Suspension comes as a surprise to IBM

IBM Corp. was apparently blindsided by the Environmental Protection Agency's move to suspend the company from pursuing new government work.

A company spokesman said IBM learned of the suspension on Friday. It then obtained a letter from EPA broadly outlining the allegations and spent most of Monday trying to gather more information, said Fred McNeese, an IBM spokesman.

"Prior to Friday there was no hint of any dispute or reason for this step," McNeese said.

The U.S. Attorney for the Eastern District of Virginia also served grand jury subpoenas on IBM and on certain employees on Monday asking for testimony and documents regarding interactions between EPA employees and IBM employees, the company said in a statement. The company is cooperating with the investigation.

The suspension apparently involves an $84 million EPA contract won in February 2007 by the CGI Group to modernize the agency's financial management system. IBM filed a protest of the award, which stopped work on the project, according to market research firm Input Inc. The Government Accountability Office still has the protest under review, according to Input.

McNeese would not comment on the contract, but another source said the alleged improprieties involved both IBM and EPA employees. No one has been fired, the source said, because the investigation is still underway.

In its statement, IBM said the temporary suspension was issued by EPA because of an investigation of possible violations of the "Procurement Integrity provisions of the Office of Federal Procurement Policy Act."

The company has 30 days to challenge the suspension, and either have it lifted entirely or narrowed, McNeese said.

The suspension only applies to new work and contract modifications and not to ongoing work, he said.

A government-wide suspension of a company, particularly a large one, is unusual, said Alan Chvotkin, senior vice president and counsel, for the Professional Services Council, an industry group.

A suspension, which can last for up to 12 months, is usually confined to a specific contract or business unit of a company, he said.

Chvotkin cited the example of Boeing Co., which received proprietary documents belonging to Lockheed Martin Corp. when both were competing for a satellite contract. Only the portion of Boeing that does that type of work was suspended, he said.

A suspension also is usually a last resort and usually comes after there have been negotiations between the government and the contractor, he said.

"They can suspend payment. They can terminate a contract," Chvotkin said. "A suspension is one of the last remedies."

IBM ranks No. 18 on Washington Technology's 2007 Top 100 list of the largest federal government prime contractors.