IBM contracts banned as U.S. probes interactions with EPA

Associated Press

WASHINGTON — IBM Corp. has been temporarily banned from new federal contracts as prosecutors examine interactions between employees of the company and the Environmental Protection Agency.

The suspension went into effect last Thursday "while the agency reviews concerns raised about potential activities involving an EPA procurement," the agency said Monday in an e-mailed statement. Under a reciprocal agreement among federal agencies, when one issues a ban, the others follow it.

EPA said it will not comment further on the matter.


IBM said it was cooperating with the U.S. Attorney’s Office for the Eastern District of Virginia, which served grand jury subpoenas seeking documents and testimony relating to the EPA contract.

Armonk, N.Y.-based IBM does business with all corners of the government, though the Defense and Homeland Security departments are much bigger customers than the EPA, according to federal spending databases. Last year IBM’s contracts amounted to at least $1.3 billion, roughly 1 percent of its 2007 revenue.

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 on Friday, but "prior to that (we had) no indication there was a dispute between the IBM and EPA. We’ve spent most of the day trying to determine what’s going on," McNeese added.

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 EPA’s investigation.

The suspension could be serious, but the reason for the ban is unclear at the moment, said Ray Bjorklund, a senior vice president at market research firm Federal Sources Inc.

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

Bjorklund said that, until the matter is resolved, all federal agencies are likely not to award new contracts or even task orders — pieces of existing contracts — to IBM. The ban could last a few days or a few months, he said. However, Bjorklund 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 had 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 "it has enormous ramifications."

Shares of IBM fell $1.50 to $113.64 in after-hours trading after it rose 57 cents to close at $115.14 in the regular session.


AP Business Writer Brian Bergstein in Boston contributed to this report.

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