Oracle contract cancellation no big deal, experts say

The General Services Administration's cancellation of Oracle Inc.'s Schedule 70 IT services contract was simply because the two could not reach an agreement on terms, deciding in the end to go their separate ways, experts say.

A senior GSA official said April 20 that it was not in the government’s best interest to continue to offer Oracle’s IT services though its Schedule. GSA officials would not provide further details.

However, one day earlier a spokeswoman said the cancellation was the result of the company not meeting the terms of the contract.

Experts said they were were not surprised by of GSA's decision, nor did they say they believed Oracle had done something terrible.

“Since GSA isn’t suggesting suspension or debarment, and because GSA is openly referring to Oracle’s other reseller and partner channels to sell its offerings, actions leading to the cancellation are probably not egregious,” said Ray Bjorklund, vice president and chief knowledge officer at Deltek’s GovWin.

Mary Davie, assistant commissioner of the Federal Acquisition Service Office’s of Integrated Technology Services, noted April 20 that agencies could still buy software and software maintenance from Oracle’s resellers that have IT Schedule 70 contracts.

As for directly working with Oracle, Davie said, “It was determined that it was not in the best interest of the government to continue the contract.”

In the meantime, Oracle has yet to comment on GSA's action.

The cancellation takes effect May 17.

Oracle’s Schedule contract was to run from Oct. 1, 2006, to March 28, 2012. The Schedule was last updated September 30, 2011, Bjorklund said.

“One could infer that GSA and Oracle couldn’t reach agreement on the terms and conditions needed to renew or extend the contract,” he said.

A lot of procurement changes have happened since 2006 that may have arisen between the two. There may have been differences in opinion about Oracle’s interest in its proprietary data rights, payment terms or rules that affect overseas work, Bjorklund said.

In addition, experts said the decision could stem from Oracle's inability to comply with existing contractual stipulations because the company has changed the way it conducts business since the contract was last modified.

Mark Amtower, partner of Amtower and Company, said major corporations often struggle with GSA's demands on sales records. Companies the size of Oracle may not be able to provide all of their sales information.

“When a worldwide company like Oracle is required to provide pricing data for every product sold, it is akin to Sisyphus pushing the rock up the hill,” he said.

GSA Schedule contracts are under the Price Reduction Clause, which requires the government to get at least the same sale price as any other client.

GSA’s move came several months after Oracle agreed to pay a $200 million fine for its failure to comply with the terms and conditions of its Schedule contract.

“Now, in addition to the fine, Oracle will have to find other ways to sell to federal customers,” Larry Allen, president of Allen Federal Business Partners, wrote in his weekly 'The Week Ahead' newsletter.

Overall, the reaction from experts is that the cancellation won’t be a huge blow to Oracle or its sales.

Schedule 70 is not a preferred vehicle for IT, Amtower said. It has become more or less a default vehicle.

 According to Amtower, Oracle's Schedule contract accounts for less than 7 percent of total government purchases.

Oracle’s sales are coming through other contracts, such as NASA’s Solutions for Enterprise-Wide Procurements and other Defense Department indefinite-delivery, indefinite-quantity contracts.

Bjorklund said this latest action is unlikely to dampen any interest in what Oracle offers the government; nor is it any grand-scale initiative on the part of GSA.

“When parties can’t agree, it’s just time to cancel the contract and try to start over again,” he said.