Oracle Deal Riles Lawmakers Despite Savings

California's Department of General Services informed the state legislature Aug. 23 that a sole-source contract the department awarded to Oracle Corp. for database software would save the state $110 million in database and maintenance costs over the next 10 years.

News of the 10-year, $126 million contract, however, angered lawmakers, because they had only recently heard of the sole-source contract signed May 31, nearly three months earlier, with Oracle of Redwood Shores, Calif.

Also dismayed were competitors, such as IBM Corp. of Armonk, N.Y., and Microsoft Corp. of Redmond, Wash., who have not been offered similar deals.

The controversy also involves the state Department of Information Technology, which advised the DGS on the contract. The DGS signed the deal because the IT department lacks that authority.

State lawmakers contend that the DGS violated a rule requiring the agency to notify the legislature for an award more than $500,000, but the department argues it is exempted from that rule under an enterprise license agreement provision, also set forth by law.

The agreement provides that if there is an established pattern of purchase, then state officials are permitted by law to negotiate a long-term contract to provide better pricing and discounts, DGS officials told lawmakers.

The agreement is intended to consolidate California's need for a particular proprietary product or manufacturer, which the state is already purchasing from, that cannot be competed among vendors or through the request for proposal or bidding process.

The Oracle database serves as the platform for more than 25 state departments, according to company officials. State officials estimated they spent $7.8 million on Oracle software in fiscal 2000. They used this figure as a basis for projecting their annual expenditure over the next 10 years.

The contract was negotiated to obtain a better price on software to support existing Oracle databases throughout the state government.

The contract would support about 270,000 Oracle software applications installed on existing databases, said Jennifer Glass, an Oracle spokeswoman.

It contains a volume purchase agreement that extends the discount to local government in California, state and company officials said.

Despite the administration's justification of the award, lawmakers want to further investigate the estimated value of the Oracle contract and the sole-source contract provision authority given to the DGS.

"There appears to be a lot of confusion among agencies on their
proper roles, and confusion about the role that the legislature plays on sole-source contracts," said Assemblyman Manny Diaz, referring to the Oracle award. "It is frightening that [state officials] would think they could make a contract award for IT without legislative oversight."

Agencies use database software to update and query records stored in their databases. The major databases in California are supported by software from IBM, Microsoft and Oracle, said industry observers. Oracle has about 45 percent of the state governments database market, according to company officials.

Because Oracle has a major database presence in California, it makes sense for the state to get a bulk rate for database software, said Arun Baheti, California's director of e-government. He said the state of New York and the Navy have signed similar sole-source contracts.