May 15, 2002 7:20 AM PDT

Lawmaker: Oracle deceived California

SACRAMENTO, Calif.--A California legislator accused Oracle and its business partner Logicon of being "part and parcel of defrauding the state of California" after he reviewed an e-mail exchange between the two companies that discussed how to handle Oracle's pending $95 million software contract with the state.

Logicon turned the e-mails over to the state as part of the state's investigation into the matter, according to California Assemblyman Dean Florez, chairman of the legislative committee conducting hearings into the controversial contract.

Legislators began the investigation after a state auditor released a report last month. The report stated that public officials failed to exercise due diligence in signing the contract, which was awarded without soliciting competitive bids.

Florez gave the e-mails, dated May 28, 2001, to CNET News.com, which reviewed them before Tuesday's hearing.

According to the documents, the e-mail exchange originated from an Oracle employee and included a response from an employee at Logicon, the Oracle reseller negotiating the contract. The e-mails included discussion on how much information to give Kim Heartley-Humphrey, the deputy director of acquisitions at the California Department of Information Technology. The department was created in 1995 to coordinate major technology purchases for the state.

The initiating e-mail was from Greg Loos, a sales associate at Oracle's Rocklin, Calif., office, who said Oracle employee Timothy McCormick was worried about "giving Kim too much detail unless she specifically asks for it because Kim historically has a habit of complicating things." The e-mail goes on to say, "It's best to keep things at a 'summary' level with her--unless she has specifically asked for this much detail." The e-mail was sent to several Logicon employees.

In response, Logicon employee Rajan Mittu wrote back: "We plan on giving Kim the least amount of data possible. At this point giving too much information can only be a bad thing."

Florez was critical of the exchange between the employees.

"This clearly tells us that Logicon and Oracle were part and parcel of defrauding the state of California," Florez said. "They were keeping the state in the dark."

Florez said he has also requested the governor's office to turn over all correspondence that it had with Oracle and Logicon.

"People didn't have their eye on the ball," Florez said, referring to state officials. But, he added, based on the information collected so far, he thought the problems seemed to be more about incompetence than criminal activity.

Mittu declined to discuss the e-mails Tuesday, referring questions to Logicon's public relations department. Logicon issued a statement Tuesday saying that the detailed information referred to in the e-mail, which it received from Oracle, was simply part of its effort to make sure that the cost-saving projections it was giving to the state was correct.

"Because the data was complicated, Logicon determined that providing the detailed information to the Department of Information Technology would not be helpful at that late stage," the statement said. The statement said Logicon continues to believe the contract provided "substantial savings" to the state.

Oracle was not immediately available to comment.

On the witness stand
Heartley-Humphrey, who was the first witness to testify at the hearing Tuesday, said she was surprised to learn of the e-mail correspondence, which was read during Tuesday's hearing. She testified that she had asked Logicon and Oracle to give her further information to support their claims that the contract would save the state money, but that she never received adequate information from the companies.

Bill Morrow, a Republican state senator who is one of the legislative committee members hearing the testimony, asked her, "Was Logicon hiding the ball on you?"

"It appears that way, yes," she replied.

Heartley-Humphrey also testified that Elias Cortez, the director of her department, ignored her concerns about the contract. Heartley-Humphrey said she voiced concern to Cortez that the state had not performed an independent analysis of the contract. She said she was concerned that she couldn't evaluate the contract before a May 31 deadline mandated by Oracle.

This testimony echoes the testimony given by other state employees last week. Two state officials testified before the joint legislative audit committee that they sought to warn superiors about the contract but their concerns were dismissed.

California Gov. Gray Davis suspended Cortez, the director of Heartley-Humphrey's department, May 2. Some lawmakers are calling for the state to dissolve the Department of Information Technology, which was created in 1995 to guide the state's technology purchases.

In further testimony Tuesday, Heartley-Humphrey said that in mid-March 2001, before she was hired in her current position, a survey of 127 state agencies indicated that only eight were planning to buy Oracle products in the next six month.

Expected testimony
Oracle and Logicon executives are scheduled to testify at the hearings in upcoming weeks.

Janice King, a state official in the Department of General Services, is scheduled to appear before the committee later Tuesday. King's former boss, Barry Keene, resigned as director of the General Service Department for his role in contract approval process.

Originally scheduled to appear Tuesday, Tim Gage, the director of the California Finance Department, will likely testify next week instead. Gage is negotiating to cancel the contract with Oracle and Logicon.

Another former state official who lost his job in the flap, Arun Baheti, is expected to testify next week. As the state's e-government director, Baheti accepted the $25,000 contribution from an Oracle lobbyist just weeks after the state signed the controversial contract last May.

The committee also expects testimony from Susan Kennedy, the highest-ranking member of the governor's office reported to be aware of the Oracle contract. Davis has said he was not aware of the contract.

The contract has become an embarrassment for Davis, who returned an ill-timed $25,000 campaign donation from Oracle last week. State Attorney General Bill Lockyer, who is investigating the case, returned $50,000 in donations from the software maker.

Florez on Monday called for the committee to widen its investigation to include the state's contracting procedures, particularly the use of no-bid contracts. The hearings on the Oracle contract have produced "testimony and anecdotal evidence about potential vendor abuses and government mismanagement" of such procedures, Florez said in a letter to state Sen. Richard Alarcon, vice chairman of the committee.

Under state rules, agencies must ordinarily seek competing bids for many of the services and supplies they use. Certain types of contracts, however, are exempt from that rule, including most information technology acquisitions.

News.com's John Borland and Dawn Kawamoto contributed to this report.

 

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