WorldCom bankruptcy filing freezes DREN

By filing for Chapter 11 bankruptcy protection July 21, WorldCom Inc. may have temporarily fended off competitors who filed protests with the General Accounting Office over the Defense Information Systems Agency award of the $450 million Defense Research and Engineering Network contract.

Betsy Flood, DISA's public affairs officer, said that under bankruptcy laws, the DREN contract is now considered an asset. The agency would have to get permission from the bankruptcy court to take away the contract from the Clinton, Miss., telecom company.

"Any legal action (terminations) must go through the bankruptcy court because of the 'automatic stay' that prevents adverse contractual actions against petitioners absent court approval," Flood said in a statement.

Dan Gordon, associate counsel with GAO, said the bankruptcy filing will not affect the watchdog agency's process for handling protests by Sprint Communications Corp., Westwood, Kan., and Global Crossing LLC of Bermuda. The two companies alleged in their protests that WorldCom won the contract by fraudulently misrepresenting its financial condition earlier this year.

If DISA on its own decides to take the steps to exit the DREN contract, the protests to GAO become moot, Gordon said. Otherwise, he declined to comment whether, if the protests are upheld, government acquisition regulations would take precedence over bankruptcy processes.

In an online chat hosted by the Washington Post, Jonathan Lipson, a bankruptcy expert and assistant professor at the University of Baltimore School of law, said the government "should not be able to terminate contracts with WorldCom simply because it is in bankruptcy. That said, if it can show that the company violated [acquisition regulations], the government may be able to get out of the contracts."