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On May 31, 2001, Oracle Corporation (Oracle), with the assistance of its dependent broker Logicon Inc (Logicon), sealed a six-year enterprise licensing agreement (ELA) with the state of California to provide statewide database software and maintenance support to over 270,000 state employees.
On face value, the contract, worth almost $95 million, seemed beneficial to the state in not only achieving significant volume discounts by broadly licensing the software, but also reducing its overall administrative costs (Howle & Hendrickson, 2002).
Overall, it was argued by Oracle and Logicon’s officials that the statewide software contract would help California save up to $100 million in taxpayers’ dollars over six to 10 years (Borland, 2002; Gilbert 2002b).
But as noted in a report by the California State Auditor, this contract could have seen the state spend $6 million to $41 million more on Oracle database software and maintenance support than it would have if no contract was sealed (Howle & Hendrickson, 2002). The present paper analyzes the Oracle and California case in depth, its major actors, triggering forces, consequences and long-term effects.
The Oracle and state of California case, it can be argued, revolves around poor contracting practices as witnessed by the loopholes and oversights inherent when the state entered into an ELA with Oracle (Howle & Hendrickson, 2002). Information technology (IT) is generally considered an enabler of the state’s agility, particularly when its use results in massive cost efficiencies and productivity (Reddick, 2012).
In this particular case, however, “…a preliminary survey by the Department of Information Technology (DOIT) of 127 state departments two months earlier strongly suggested that relatively few state workers might need or want any new Oracle Corporation (Oracle) products” (Howle & Hendrickson, 2002, p. 1). But state officials went ahead to buy into the deal despite prior knowledge from the survey which insinuated that Oracle products were not a priority.
Additionally, it is evident how Logicon, the official reseller for Oracle, quickly immersed itself in the deal and aimed for key contacts that it would need in Sacramento political circles not only to win political favoritism (Borland, 2002), but also reap handsomely in a deal that state officials admit they never took adequate time to ascertain Logicon’s data (Howle & Hendrickson, 2002).
While it is arguable that Oracle viewed the California case in light of victimization due to political temperatures reminiscent of an election year (Gilbert, 2002a), it is evident how the contract was grounded in political influence and smoothed by capitol relationships (Borland, 2002).
But although the state legislative audit committee held two months hearings with 30 witnesses and 2500 pages of documents, contradictory testimony throughout the trial proved inadequate in providing an accurate picture of how the multi-million deal was finalized or structured (Borland, 2002). Consequently, the following analysis is an attempt to provide in-depth insights into some overriding scenarios of the case.
To date, it remains difficult to outline the undercurrents of Oracle and California case, but at least we can now map out the factors that come into play to precipitate the case. In one of his recommendations to the Governor’s office, Kelso cited in Peterson (2002) advocates for “…a clearer assignment of roles and responsibilities for IT planning, management, procurement and project management” (p. 1).
The lack of this function coupled with a faulty contracting system, in my view, allowed Logicon the opportunity to exploit weak governance structures and push through a defective deal. While the state was loosing money, Logicon stood to make a massive $28 million from the ELA, a fact that state officials may not have been apprised of (Howle & Hendrickson, 2002).
Political maneuvers on the part of Logicon to ensure the contract went through complicated issues (Gilbert, 2002a), but not to the extent demonstrated by state bureaucrats, who not only failed to scrutinize the deal as much as they could have, but never questioned Oracle’s promises of cost savings and estimates for the number of business licenses that the state would need (Borland, 2002).
Up until now, it is yet unclear why the above oversights and errors were committed. Although ultimately California officially canceled the sprawling six-year contract with Oracle on July 23 2002 (Borland, 2002; Gilbert, 2002b), contradictory testimony throughout the trial means that it may not be clear how and why these oversights and errors went unnoticed (Borland, 2002).
To date, according to this author, “…it’s also unclear whether Oracle or Logicon is to blame for the convoluted contract – or whether state officials were too trusting of the promised cost savings and license estimates in the first place” (para. 13).
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It may not be clear why the convoluted contract involving California and Oracle went through despite shortcomings, but it is certainly clear who the major players were. From the critical evaluation of literature on the case, it cannot escape mention that both Oracle and Logicon undertook critical roles in ensuring the contract went through.
The role played by the Department of Information Technology (DOIT) was equally critical in facilitating a faulty deal that investigations revealed could have led to the loss of millions of taxpayers’ money (Howle & Hendrickson, 2002). In particular, the General Services and Information Technology departments bore a heavy burden of the case (Borland, 2002)
While reading through the various documents highlighting the case, it is clear that Logicon engaged in adaptive malpractices with the help of Ravi Mehta to win the contract for Oracle and afterwards benefit financially through contract fees and loyalties (Borland, 2002). Mehta’s greatest contribution, it seems, was to scout for ‘political connectedness’ to win the contract for Oracle through campaign money contributions.
Indeed, governor Gray Davis had already received a $25,000 campaign contribution from Oracle some few days after the deal was signed (Borland, 2002), not mentioning that Mehta, acting for Logicon, solicited the assistance of Sen. Richard Polanco and Assemblyman Marco Firebaugh with an obvious intention of sealing the contract (Howle & Hendrickson, 2002).
Therefore, it can be argued, the salient trend reminiscent throughout the pre-contract signing era was for Logicon to act as the deal broker while Oracle provided the financial resources needed for political maneuvering.
Inside the state agencies, it is evident from the case readings that the General Services limited their legal counselors in all contracts, causing vague contractual terms and missing language that went a long way to open a window of opportunity for misuse and misrepresentation (Howle & Hendrickson, 2002). This particular department, in conjunction with the department of Finance, had also been accused for failing to effectively evaluate the state’s actual need for the Oracle contract.
Employees from the IT department were also netted as major players as they, in conjunction with their counterparts in Finance and General Services, approved the ELA without taking the necessary steps to validate the costs savings projections presented by Logicon (Howle & Hendrickson, 2002).
Moving away from the key players, it is imperative to analyze the consequences and the aftermath of the contract, as well as the long-term effects. By far the biggest consequence of the convoluted contract was the wounding up of the state’s department of information technology (Gilbert, 2002b), an institution that had been established in 1995 to steer the state clear of IT-related system failures and challenges (Peterson 2002; California Technology Agency, 2011).
An underlying consequence or aftermath of the contract was the resignation of senior state officials, including Eliaz Cortez, the then head of the state’s department of information technology (Gilbert, 2002b). Politicians who accepted campaign contributions from Ravi Mehta of Logicon as a means to woo political favors also suffered heavy political setbacks from the exposure.
Indeed, Governor Davis, who was due for re-election in November 2002, had to return the $25,000 campaign contribution facilitated by Oracle upon the signing of the contract (Borland, 2002; Howle & Hendrickson, 2002; Gilbert 2002b).
It is also obvious that both Logicon and Oracle suffered from dented images and public reputation, a fact that is evident from the accusations and counter-accusations both firms traded against each other during the Audit hearings.
In one instance, Oracle executives said they all but ignored Mehta’s recommendations that the software giant contributes money to political campaigns (Borland, 2002), but they still went ahead to contribute $25,000 to Governor Davis’ campaign kitty (Howle & Hendrickson, 2002). Such misalignment of facts caused embarrassment for Oracle and its main lobbyist in the deal – Logicon.
The long-term effects of the convoluted contract are best illuminated by Kelso in his recommendations to the office of Governor. Among the most important, Kelso cited in Peterson (2002) underlines the need “…to have a clearer assignment of roles and responsibilities for IT planning management, procurement and project management” (p. 1).
It is generally felt that some overlap of roles as well as confusion about which state agency or department was ultimately responsible for which type of IT project may have given a window of opportunity for the defective contract to progress, thus the need to undertake long-term measures of not only making clear assignments of roles and responsibilities, but also encouraging public input and public vetting of major IT projects to avoid such oversights and errors (Peterson, 2002).
Lastly, the Oracle California case also demonstrates the need for long-term concerted efforts aimed at aligning the state’s IT governance structure with the actual structure of California state government with the view to achieve harmony among the many dispersed units (Peterson, 2002). In the view of many commentators, the dispersed governance structure and the level of autonomy exercised by state agencies and departments could have exacerbated the situation.
Conclusion & Key Learning Outcomes
Through an insightful analysis of available literature, the present paper has brought important angles of the Oracle and California case into the limelight. As already mentioned elsewhere, the investigators failed to unearth what was really going on due to the nature and complexity of the evidence adduced (Howle & Hendrickson, 2002), but the investigation was closed with deep criticism of almost every single player involved (Borland, 2002).
A major key learning for state officials is to what is right instead of what they feel is politically expedient. Another key learning revolves around avoiding political and monetary influence in undertaking state contracts.
Additionally, the convoluted contract exposes the need to have effective state employees who have the capacity to synthesize and make meaning of all contractual documents, as well as the need for effective leadership, coordination and collaboration between various state agencies and departments to seal all loopholes that could be used by self-interested contractors and individuals to achieve selfish gains (Peterson, 2002).
Borland, J. (2002). Lawmaker: “Influence” drove Oracle deal. CNET News. Retrieved from https://www.cnet.com/news/lawmaker-influence-drove-oracle-deal/
California Technology Agency. (2011). History of the California Technology Agency. Retrieved from https://cdt.ca.gov/about/
Gilbert, A. (2002a). Auditors joust over Oracle contract. CNET News. Retrieved from https://www.cnet.com/news/auditors-joust-over-oracle-contract/
Gilbert, A. (2002b). California cancels Oracle contract. CNET News. Retrieved from https://www.cnet.com/news/california-cancels-oracle-contract/
Howle, E.M., & Hendrickson, S.M. (2002). Enterprise Licensing Agreement: The State failed to exercise due diligence when contracting with Oracle, potentially costing tax payers millions of dollars. California State Auditor. Retrieved from http://www.bsa.ca.gov/pdfs/reports/2001-128.pdf
Peterson, S. (2002). California DOIT closes up shop. Government Technology. Retrieved from https://www.govtech.com/e-government/Californias-DOIT-Closes-Up-Shop.html
Reddick, C.G. (2012). Public administration and information technology. Burlington, MA: Jones & Bartlett Learning.