Oracle on Defensive Over California Contract Controversy

Two executives within Oracle's government business speaking at the Fortune 1 Business government conference this week defended Oracle's role in the contested $95 million software contract with the state of California. The states' Joint Legislative Audit Committee recently began an inquiry into the contract, the testimony phase of which ended Wednesday. While Oracle has offered to rescind the enterprise license agreement several times, the company still maintains that state officials' claims that it deliberately sold the state more software than it wanted or needed are untrue.

Jack Pellicci, group vice president of business development for Oracle's government, education and health business, contends that no Oracle employee did anything wrong intentionally.

"It's a very difficult situation right now," Pellicci says. "We gave such a good deal to California, but obviously there's a difference of opinion."

He says election-year political events in the state have complicated the investigations and have only "thrown fuel on the fire." Pellicci says Oracle worked diligently on the California contract for 18 months and there were no unethical actions on its part. Pellicci did allude to mistakes being made in the process and suggested Oracle would have approached the contract more carefully if the company had to do it all over again.

"This deal happened over a year ago, but I can tell you there's no way we'd do the deal again today," Pellicci says. "Larry Ellison would not allow us to do that same deal today, not with the way business practices have been tightened."

Ellison said during Oracle's most recent earnings call that the company would no longer engage in high-pressure selling and last-minute deals to make quarterly estimates.

Charles Kendig, vice president of quality and customer satisfaction for Oracle's government, health and education business, also spoke at the Fortune 1 Business conference and says the software company has offered full cooperation with the state legislature.

"We believe the contract is a sound one," Kendig says. "It's a good deal for Oracle and California. It appears that there are some politics with this issue. We've done what we were asked to do by the legislature."

While Oracle has held back from placing the blame on the state, others have not been so kind. An anonymous insider familiar with the contract holds California's extensive bureaucracy responsible for the fiasco.

"Oracle did nothing wrong," the source says. "California saved money. The problem wasn't the Oracle salespeople. The problem was the state had all [bureaucrats that were supposed to monitor the deal and sign off on it and they never did because each person assumed the other person was doing it."

Glen Perry, director of contracts and purchasing operations at the Department of Education, also spoke at the Fortune 1 Business conference and said during a panel discussion Wednesday that the government's unfamiliarity with the IT industry and software in particular can often lead to trouble.

"As government agencies, sometimes we don't do a good job communicating what it is we're really trying to do and really put the product in the right context," Perry says. "I suspect some of the same issues are present in the California situation."

State officials have even admitted during the inquiry that they should have taken more time to go over the proposed contract. Yet several legislators still maintain that the deal was bad and that the state was "taken to cleaners" by Oracle, according to Assemblyman Dean Florez, chairman of the California JLAC.

Contrary to some reports, Oracle says nearly 50 state and local agencies in California have begun using software included in the recent contract, which was signed in May 2001. Oracle has also made public a report by a former California state auditor that claimed the state would save more than $100 million over the next 10 years with Oracle. However, the state auditor's report that spurred the controversy in April claimed the state had been charged $41 million more than California's existing contract with Oracle and that the new contract sold the state more software than it needed. California Gov. Gray Davis has reportedly fired several state officials involved in the disputed contract.

The two-month inquiry included more than 30 witnesses, including officials from Logicon, the Oracle reseller involved with the contract. Pellicci says the inquiry, which has been criticized heavily by Oracle officials, is preventing state and local agencies from actually using the software and therefore wasting money.

"That's the shame of this whole thing; the users are just sitting around," he says. "I hope we can resolve this soon."