Court Filings: Kickbacks on Gov't Contracts Widespread

An alleged multimillion-dollar kickback scheme involving work on numerous U.S. government contracts touches dozens of IT vendors and systems integrators, according to court documents unsealed Thursday.

The U.S. Department of Justice (DoJ) announced Thursday it had joined three whistleblower lawsuits against Hewlett-Packard (HP), Sun Microsystems and Accenture. The DoJ's complaints allege that the three companies, through "alliance partnerships" with dozens of other vendors, exchanged millions of dollars in illegal rebates and other payments since the late 1990s.

The DoJ complaints accuse Accenture and other systems integrators of collecting money from IT vendors in exchange for preferential treatment on government contracts they were working on, or in exchange for strong recommendations to potential government customers. The defendants did not report these kickbacks to the U.S. government, the DoJ alleges.

The defendants "have exploited the trust the government has reposed in them to act with honesty and candor ... to act without conflicts of interest; and to serve as independent third party objective advisors," the DoJ wrote in its complaint against Accenture. "The defendants' focus on profits and Alliance Partner revenue, rather than the interest of their government clients, has destroyed their independence and eliminated fair competition in the government procurement process."

The DoJ complaints detail payments made to Accenture from more than two dozen companies, including HP, Sun, IBM, Oracle, EMC, CA, SAP America and CDW.

In addition to Accenture, HP allegedly made payments to BearingPoint, Capgemini, Electronic Data Systems, Science Applications International and other companies, while Sun allegedly made payments to Accenture, PricewaterhouseCoopers Technology Integration, World Wide Technology, Northrop Grumman and other companies, the DoJ complaints said.

Accenture and HP said Thursday they are confident they acted legally. Sun, in a statement, declined to comment on the specific lawsuits, but said it is cooperating fully with government investigators and that it is proud of its relationships with U.S. government customers.

Representatives of BearingPoint and EDS said Friday their companies were just learning of the allegations and didn't have immediate comments. Representatives of the other companies didn't immediately respond to requests for comments.

The allegations set up a major confrontation between the U.S. government and virtually the entire U.S. IT industry, said Kim Moore, a partner in the Strasburger & Price law firm and an expert on whistleblower cases. Whistleblower cases are filed frequently, but the DoJ doesn't join many of them, she said.

The allegations of "sweetheart deals" are compelling, she said. "The fact that the Department of Justice has intervened is very interesting," she added. "They often elect not to intervene. Now these companies have to do battle with the government."

The DoJ filings describe a cozy relationship between the defendants and their alliance partners, also known as strategic resellers, channel providers and distributors. The DoJ filings list improper kickbacks on a number of contracts, including ones from the U.S. Army, the Air Force, the FBI, the Department of State, the General Services Administration, the Department of Education and the Postal Service.

Accenture received more than $20 million in illegal payments from alliance partners between 2000 and 2006, the DoJ said.

HP paid more than $3 million to systems integrators between 2001 and 2006, in exchange for "favorable treatment and influence" on government contracts, the DoJ filings said. The complaint against Sun lists payments of about $280,000 to Accenture and other companies, but the DoJ said it made other payments as well.

The lawsuits the DoJ has joined were among six filed in U.S. District Court for the Eastern District of Arkansas in September 2004 by Norman Rille, who had worked as a senior manager in Accenture's information delivery architecture group, and Neal Roberts, who investigated the relationship between systems integrators and IT vendors while a partner at PricewaterhouseCoopers.

Rille and Roberts, in their original complaint, allege that "hundreds of millions of dollars" worth of kickbacks have exchanged hands between systems integrators and tech vendors since the late 1990s.

It's unclear why the DoJ decided to join the lawsuits now, two and a half years after Rille and Roberts first filed their complaints. A DoJ spokesman declined to answer questions about the cases, instead referring to the DoJ filings.

Rille and Roberts named several other systems integrators and IT vendors as defendants in their lawsuits. But cases against five companies, including Microsoft and Raytheon, have been dismissed, and the DoJ decided not to join lawsuits against SAP and Science Applications International. Rille and Roberts also named Dell and Electronic Data Systems in their lawsuit against Sun, but the DoJ complaint does not target those two companies.

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