IBM Channel Frozen by Federal Contract Ban

The suspension is believed to concern a contract with the EPA for financial management work, thought to be worth $84 million, and won by CGI Group in February 2007. IBM filed a protest against the award and Smith said she believed something about the protest "got the EPA's hackles up."

The GSA stressed that the action was "not punitive, but is a prophylactic action designed to protect the government against irresponsible companies," according to a spokesperson.

Bjorklund said he also found it unusual that the suspension was levied against IBM's entire corporate entity, instead of against IBM's federal government business unit.

"For a really large contractor, this is unusual. However, the suspension list states IBM in Armonk, N.Y., so that is corporatewide," he said.

Suspensions such as this usually last 30 days, at which point the case will either be dropped, resolved or IBM could potentially face a permanent ban. However, Smith said this would be astonishing, given IBM's omnipotence within various federal agencies. "It is extraordinary for the government to sanction a company such as IBM in this way. There is no precedence for this situation." 

In the long term, the suspension could push government VARs to fulfill future contracts and subcontracting arrangements with competitive products, costing IBM much more than just its direct business. IBM had $1.5 billion in federal business in 2007.

Smith's advice to IBM partners caught up in the situation is to hang tight, and not make any knee jerk reactions. "I would urge caution, but I would also ensure IBM partners make plans for the worst."

Baseline Editor Lawrence Walsh and Channel Insider Staff Writer Sharon Linsenbach contributed to this report.