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WorldCom contracts under U.S. scrutiny

The accounting scandal prompts U.S. government agencies to review the telecommunications company's billions of dollars in federal contracts.

The accounting scandal at WorldCom has prompted U.S. government agencies to scrutinize the telecommunications company's billions of dollars in federal contracts.

The Federal Aviation Administration, for one, has been forced to take stock of the situation quickly. WorldCom is a finalist for a 20-year, $3.5 billion contract with the FAA. The contract is expected to be awarded as soon as this week. The company is the incumbent on the contract, which supplies phone and data infrastructure to the nation's air traffic control systems.

"We've expressed concern for their financial stability, but we have spoken to them and have confidence they have the ability to provide uninterrupted services," FAA spokesman Fraser Jones said.

Federal customers, like the company's private-sector clients, are scrambling to make contingency plans in case the telecom giant unravels. WorldCom, which disclosed nearly $4 billion in accounting irregularities late last month and fired its chief financial officer, has been working to reassure and retain its private-sector customers.

The company also does a huge amount of business with the federal sector. It is, for instance, a major supplier of telecommunications services to the government, largely through its participation in the General Services Administration's 2001 Federal Technology Service contract. The $11.5 billion contract allows government agencies to buy telecom services from WorldCom and Sprint through prenegotiated prices.

A GSA spokeswoman said the agency is "conducting a review of all WorldCom government contracts and other related information for purposes of determining present responsibility"--essentially, deciding whether the company meets the criteria of business ethical standards and integrity to work with the government.

WorldCom's disclosure of accounting problems has sparked a firestorm of controversy, as well as congressional hearings. In addition, the White House said earlier this week that the GSA's decision regarding WorldCom could prompt the Bush administration to stop doing business with the company.

In March, the GSA suspended energy company Enron and accounting giant Arthur Andersen from conducting new business with the federal government, citing Enron's own accounting debacle and Andersen's indictment by a federal grand jury.

The scandal at WorldCom has also prompted a new fight over a Defense Department contract awarded to the company earlier this year.

In April, the company won the Defense Research Engineering Network contract, a $450 million deal to build a high-speed research network. WorldCom got the deal after the original winning bidder, Global Crossing, was rejected when the government determined that that company was not a responsible bidder. Global Crossing filed for bankruptcy in January.

Global Crossing, along with Sprint, filed protests over the WorldCom award but later withdrew them. The two telecommunications companies have since renewed their complaints. Global Crossing said in a statement that it resumed its protest "in light of recent developments in the telecommunications industry," adding that Global Crossing itself is now "well on (its) way to completing a successful reorganization."