Qwest ducks debarment by GSA

Qwest Communications International Inc. can keep competing for federal government work, after the General Services Administration declined to debar the company following a two-and-a-half year probe.

The news comes as the company is in the midst of renewing its bidding war with Verizon Communications Inc. to acquire MCI Inc.

GSA began its review of Qwest's government contracts in July 2002, based on allegations that the Denver carrier inflated revenue in connection with transactions involving the Arizona School Facilities Board and telecom carrier Genuity Inc. In 2004, Qwest paid a $250 million fine to the Securities and Exchange Commission to settle financial fraud charges.

GSA's inspector general reviewed the company's practices and recommended that the agency's suspension and debarment official, Joseph Neurauter, consider suspending Qwest, seven of its former employees and one current employee. GSA's inspector general submitted a second referral to Neurauter Jan. 27.

In a letter to Qwest issued yesterday, Neurauter said he cleared Qwest because he was "satisfied that Qwest has taken adequate remedial measures," including changes in its management and the establishment of a corporate ethics program and continued government disclosures about issues the company may face.

In a statement issued yesterday, Qwest Chairman and Chief Executive Officer Richard Notebaert, said he appreciated the "care with which the GSA approached its review," and that the company is "looking forward to winning some of the major government business that is up for bid in 2005."

Federal government sales account for 2 percent to 3 percent of Qwest's consolidated annual revenue, according to the company's 10-K report for 2004 filed with the SEC Feb. 18. The Denver company's federal clients include the Energy, Labor and Treasury departments, GSA, Internal Revenue Service, National Institutes of Health, the Air Force and U.S. Mint.

Qwest could increase its footprint in the federal government sector by renewing its previous $8 billion offer to buy MCI of Ashburn, Va., which has significant business with federal agencies. Earlier this month, MCI rejected Qwest's offer and agreed to be acquired by Verizon of New York for $6.75 billion.

Qwest employs more than 40,000 workers and had 2004 operating revenue of $13.8 billion and a net loss of almost $1.8 billion. The carrier is No. 67 on Washington Technology's 2004 Top 100 list of prime federal government contractors.

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