US suspends IBM from seeking new federal contracts

SAN FRANCISCO (Reuters) - IBM (IBM.N: Quote, Profile, Research) is under investigation by the U.S. Environmental Protection Agency and has been temporarily suspended from seeking new business contracts with all U.S. agencies, the company said on Monday.

International Business Machines Corp, the world's largest provider of computer services, said it received a notice of temporary suspension from the Environmental Protection Agency (EPA) tied to possible violations of ethical bidding provisions of federal law on an EPA contract submitted in March 2006.

IBM shares, which closed up 57 cents or one-half of 1 percent at $115.14 in regular session New York Stock Exchange trading ahead of the disclosure, lost $1.14, or 1 percent, to $114 in extended trading.

The temporary suspension applies to all federal agencies and IBM business units. IBM may continue work on existing contracts as of the date of the suspension, unless a particular agency directs otherwise, the company said in a statement.

In addition, IBM said the U.S. Attorney's Office for the Eastern District of Virginia had served IBM and certain employees with grand jury subpoenas requesting testimony and documents on interactions between the EPA and IBM employees.

The Armonk, New York-based company said it only learned of the government contract suspension on Friday, March 28. It said it was unaware of any potential action by the EPA or the U.S. Attorney's office until then.

"IBM has initiated discussions with the EPA and the U.S. Attorney's office to obtain additional information and is cooperating with the investigations," it said in a statement.

Under federal procurement rules, IBM has 30 days to contest the scope of the temporary suspension. The ban on federal contracts can last up to one year, pending the completion of the government investigation.

"IBM intends to take all appropriate actions to challenge the suspension and limit its scope," the company said.