On Oct. 10, 2006, the Department of Justice announced a settlement with Oracle Corporation (“Oracle”) for $98.5 million to settle allegations that PeopleSoft Inc. (“PeopleSoft”) overcharged federal buyers under the General Service Administration’s (“GSA’s”) Multiple Award Schedule (“MAS”) program. The settlement is the largest payment ever obtained by the United States in a civil settlement under the False Claims Act involving the GSA’s MAS program. Although Oracle was not aware of the suit when it acquired PeopleSoft in 2005, Oracle inherited the liability. A former PeopleSoft employee advised the government that PeopleSoft did not disclose discounts offered to commercial customers when negotiating the GSA MAS contract. Furthermore, over a period of eight-and-one-half years, federal buyers did not receive the same discounts offered to commercial customers under the PeopleSoft GSA MAS contract.
While negotiating the MAS contract, PeopleSoft made inaccurate and incomplete disclosures regarding the sale of software licenses and related maintenance services. Essentially, PeopleSoft understated the discounts that it had provided to its commercial customers. As a result of the defective disclosures, the government claimed that most federal purchasers under PeopleSoft’s MAS contract paid inflated prices for purchases of software and services between March 17, 1997, and Sept. 30, 2005.
A former employee of PeopleSoft filed the case under the qui tam or whistleblower provisions of the False Claims Act. Under these provisions, private citizens can sue on behalf of the government to recover federal funds that were obtained by fraudulent claims. The citizen bringing the suit is entitled to a portion of any proceeds that result from a settlement or judgment of the case. Here, the employee bringing the suit will receive $17.7 million.
Under the MAS program, vendors have an opportunity to establish long-term contracts with the government and gain access to the broad federal marketplace. MAS contracts allow vendors to sell to hundreds of government purchasers under one central contract. The GSA only awards MAS contracts to responsible companies that offer commercial items at “fair and reasonable prices.” In order to participate in the MAS program, vendors must disclose their accurate and complete commercial pricing policies and practices to the government. This disclosure process is often difficult and time-consuming for companies, especially large companies that have millions of customers. Specifically, vendors must disclose their “most-favored customer” pricing and discounts. The GSA’s intent when negotiating a MAS contract is that the government will achieve the same, or lower, pricing and discounts received by the contractor’s most-favored customer.
As emphasized by this enforcement action, performing due diligence is very important prior to acquisitions, especially those involving federal government contracts. Furthermore, government contractors need to ensure that the documentation provided for government contracts is current, accurate and complete. When negotiating under an MAS contract, it is best to disclose all pricing terms, including discounts since faulty disclosures can lead to painful penalties and sanctions.
This article is presented for informational purposes only and is not intended to constitute legal advice.
