Oracle contract could cost state millions Software may cost California more than it saves; IT department to close as result

By Don Thompson Associated Press Writer
Wednesday April 17, 2002

SACRAMENTO — Lawmakers may eliminate a state department this spring based on an audit Tuesday that found a faulty state computer contract could cost taxpayers millions of dollars. 

Three state departments improperly relied on a vendor’s presentation that the nearly $95 million software contact with Oracle Corp. would save the state $111 million in the long run, auditors said. 

Instead, the contract may cost the state $6 million to $41 million more than if there had been no contract at all, concluded State Auditor Elaine Howle. 

“If there was any doubt in anyone’s mind that DOIT (the Department of Information Technology) has outlived whatever usefulness it may have had, this audit ought to put an end to it,” said Sen. Debra Bowen, D-Redondo Beach, who asked for the audit in September. 

“As the auditor found, DOIT didn’t lift a finger to do the very thing it was created to do,” Bowen said. “It didn’t set standards, it didn’t verify savings projections, and it ignored its own study showing the project wasn’t needed.” 

The audit immediately prompted the Joint Legislative Audit Committee to set a hearing for Thursday, while a lawmaker called for more legislative oversight if the DOIT is to survive. 

Created in 1995 to coordinate the state’s technology purchases, the department will close July 1 unless lawmakers act. Gov. Gray Davis is backing legislation by Assemblyman Manny Diaz, D-San Jose, that extends its life through next year but lets lawmakers terminate projects with substantial cost overruns. 

“DOIT welcomes reforms,” said department spokesman Kevin Terpstra. 

That’s too late, Bowen said, because “the problems with this agency are so deep, so fundamental” that blowing it up is the only way to reform it. 

The department has 76 employees and an $11 million budget. 

However, auditors said the contract passed muster with three state departments that relied on a vendor’s savings projections instead of doing their own calculations. The departments may not have been aware that the vendor, Logicon Inc., stood to make $28.5 million from the abnormally lengthy six-year Oracle deal, auditors found. 

DOIT sought the contract despite determining in advance there was a limited need for the software, the audit found. 

Indeed, no state departments had the software as of last month, more than 10 months after the contract was approved, in part because the Department of General Services had not issued instructions on how to get it. 

Nonetheless, the state will have paid $17 million in contract costs and interest fees by June “with little benefit to show for it,” Howle wrote in her report. 

The three departments — DOIT, General Services and Finance — approved the contract with Redwood Shores-based Oracle despite a recommendation from the Finance Department’s review team that it be postponed a year. 

All three departments now agree with the audit’s conclusions, though they say they’ve taken steps to improve both the contract and the contracting process. 

Herndon, Va.-based Logicon, a subsidiary of Los Angeles-based Northrop Grumman Corp., declined comment. Oracle officials did not return a telephone message from the Associated Press.