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Gov't Halts Contracts With MCI

Thursday, July 31, 2003

WASHINGTON — The General Services Administration (search) suspended federal business with telecommunications giant MCI on Thursday after an investigation concluded the company lacks necessary internal controls and ethics.

MCI's government contracts are valued at more than $1 billion each year. The company said it would not challenge the GSA decision.

"Today's announcement will not affect MCI's existing contracts with state and federal government customers who can continue to count on us to provide the industry's best service and support," MCI Chairman Michael Capellas said. "We are in the process of rebuilding our ethics program and understand that there is still more work to do." (Jim's comment: Capellas said that with a straight face. LOL!)

After WorldCom was driven into bankruptcy by an $11 billion accounting scandal, it adopted the name of its MCI (search) long-distance division in a bid to clean up its image. A bankruptcy court is considering efforts by the company to emerge from Chapter 11 bankruptcy protection (search).

MCI, once among the fastest-growing and most aggressive players in the telecom and Internet boom, is accused of falsifying balance sheets to hide expenses and inflate earnings. Its collapse and bankruptcy wiped out up to $200 billion in shareholder wealth.

Critics and competitors have said the government has been too lenient with the company by continuing to award it work, including hiring MCI to build a wireless phone network in Iraq.

"It is important that all companies and individuals doing business with the Federal government be ethical and responsible," GSA Administrator Stephen Perry said.