California's Democrat Governor Gray Davis is hoping that the expensive
state computer database contract with Oracle Software, a contract
California's state auditors found would actually lose taxpayers up to
$41 million and may soon be under criminal investigation, "will be like
a storm that rained on us heavily and then passes on" rather than become
the latest corruption scandal in his administration.
On Monday May 6th, the California governor and his spin doctors were out
en masse in an attempt to minimize any damage done by the testimony of
administration officials before the Joint Legislative Audit Committee in
Sacramento. officials in the California state Department of Information
Technology (DOIT), the Department of General Services (DGS), the
Department of Finance (DOF) and even one of Gray Davis' top policy
advisers all testified to the Joint Audit Committee that the $95 million
state contract with Silicon Valley software behemoth Oracle was pushed
through the Davis administration without proper competitive checks and
balances from the three aforementioned state agencies.
The Oracle contract came under intense media scrutiny whenCalifornia state
auditors released a report in April 2002. The Davis administration
authorized a $95 million contract to supply Oracle database software for
270,000 state employees through a Virginia-based Oracle reseller,
Logicon. Logicon (now known as Northrop Grumman Information Technology)
offered the installation, service, maintenance and support for the State
of California's Oracle database licenses for a six-year period.
According to the state auditors, the State of California's six-year
Enterprise Licensing Agreement (ELA) through Logicon was to cover
"licenses" of Oracle Enterprise Edition 8i database software along with
"maintenance support" for 270,000 state employees at a cost of $95
million to the state. According to data supplied by Logicon in the
March-May 2001 timeframe, the taxpayers of California would save "about
$111 million over and above the contract's cost" if the state exercised
their option to tack on an additional four years to the contract.
The terms of the ELA provided by Logicon should have raised plenty of
red flags to the California officials in charge of the negotiations. Oracle Enterprise
Edition 8i database software was released in March 1999 after a two
month "slip" in meeting their targeted release date due to bugs. Oracle
8i was rendered obsolete and replaced by the new Oracle 9i database
product in the second week of June 2001. Logicon's deal to sell Oracle
8i to the State of California on May 31, 2001 meant the taxpayers of
California were paying $95 million over a period of six years for
obsolete database software. Because of the rapidity of change in the
high-tech industry, the State's Oracle 8i database would be a full eight
years (possibly twelve years if they exercised the additional four-year
option) out of date by the time the contract had expired.
Another issue with the contract that was never raised by state
negotiators was the fact that California employs far fewer than 270,000
persons. Depending on what you consider a "state" employee, the number
of people employed by the State of California totals between 230,000 to
250,000. Even if the State of California did add another 20,000-40,000
employees over the next six years, not all of them would require access
to the Oracle database. Many of the current positions held by state
employees do not require and would never require an Oracle 8i license.
The California Department of Corrections already employs almost 24,000
people in custodial positions that have no need for a computer, let
alone access to an enterprise-level database. Could the e-government
officials in Gray Davis' administration thought they were saving money
because they were "buying in bulk?" Computer software, because of
rampant piracy and the ease of making exact copies of CD-ROM media, is
"licensed" to either single users or in large quantities to "enterprise"
businesses customers rather than being sold as a perishable product.
Volume discounts through an ELA are certainly available, but must be
carefully negotiated and studied because of the licensing terms.
Surprisingly, Davis administration officials did not properly
investigate the cost-saving claims of the Oracle ELA. According to the
State Auditor's report completed in April 2002, the Logicon/Oracle ELA
deal was a mess of wasted taxpayers' money. A March 2002 survey by the
State showed a total of zero state departments were using the new Oracle
8i Enterprise Edition database licenses and auditors project that
Californian taxpayers will have paid close to $17 million in ELA costs
and interest charges by June 2002 under the terms of the contract. The
state auditors' report showed that the California Department of
Information Technology and Department of General Services did not
properly execute their roles during contract negotiations with Logicon
and only the Department of Finance's Technology Investment Review Unit
raised concerns about the potentially raw deal California's taxpayer
would receive from Oracle. Director of the Department of Finance, Tim
Gage and Deputy Director Betty Yee, voiced their opposition to the
Logicon/Oracle contract to Kari Dohn, one of Gray Davis' top policy
advisers. Unfortunately, auditors say the Department of Finance's
review of the deal went "unheeded" by Davis administration officials who
signed off on the deal on May 31, 2001. Five days later, a $25,000
check from Oracle contract lobbyist Ravi Mehta was delivered to Arun
Baheti, the Director of California's "e-government" initiative and chief
technology adviser for Governor Gray Davis, who
forwarded the check to the Governor's re-election campaign.
As the scandal surrounding the California State Auditor's report in
April grew during the first week of May 2002, Arun Baheti and Department
of General Services Director Barry Keene both resigned. Baheti wrote in
his resignation letter that even though he: "was briefed on the Oracle
contract and supported the concept of an enterprise licensing agreement,
it is apparent in retrospect that I should have more vociferously raised
questions about the details." The implication being that Baheti had all
the information he needed to wholeheartedly support throwing away over
$100 million of taxpayer's money. In his resignation letter, Keene
wrote that he approved the contract with Oracle: "the day after a
serious and destabilizing development in my marital relationship,"
implying that any decisions Keene made during that time involving any
California taxpayer funds were questionable.
The resignations of Baheti and Keene along with the suspension of
Department of Information Technology Director Elias Cortez (who will
continue to receive his $123,255 annual salary during his indefinite
leave) were designed to deflect blame away from the Governor Gray Davis.
On May 2nd reports of employees at Department of Information Technology
destroying documents filtered into the governor's office, but were
unclear about who ordered those documents destroyed. California State
Attorney General Bill Lockyer sent agents to Department of Information
Technology offices in Sacramento later that day that seized twelve sacks
of shredded documents, computer hard drives and computer server in an
effort to obtain evidence in a possible criminal case. Lockyer told
reporters that he was concentrating his agency's efforts on what role of
Virginia-based Logicon (rather than California-based Oracle or
Sacramento-based Governor Gray Davis) played in the Oracle contract
scandal. Lockyer raised concerns that Logicon stood to make $28 million
on the six year contract, which is considerably more than the $25,000
contribution Oracle made to Lockyer's campaign on June 20th of last
year. Oracle's total campaign contributions to Democrat Lockyer (who
has been instrumental in the pushing for tougher government sanctions
against Oracle competitor Microsoft in their antitrust case) have added
up to $50,000 in the past two years, but told reporters that it was
purely Republican politics behind the calls from California lawmakers to
bring in U.S. Attorneys to handle the Oracle investigation. "I had
nothing to do with negotiating the [state's] contract [with Oracle],"
Lockyer said and told one reporter who brought up the $50,000 in Oracle
campaign contributions "I was wishing it was more."
Imagine if Texas Senator Phil Gramm had told reporters the same thing
when asked about Enron campaign contributions and the potential for
conflict of interest due to his position on the Senate Finance
Committee.
Logicon spokesmen deny criminal wrongdoing in the Oracle database
contract it brokered for California, noting that Logicon's financial
deals have all been "aboveboard" and they would help undo the Oracle
contract mess if need be. Logicon's financial arrangement with
California is currently complex; it assigned a $52 million loan to
Arizona-based Koch Financial for "financing" the contract. Logicon then
paid $36 million directly to Oracle, kept $16 million and paid $3
million in taxes - even though no state agencies were using the new
database license agreement.
Governor Gray Davis' defense of the raw deal is to plead ignorance of
the database license agreement. Davis who has a reputation as a
ruthless fund-raiser (Wayne Johnson of the California Teachers
Association recalled two meetings with Davis where the governor subtly
told him: "You
know, I really need a million dollars from you guys" for his reelection
campaign against Republican Bill Simon in 2002) and as a
micromanager, tried to make a distinction between micromanagement and
micromanagement for reporters last Friday: "I micromanage what's on my
plate, but the reason we have 250,000 (workers in state government) in
this state is that there are transactions every day in the health
department, in the transportation department, general services,
environmental agencies, as we're speaking." Even though Davis
acknowledges his micromanagement tactics regarding state agencies, he
wanted reporters to be keenly aware of his aversion to all things
dealing with technology: "I had no idea this contract was being
negotiated. I think most of you know I'm barely on the information
onramp, much less proficient in technology, so this is not a matter that
would normally come to my attention, nor did it."
However, during testimony before the Joint Legislative Audit Committee,
Department of Finance deputy director Betty Yee testified that she
received calls about the Oracle contract on May 22, 2001 from Gray
Davis' trusted policy adviser Kari Dohn who asked for a briefing "before
she has to talk with the governor." Under oath, Dohn testified that she
never told the governor about the deal, despite an internal Department
of Finance e-mail sent between DOF officials Debbie Leibrock and Dennis
Hordyk saying Dohn would brief Davis on the Oracle contract.
Cynthia Curry, senior staff counsel for the Department of General
Services, testified she was given only a few hours to review the Oracle
contract that she considered "confusing" and "conflicting" before it was
signed on May 31, 2001. Curry told the Committee that she thought DGS
Director Keene and DOIT Director Cortez were pushing the contract
through without proper analysis. "I'd never seen a contract that had so
many people in higher government pushing for it," Curry said. "I didn't
know why everybody was so excited about it." According to the Los
Angeles Times, Cortez's backing of the Oracle deal could be
partly attributable to his friendship with state Senator Richard
Polcano, a Los Angeles Democrat, whose son works for Oracle. Senator
Polcano's son attended a meeting of the California state software
advisory committee as an Oracle representative while contract terms
between Logicon/Oracle and the State were being negotiated. Keene, her
boss at the time, told her not to raise concerns that would kill the
contract.
The contract, although brokered by Logicon, is still an Oracle contract.
Oracle Software's CEO Larry Ellison, a Silicon Valley billionaire with a
reputation as a legendary cheerleader for Democrats, a big believer in
big government solutions and the man who exploited the fears of the
American people after the evil attacks of September 11th by proposing a National ID
card scheme, has been strangely silent on the scandal. However, as
of May 7th, his corporation has offered to rescind the $95 million
contract with the state of California. Logicon, Koch and Governor Gray
Davis have taken Oracle up on their offer to make the contract disappear
in the hopes of minimizing the damage caused by this scandal.
Did I really nail Gray Davis and Larry Ellison on this one or am I just
a big meanie? Please email me
with your comments.
<>
