Pentagon keeps Global Crossing chances alive

Controversial changes in security requirements could help telecom firm snare work

DREN: Defense Research & Engineering Network contract


DREN: Defense Research & Engineering Network contract
Agency: Defense Information Systems Agency
Term: Three years with seven 1-year options
Value: $400 million (estimated)
Incumbent: AT&T Corp., New York
Competitors: AT&T; Sprint Communications Corp., WorldCom Inc., Qwest Communications International Inc., Global Crossing Ltd.
Purpose: Wide area networking services to support the Defense Department high-performance computing modernization program and department users in various technical communities, including more than 6,000 scientists and engineers at defense laboratories, test centers, universities and industry sites throughout the country.

Sources: Federal Sources Inc. and Input Inc.

Despite severe financial and legal troubles, Global Crossing Ltd. is still in the running for a high-end networking contract that the Defense Department awarded to the company and then abruptly withdrew following protests in July.

Moreover, sources familiar with the Defense Information Systems Agency's Defense Research & Engineering Network (DREN) contract for networking services said changes to the requirements make it easier for procurement officials to select Global Crossing in a second round of bidding. That award had been set for Jan. 25, but is still pending.

Sources said the security requirements in the DREN contract have been relaxed, making it possible for a foreign-owned company such as Global Crossing, which is based in Hamilton, Bermuda, to win the $400 million contract.

However, DISA, the Pentagon agency administering the contract, said security requirements have not been eased. In a Feb. 11 statement to Washington Technology, a DISA representative said the security requirements have been "corrected to reflect the appropriate level of access." The original requirement for "secret" clearances was intended to expedite background investigations, not because the contractor would require access to classified information or facilities, the representative said.

Global Crossing is still pursuing the contract and has taken steps to obtain the level of security clearances required, said company spokeswoman Mary Moore.

The struggling company reported losses of $1.97 billion for the first nine months of 2001 on revenue of $2.44 billion. Global Crossing's Chapter 11 bankruptcy filing Jan. 28, with debts of $12.4 billion and assets of $22.4 billion, came just three days after DISA delayed announcing the winner of the DREN contract.

At the same time, Global Crossing's business practices are under investigation by the Securities and Exchange Commission and, according to published reports, the FBI. These new problems, coupled with concerns that caused the Pentagon to withdraw the first contract, have focused increased attention on the impending DREN award.

The DREN network provides long-haul communication service for the Defense Department's high-performance computing modernization program. Global Crossing was awarded a three-year, $137.3 million contract for the DREN network July 9, 2001. The contract also included seven 1-year options, bringing the estimated value to more than $400 million.

However, protests from the losing bidders ? AT&T Corp., Sprint Communications Corp., Qwest Communications International Inc. and WorldCom Inc. ? were so vociferous that DISA rescinded the award less than two weeks later.

At the time, Global Crossing issued a statement that the contract would have to be re-bid "to address procedural issues" that "had nothing to do with Global Crossing's bid," and it expressed confidence it would win the award the second time around.

In its Feb. 11 statement, the DISA representative said: "The protesters raised a number of issues that could have resulted in an order to terminate the contract and take corrective action. The agency determined that corrective action would be taken in order to [bring the source selection in line] with federal procurement regulations."

"There were breaches in procurement protocol," said Sprint spokesman John Polivka, regarding the procurement process and award. "We had issues with the security qualifications, [and] our credentials decidedly exceeded theirs; our experience decidedly exceeded theirs."

Neither Polivka nor representatives from other companies would provide further details. But Washington Technology has learned that the grounds for the protests included Global Crossing's lack of the facilities clearance needed to meet the request for proposal's security requirements.

Sources said the losing bidders also questioned whether the company had taken any steps to address concerns that it should be considered a foreign owned, controlled and influenced, or FOCI, company ? and therefore ineligible.

Finally, the protesting companies complained that DISA awarded the contract knowing it would have to be modified in order for Global Crossing to perform the work.

The protests also alleged that the evaluation process was seriously flawed. For instance, four-year-old Global Crossing was graded higher in past performance than its competitors, all of which have decades of experience in government contracts, including national security programs.

In debriefings after the award, federal officials also said rice factors, which were supposed to be of secondary importance, influenced their evaluation of the company's management and technology qualifications, which were supposed to be of primary value, according to sources.

The General Accounting Office usually hears government contract disputes; however, because DISA quickly withdrew the award to Global Crossing, the GAO never did a formal investigation into the grounds for the protest, sources said.

DISA decided it would re-open bidding among the five competitors some time last fall. The companies were notified their new bids were due Dec. 4, with a projected award date of Jan. 25. That date has come and gone, and DISA has asked all of the competitors to extend their bids for 30 days.

But the agency would not provide a new target award date, calling it "source selection sensitive information," the DISA representative said.

Whether the company receives security clearances may depend in part on its method for emerging from bankruptcy. Global Crossing has received a $750 million bailout offer from two Asian conglomerates, Hutchison Whampoa Ltd. of Hong Kong and Singapore Technologies Telemedia Ltd., in return for a 79 percent stake in the company.

Rep. Dana Rohrabacher, R-Calif., has publicly questioned the national security implications of the bailout. Hutchison Whampoa is controlled by Hong Kong billionaire Li Ka-shing, who is a member of the Chinese government's inner circle, Rohrabacher said.

"It is very likely the Defense Security Service would seriously consider Global Crossing a FOCI company," said James Fontana, vice president of corporate development and law with Getronics Government Solutions LLC, McLean, Va.

DISA did not say whether a FOCI company would be eligible for the revised DREN contract.

There has not yet been any indication whether Global Crossing's rescue by the two foreign companies would also endanger its seat on the National Security Telecommunications Advisory Committee, established by executive order in 1982 to advise the president on issues and problems related to implementing national security and emergency preparedness communications policy.

Despite the change in the contract's security requirements, the new bidding was not declared full and open to any qualified companies, but instead was limited to the five original competitors. If the security modification is deemed a "material change," then the DREN bidding theoretically should have been thrown open to other competitors that do not have the security clearances, Fontana said.

On the other hand, if it's corrective action, DISA can go back to just the original bidders, said Devon Hewitt, a partner of government practices at the law firm of ShawPittman in McLean, Va.

DISA, in fact, characterized the changes as corrective action, and thus not of a nature requiring full and open bidding.

The extent of Global Crossing's federal business is unclear. Moore said the company has done business with numerous agencies, including the Navy, Air Force, Army Corps of Engineers and the State Department, but she declined to provide details of its work.

Despite the reticence of Global Crossing's four competitors to discuss the DREN contract, all are engaged in aggressive ? and sometimes bitter ? competition for federal telecom business. AT&T and Qwest, for example, waged a long battle with the government to open up competition for long-distance service to other companies besides FTS2001 contract holders Sprint and WorldCom.

The maneuvering over the DREN contract might not have attracted a great deal of attention if not for the SEC investigation and other problems. It has been reported in several major newspapers that the FBI also is looking into the company's practices, though the law enforcement agency would not itself confirm those reports.

Under law, federal contracting officers have to make sure bidders have sufficient resources to perform the work and have performed satisfactorily on other government contracts.

Given the controversy swirling around Global Crossing and DREN, many industry observers said DISA might be better served by again withdrawing the RFP and allowing AT&T, the incumbent, to continue providing services under its contract extension. This would allow for a cooling off period before a new contractor is selected.

When asked whether Global Crossing's bankruptcy filing and FBI and SEC investigations would affect the company's chances of winning the DREN contract, the DISA representative said: "An affirmative determination of a company's capability and resources to perform a contract is made by the government's contracting officer before award."

Staff Writer Patience Wait can be reached at pwait@postnewsweektech.com.

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