The US General Services Administration, which is responsible for government procurement, said it reviewed MCI's suitability for government business and has decided to suspend the firm’s from bidding for federal contracts. MCI has one month to appeal.
The GSA has come under mounting pressure from legislators to end its relationship with the company that inflated its revenues and defrauded investors in 2002.
Still, MCI has continued to benefit from government patronage despite Worldcom’s bankruptcy.
Earlier this year, MCI won a contract to build a mobile phone network for the US army in war-torn Iraq worth an estimated $60 million. The company is also planning to bid for lucrative Iraqi mobile phone licences.
Many Middle East-based companies are excluded from competing for these contracts, likely to be some of post-war Iraq’s largest, after the US-sponsored Coalition Provisional Authority barred companies that are more than 5 percent state-owned from bidding.
The move by the GSA will hurt MCI, which currently receives almost $1 billion a year from government contracts, the Wall Street Journal reported. Winning new federal business had been a main part of the companies plan to emerge from bankruptcy.
On Monday, new charges against MCI were brought by rival telecommunication firm AT&T. The technology giant claims MCI re-routed calls via Canada to avoid access charges.
In the court filing, rival telecom firm AT&T said the MCI scheme shifted "millions upon millions of dollars" in costs to AT&T and other companies.
AT&T said it will "bring racketeering and fraud" charges against its rival.
The Washington Post said the latest allegations, backed by several of the company's competitors, suggest WorldCom and MCI conspired for nearly a decade with smaller local phone companies to re-route long-distance calls to make them appear as local calls.
To date, MCI has agreed to pay $750 million in civil penalties for accounting fraud totaling some $12 billion.