Feds Consider Suspending Sprint Business

The General Services Administration informed Sprint in the last week that the agency's inspector general urged GSA officials to consider barring the company from new contracts, Sprint spokesman James Fisher said Tuesday. Sprint's government contracts are worth more than $600 million each year.

GSA spokeswoman Mary Alice Johnson declined to comment.

Suspending Sprint would remove a second major telecommunications contractor from federal business. GSA last week barred MCI, formerly known as WorldCom, from new federal contracts.

Sprint agreed in June to pay $5.5 million to settle allegations it knowingly defrauded the government by overcharging the Justice Department for telecommunications services between 2000 and 2002.

The company said there was no intent to defraud. It blamed a billing error that caused Sprint to charge the agency at a market rate instead of the lower rate called for in the contract.

Fisher said the company stopped the incorrect billing immediately after the government alerted the company to the problem last spring. He said the matter was settled and further GSA action is "without any merit."

A spokesman for Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee, said GSA should not penalize Sprint to the same degree as MCI.

"Sprint has been punished and rightfully so, but barring the company from future government contracts seems pretty extreme to us given the magnitude of the fraud allegations against MCI," Ken Johnson said.

Shares for Sprint's landline phone business closed down 49 cents Tuesday, or 3.4 percent, at $14.04 on the New York Stock Exchange. Shares of Sprint's wireless business were down 27 cents, or 4.5 percent, at $5.77.

A GSA suspension, which does not affect existing government contracts, usually lasts less than a year. During the suspension, GSA decides whether to impose a more serious penalty called debarment, which could exclude the company from government business for a period typically not longer than three years.

"Given the MCI situation, the government appears to be more sensitive to these types of situations," said David Kaut, an analyst with the Legg Mason investment firm. "GSA has been under tremendous Capitol Hill pressure to deal more aggressively with MCI."

Last week, GSA suspended new contracts with MCI, saying the company "lacks the necessary internal controls and business ethics."

After WorldCom was driven into bankruptcy by an $11 billion accounting scandal, it proposed adopting the name of its MCI 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 protection.

MCI's government contracts are valued at about $1 billion each year.

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

The Justice Department also is investigating accusations by rival carriers and former MCI executives that MCI defrauded other telephone companies of hundreds of millions of dollars by masking long-distance calls as local calls and diverting others to Canada to avoid paying special-access fees.

MCI has said its competitors are trying to hinder its emergence from bankruptcy.

The Federal Communications Commission is conducting its own investigation into MCI. Last week, Tauzin asked the FCC to turn over documents related to its probe.