IBM Subpoenaed Over Contract

By Dibya Sarkar
Associated Press
Tuesday, April 1, 2008

IBM and some of its employees received subpoenas from a federal grand jury seeking testimony and documents relating to a contract it sought with the Environmental Protection Agency, the company said yesterday.

The company also has been temporarily barred from receiving contracts with all federal agencies "while the agency reviews concerns raised about potential activities involving an EPA procurement," the agency said in an e-mailed statement. Under a reciprocal agreement among federal agencies, when one issues a ban, the others follow it. The suspension took effect Thursday.

The EPA said it will not comment further on the matter.

IBM said the U.S. Attorney's Office for the Eastern District of Virginia served the grand jury subpoenas, but it did not say when.

The Armonk, N.Y., company has prime federal contracts worth at least $1.3 billion, or about 1 percent of its 2007 revenue, an analyst said.

IBM spokesman Fred McNeese said the company is still talking with the EPA about the alleged violation and would not describe the contract that IBM was bidding on that led to the suspension.

The company learned about the ban Friday, and McNeese said it had no indication beforehand that there was a dispute between it and the EPA. "We've spent most of the day trying to determine what's going on," McNeese said.

The company said it has 30 days to contest the scope of the suspension, which can continue for up to one year pending the completion of the EPA's investigation.

The suspension could be serious, but the reason for the ban is unclear, said Ray Bjorklund, a senior vice president at McLean-based market research firm FedSources.

"It's potentially a big deal," he said.

Bjorklund said that until the matter is resolved all federal agencies are unlikely to award new contracts or even task orders -- pieces of existing contracts -- to IBM. However, he said agencies do have some leeway to award a contract if there is a specialized requirement that only the suspended company could perform.

Stan Soloway, who heads the Professional Services Council, a trade group representing IBM and other government contractors, complained that the EPA imposed the suspension without first informing IBM of its concerns and letting the company respond.

"A suspension is normally not assessed unless there is a very serious infraction that has been not only alleged but documented," he said. He called the EPA move "very unusual" and said that "it has enormous ramifications."

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