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How Oracle screwed California

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Californian taxpayers paid millions of dollars too much for Oracle database software and support, thanks to a former Oracle employee, and his assistant, who now works for Oracle's law company. Normal competitive tendering rules were not followed, and the pair were pressured by staff from Governor Gray Davis office to sign an Enterprise Licensing Agreement covering far more users than the state actually employees in a deal worth $93 million.

Governor Davis' office received $25,000 in campaign contributions gift five days after the deal was signed.

Fishy? You bet. But the scandal has found its first scapegoats in the shape of two civil servants: the head of the State's IT advice department. Elias Cortez, who worked for Oracle in 1997, and contracts chief Barry Keene, a former state senator. Both resigned on Friday.

So far, Davis - who is up for re-election this year - has escaped scrutiny. A notable exception to the bland denials of improprietary was an excellent report by the San Francisco Chronicle's Robert Salladay, entitled State's technology chief could end up as fall guy - He was pressured by top officials before Oracle deal. Salladay details two channels of political pressure on Cortez and Keene.

But civil servants the world over will be astonished to discover that in this case not only was basic competitive tendering practice not observed, but the state took Oracle's own "cost savings", and savings cooked up by the Oracle contractor on the deal, Northrop Grumman Information Technology, at face value. The latter - called Logicon when the deal was signed last year - will gain $28 million from a side deal with Oracle, which the auditor has unearthed, and which officials didn't realize.

Trebles all round, then.

The state auditor's office still can't say how much Californians have been fleeced: that depends on how quickly the state can wriggle out from under the ELA. But if the contract runs the full six years, California will pay $41 million more than it needed to, according to the 100-age report by the auditor. And as the deal nears its first anniversary, Californians have already shelled out "$17 million in ELA costs and interest charges, and will likely have little benefit to show for it."

The auditor put the blame on officials signing an Oracle ELA without first seeing whether there was a requirement, let alone gauging any cost savings over other alternative licenses.

"Although Logicon was responsible for initiating the sales presentations that resulted in the ELA, none of the three departments thoroughly validated the data in Logicon's proposal, a small effort that might have saved the State millions of taxpayer dollars," wrote the auditor.

Indeed. Although Governor Gray's spokesmen expressed disappointment that figures officials had promised were accurate turned out to be inflated, that begs the question: can they count? California employs 230,000 staff, only a quarter of whom, the auditor reckons, require access to a database. Yet the deal covered 270,000 staff.

"Cortez was getting pressure from his friends and biggest supporters to sign a high-profile ELA," observes Salladay.

$41 million is chump change compared to the billions the state has spent buying its way out of a self-inflicted energy crisis, but it indicates that mismanagement goes all the way to the Governor's office.

On a broader note, Oracle Corp does a quarter of its business with government agencies around the world. If you've had experience of dealing with an ELA, we'd like to know. ®

Related Links

California State Auditor's Report - A Summary
The Full Report [1.1MB PDF]

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