The General Services Administration (GSA) will no longer do business with PC Connection’s government contracting subsidiary, GovConnection, because of questions about purchasing procedures. For the first nine months of this year, the GSA contract resulted in $56 million in revenue for PC Connection out of $954.5 million total sales for the period.
The Merrimack, N.H.-based direct computer marketer said it will restate its fourth-quarter earnings projection to 5 cents to 7 cents per share, down from 10 cents a share. The company also placed GovConnection’s president, Gary Sorkin, on leave of absence and named Don Weatherspoon as the new CEO of the subsidiary.
Shares of PC Connection fell $2.30 to $7 in early morning NASDAQ trading.
The GSA cancelled its contract with GovConnection on Friday after a review of the company’s contract management systems and procedures that, according to the GSA, “may have resulted in the sale of unqualified items or the underpayment of required fees.”
In a statement, PC Connection said it has been informally advised that the matter has been referred to the Department of Justice for review. The company said it will cooperate fully in that review in addition to launching its own internal review of the matter.
On Oct. 16, GovConnection received a 30-day cancellation notice from the GSA, and subsequently met with the GSA to try and resolve “differences of opinion” regarding contract performance and compliance. Friday, GovConnection was informed that the cancellation notice would not be stayed or rescinded.
“We are focused on making changes that will permit GovConnection to make a new offering to the GSA that is grounded on very solid processes and controls,” Weatherspoon said in a statement. “It is our intention to regain GSA approval for GovConnection as quickly as possible.”
Weatherspoon said the internal review will be conducted by GovConnection’s special government contracts counsel and an independent auditing firm.
Weatherson joined the board of directors of GovConnection in May of 2003. Previously, he was vice president for North America Operations and Strategy at Hewlett Packard, and prior to that had led government sales programs as president of Compaq Federal, a subsidiary of Compaq Computer Corp.
PC Connection acquired ComTeq Federal and renamed its GovConnection in 1999.
GSA Severs Ties With PC Connection
