evaluation of the firm, but company executives confirmed that they had been asked to demonstrate their financial viability to the government in the wake of the firm's bankruptcy filing.

Natasha Haubold, a WorldCom spokeswoman, said executives at the now victorious company "never lost hope" during the DREN imbroglio that the company would eventually emerge the winner. "We're very happy about the news," she said.

Last month, Global Crossing Chief Executive Officer John Legere told Government Executive that the company remained confident that it still had a chance to win the contract and that the firm had always had "an inside track."

A Global Crossing spokeswoman reached Thursday said the firm had no comment about Defense's decision.

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