U.S. government sues Oracle for tens of millions of dollars

The federal government says Oracle failed to disclose deep discounts it gave to commercial customers. The cost? Perhaps more than $100 million.

The U.S. government is suing Oracle Corp. for denying it significant discounts on software purchases the vendor routinely gave to its commercial customers. The government is claiming damages as high as $169 million in the Oracle lawsuit.

Paul Frascella, a former Oracle employee who worked as a contract specialist, filed the initial Oracle lawsuit in 2007 in the U.S. District Court for the Eastern District of Virginia. Two months ago, the U.S. government intervened in the case and said they would pursue it. As the whistleblower, with the U.S. government involved, Frascella is looking for 25% of the awarded damages.

According to the lawsuit, Oracle schemed to “defraud the United States by failing to disclose deep discounts Oracle offered to commercial customers when Oracle sold software products to federal government agencies through a General Services Administration Multiple Award Schedule.”

The federal General Services Administration (GSA) establishes long-term contracts with commercial companies through its Multiple Award Schedules. These schedules presumably save the federal government money by contracting for all federal agencies and obtaining volume discounts. The suit claims that Oracle legally should have offered deeper discounts on contracts with the GSA, in line with similarly deep discounts it offered some commercial customers, and points to the code of federal regulations to make its case.

Frascella claims that when he first started working for Oracle in 1997, he sat in on sales training that warned against giving commercial customers greater discounts than those given to the federal government under the GSA schedule. But according to the suit, Oracle found multiple ways around that.

One way was in dividing its software into two categories, technology products such as databases, and applications such as enterprise software. Frascella claims he was told that application software didn’t fall under the GSA rules, but he learned later that in fact it did. According to the suit, Oracle would package technology products with applications in an attempt to circumvent the GSA contracting rules and give greater discounts to commercial customers.

Another was in giving a huge discount to a reseller, which then turned around and sold the product to the commercial end user for a still-deep discount.

“Oracle also got around the maximum allowable discounts by selling a limited use license or a term license that varied in some way from the licenses sold on the GSA schedule,” according to the Oracle lawsuit.

Oracle declined comment. Frascella’s attorney, Christopher Mead, did not return calls for comment.

Mark Fontecchio can be reached at [email protected].

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