US DoJ sues Oracle for overcharging government agencies

The US Department of Justice (DOJ) yesterday filed a lawsuit against Oracle alleging that the world's biggest database software company defrauded the government in a software contract that involved hundreds of millions of dollars.

Under the General Services Administration (GSA) software contract, the DoJ alleges that GSA used Oracle's disclosures about its commercial sales practices to negotiate the minimum discounts for government agencies who bought Oracle software.

The contract required Oracle to update GSA when commercial discounts improved and extend the same improved discounts to government customers. The suit contends that Oracle misrepresented its true commercial sales practices, ultimately leading to government customers receiving deals far inferior to those given by Oracle to its commercial customers.

"We take seriously allegations that a government contractor has dealt dishonestly with the US," said Tony West, assistant attorney general for the civil division of the DoJ. "When contractors misrepresent their business practices to the government, taxpayers suffer."

The suit was originally filed by whistle-blower, Paul Frascella, a senior director of contract services at Oracle.

The False Claims Act provides financial incentives for private citizens with knowledge of fraud to file suits on behalf of the government and Frascella, who left Oracle in 2008, can claim between 15 and 25 per cent of any damages awarded in the case.

In a similar case in May 2009, EMC Corporation, a provider of storage networks for data centres, agreed to pay $87.5 million to settle a lawsuit for overcharging the GSA, while NetApp, a rival to EMC, paid a record $128.7 million to settle a similar case.