Lawmakers review state Oracle contract that audit says could cost Calif. millions

By Jennifer Coleman The Associated Press
Friday April 19, 2002

SACRAMENTO — The chair of a legislative audit committee called on Attorney General Bill Lockyer Thursday to look into the validity of a state contract that could cost taxpayers millions more than if the state hadn’t signed the deal. 

A report this week by the Bureau of State Audits found that three state departments improperly relied on a vendor’s presentation that the $95 million software contract with Oracle Corp. would save the state $111 million. 

The contract may cost the state $6 million to $41 million more than if there had been no contract at all, State Auditor Elaine Howle told members of the Joint Legislative Audit Committee Thursday. 

Assemblyman Dean Florez, D-Shafter, the committee’s chairman, called the report “troubling” as he asked for Lockyer’s review. 

The contract was approved by the departments of Information Technology, General Services and Finance that Howle said relied on a vendor’s savings projections instead of doing their own calculations. Each department blamed the others Thursday for the faulty review. 

Logicon Inc., which made the cost-savings estimates, stood to make $28.5 million from the abnormally lengthy six-year deal, she said. 

DGC director Barry Keene said he wasn’t aware of that arrangement, and thought DOIT had vetted the savings projections. 

DOIT Director Elias Cortez said he thought Keene’s office or the finance department would do an independent analysis of the figures. 

Under the contract, Oracle would license database software for up to 270,000 state workers, despite a survey by DOIT that found very few state workers would need or want Oracle products. 

Keene said he hadn’t heard of the survey until after the contract was signed. 

Cortez said he was “shocked that they hadn’t seen it.” 

Even if it wasn’t included with the Oracle contract, DGS was one of the 122 state departments that received the survey, he said. 

Assemblyman Bill Leonard, R-Rancho Cucamonga, said the interagency finger-pointing had to stop. 

“Someone has to step up and take responsibility,” he said. “But other than a few cover-your-rear e-mails, I haven’t seen any state employee step up.” 

Finance Director Tim Gage, whose staff raised concerns with the savings projections and the contract’s lack of an escape clause, said he recommended delaying the contract by a year. 

Despite that suggestion, the three departments — DOIT, DGS and finance — approved the contract with the Redwood Shores-based Oracle in May. 

But 10 months later, no state departments had the software, in part because DGS had not issued instructions on how to get it, Howle’s audit found. Still, the state will have paid $17 million in contract costs and interest fees by June, and another $14 million payment is due in September, she said. 

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. 

But critics, including Sen. Debra Bowen, D-Marina del Rey, say the audit is a good argument for DOIT to be dismantled. 

“DOIT’s answer is that ensuring the deal was accurate was somebody else’s job because it didn’t have the expertise to make sure the state wasn’t getting taken for a ride,” she said. “Doing that job is the whole reason DIOT was created.” 

DOIT was created in 1995 to coordinate the state’s technology purchases. It 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. 

Oracle officials did not return a telephone message from The Associated Press. A message left for officials at Herndon, Va.-based Logicon, a subsidiary of Los Angeles-based Northrop Grumman Corp., was also not immediately returned.