Feds Say Accenture, HP, Sun Kickback Scheme Involved Millions Over 10 Years - InformationWeek

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Software // Enterprise Applications

Feds Say Accenture, HP, Sun Kickback Scheme Involved Millions Over 10 Years

The federal complaints claimed the defendants paid or received kickbacks from dozens of companies in violation of federal law, while denying that they had such arrangements.

Accenture, Hewlett-Packard, and Sun Microsystems have operated illegal kickback schemes over the last 10 years that have bilked taxpayers out of millions of dollars annually through government IT contracts, federal prosecutors say.

The allegations were contained in separate lawsuits filed last week in an Arkansas federal court by the Department of Justice. The complaints claimed the defendants paid or received kickbacks from dozens of companies in violation of federal law, while denying that they had such arrangements. In filing the complaints, the DOJ joined whistleblower suits that were filed against the companies in 2004.

Specifically, the complaints accused the defendants of breach of contract, unjust enrichment, and payment under mistake of fact, as well as violating the federal False Claims Act and the Anti-Kickback Act. Payment under mistake of fact means the defendants caused the government to pay for products and services that it normally wouldn't have bought, if it had known all the facts. Because the government didn't know about the kickbacks, which were wrapped into the price of the product and services, prosecutors claim contract negotiators were tricked into paying more than they should have.

If Accenture, HP, and Sun lose the lawsuits, the cost could be severe. Under federal law, the government could receive triple the amount of damages it suffered in the various contracts, plus civil penalties.

The three companies have issued statements denying the allegations. Accenture and HP have said they were confident they acted appropriately and would vigorously defend themselves against the complaints.

Sun said a lengthy government audit had been performed on its contracts, but the company had not seen the results. "Sun has fully cooperated with the audit process, as it routinely does, and welcomes the opportunity to review the audit results as soon as permitted and to address the resulting claims in a fair and impartial forum," the company said.

The government complaints, which total more than 80 pages, outline how Sun and HP paid millions of dollars annually either in cash or rebates to companies that sold their products to the government. The arrangements were made without the knowledge of government negotiators, according to the lawsuits, which list examples of kickbacks involving a total of more than a dozen companies.

Accenture, on the other hand, received millions of dollars in kickbacks, according to prosecutors, who listed three dozen companies that made such payments to the consultant.

According to the complaints, here is how the defendants operated:

HP, which had business-development partnerships with a dozen companies, paid kickbacks in the form of "influencer fees" to companies that persuaded the government to buy products directly from the vendor.

Companies that received such fees from HP included Accenture, BearingPoint, Capgemini Ernst & Young, Electronic Data Systems, GTSI, Northrop Grumman, and Science Application International. With the exception of Accenture, the other companies have not been accused of any wrongdoing. A Northrop Grumman spokesman said, "We are aware of the Department of Justice lawsuits and are cooperating with the government in its investigation."

From 2001 to 2006, at least $3.1 million in influencer fees were paid to the companies. "HP has not disclosed to the government the full extent of the influence fee agreements and payments," the complaint said.

HP also paid partners "new business opportunity," or NBO, rebates for buying products and then reselling them to the government. Under federal rules, the rebates should have been disclosed. "The NBO was designed by HP to benefit HP and the alliance partner, but not the end user," the complaint said. "HP specifically informed its alliance partners that HP did not extend competitive pricing to end users through the NBO."

As examples, the government said HP paid a total of more than $550,000 in rebates to Northrop Grumman and GTSI in 2005 and 2006.

Prosecutors claim HP had "reasonable grounds" to believe the influencer fees and NBOs were illegal. In March 2002, for example, HP employees had notified Accenture that federal law required the companies to disclose to the government influencer fees on a Defense Logistics Agency contract. "Despite this knowledge and intent, neither HP nor Accenture disclosed the influencer fees related to the DLA," the complaint said.

Sun, which has worked with 17 companies on government contracts since 1993, also paid influencer fees and gave rebates that amounted to kickbacks, prosecutors claim. As examples, the government listed a total of $281,000 Sun paid in influencer fees to PricewaterhouseCoopers Technology Integration LLC, Accenture, and World Wide Technology from 2001 to 2004. With the exception of Accenture, the other two companies were not accused of any wrongdoing.

Through its Government Target Account Rebate Program, Sun paid partners a 2% rebate in return for selling Sun products to a government customer. Under GTARP, Sun paid rebates between 2003 and 2006 to Commercial Data Systems, GTSI, Northrop Grumman/Federal Data Corp., World Wide Technology, and Paragon Systems. None of the companies were named as defendants in the lawsuit.

Sun paid rebates up to 10% to same companies under a Competitive Knock-Out Program that rewarded partners for replacing competitors' products in government accounts with Sun's. "Between 2003 and 2006, Sun paid millions of dollars to GAPs [government alliance partners] in alliance benefits under its GTARP and CKO programs," the complaint said.

Sun also is accused of deceiving the government in General Services Administration contracts between 1997 and 2004 that were valued at more than $200 million. The contracts were for general purpose IT equipment, software maintenance, and professional services, which are all distributed government-wide. In awarding the contracts, the government requires a guarantee that it was not paying any more than what Sun was charging its commercial customers. Prosecutors claim Sun didn't tell the GSA it was charging some commercial customers less.

In addition, according to the complaint, Sun failed to honor the contract's price reduction clause. Under the clause, if Sun sold the same products and services to another customer at a lesser price during the life of the GSA contracts, then the vendor was required to charge the government the same amount.

While Sun and HP allegedly paid millions of dollars each year in kickbacks, Accenture allegedly accepted them in the form of "system integrator compensation," rebates, and marketing assistance fees. The company earned all three from Sun and HP, according to the complaint.

As a consultant for the government, Accenture was hired as an objective adviser in choosing vendors and purchasing IT equipment, software, and services. The government, however, says Accenture and its purchasing subsidiary, Proquire, were less concerned with their client, and more interested in profits and revenue from partners. "As a result, millions of dollars of kickbacks were sought, received, offered, and paid between and among the defendants with the alliances in violation of the False Claims Act and other federal statutes and regulations," the complaint said.

Between 1998 and 2006, Accenture earned more than $4 million in cash from system integrator compensation, the complaint said. Between 2001 and 2006, Accenture received such fees from EMC, HP, IBM, Informatica, Mercury Interactive, NCR, PeopleSoft, and Sun. With the exception of Sun and HP, none of the other companies are accused of any wrongdoing.

Accenture also received rebates and marketing assistance fees that were based on a percentage of the revenue in reselling partners' hardware, software, and services. Under government regulations, such rebates or fees should be pass on to the government.

Accenture, for example, earned more than $32,000 in rebates from HP in July 2002, and more than $2 million in marketing assistance fees between 2003 and 2005 from Sun, according to the complaint.

Without telling the government, Accenture also negotiated steep discounts on hardware, software, and services, and then sold them to the government at higher prices. "Accenture personnel were instructed to constantly look for ways to structure government contract transactions so as to provide for greater opportunities to maximize resale revenue often at the direct expense of its government clients," the complaint said.

From 2000 through 2006, Accenture generated a total of $20.4 million in "unallowable resale revenue" from SAP, Manugistics, GTSI, HP, Mercury Interactive, Northrop Grumman, Oracle, SeeBeyond, Computer Associates, CGI-AMS, Tech Data Corp., E-Plus, CDW, Vastera, Yantra, Sun, IBM, Ingram Micro, ACSIS, Dell, World Wide Technology, SAS, PeopleSoft, Informatica, Hyperion, Siebel Systems, EMC, SBC Datacom, Micro Warehouse, Intellithought, Government Acquisition Inc., Intevoice, Presidio, Togethersoft, and Verity. With the exception of HP and Sun, none of the other companies were accused of any wrongdoing.

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