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Oracle Stands Accused of Violating Government Pricing Laws

by: Matthew Potter
July 30, 2010

Category: Editorial | RSS 2.0

The Federal Government buys many products. Many of these are strictly commercial items that were not developed for the government only and are available to any company or consumer in the world. One of these products is software. Like any large organization the government uses standard software packages like Microsoft Windows, Office and other companies products. In this case the government signed a contract with Oracle Corp. (ORCL) to buy their standard software that over the last twelve years has led to sales of about $1 billion dollars.

The company is now being sued by the Federal Department of Justice alleging that they did not offer the government the same price breaks it offers its commercial customers. The government in their contracts make it clear that a company must offer their best and lowest prices to the government. This is true if the product is sold directly or through the General Services Administration (GSA) schedule. To make up for the price break the government buys lots of product, and even allows state and local governments to buy through their contracts.

The complaint says the government feels it was overcharged by tens of millions of dollars. Damages, if any, will be assessed after a trial. This case is an example of a whistle blower lawsuit where a former Oracle employee alleges the overcharges. The Feds can join the suit and then the whistle blower will receive a portion of the money recovered.

Several lawsuits similar to this have been filed over the last few years as companies fall afoul of this rule. Staples (SPLS) for example a few years ago faced a similar lawsuit and lost several million in damages. Office Depot (ODP) faced similar charges at the state level in Florida in a case again brought by a whistle blower.

These suits demonstrate that not only do government want the best deals they will enforce the rules making sure they get them. The arguments for these rules are that the tax payer benefits by maximizing the value of the product and the company will make up the discount through the size of the sales. There is also the fact that no company unwillingly enters this market, most want to sell to the government.

If Oracle is found guilty it will be another example of a vendor not knowing the rules or taking the risk by violating them. Part of acquisition reform is making sure that these kind of rules are followed.

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