Analysis: Oracle deal could cost taxpayers 924 Gilman St. Oct. 26: Influents, Plus Ones, Divit, Summerjack, Robot Adrenaline, Claredon Hills; Oct. 27: (Halloween show, $1 off if you’re in a (non-punk) costume!) Babyland, Tsunami Bomb, Scissor Hands, Dex

The Associated Press
Monday October 22, 2001

SACRAMENTO – A $126 million contract with software giant Oracle Corp. has been lauded by state officials as a money-saving success, but a closer review has found that lawmakers may have been too hasty in their effort to approve the first statewide software deal, a newspaper reported Sunday. 

The contract gives all state employees access to Oracle databases for the next 10 years and is expected to save more than $100 million. But based on public documents and interviews, a San Jose Mercury News analysis has found that the deal may end up leaving taxpayers with unnecessary expensive technology. 

State officials relied on a consulting company, Virginia-based Logicon, that was pitching the Oracle deal to outline the savings and benefits of signing the contract, instead of an independent firm. State conflict of interest laws prohibit consultants from pitching technology they would benefit from if the deal was completed, the newspaper reported. 

Officials from the Department of General Services said they were unaware of Logicon’s connection to Oracle. 

“I just recently learned about it,” said Janice King, a procurement manager who helped negotiate the deal. 

King said Legicon “helped with the legwork” but she added that “they weren’t making the decisions. We were.” 

But outside consultants said those negotiating the deal should have been more thorough. 

“This contract goes against every piece of advice we would give our clients,” said Betsy Burton, analyst for Gartner, an independent technology consulting firm. “It makes some big, big assumptions that are very hard to back up.” 

Technology and procurement officials did not properly notify legislators about their bidding, the Mercury News reported. Those officials now admit they made some mistakes but are sticking by the deal they say will be a long-term winner, allowing the state to break even if the price was off by 50 percent. 

“There is a big fudge factor,” King said. “We felt we could be substantially off and still make a safe investment.” 

The oracle deal was calculated by looking at how much the state had spent on Oracle software over the past three years. From that, negotiators assumed that the state would continue buying the same amount of software at the same price it paid in 2000 over the next decade. 

Two weeks after the deal was sealed to meet the company’s May 31 deadline, Oracle cut the cost of some of its software by up to 50 percent. 

“Markets and pricing change so rapidly in information technology,” said Mark Shainman, senior research analyst with the high-tech industry tracing company META Group. “We never advise our clients to lock themselves into one product for 10 years.” 

Oracle insists the deal was fair. 

“We gave the state a fabulous price,” said Ken Glueck, Oracle’s vice president of corporate affairs. 

The state’s technology department also has been criticized for not seeking other bids. But the department has said no other company makes the database software it needed from Oracle. Analysts said that while the state got a steep discount on the software, other companies, such as IBM Corp., could have provided a competitive offer.