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A scandal looms for IT industry

April 23, 2007

More details are emerging about the U.S. government's charge that IT vendors engaged in a sweeping kickback scheme aimed at influencing the provision of lucrative government contracts. The Department of Justice filed lawsuits last week alleging that Hewlett-Packard and Sun Microsystems had secretly paid millions of dollars to other vendors that sold their gear to government agencies and that Accenture had accepted millions of dollars of such kickbacks. In statements to Wired News, HP and Accenture denied any wrongdoing, while Sun said it "welcomes the opportunity to address the claims in a fair and impartial forum."

In addition to the three companies named in the suits, the government lists other tech vendors who allegedly made or received inappropriate payments to influence government purchases. The list is a who's who of the tech business: EMC, IBM, SAP, Microsoft, Oracle, Dell, BearingPoint, Capgemini Ernst & Young, PriceWaterhouse Coopers, EDS, PeopleSoft, Siebel Systems, NCR, Informatica, SAS, Hyperion, Ingram Micro, ACSIS, Verity, and many others.

Information Week provides a detailed rundown of the charges in an article today. Particularly troubling are the allegations of cozy dealings between hardware and software vendors and the consulting firms that are supposed to provide objective advice to the buyers of information technology:

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.

Watch these suits closely. Should they go to trial, they threaten to open a Pandora's Box for the trillion-dollar computing industry.

UPDATE: Business Week reports that the government is expected to enter lawsuits against additional vendors and underscores the stakes that may be involved:

The Justice Dept.'s involvement is significant. The original [whistleblower] cases were filed under the False Claims Act, which allows individuals to bring suit on behalf of the U.S. in return for up to one-third of any damages recovered. Most cases proceed in civil court without the federal government's involvement. U.S. Attorneys often save their prosecutorial muscle for false-claims cases in which significant money is at stake or where evidence of wrongdoing is particularly strong. The U.S. joins only about 22% of false-claim cases but recovers about 98% of claims, according to Taxpayers Against Fraud, a watchdog group based in Washington.

In addition to the suits against Accenture, HP, and Sun that the government has already joined, whistleblower suits are proceeding against Cisco, EDS, SAP, Lockheed Martin, Oracle, AMS, CACI, SeeBeyond, Dell, and five other unnamed defendants, including, Business Week reports, an IBM subsidiary. The court has excused Boeing, Raytheon, Microsoft, SAIC, and Exostar from the suits.

Comments

Isn't Accenture the spin-off from the old Andersen Accounting? What's the old saying, "The acorn doesn't roll to far from the tree?"

What will be most interesting is how the companies that payed the money to Accenture will try to frame it as ignorance. Expect a lot of of money to be made via eDiscovery.

Posted by: PhilRack [TypeKey Profile Page] at April 24, 2007 06:07 PM

Must be a lot of this sort of thing going on in the UK. Especially with the iSoft pile-up. Since so much of public sector IT is secret/confidential here ...

http://www.theregister.co.uk/2006/10/20/treasury_gateway_secrecy/

... we'll probably never actually know ...

Posted by: Thomas [TypeKey Profile Page] at April 26, 2007 06:31 PM

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