A tip of the iceberg?

Sen. Grassley’s inquiry into GSA’s contract with Sun could open up a wider investigation

U.S. gov to receive $98.5M settlement from Oracle

Sen. Charles Grassley’s decision to investigate a decision by the General Services Administration to renew Sun Microsystems’ Federal Supply Schedule contract sends a signal that GSA can expect greater contract oversight.

Sun is under investigation for price fraud.

GSA’s inspector general has been waiting for the opportunity to investigate potential pricing fraud on schedule contracts, and agencies and companies that use those contracts should be aware, several procurement experts said in recent interviews. Grassley’s inquiry could bring new evidence into current discussions about whether IGs are overstepping their authority in making price determinations.

Procurement experts on both sides of that debate agree that Grassley (R-Iowa) and Rep. Henry Waxman (D-Calif.) could make the summer feel hotter than usual for companies that do business with the government.

“The Sun investigation is a wake-up call for the 17,000 GSA schedule holders who have contractually agreed to allow the IG to audit their pricing data disclosures,” said William Shook, a procurement attorney at Preston Gates and Ellis. “The IG may not have the resources to do all 17,000 contractors on the schedule, but they could pick the largest ones.”

He added that vendors must be certain their pricing is current, accurate and complete, and agencies must demand that from vendors.

The House Oversight and Government Reform Committee, which Waxman chairs, stepped up its oversight after GSA’s IG recommended that the Justice Department investigate whether Sun committed a civil or criminal offense by allegedly overcharging agencies more than $25 million on schedule buys. The IG said GSA Administrator Lurita Doan pushed the agency to renew Sun’s schedule contract, despite the ongoing fraud investigation involving Sun.

The company denied that Sun received a contract improperly. “Any suggestion that anyone at GSA gave Sun special treatment during the negotiation process simply does not fit the facts,” a Sun spokeswoman said.

Sun isn’t the first large company to be investigated for schedule pricing fraud. GSA forced Oracle to pay $98.5 million last year to settle allegations that PeopleSoft overcharged federal buyers through its schedule. Oracle acquired PeopleSoft in 2005.

Shook said GSA is partly to blame for the Oracle and Sun investigations. “GSA put the pricing disclosure requirement so high that large companies have an extremely difficult time meeting it,” he said, adding that no one tracks that type of information in the commercial market. “Sun and other large companies have a range of prices and terms and conditions, but they don’t track most-favored price for commercial use.”

Neal Fox, a former Federal Supply Schedule official who is now a consultant, said the notion of most-favored pricing is problematic. “The IGs are going on a fishing expedition, and if you look hard and long enough, you eventually will find something on everyone,” he said. “The IG should look at whether the company complies with the law and policy, but they should not try to determine pricing.”

Bill Woods, the Government Accountability Office’s director of acquisition and sourcing management, said GAO examined GSA’s schedule pricing in 2005. It found problems and said the IG has the right to determine fair and reasonable pricing. GAO reported at the time that nearly 60 percent of all schedule contracts “lacked the documentation needed to establish clearly that the prices were effectively negotiated.”

In the Sun investigation, which began in September 2004, officials in the IG’s office didn’t tell GSA officials until August 2006 that they had pricing concerns. “It was perfectly right for the contracting officer to proceed with Sun because investigations are closely held,” Fox said. “The IG is trying to say we will take as long as we please and the contracting process be damned.”

GSA officials said they were eager to renew Sun’s contract because they were concerned about losing Sun as a schedule holder. Fox estimated that agencies spent more than $1 billion with Sun during the five-year life of the company’s schedule contract.

Jim Williams, the Federal Acquisition Service’s commissioner, said in response to Grassley’s questions about the Sun investigation that he repeatedly asked the IG for information that GSA should consider in making the determination that Sun is a qualified vendor.  

In a letter to Grassley, Williams said he instructed a GSA contracting officer that if the officer and Sun could not “agree on a fair and reasonable deal for the taxpayers and make a determination that Sun was a responsible contractor, I was willing to end the relationship with Sun.”
Grassley also has questions for NASASen. Charles Grassley (R-Iowa) is looking into why NASA did not follow through with commitments it made in 2005 when the Government Accountability Office dismissed a contract protest.

In a letter to the space agency, Grassley, the ranking member of the Senate Finance Committee, said NASA made specific commitments to GAO as part of its response to a bid protest. The commitments prompted GAO to dismiss the protest. But a recent review by NASA’s inspector general found that the agency did not follow through on its promises, Grassley said.

“NASA needs to ensure that basic procurement principles are followed,” Grassley said in a statement. The agency also needs to keep GAO updated after it dismisses a protest, he added.

Parametric Technology won a contract for $5.2 million in September 2005 for mechanical computer-aided design  and data management software licenses at multiple NASA centers. According to Grassley’s letter, two vendors protested the award, saying NASA conducted the acquisition improperly by not complying with requirements. 
— Matthew Weigelt

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