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FCW Insider: The talk of FOSE Day 1 -- IBM

There were some really remarkable presentations at the first day of the FOSE trade show and conference on Tuesday -- the head of Google's enterprise operations gave a fascinating talk about cloud computing, Sun's Scott McNealy also spoke about open source, including offering up his own top 10 list of reasons why he is thrilled to be in DC. I hope to get to those soon. But the talk of the show today was IBM -- even for OMB Deputy Director of Management Clay Johnson. When Johnson introduced Microsoft's Steve Balmer as the winner of the CIO Council's prestigious Azimuth Award, he introduced him as Steve Balmer of IBM. Clearly IBM is on just about everybody's mind.

In case you aren't up to date, the story as reported over on FCW's sister publication Washington Technology:

IBM Corp. has been suspended from taking on new work for the federal government, according to a posting on a General Services Administration Web site.

A March 27 posting on the GSA’s Excluded Parties List System Web sites, says that IBM has been suspended for an unspecified reason and for an undetermined length of time.

WT later reported:

IBM Corp. was apparently blindsided by the Environmental Protection Agency’s move to suspend the company from pursuing new government work.

A company spokesman said IBM learned of the suspension on Friday. It then obtained a letter from EPA broadly outlining the allegations and spent most of Monday trying to gather more information, said Fred McNeese, an IBM spokesman.

“Prior to Friday there was no hint of any dispute or reason for this step,” McNeese said.

The U.S. Attorney for the Eastern District of Virginia also served grand jury subpoenas on IBM and on certain employees on Monday asking for testimony and documents regarding interactions between EPA employees and IBM employees, the company said in a statement. The company is cooperating with the investigation.

We believe the issue revolves around an an $80 million bid it made in 2006 to modernize E.P.A. financial systems.

There are all sorts of questions about what this means and, unfortunately, there are very few answers. GSA apparently has prepared guidance, but it isn't in the hands of CIOs and it hasn't been made public as far as I can tell. But there is an enormous amount of speculation going on. There are questions, for example, about whether IBM can even seek tasks on existing contracts. We believe that IBM will be able to continue to do work already under contract, but there are many agencies that have contracts pending with IBM. Can those be awarded? And, of course, there is an Alliant angle to this story. IBM was one of the winning bidders on the Alliant contract, but with GSA's announcement last week that it was reassessing all of the bidders. If IBM is suspended from government contracts, does that mean it cannot be an Alliant bidder?

Many questions. At this point, there are few answers.

One AP story quotes analysts as saying this won't impact IBM all that much and IBM's shares actually went up Tuesday.

Citi Investment Research analyst Richard Gardner, who rates IBM "Buy," said the U.S. federal government contributes just 2 percent of the company's total sales. And about half of that is from existing multiyear contracts, which the suspension won't affect.... 

The company has 30 days to contest the scope and duration of the suspension. In the worst case, Gardner said, it could last for up to a year....

Goldman Sachs analyst David C. Bailey called the suspension "troubling" but added that the impact on IBM should be small.

The company, he said, is already working on challenging the allegations and suspension, "and, most importantly for the near term, the ban does not seem to have impacted IBM's March quarter close."

Bailey calls IBM's stock a "strong defensive pick" for the first half of this year and said the suspension won't affect his estimates.

The Wall Street analysts must be working with information that I haven't heard yet, but they might well be turn out to be true.

My last remembrance of a vendor being suspended was back in July 2002 when GSA suspended what was then MCI Worldcom. (Read the GSA press release from 2002 here... Read one of FCW's stories about the reaction to MCI Worldcom's suspension here.)

Washington Technology is working on the following the story... and we are following what this means for agencies. And if you have and/or get a copy of GSA's guidance, let me know.

Posted by Christopher J. Dorobek on Apr 01, 2008 at 12:17 PM


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