"What we are saying is that the case stems from information provided by an EPA employee to IBM employees," McNeese said. "Prior to Friday, there was not a hint that there were any type of issues with this contract."

McNeese referred further questions about the contract to the EPA.

EPA Press Secretary Jonathan Shradar said in a statement that his agency temporarily suspended IBM from receiving new federal contracts or assistance on March 27. The contract at issue was never awarded after questions arose over the IBM bid, he said.

"As the matter is currently pending before the suspending official, the agency will have no further comment at this time," the EPA official said in a statement.

IBM said it was unaware of any potential action by the EPA or the U.S. Attorney's office until March 28.

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

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

Depending on how long the suspension remains in place, IBM could potentially lose out on U.S. government contracts worth hundreds of millions, even billions, of dollars that major rivals such as CSC, EDS or Affiliated Computer Services Inc could be in a position to win instead.

IBM said it has served the federal government for many decades as a vendor in good standing and is "committed to the highest standards of business ethics." All employees receive business conduct training with special training for employees seeking federal government business, it added.

IBM grew up out of a company founded by former U.S. Census bureau employee Herman Hollerith, who developed punch-card tabulation machines to automate counting of the 1890 census. The Computer-Tabulating-Recording Co was renamed IBM in 1924.

(Editing by Braden Reddall, Andre Grenon and Mohammad Zargham)

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