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6/17/2010
03:02 PM
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Suit Alleges Oracle Bilked Feds Out Of Millions

A whistleblower filed the original suit which claims Oracle's sales practices led to tens of millions of dollars of overcharges.

The federal government has joined a lawsuit against Oracle that had been filed on its behalf, claiming that the software company bilked it out of "tens of millions of dollars."

The lawsuit, initially filed by former Oracle contract specialist Paul Frascella in May 2007, was under seal until recently, when the United States moved to intervene in the case.

The suit accuses Oracle of using a "scheme to defraud the United States by failing to disclose deep discounts" that it offered to its most favored commercial customers, which, the suit says, ultimately lead to tens of millions of dollars worth of overcharges. Oracle didn't immediately return a call and e-mail requesting comment.

Frascella brought the suit under the False Claims Act, which allows private citizens to sue a company on behalf of the federal government, and he's seeking 25% of all damages.

According to the complaint, federal regulations require that General Services Administration contractors negotiating Multiple Award Schedule contracts, which allow agencies to buy products from the GSA schedule without having to jump through some of the typical government procurement hoops, "obtain the best price given to the most favored customer" in order to decide whether to accept solicitations.

However, according to Frascella, Oracle knowingly skirted these rules in order to give greater discounts to commercial customers. For example, Frascella alleges, Oracle improperly told employees that the discount requirement applied only to database and computer tools, not to enterprise software, and that the restrictions didn't apply to transactions with net licensing fees of $200,000 or less.

After Oracle employees expressed concern about the distinction between database and other enterprise software, Frascella claims, Oracle VP of global practices Ellen Eder, the highest-ranking official named in the complaint, told contracts managers to stop asking whether Oracle was violating GSA regulations and said that her office wouldn't respond in writing to questions because it would create a paper trail.

In addition, Frascella's complaint details a number of schemes he says were designed to give commercial customers deeper discounts than the government, including selling to a retailer at a deep discount and having the reseller sell below the maximum allowable discount, selling limited use or term licenses at deep discounts, whiting out list prices and discounts on contracts and leaving only a net fee visible, and granting commercial customers "price hold" contracts.

The suit is only the latest in a series of similar cases. In May, EMC reached a settlement with the Department of Justice to pay the government $87.5 million to settle similar charges, and NetApp reached a $128 million settlement with the government in April 2009. Oracle itself agreed in October 2006 to pay the government $98.5 million to settle a case in which PeopleSoft -- an Oracle acquisition -- was alleged of providing false pricing information to the GSA.

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