MBI Business Centers Inc., which filed for Chapter 11 bankruptcy protection in September, was dealt a sharp blow yesterday when the General Services Administration declined to renew the Rockville firm's multimillion-dollar federal computer contract.
Although analysts said the contract probably was not a very profitable one for the company, the GSA decision was the latest in a continuing series of problems for MBI. Just two years ago, MBI ran the largest chain of company-owned computer retail outlets on the East Coast and claimed to be the most profitable firm of its kind in the country.
MBI company officials could not be reached for comment yesterday.
The GSA contract, which MBI won last December, called for the company to operate three Office Technology Plus, or OTP, retail outlets -- in Washington, Atlanta, and Philadelphia -- to sell computers, software and related products to government agencies. The contract -- which accounted for $2.6 million, or 13 percent of the firm's revenue, in the second quarter -- was slated to run for one year with two one-year renewal options.
Ironically, an earlier version of the GSA contract helped propel the company to success. MBI won the original OTP contract in June 1983, and used the profit and revenue from the three stores to expand from a tiny chain with revenue of $6.5 million in 1983 to a 34-store empire with revenue of $118 million just three years later.
But in the midst of an industry-wide shakeout, analysts said MBI made a number of management mistakes and sustained heavy losses from an inability to sell obsolete inventory.
Critical to MBI's troubles was the renegotiation, in the fall of 1986, of the original OTP contract. According to a report by the General Accounting Office, MBI had been selling computer equipment to the government for an average of 12.8 percent more than the products were selling elsewhere.
After the contract expired, MBI offered the GSA sharply lower prices to win back the OTP stores in a brutal bidding war last fall that involved 10 other retailers. Analysts said the terms of the contract that MBI won made it almost impossible for the company to make a profit.
In addition, revenue from the OTP stores dropped dramatically over the past year as federal regulations governing the amount of equipment agencies could buy from MBI tightened. In fiscal 1986, the firm's direct sales to the government slipped to $8 million, down from $27 million in the previous year.
At the same time, problems with MBI's commercial business were hurting the company. Many computer companies, concerned about MBI's financial health, began delaying or reducing shipments to the firm. The resulting inventory problems caused numerous late deliveries to MBI's government stores.
More than 100 of the orders MBI delivered to its OTP stores in August were more than 25 days late, according to a trade publication, Government Computer News, an increase from 34 late deliveries in July. By mid-September, MBI had more than $6 million in backlogged orders to OTP stores.The GSA wrote a "cure" letter to MBI in October warning the company that its contract would not be renewed if the delivery problems were not resolved within 10 days.
MBI filed for bankruptcy court protection Sept. 18, following a second-quarter loss of $13.8 million.