Oracle e-mail talks of cost "problems"
June 11, 2002
In response to a request from a legislative audit committee investigating a $95 million no-bid contract, software maker Oracle and its business partner, Logicon, submitted a two-inch stack of documents. Among the papers were printouts of e-mail in which company employees discuss which government officials to approach about the deal, how to shape strategies for making the sale and how to calculate cost savings.
In one e-mail, Logicon employee Rajan Mittu and Greg Loos, a sales associate at Oracle's office in Rocklin, Calif., go over how to characterize the value of California's many existing Oracle contracts. That issue is crucial to determining whether the deal was good for the state: Oracle claimed that California would save money by consolidating sales to various state agencies, but a state audit later determined that the contract included more "seat licenses" than were needed.
Another e-mail, between an Oracle salesman and his supervisor, urges that Oracle Chief Executive Larry Ellison be asked to personally call Gov. Gray Davis to thank him for the state's business. The e-mail suggests talking points including these: "California was wise to leverage its size and relationship with Oracle to make a volume purchase" and "(give) thanks to the hard work put in by (Davis') staff."
Kevin Fitzgerald, Oracle's senior vice president for government, education and health, testified Tuesday that, to his knowledge, Ellison never called Davis. However, Fitzgerald, who oversees all of Oracle's contracts with various states, said he never specifically asked Ellison whether he had ever called the governor's office.
When asked about campaign contributions, Fitzgerald denied that there was any connection between the $25,000 contribution Oracle later made to Davis' election campaign and the contract negotiations, saying there was a "firewall" between Oracle salespeople and its government affairs department, which handles campaign contributions.
But Fitzgerald added that Oracle salespeople sometimes attend campaign fund-raisers and that some salespeople were in attendance at the fund-raiser in which Oracle pledged the $25,000. That contribution was later returned to the company.
Oracle and the governor's office have said that Ellison and Davis did not actually discuss the contract, and Davis has said he didn't know anything about the contract before it was signed.
The audit also said the contract would cost California $41 million more than the state's existing contracts, rather than save more than $100 million over six to 10 years, as Oracle has maintained.
Cost reporting "could create problems"
In one e-mail, Mittu notes that some of the costs being reported by state agencies "could create problems for us," and he asks Oracle's Loos if he can remove some of the data. "Again, the goal is to show that the state is spending all this money and getting very little," he wrote.
In another e-mail, Loos advises Mittu on how to discuss the differences between the number of Oracle licenses covered under the old terms and under the new umbrella policy. "I would keep the net new licenses more ambiguous if it were up to me," he writes. "Focus on the total aggregate users, because the 'license credits' will skew the results...Can you use the license credits in your summary? That might help your justification--and it's harder for them to audit."
E-mails between Oracle and Logicon have been released before. In documents reviewed by CNET News.com last month, Loos and Mittu discuss how much information to give Kim Heartley-Humphrey, the deputy director of acquisitions at the California Department of Information Technology. The department was created in 1995 to coordinate major technology purchases for the state.
Representatives for Logicon and Oracle could not be reached on Tuesday for comment on the latest e-mail. Last month, Logicon issued a statement saying that it continues to believe the contract provided "substantial savings" to the state.
The audit committee, which has been hearing testimony from state officials for weeks, is entering a second phase more directed at gauging the value and merits of the contract. To that end, former state auditor Kurt Sjoburg, who was hired by Oracle to review the contract, told the committee last week that Oracle cost estimates were correct. Previous testimony has focused on how state officials handled the negotiations and review.
Oracle spokesman Jim Finn said earlier on Tuesday that the salesmen did not try to rush the no-bid contract through before state officials had a chance to verify cost savings and claims.
"Logicon was the total interface with the state," Finn said, noting that Oracle executives stepped in only about five days before the contract was finalized. "We weren't even involved until that point."
In the more than 70 hours of previous testimony, numerous state employees participating in the deal said they had raised questions about the speed and lack of scrutiny with which the deal was approved by the governor's office and other state agencies. A six-year contract, the auditor noted, is unusually long in an industry with rapidly changing technology.
Meanwhile on Tuesday, Larry Krieg, the former counsel to the state Consumer Services Agency, declined to testify voluntarily after the committee chairman told Krieg that he did not have immunity regarding anything he said. The committee then gave him the questions they planned to ask, and he again declined to testify.
Krieg had been expected to testify about the role of the agency's director, Aileen Adams. Specifically, the committee wants to determine what she knew before she and five other state officials sent their endorsement of the deal to the governor's office.
There has been conflicting testimony about what concerns were raised to Adams before she backed the deal. A state official said Adams questioned the deal; Adams testified before the committee that she knew of no problems.
News.com's Alorie Gilbert contributed to this report.