Pinnacle Business Management (Prev SRCI)

[scion]

UPDATE 3-U.S. lifts ban barring MCI from gov't contracts
Reuters, 01.07.04, 7:46 PM ET
By Jeremy Pelofsky

WASHINGTON, Jan 7 (Reuters) - The U.S. government on Wednesday lifted a ban that prevented telephone and data company MCI <WCOEQ.PK> from receiving lucrative federal contracts in the wake of its huge accounting scandal.

The General Services Administration, which handles federal procurement, lifted the suspension after the company agreed to several conditions to monitor its business ethics and internal controls, conditions that will last three years.

MCI "really isn't out of the woods yet, they still are tied very closely to us and our ability to monitor their business ethics and their internal controls," said David Drabkin, deputy associate administrator for acquisition policy at GSA.

If the company steps over the line, the agency could move quickly to suspend the company from government contracts again, Drabkin said.

GSA in July suspended MCI, which offers telecommunications services to agencies like the U.S. Defense Department, from receiving new contracts and extensions of existing ones while the agency reviewed whether a longer suspension was needed because of its lapses in ethics and internal controls.

The Ashburn, Virginia-based company filed for bankruptcy in 2002 after revealing accounting irregularities that have now amounted to about $11 billion. MCI, whose legal name is WorldCom, hopes to emerge from bankruptcy soon.

The timing of the decision was excellent for MCI. The federal government will likely extend a lucrative contract with MCI in which the company provides telecommunications services to various federal agencies.

"We indicated in November, as required by the current contract, that we anticipated exercising the option if at the time of option exercise they were presently responsible," Drabkin said.

The contract with the government is set to expire Jan. 10 unless the GSA exercised the option to extend it. MCI earned about $396.5 million in the year ended Sept. 30 under the contract and about $331 million the year before.

The company, which receives roughly $1 billion in revenue from government contracts, implemented numerous reforms to get back in the good graces of the government, including appointing an ethics officer, putting its entire work force through ethics training and adding various internal checks and balances.

"We have worked diligently to fulfill all of the ethics and internal controls criteria necessary to being a good federal government contractor," MCI Chairman and Chief Executive Michael Capellas said in a statement.

To satisfy the GSA, the company will have to regularly report progress of its ethics programs, internal control issues, pending federal investigations, and summaries of contacts to MCI's ethics hotline, among other things, according to the agreement.

The conditions would transfer to any successor company should MCI be sold or transfer ownership.

MCI has been roundly criticized by lawmakers in Congress who question whether a company that suffered such massive ethics lapses and bilked investors out of billions of dollars should be allowed to receive taxpayer money.

"I am pleased that MCI will be monitored closely under the terms of the agreement with the GSA," said Sen. Susan Collins, a Maine Republican who heads the Senate Government Affairs Committee.

"I question, however, whether GSA made the right decision in reinstating MCI when allegations involving the company remain under investigation by federal authorities," she said. (Additional reporting by Andy Sullivan in Washington)

http://www.forbes.com/newswire/2004/01/07/rtr1202219.html