MCI WorldCom Suspended from New Govt. Contracts

WorldCom Chairman and CEO Michael Capellas said he was not surprised by the move.

The federal government today suspended MCI WorldCom Corp. from any new federal contracts and proposed debarring the company from future contracts altogether. Bad news for the bankrupt company is emerging on a daily basis, as the proposed debarment comes one day after federal lawmakers demanded to see records of its call-routing patterns.

The General Services Administration, which has been reviewing the WorldCom bankruptcy, announced today that it found that the company lacks adequate internal controls and business ethics to meet standards for government contracts. WorldCom is now doing business as MCI.

The government, which is WorldComs largest customer, has continued to award the company large deals since its wrongdoing was uncovered, including a $45 million contract to operate in post-war Iraq. The ongoing government support, contrasting sharply with Washingtons response toward other recent corporate fraud disclosures, including that of Enron Corp., has angered rival carriers, consumer groups and labor representatives.

In a telephone conference call following the GSA announcement this afternoon, WorldCom Chairman and CEO Michael Capellas said he was not surprised by the proposed debarment.

"We know what is required of us [relative] to the internal controls work," Capellas said. "When interviewed [by GSA], we stated the facts, when they were good, when they were bad. We knew [the proposed debarment] was a possibility, and we respect it."

Assuming an upbeat, chipper tone, Capellas focused on the bankruptcy proceeding and the companys plans to begin the reorganization confirmation hearing Aug. 25. He said the GSA proposal would not affect the reorganization plan.

The GSAs recommendations center on repairing internal control weaknesses, including upgrading the accounting staff, and on enhancing the ethics program office, Capellas said, adding that he is recruiting a chief ethics officer. WorldCom will announce its full board of directors Aug. 15, and it will announce additions to the management team in the coming weeks, he said.

"We are defining some new territory here, were defining new ground," Capellas said. "Im actually pretty proud of the progress weve made."

Earlier in the week, other telephone carriers, including AT&T Corp. and local exchange carriers, lodged complaints that WorldCom diverted calls to avoid paying connection fees to other carriers. Yesterday, Reps. Billy Tauzin, R-La., and Fred Upton, R-Mich., directed the Federal Communications Commission to hand over any records pertaining to the alleged violations.

Capellas refused to discuss the allegations, but he suggested that competitive interests are driving them. "Competitors are raising every concern they can," Capellas said. "Anybody who doesnt imagine that this is being driven by heavy competitive pressure, I think theres no doubt about that."