DOJ Sues Oracle for Overcharging Government Agencies

For the third time in three months, a major U.S. enterprise IT vendor has been cited by the U.S. Department of Justice for allegedly inequitable -- and possibly illegal -- pricing practices with regard to federal agencies.

The DOJ on June 17 filed a lawsuit against enterprise middleware and business application maker Oracle for allegedly failing to disclose discounts and overcharging the federal government by tens of millions of dollars.

On May 25, EMC settled a similar lawsuit with the DOJ for $87.5 million. In that case, the DOJ alleged that EMC misrepresented its commercial pricing practices by fraudulently inducing the General Services Administration to sign a contract that included prices that were higher than they would have been had the company not made false representations.

The GSA oversees contractor relationships for all federal departments.

In April 2009, NetApp paid out a $128 million settlement with the DOJ and GSA in a similar case.

Like the Oracle case, the EMC and NetApp cases were started by whistleblowers. In the NetApp case, whistleblower Igor Kapuscinski received $19.2 million as part of the settlement, which is the largest contract fraud settlement the GSA has obtained to date.

The June 17 complaint filed in the U.S. District Court for the Eastern District of Virginia specifies that Oracle provided discounts to its "most favored customers" that also should have been provided to government customers through a longstanding agreement with the General Services Administration.

This agreement with the GSA is intended to make routine purchases easier and faster for federal government employees, the DOJ said.

The original lawsuit was filed back in 2007 by Paul Frascella, an Oracle employee. The suit, recently unsealed, contends that Oracle failed to disclose its lowest prices on software products to the GSA and took unwarranted profits as a result.

Under what is called the GSA's "multiple award schedule," the federal government negotiates contracts with suppliers and makes lists of specific products that can be used by government employees to make purchases quickly on an as-needed basis.

The GSA is then required to obtain the best price a contractor provides, which must be disclosed by the contractor. The DOJ suit alleges that Oracle did not disclose the discounts.

An Oracle spokeswoman said the company would have no comment at this time.

Editor's note: This story has been updated to include additional information about previous DOJ litigation in this sector.