CACI International Inc. will not be banned from doing business with the federal government, the General Services Administration told the company yesterday.

The GSA told the Arlington defense contractor in a letter that it will not be prohibited from federal contracts for using an information technology contract to provide the Army with interrogators in Iraq, including at the Abu Ghraib prison.

The GSA can bar companies that act unethically or violate federal contracting rules. "I do not feel that, at this time, it is necessary for me to take any formal action to protect the interests of the Federal government," Joseph A. Neurauter, GSA's suspension and debarment official, wrote in the letter.

Neurauter did raise a number of issues, including the role CACI employees played in writing the language used to describe some of the work the company would perform in Iraq.

"I believe that CACI's possible role in preparing Statements of Work continues to be an open issue and potential conflict of interest," Neurauter wrote. He asked the company to respond within two weeks to questions he raised.

"We were very pleased with the outcome," CACI chief executive J.P. "Jack" London said in an interview. "It was an appropriate conclusion to the review, one that we were hopeful for."

The threat of debarment from federal contracts shook investors because the company got 92 percent of its revenue from federal clients last year. Its stock price dropped 12 percent, to $37.48 a share, the day the GSA investigation was announced. It rose $2.04 yesterday to close at $41.40.

The GSA began an inquiry into CACI's procurement procedures in May.

The issue involves a GSA contract awarded in 1998 to Premier Technology Group Inc., a Fairfax firm that CACI acquired last July. The contract, managed by the Interior Department, was designed to allow federal agencies to quickly purchase information technology products and services from the company.

Last year the Army used the contract to hire CACI for interrogation support in Iraq. GSA officials have said the agency's regulations require contractors to notify officials if they are asked to perform services that fall "outside the scope of their contract."

CACI's role in interrogating Iraqi prisoners became known because one of its employees, Steven A. Stefanowicz, was named in an Army report on prisoner abuse at the Abu Ghraib prison. The report said Stefanowicz encouraged military police to "set conditions" for interrogations and that he "clearly knew his instructions equated to physical abuse." A lawyer for Stefanowicz has said his client did nothing wrong.

Neurauter's letter said the GSA investigated because it appeared that CACI had misused the GSA contract. Neurauter recounted a meeting at the agency's office, quoting London as saying the company was being "singled out unfairly" and that it is "unseemly for the Government to shift blame to contractors."

Neurauter maintained that contractors bear responsibility for upholding the agency's regulations and said in his letter to London that he still has "concerns about whether you understand that all parties to a transaction are responsible for ensuring that the rules are followed and the integrity of the system is maintained."

Neurauter also noted that CACI has three separate hotlines for reporting business improprieties. "Multiple hotlines, in contrast to a single unified hotline, is an usual approach in my experience," he wrote. "Has it caused any confusion among employees?"

CACI said yesterday that it will comply with GSA's requests for more information to "clearly convey its commitment to complying with all of the rules governing purchases by the U.S. Government."

The company still faces a number of investigations about its former employee's activities at Abu Ghraib, but GSA spokeswoman Mary Alice Johnson said her agency's focus was narrower.

"Our only goal is to ascertain whether or not the company is a responsible company,'' she said. "What this letter indicates is that this is a responsible company, but there are some areas that the suspension and debarment official would like to explore."

The company also responded yesterday to calls by California state Controller Steve Westly for the state's teachers pension fund to withdraw its investment in CACI.

"As a matter of common sense and common decency, companies looking to profit from the torture of human beings don't belong in our portfolio," Westly, who is on the board of the California State Teachers' Retirement System, said in a written statement Tuesday.

CACI rejected the claims and said in a written statement that Westly "is guilty of political grandstanding with vile and unsubstantiated accusations."

The retirement system's subcommittee on corporate governance discussed Westly's proposal yesterday and agreed to take a vote on it Sept. 1, said Paul Hefner, a spokesman for the controller.