Grassley, Sun Microsystems audit battle may be ending

A six-week war of words between the ranking member of the Senate Finance Committee and Sun Microsystems Inc. over a proposed General Services Administration audit of the company's pricing practices may be nearing an end ? if both sides can agree on a referee.

Sen. Charles Grassley (R-Iowa) and Sun's chairman, Scott McNealy, exchanged letters this week in which both expressed a determination to conclude a fair and prompt examination of Sun's GSA Multiple Award Schedule contract, especially its Price Reduction Clause, which requires contractors to give the government their lowest prices.

"We share the same goal of a fair and transparent process," McNealy wrote to Grassley on July 25. "Our only dispute is over how to get there."

That dispute centers on who should conduct the audit.

Grassley insists that GSA Inspector General Brian Miller conduct the probe. "I wish to make one point crystal clear," Grassley wrote McNealy on July 24. "I expect IG Miller to conduct this audit in accordance with his responsibilities under the IG Act."

But McNealy said Sun believes Miller and his auditors "have a significant and well-documented conflict of interest and a demonstrated predisposition" against the company. "They are participants in the case pending against us in Arkansas," he told Grassley. "They have clearly prejudged the very issues you have asked to be addressed."

McNealy has suggested that the Government Accountability Office conduct the audit.

In his letter, Grassley expressed "grave concern" about Sun's reported lack of cooperation since the IG's initial request for documents on June 5. He told McNealy that the terms of the contract require Sun to cooperate.

Grassley also reminded McNealy that the GSA schedule contract with Sun was cancelled two years ago partially due to a lack of cooperation with IG auditors. He said Sun has missed two deadlines ? June 28 and July 19 ? for turning over the necessary data, and told the Sun chairman to immediately comply with the request for information.

In his reply yesterday, McNealy assured Grassley that the contract is a good deal for taxpayers and that any claims that Sun is not cooperating or adhering to the Price Reduction Clause are false. Sun is providing "extremely competitive pricing that we believe is, in many cases, substantially more favorable to the government than our competitors' prices on similar products," he said.

McNealy said Sun will provide the information required to assess the operation of the Price Reduction Clause. "Keep in mind," he wrote, "we already sent GSA thousands of pages of reports and supporting data on a quarterly basis, data that is more than sufficient to verify our compliance and the effective operation of the Price Reduction Clause."

McNealy said Sun has responded twice to the audit request, which "encompasses voluminous records," and added that the company "will be making a substantial production this week of approximately 10,000 documents."

In separate correspondence to Miller, attorney Ty Cobb of Hogan and Hartson LLP presented a list of incidents to show that the GSA inspector general's office is not an unbiased auditor and called for it to voluntarily recuse itself from the Sun audit.