Federal Ban Doesn't Hurt WorldCom Much By Griff Witte Washington Post Staff Writer Friday, October 24, 2003; Page E01
In the nearly three months since federal authorities suspended WorldCom Inc. from receiving new and renewed contracts because of its ongoing accounting troubles, U.S. agencies have granted the telecommunications giant more than $100 million worth of government work through a little-known waiver process. Federal officials said most of the waivers were needed to extend existing contracts. But the waivers have inflamed WorldCom's competitors and upset congressional critics, who say the government waited too long to suspend the company and now is not properly enforcing the ban. To those critics, the government's handling of WorldCom's contracts is evidence of an unhealthy mutual reliance: WorldCom is by far the government's biggest telecommunications provider, and the government is WorldCom's most lucrative customer. "I'm angry about this. There is a codependence there," said Rep. John E. Sweeney (R-N.Y.), who was at the forefront of efforts to suspend the company this summer. "WorldCom is very adept at playing the old inside-the-Beltway game. They've got friends in high places." Executives at WorldCom, which now operates under the name of its long-distance subsidiary MCI, said the company won the work by providing high-quality service, not by pulling strings. It can be disruptive and costly for the government to switch carriers after initial contracts are awarded, they said. "When you are providing the kinds of service and the levels of service that MCI is providing, it is hard to come to a grinding halt," said Jerry Edgerton, WorldCom's senior vice president of government markets. Under terms of suspension, government agencies can honor current contracts with a suspended company. But to award new contracts or extend existing ones, officials need to supply a "compelling reason" the suspension should be waived. Federal agencies waived the WorldCom suspension on at least seven contracts, six of which involved extension or adding orders to existing contracts. The seventh is a new contract that would replace a previous contract with WorldCom. The Defense Information Systems Agency, which manages the Defense Department's communications, has invoked waivers on five contracts. For one, under which WorldCom supplies systems that support military and intelligence activities, agency officials asserted that not renewing the company's contract would cause "great harm to the national security of the United States and potential danger to its citizens and warfighters." Other agencies have cited more prosaic reasons for sticking with MCI. The Armed Forces Retirement Home said switching from MCI might hinder residents' ability to stay in touch with friends and family, while the Social Security Administration argued that, without MCI, "approximately 250,000 calls from the public per day would have gone unanswered until transition to an alternate service provider was completed." Additional waivers could be in the works. The Justice Department, has asked, despite the suspension, that it be allowed to consider WorldCom when it awards a major new telecommunications contract at the beginning of 2004. Rep. Albert R. Wynn (D-Md.) said the waivers make him question how seriously government officials take WorldCom's suspension. "People are kind of just looking the other way and going on with business as usual. It's unbelievable," Wynn said. WorldCom was suspended from receiving new contracts on July 31, a little more than a year after it revealed a scandal that would eventually involve the improper accounting of $11 billion. The scandal helped push the company into Chapter 11 bankruptcy protection. Edgerton said the company held daily conference calls in the summer of 2002 with its government customers to alleviate any concerns. WorldCom provides telecommunications services to a long list of government agencies that includes the Federal Aviation Administration, NASA and the FBI. Revenue from government work totals more than $1 billion a year. Although that is only 6 percent of the company's total revenue, government business as a great overall impact on the company's well-being. Had the government barred WorldCom from new federal contracts soon after the company filed for Chapter 11 protection, it could have set off a cascade of cancellations by large commercial clients, Edgerton said. Instead, the government stuck with WorldCom, and the company now hopes to emerge from Chapter 11 by year-end. "One of the things that got us through the last year was that the government was willing to continue to do business with us," Edgerton said. In the months after WorldCom disclosed its accounting problems, the State Department awarded the company a $360 million, 10-year contract. The Defense Department commissioned it to build a wireless network in Iraq. The House of Representatives signed a $17 million contract extension just weeks before the suspension was announced. And the General Services Administration exercised an option year on a WorldCom contract worth billions of dollars. WorldCom's competitors, feeling that the company was getting off easy, began pushing federal officials this spring to ban the company from future contracts. WorldCom pushed back. The combined lobbying muscle split Capitol Hill. "This wasn't a Republican-Democrat issue," said an aide to a member of the Democratic leadership. "It had a lot to do with where you were coming from and which company had workers in your district." The GSA decided in July that continuing problems with WorldCom's ethics and accounting programs meant that the company no longer met a government standard for the conduct of contractors, even though the problems were not associated with government contracts. WorldCom has earned the government's loyalty, Edgerton said, by providing service that is "cheaper, better and faster" than the competition's. He dismissed much of the criticism of the government deals as the jealous talk of company rivals and their backers. "We won this stuff fair and square," Edgerton said. "We won it in the marketplace. They had their shot at it." WorldCom's critics question the integrity of the government's procurement system, under which it does billions of dollars' worth of business with a company that's been accused of large-scale wrongdoing. "Given the magnitude of this fraud, the government should have immediately suspended MCI," said Thomas A. Schatz, president of the watchdog group Citizens Against Government Waste. William P. Barr, general counsel for Verizon Communications Inc., said that in pushing WorldCom's suspension with the administration and Congress, he encountered a great deal of resistance. "The basic argument we kept hearing was 'We don't want this company to fail,' " Barr said. One reason, he said, was based on a political calculation made by some in the administration and on Capitol Hill that denying WorldCom new federal contracts would probably put the company out of business, and that would result in "60,000 employees and their jobs disappearing in an election year." The other source of resistance, Barr said, was that federal procurement agents had become comfortable working with WorldCom and didn't want to switch. "It's having the will to transfer this stuff over. Bureaucrats don't like to change their ways, especially when they're used to dealing with one company," Barr said. WorldCom's competitors said they could fill the void created by the company's suspension. But Scott C. Cleland, an analyst with Precursor , said switching telecommunications carriers is often not easy. "Not being able to use WorldCom if you already have them is a royal pain in the neck," Cleland said. "GSA put WorldCom in the penalty box, they did not banish them from the kingdom forever. They need WorldCom." Nonetheless, the waivers have angered some in Congress who fought for WorldCom to be suspended and now question whether the suspension is being properly enforced. The Senate Governmental Affairs Committee recently opened an investigation into the waivers. "It concerns me if [the waivers are] just being handed out without a serious reason to do so," said Sen. Susan Collins (R-Maine), who heads the committee. Collins, Sweeney and a few others in Congress have criticized the GSA for waiting as long as it did to suspend WorldCom, when companies such as Enron Corp. and Arthur Andersen LLP were barred from government business within a few months of their transgressions. "The investigation did not take place for a year's time. That's the troubling thing to me," Collins said. The GSA's general counsel, Raymond J. McKenna, said the suspension couldn't have come any sooner than it did. He said the point of barring a company from new government contracts is not to punish it for past actions but to protect the government going forward. Therefore, he said, the government needed solid evidence that WorldCom's problems were not just in the past, but in the present as well. McKenna said that evidence didn't come until June 2003, when official reports and studies indicated that the company still lacked important internal controls. "We needed information to make judgments, and that information wasn't available," McKenna said. The GSA's eventual decision to suspend WorldCom came after Sweeney drafted an amendment that would have imposed a ban. The amendment was opposed by Reps. Thomas M. Davis III (R-Va.) and Frank R. Wolf (R-Va.), both of whom were concerned about Northern Virginia constituents losing their jobs if Ashburn-based WorldCom went under. The White House soon got wind of the proposed amendment, and a member of the administration's legislative affairs office made it clear to Sweeney that introducing it would not be a good idea. "They didn't say, 'Don't do this,' " Sweeney said. "They said they were concerned that this was going to be too controversial an issue." White House spokesman Trent Duffy said the administration believes the matter should be handled by GSA. Sweeney said that for other reasons, he decided against introducing the amendment, and instead supported an amendment that called on the GSA to take action. The amendment also called on the General Accounting Office to review why it was that the GSA did not suspend WorldCom sooner. That review is ongoing. The GSA now faces another choice: whether to lift the suspension, or make it permanent through an action called debarment. The GSA also must decide by January whether WorldCom should be given another year on the largest telecommunications contract the government has to offer. The GSA could approve a waiver. But William M. Weisberg, a government contracts lawyer with KMZ Rosenman, said it is more likely that the government will decide to lift the suspension altogether. "The government is highly reliant on them," Weisberg said. That, he conceded, could be a problem because the government has little protection if the company doesn't clean up its act. But, he said, there also is the potential for higher rates if the field of competitors is reduced by keeping WorldCom out. "It's potentially a problem without a solution," Weisberg said.
