Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

GSA has now topped the $128 million settlement it reached in 2009 with NetApp – then the largest settlement reached in an FCA action against a GSA Schedule contractor – by settling with Oracle Corporation and Oracle America Inc. this past week in the amount of $199.5 million plus interest. The settlement resolves an FCA action brought by former Oracle employee, Paul Frascella, under the qui tam provisions of the statute, in which the Department of Justice intervened.

The Government’s and relator’s complaints had alleged that Oracle provided false, incomplete, and inaccurate information to the government during its negotiation of the Schedule contract; failed to disclose deep discounts given to the most favored commercial customers; and submitted false certifications. The Government’s complaint also alleged that Oracle actively took steps to ensure that its commercial sales to its basis of award customers did not trigger the Price Reduction Clause by means such as increasing the order size to exceed the contract’s maximum order threshold, arranging for the sale through a reseller rather than directly from Oracle, or changing the terms of the software license sold to the commercial customer so that it differed from the terms of the licenses on the GSA Schedule contract. 

While it would have been interesting to watch the outcome of the case had it been litigated, given the unusual allegations of fraudulent schemes to circumvent the Price Reduction Clause, the settlement amount indicates there were sufficient facts supporting at least some of the allegations, such that the company chose to settle rather than fight the case.

How to avoid being GSA’s (or a whistleblower’s) next target for a fraud action:

• Ensure your commercial pricing disclosures are current, accurate, and complete
• Negotiate a Basis of Award customer that your company can competently and consistently monitor with respect to discounts and changes in commercial pricing
• Implement a rigorous tracking system to ensure that price reductions given to the Basis of Award customer(s) are also given to Government customers
• Ensure that any certifications signed and submitted to the Government are 100% accurate
• Implement internal controls and policies that require company personnel – from the sales force to the managers of the Schedule contract – to comply with the contractual requirements
• Require mandatory training of company personnel to educate individuals on the contractual requirements and the importance of compliance
• Implement a reporting system that allows employees to report concerns about the company’s compliance with the contract requirements and that ensures such concerns are properly addressed and resolved.   

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As discussed in my blog post in June, the Department of Justice intervened in a False Claims Act case filed by a whistleblower against Oracle which alleged that the company had failed to accurately disclose its commercial pricing practices to the government in association with its GSA Schedule contract. DOJ has now filed its complaint (.pdf) in this case.

The complaint largely tracks the allegations in the complaint filed by the whistleblower, who is a former Oracle employee. For example, DOJ’s complaint alleges that Oracle provided false, incomplete, and inaccurate information to the government during its negotiation of the Schedule contract. Not only does this allegation assert that Oracle’s actual discounting practices to its commercial customers were not fully or accurately reflected in its disclosures to the government, but also DOJ asserts that Oracle’s actual commercial pricing practices did not distinguish between different classes of commercial customers, even though the company’s disclosures to the government had included one set of discounts for “national accounts” customers and a different set for “commercial end users.” 

The complaint also alleges that the company actively took steps to ensure that its commercial sales to its basis of award customers did not trigger the Price Reductions Clause by means such as increasing the order size to exceed the contract’s maximum order threshold, arranging for the sale through a reseller rather than directly from Oracle, or changing the terms of the software license sold to the commercial customer so that it differed from the terms of the licenses on the GSA Schedule contract.  It will be interesting to watch the development of this allegation in particular, because, typically, Schedule contractors can legitimately distinguish certain of its commercial sales to its basis of award customers from those sales that trigger the Price Reductions Clause.       

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On June 16, 2010, the media reported that a False Claims Act case had been filed by a whistleblower against Oracle Corporation alleging that the company had failed to disclose deep discounts given to the most favored commercial customers. The Department of Justice has intervened and unsealed the relator’s complaint. The Government has not yet filed its complaint but is expected to do so this summer.

GSA Schedule contractors are clearly in the hot seat for fraud allegations: Recall the NetApp settlement of $128 million reached a year ago that was based on a relator’s allegation of failure to comply with the Price Reductions Clause. Then there were the Folliard and United States ex rel. Crennen v. Dell Marketing LP (__ F. Supp. 2d. __, 2010 WL 1713633 (D. Mass. Apr. 27, 2010)) decisions issued a few months ago, both alleging that sales of products purportedly non-compliant with the Trade Agreements Act resulted in the submission of false claims by Schedule contractors. Just last month, the EMC settlement was announced, resolving allegations of false claims and improper fee payments to encourage the sale of EMC’s products off its Schedule contract. Of course, Oracle settled a prior False Claims Act case in 2006 that alleged that commercial discounts had not been properly disclosed to GSA on PeopleSoft’s (later acquired by Oracle) Schedule contract. 

This new Oracle complaint again reminds us of the risk of fraud allegations when performing a GSA Schedule contract.  Particularly because many GSA Schedule contract holders have little to no other federal government business, they apply for a Schedule contract with little consideration of the unique requirments with which they will be expected to comply -- particularly the disclosure and pricing requirements.  These fraud cases underscore the importance not only of disclosing the required commerical pricing information and negotiating a workable Most Favored Customer for Schedule performance, but also of having workable internal policies and procedures that allow the contractor to comply with the Schedule contract's requirements without compromising its commercial business pursuits.  Does your company have the policies and procedures it needs to ensure compliance with Schedule requirements?   

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