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Global Crossing Loses Contract

Telecom: The multiyear, $450-million defense deal, which was pulled back amid protests, is awarded to WorldCom.


Troubled Global Crossing Ltd. on Friday lost a prestigious and valuable defense contract initially awarded to the company last year and then pulled back for further review amid protests from competitors.

On Friday, the Defense Department instead awarded the contract to WorldCom Inc. The multiyear contract is worth up to $450 million and calls for WorldCom to provide critical communications and data network services to the agency.

Losing the contract adds to the mounting woes at Global Crossing, which filed for bankruptcy protection in January and has been fighting to hold on to customers ever since.

Earlier this week, Global Crossing renegotiated and scaled back its showcase contract with SWIFT, a cooperative venture that provides data links to 7,000 financial institutions in 196 countries. Executives at the Bermuda-based telecommunications company had often cited the SWIFT contract as proof that Global Crossing's network could provide reliable services on a worldwide scale.

In recent interviews, Global Crossing Chief Executive John Legere has said the company's customers were standing by the firm and that there had been fewer defectors than expected.

Officials at Global Crossing could not be reached for comment on the defense contract that until Friday had been one of the firm's hardest-fought victories.

In July, Global Crossing announced that it had won the contract and that it would provide $137 million in services to the Defense Department over three years and up to $400 million in services over the life of the contract.

The Defense Research and Engineering Network project was to provide vital links to more than 6,000 scientists and engineers in far-flung defense facilities.

Company insiders say Global Crossing executives were so thrilled with the win that they planned a lavish party to celebrate. The plans were hastily dropped, though, "because some people thought it was not appropriate to have a party before the contract was signed," according to a person familiar with the plans.

A month later, the defense agency decided to rebid the job, a decision that sent Global Crossing's stock plummeting. Company executives tried to calm investors, saying the agency just wanted to "address procedural issues" related to the procurement process.

Some of the losing bidders, thought at the time to be AT&T Corp., Sprint Corp. and WorldCom, had protested Global Crossing's win. And some critics implied that Global Crossing had lobbied its way into the job by employing such heavyweights as former Defense Secretary William S. Cohen, who had become a board member.

Defense officials were stung by accusations that they chose Global Crossing for political reasons. But they had good reason to look elsewhere after the company filed for bankruptcy protection and its potential buyers' list included companies with ties to the Chinese government.

Also on Friday, New York and Ohio state pension funds revealed that they each hope to become the lead plaintiff in shareholder lawsuits filed against Global Crossing in the wake of its financial meltdown.

New York's $110-billion fund lost more than $75 million through investments in the company. Two Ohio funds have said they lost a combined $115 million. Typically, as judges seek to consolidate many shareholder suits, they select a "lead plaintiff" to choose attorneys and direct the case. Often, judges pick the plaintiff with the largest financial stake.

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