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US: GAO Won't Touch WorldCom Defense Deal

by Renae MerleWashington Post
October 10th, 2002

The General Accounting Office (GAO) dismissed protests by two competitors to WorldCom Corp.'s $450 million Defense Department contract, despite acknowledging that the agency "relied on grossly inaccurate financial information" in making the award.

The 10-year Defense Information Systems Agency contract, which has been under contention for more than a year, allows WorldCom to operate a high-speed classified research network for scientists. It is one of WorldCom's biggest deals with the federal government, part of its annual $1.7 billion in federal contracts, which make up 8 percent of the company's $21 billion annual revenue.

The decision was published yesterday but issued formally Tuesday. WorldCom officials said they were pleased.

"The real issue in this whole matter has been provider performance and capabilities," said Natasha Haubold, a WorldCom spokeswoman. "The record shows that WorldCom has met or exceeded expectations in both categories to date and will continue to do so."

Sprint Corp., based in Overland Park, Kan., and Global Crossing Ltd., whose U.S. headquarters is in Madison, N.J., complained that WorldCom's accounting scandals should disqualify the company. But in its decision, the General Accounting Office noted that the issue is already being addressed in several courts and that its jurisdiction is generally limited to investigating impropriety by government agencies, not the contractors.

"The facts surrounding the inaccurate financial information are in flux," the GAO decision said.

The contract was originally awarded to Global Crossing in July 2001, but it was immediately protested by rivals who argued that Global Crossing didn't have enough security clearance for such sensitive work. After Global Crossing's bankruptcy filing, the Defense agency shifted the award to WorldCom in April 2002, just before that company revealed its own financial troubles.

That prompted another round of protests, but this time the General Accounting Office said it was hesitant to take action on an issue that could be decided by the courts.

"It is clear from WorldCom's public announcements that the agency relied on grossly inaccurate financial information in making a determination that WorldCom was a responsible contractor," the ruling said. But, it added, "we conclude that the matter presented is inappropriate for resolution by our office."

In a footnote, the agency said the Defense Information Systems Agency "may wish to consider whether it needs to take further action to protect the government's interests."

Global Crossing and Sprint officials said they were disappointed by the decision.

"We continue to maintain that our financial stability is superior to that of the awardee, as we are well along in the process of emerging from Chapter 11 protection," Catherine Berthier, a Global Crossing spokeswoman, said in a statement. "We are reviewing the decision and evaluating the possibility for further action on our part."





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