California Rescinds Computer Contract Critics Said Would Cost State Millions

The state rescinded its $95 million contract with Oracle Corp. and one of the software company's vendors, Northrop Grumman, the state attorney general's office and Gov. Gray Davis' General Services and Finance departments said Tuesday.

The agreement calls for the companies to repay a $52.3 million loan plus interest and fees that the state took out to pay for Oracle database software and the first year of technical support.

'The money has already been wired to New York and the deal is closed,' said Barry Goode, Davis' legal affairs secretary.

The contract, signed in May 2001, was supposed to save the state more than $100 million through volume purchases and maintenance of Oracle software.

But the state auditor said last April the deal could end up costing the state as much as $41 million more than if it had stuck to its previous software supply arrangements, a finding Oracle denied.

Critics said state officials never verified the cost savings claimed by Oracle and Northrop Grumman.

The audit resulted in more than 100 hours of hearings by the Legislature's Joint Audit Committee and an ongoing criminal investigation by the attorney general's office.

The agreement to rescind the contract doesn't shield the two companies from potential criminal charges, Goode said at a Capitol news conference.

The contract had become an embarrassment to the governor in his campaign for a second term. Davis received a $25,000 campaign donation from Oracle five days after the contract was signed. Oracle officials and the governor denied any link, but Davis returned the money.

Shelley Mateo of the Department of Finance said the companies signed off on the deal to end the contract because they wanted to keep the state as a future customer.

Democratic Assemblyman Dean Florez, who chaired the audit committee hearings on the contract, said the rescission was a 'welcomed resolution to a rotten deal.'

Clothilde Hewlett, Davis' interim director of the Department of General Services, said she wouldn't rule out the state signing the same type of agreement in the future. But she said the state should first do a detailed needs assessment and use experts to negotiate the deal.