DOJ Names Dozens of IT Vendors in Kickback Scheme

grantus writes "Today, the U.S. Department of Justice joined three whistleblower lawsuits against Hewlett-Packard, Sun Microsystems and Accenture alleging a massive kickback scheme on government contracts. Among the IT vendors listed in the lawsuit as Accenture partners are Microsoft, Cisco, IBM, Dell and Oracle."

Comments

A show of hands if you are surprised

[Mathness]

A show of hands if you are surprised by kickbacks and corruption in the goverment.

Re:A show of hands if you are surprised

[FMota91]

Nothing to see here, move along...

Re:A show of hands if you are surprised

[Detritus]

The corruption in question isn't in the government, it's in the vendors that sell products and services to the government.

Re:A show of hands if you are surprised

[deopmix]

If you had RTFA, you would have seen that the corruption wasn't with the govt. but with other companies. The other companies received money from Microsoft, Cisco, IBM, Dell and Oracle, among others for preferential treatment when it came to govt contracts.

Re:A show of hands if you are surprised

[hcmtnbiker]

RTFA, the US government was the ones that where getting scammed.

Effectively with government contracts all the companies would agree to estimate far higher then it would ever take to fill the order. Step two, the contract winner would take the amount of money for the contract, subtract how much it really would have taken(this being raw "bonus" profit) and split that amongst the group since it involved the entire group to go along with it for it to work. Wait for the next contract and do it all over again, scamming millions if not billions from the US government who thought that it was getting a good deal off of each company fighting for the deal when really it was getting scammed by a pseudo-monopoly.

Re:A show of hands if you are surprised

[Expertus]

HP has done nothing wrong This sounds all too familiar.

HP might be a decent company but for its management.

Re:A show of hands if you are surprised

[jeevesbond]

As someone else pointed out the corruption is not in the US government but with the companies supplying IT services to them. Practically every large company in IT seems to be involved, from Microsoft to HP, IBM and Sun. Which is annoying for those of us who love a good Microsoft bash, it seems they are not the worst offenders in this case.

As I read it the /. economic model for these scams goes something like this:

1. Company A has a contract to provide US government with an IT solution
2. Company A looks to Company B to provide part of that solution (some specific software product or service)
3. Company B gives Company A a discount for purchasing their services
4. Company A charges US government full amount that would be charged by Company B without the discount
5. ???
6. Profit!

There seem to be other variations on the theme, such as giving share options instead of discounts. Either way the US government have been overcharged it seems. Hope I'm right about this as it's a complex issue and the article is a little vague on the details, that's why I thought this summary would be useful. :)

Re:A show of hands if you are surprised

[mdhoover]

It is no surprise this happens, but how much of this is due to perverted "preferred supplier" agreements within the govt organisations, usually setup via the old hand under the table wad of cash from supplier to head bureaucrat to ensure competitors are left out. Then it is a matter for those excluded vendors to try to "piggyback" someone elses contract to get their foot in the door... None of this surprises me, it happens everywhere...

Re:A show of hands if you are surprised

[Ungrounded Lightning]

... scamming millions if not billions from the US government who thought that it was getting a good deal off of each company fighting for the deal when really it was getting scammed by a pseudo-monopoly.

Term is "oligopoly". Means a collusion of a number of companies to act like a single monopolist.

Re:A show of hands if you are surprised

[inode_buddha]

This is actually one of the oldest tricks in the book. During the early 1900's, the victorian-era "robber barons" were routinely caught at this sort of industrial collusion, informal agreements at "social clubs" and parties, etc.

Re:A show of hands if you are surprised

[WindBourne]

Actually, you just described how the large military companies operate (boeing, l-mart, etc).

Re:A show of hands if you are surprised

[vought]

Gonzales: "Quick - look over there!"

Re:A show of hands if you are surprised

[Mathness]

I see your point, but if you look at the two parties involved, buisness and goverment. Buisness (capitalism) is doing what "it is", makeing sure it obtains a surplus of funds and market, where as the goverment (democracy) fails to be ruled by the people and follow a few select people.

A democracy that is allowed direct contact with special interest groups and lobbyism will drift towards an oligarchy, unless both (goverment and buisness) have a strong morale and/or rules (law) that are upheld. An oligarchy can, of course, only happend if the people let it, but I will let that be up to you (plural) to judge if that will happen.

Note to self: Don't try to write political posts at 5AM when you haven't been to bed yet. XD

Re:A show of hands if you are surprised

[psxman]

"Cartel" seems more appropriate. (an oligopoly, off the top of my head, just means that there's very few competitors, not necessarily that they're working together)

Re:A show of hands if you are surprised

[Mathness]

Pffft, 'in' should have been 'involving'. Goverment contracts tend to be a gold mine, which is easy to suck dry, with little chance of getting caught. Not really serving the will of the people, is it.

Re:A show of hands if you are surprised

[timmarhy]

you don't get it at all do you? let me break it down some more. company A and company B secretly agree to quote a lot more then what they would normally quote, and which ever one of them wins the contract sub contracts the REAL price out to the other, with the winner skimming the fat off the top of the "arranged" price and the loser getting the work(which would still be a very healthy profit). everyone wins - except the tax payer which gets screwed with artifical prices.

Re:A show of hands if you are surprised

[iminplaya]

Show of hands if you are surprised that the voters don't give a damn* and continue to re-elect said corrupt politicians and buy from corrupt corporations.

*to the point of being just as corrupt if the politician brings home a sufficient amount of bacon. Dan Rostenkowski has always been my favorite example since he also exemplified Chicago politics as well. Monkey see, monkey do. Can't blame the politicians when they have full public approval.

Re:A show of hands if you are surprised

[iminplaya]

Maybe the only reason they're being accused of anything at all is because somebody got high and forgot to make the drop.

Re:A show of hands if you are surprised

[jeevesbond]

That's what I was getting at, my /. economics could do with some work! Thanks for the defense and clarification.

Re:A show of hands if you are surprised

[ShinmaWa]

Nowhere in the TFA does it say that these alliances were secretly agreeing on anything or even bidding on the same contracts. If that were the case, I would think that that would be very prominent in the article, but its not. I read into it the same as the previous posts. The article said quite plainly that the contract winners outsourced to their strategic partners (at a reduced rate, which is true on government and non-government contracts alike) and they weren't passing the rebate onto the government. There was no mention of bidding ethics at all.

Here's the rub. Nearly all government contracts are fixed price. They quote the job ahead of time and if they come in under budget, that's extra profit. If they come in over budget, the vendor loses money. If the vendor is taking a risk at losing money on a contract if it runs over, why should they have to compound that risk by having to return any extra profits to the government? IMHO, if a vendor says they'll do it for $X and the government agrees, then it shouldn't matter HOW much the vendor actually spends to get the job done as long as the job gets done -- as long as there was not a collusion in the bidding process.

Re:A show of hands if you are surprised

[Jarjarthejedi]

Okay then, show of hands for those surprised that corporations are acting corrupt.

Hmm...looks like the same number of hands...3...oh wait, little timmy's got both hands up. Balmer...put your other hand down...that won't work anymore.

Re:A show of hands if you are surprised

[Barny]

Hehe, I worked out step 5 for you :)

5. lobby to have overseas (eg lenovo) banned from getting US govt contracts.

Re:A show of hands if you are surprised

[Anonymous Coward]

As an IBM employee, I can assure you that such kickbacks are against the corporate code of ethics. Every employee is required to be trained and tested on proper ethical behavior, and therefore it is impossible that IBM is involved in any way.

Please excuse me while I retreat to the washroom and express amusement at a funny story I just remembered.

Re:A show of hands if you are surprised

[rucs_hack]

Note to self: Don't try to write political posts at 5AM when you haven't been to bed yet. XD

On the contrary, since you are commenting on slashdot, that is the ideal time.

Not only that, but you make no direct reference to the article, hinting that you haven't read it, which again, is spot on.

However, using words like Oligarchy at 5am can be dangerous, and you used it twice...

Re:A show of hands if you are surprised

[Samari711]

lots of contracts are what's called "cost plus." the government agrees to pay the contractor however much money it costs them to do the job, plus an award fee that's determined by performance. In the case GP describes, Company A pockets the difference between what Company B charged and what the government payed in violation of the contract. This should get picked up in an audit unless the organization involved is particularly incompetent.

It's also possible (and more likely) that because of their partnership Company A buys products/services from Company B despite Company C offering a better/cheaper solution and fudges the results of trade studies so that it looks like Company B won outright. This also violates all sorts of rules of government acquisition; contractors are not allowed to let pre-existing relationships with vendors influence how they procure and/or subcontract. The government pays more than it should and Company A gets some form of compensation from Company B.

Re:A show of hands if you are surprised

[Anonymous Coward]

Which Ballmer are you talking about? Both hands up AND not holding a chair? ;).

Re:A show of hands if you are surprised

[nanosquid]

A show of hands if you are surprised by dumbass anti-government comments by Slashdot-pseudo-libertarians who haven't read the RTFA.

(Since you probably still haven't read TFA, here's a hint: the corruption is in the companies, not the government. The government--that is, you and me--are getting defrauded.)

Re:A show of hands if you are surprised

[jimicus]

Which is annoying for those of us who love a good Microsoft bash, it seems they are not the worst offenders in this case.

I'm not sure they need to bribe that much. Given their current market position, all they need to do is spread a few seeds of FUD in the minds of people who are wondering if it's necessary to stick with a Microsoft-based solution and they've got the contract. If that doesn't work, plan B is to publicly agree to a special price "because you're such a large customer/because you're the government/because we think you smell nice".

Publicly agreeing to a special price is slightly different from offering a kickback behind closed doors.

Re:A show of hands if you are surprised

[jimdread]

Here are a couple of relevant quotes about what was happening from the article:

The lawsuits, originally filed by Accenture employee Norman Rille and another whistleblower, accuse the companies of creating alliance relationships with dozens of other vendors, giving each other discounts or rebates on products or work for government contracts. The companies did not pass the rebates on to their government clients, according to a DOJ court filing. So that's "creating alliances between the companies", "giving each other discounts and rebates", and "not passing on rebates to the government".

Any rebates vendors receive as part of a U.S. government contract belong to the government, the DOJ said. If that's part of the contract, that the vendor has to pass on rebates to the government, then it looks like the vendors have been pulling a scam. It might seem fair that they could keep the rebates for themselves, unless the rules specifically say they have to give them to the government. The Financial Times says:

"that the technology and consulting groups improperly steered government contracts to their so-called "alliance teams" - other companies the groups partnered with on government contracts, from the late 1990s to the present in exchange for improper payments. In some cases, the companies paid kickbacks to win sub-contracts from such partners, the government alleged." And also,

"In one case, Sun paid World Wide Technologies, one of its alliance partners, more than $173,000 in return for the group's influence in selling Sun services to the government, the justice department alleged. In another case involving a contract worth tens of millions of dollars with the GSA, a federal agency, Sun made "misleading" disclosures and "false statements" about some of its discounting practices in connection to the contracts." If they were making misleading and false statements about their discounting practices, then that would indicate that they knew they were doing the wrong thing. Looks like it's going to be a long and interesting case.

Re:A show of hands if you are surprised

[Mockylock]

Indeed.

Democracy is great in most aspects, aside from the fact that it is decided on by the a$$hole with the loudest mouth. Ultimately, laws are voted on by the man who has swindled, lied and faked his way to the top and has the most funding to get there.

Re:A show of hands if you are surprised

[Fujisawa Sensei]

The DOJ is filing he lawsuit, because they didn't get their share of the kickback.

Re:A show of hands if you are surprised

[mr_mischief]

Thank you for bringing in information that makes the case sound stronger. The Infoworld article really does have the deficiencies I and ShinmaWa stated. Reread it and see. Perhaps the Financial Times article should have been linked in the summary.

The "creating alliances between the companies" could very well mean that they know who they like to outsource to because they've had reliable service from them in the past. "... giving each other discounts and rebates" is common practice for large-volume purchases of products or services. "... not passing on rebates to the government" is not required unless the contract with the government agency states that the vendor will. The Infoworld article we were steered toward I don't believe actually stated the contracts were indeed worded that way.

The information you provided does present facts that look worse for the companies involved. The "improper payments" and the text about the Sun deal with World Wide Technologies specifically refer to "kickbacks", which the Infoworld article says the DOJ is claiming but doesn't say what the payments were for or why they were deemed to be kickbacks.

This doesn't make the parent post wrong. ShinmaWa stated that "no where in TFA does it say...", and you quoted a different article which makes points the Infoworld article didn't. From what the Ft article says, it does indeed look to be a long and interesting case if the companies don't settle up front. HP for one says they'll fight it, but for the right no-fault settlement, they'd probably pay the government instead of their lawyers.

Re:A show of hands if you are surprised

[mr_mischief]

Where in TFA does it say that? Where in jeevesbond's post does it say that?

Even if it's all true exactly as you say, the vendor still bid on the contract at a particular rate. The government accepted that rate as the lowest (or the lowest cost/benefit reasonable proposal if it was an RFP instead of RFB). The vendor subcontracted some work out at list. A discount is applied due to volume. This is sand-on-a-beach standard business practice.

The only thing that causes anything wrong is if there's a contractual obligation to pass discounts on to the government. The Fucking Article does not make that point. It simply does not make the point that the money really belongs to the government. It says that the DOJ says it does. It doesn't say that there's an actual arrangement which would override the normal laws of business in this instance.

Lots of businesses quote higher for government contracts than for contracts to other businesses for a number of reasons. The government (especially the federal government) has lots more paper work and process to get the bid even considered, which is cost up front. The government is a numbingly slow bureaucracy which causes lots of issues for someone who's trying to coordinate quickly with them to meet the contract deadline. The government often requires things private businesses don't of your workers, like background checks and sometimes security clearances. Much of the workday is sometimes spent explaining to the front desk of the building you're visiting that you really need inside and that yes, you really do need data storage equipment and a screwdriver to do what his superiors are paying your superiors to have you do. This is often true even when your contact in the building is standing at the front desk with you telling the guards the same thing. Also, I have never at a private business had to have the front desk count, inventory, and take pictures of every piece of equipment I brought in and took out (including every bit of my multi-bit screwdriver set). When I was doing consulting for the state government in Illinois, several sites I worked at required this. Forget something in the car? Full checkout and check back in. Get patted down, get your shoes off again. All of that is extra cost. Of course companies charge the government more. Plus, they can because the low bid is accepted even when everyone bids high. That's not necessarily collusion, although in some cases it might be. TFA doesn't say they arranged a bid range or who would win the initial bid.

I understand the idea of kickbacks. I really am intelligent enough to read. Honestly. And write. And recognize an attack on my intelligence. Yet your ad hominem attack post doesn't "break it down" to where I see a damn thing TFA said or that you said that points out any actual wrongdoing. The article jimdread introduced from the Financial Times does seem to point out some issues.

However, it's shoddy journalism from Infoworld to say, "The DOJ says there are unspecified kickbacks and unspecified corruption, so these companies have been doing something wrong", and just as shoddy readership to believe them. People who take trash articles like this one at face value are the type that ran SCO's stock price up based on groundless accusations against IBM. Now I guess maybe they'll run the stock prices of Sun, Microsoft, IBM et al down based on possibly just as groundless accusations against them from the DOJ.

Re:A show of hands if you are surprised

[billcopc]

They're both guilty. Given the large number of companies named, I wouldn't be surprised if the conversation went like "I'm the purchasing coordinator for Ministry of X. Give me Y$ or I'll buy your competitor's product." and then just replayed the same tape reel to every competitor.

Sure, it's bad that big business caves in to such dirty demands, but I think the government employees that were receiving the kickbacks are more responsible, whereas the vendors were just working a sale. Ideally I'd want to see the vendors stonewall the dirty buyer and turn them in for fraud, but corporations have no morals so that's a bit of a tall order.

Re:A show of hands if you are surprised

[Bobfrankly1]

Buisness (capitalism) is doing what "it is", makeing sure it obtains... I wouldn't be talking about capitalization when I have trouble spelling "making", but then again, maybe I should mind my own buisness...
-
OMG, Donkeys!

Re:A show of hands if you are surprised

[Detritus]

Read the fine article. The kickbacks were not going to government employees.

Re:A show of hands if you are surprised

[Fritz Benwalla]

I'm just happy to see that the Free Software Foundation doesn't seem to be implicated.

Re:A show of hands if you are surprised

[colinrichardday]

When you're spending other people's money -- and taking that money by force -- you're not exactly bound to the laws of economics.

Not immediately, perhaps, but even governments cannot waste resources with immunity without having to face consequences down the line.

Re:A show of hands if you are surprised

[bhiestand]

Democracy is great in most aspects, aside from the fact that it is decided on by the a$$hole with the loudest mouth. Ultimately, laws are voted on by the man who has swindled, lied and faked his way to the top and has the most funding to get there. Actually, you're describing a Republic. Of course pure democracy is tyranny of the majority, so there's really no winning.

Re:A show of hands if you are surprised

[westyx]

A show of hands if you are suprised by kickbacks and corruption, both in government and in businesses?

Re:A show of hands if you are surprised

[Mockylock]

Interesting point.

I was basically meaning that a lot of the political sides make decisions on their political side, not on what's right or wrong. Most of these seem to be brought about by the loudest lobbyists and such.

I'm grateful for the read though, thanks!

Re:A show of hands if you are surprised

[StikyPad]

I don't recall saying that.

kickbacka

[chinaguy]

Microsoft in a kickback scheme? I'm shocked! Simply shocked!

Re:kickbacka

[The-Ixian]

I guess you see only what you want to see.
 
Reminds me of that Far Side cartoon "What a dog hears" ...blah, blah, blah, OUTSIDE!, blah, blah...

Re:kickbacka

[The-Ixian]

I do not understand your humorjoke

Re:kickbacka

[PinkPanther]

Actually, it is:

blah blah blah GINGER blah blah blah...

You can see it here.

Re:kickbacka

[Doctor Faustus]

In The Complete Far Side, it's immediately followed on the same page with "What you say to cats" and "What they hear". What the cat hears is, of course, blank.

Don't expect much ...

[aeschenkarnos]

Some say "kickbacks and corruption", some say "rewarding loyalty and encouraging capitalist innovation". Tomayto, tomahto. It depends if you're honest, or a Republican.

Re:Don't expect much ...

[ArcherB]

Some say "kickbacks and corruption", some say "rewarding loyalty and encouraging capitalist innovation". Tomayto, tomahto. It depends if you're honest, or a Republican.

Are you saying that Democrats don't take "kickbacks"? Do bribes count?

Re:Don't expect much ...

[ScentCone]

Yeah, yeah. And some say "new Senate majority leader makes shady real estate deals in Las Vegas and hides the income" or "the Democrat congressman from Louisiana with $90,000 of bribes found in his freezer was just put by Pelosi on the committee overseeing Homeland Security affairs" too. Are you really prepared to assert that none of the thousands of career agency and departmental procurement people that have their hands in the administration of federal IT contracts weren't hired during the previous administration, or don't consider themselves to be Democrats? Wake me up when the party you clearly prefer doesn't, while wagging its finger at the other party and promising to cut down on pet project funding once they got control of congress, graft almost $4 billions in pork onto a defense appropriations bill (peanut storage? giving tax dollars to spinach growers that weren't insured against e coli losses?) to buy supporting votes from their otherwise skittish fellow party members. Nah, never mind. Cuz, that would require some honesty about your double standards. Want to bitch about politicians? Fine. Me too. Just don't pretend that your preferred political camp isn't also a fabulous source of shallow, grasping, corrupt twits and the inevitable resulting satire.

Re:Don't expect much ...

[mcpkaaos]

"the Democrat congressman from Louisiana with $90,000 of bribes found in his freezer was just put by Pelosi on the committee overseeing Homeland Security affairs"

That actually sounds about right.

Re:Don't expect much ...

[jellomizer]

CNN doesn't have a prayer of the week? Both sides are equally corrupted. There is a saying the Republicans Take the money out of your right pocket, the Democrats stand to your left and take the money out of your right pocket. They are all just as corruptible. Republicans favor the rich by giving them tax breaks. Democrats say they want to help the poor by using tax money for government services that seem to help the poor but they are so complex to access that only the rich seem to get the services. The fair and competitive bidding process is just a joke, they are particularly written so only one company can win the bid. It is just we are so blind sided and think if we choose a side it will lead us to a perfect life that we miss that our side is just as corrupted as the other. So what if the link has a "prayer request of the week" just because they are openly religious and most likely right wing doesn't make the fact that corruption in the democrat party doesn't exist. Just as the more liberal sources just because they are Atheists or Support Gay rights it and most likely left wing doesn't make the fact the Republicans corruption doesn't exist.

We like the 2 Party system because it make us believe that there is a good and evil party. If one side agrees and the other disagrees then you figure that one side needs to be right and the other needs to be wrong. While the truth can be both are right or both are wrong or right about some parts and wrong about others. Stop following party lines and think for yourself.

Re:Don't expect much ...

[TempeTerra]

Some say "kickbacks and corruption", some say "rewarding loyalty and encouraging capitalist innovation". Tomayto, tomahto. It depends if you're honest, or a Republican.

Are you saying that Democrats don't take "kickbacks"? Do bribes count?

No, no. He's saying that the Democrats are really Republicans. Search your heart, you know it to be true.

Re:Don't expect much ...

[dasuridai]

Sure a lot of the politicians fall victim to the same greed and malice regardless of political party. But both parties aren't the same and the reason is who is their constituents.
When half of the Republican Congress gets hauled off to jail, evidenced by regular indictments and scandals, Conservative voters are happy to shout, "hey, the other side does it too."
When a Democratic member of Congress is found to engage in criminal behavior, their base is shouting with the rest to have them put in prison.
So yes, corruption happens. The question is whether or not you then hold that politician accountable, or say everyone does it, thereby excusing it.

Re:Don't expect much ...

[HangingChad]

We like the 2 Party system because it make us believe that there is a good and evil party.

No, we like the 2 party system because when one gets all up about themselves and starts thinking they crap marble we can toss them out and enjoy a couple years when the new guys are actually concerned about doing a good job, before the entitlement mentality sets in and we have to start all over again.

Re:Don't expect much ...

[operagost]

When a Democratic member of Congress is found to engage in criminal behavior, their base is shouting with the rest to have them put in prison.

You mean, like President Clinton?

So

[cyphercell]

Who's innocent? And more importantly why does the entire industry feel the need to play dirty?

Re:So

[Opportunist]

why does the entire industry feel the need to play dirty?

I waver between "old habits die hard" and "never change a running system".

Re:So

[macshit]

And more importantly why does the entire industry feel the need to play dirty?

Because they're all greedy as fuck and "... everybody else was doing it!"

Re:So

[cyphercell]

I kinda wonder if the government got a legitimate contractor, would they prefer them over getting ripped off?

Re:So

[Sloppy]

And more importantly why does the entire industry feel the need to play dirty?

"I wanted the money."

Re:So

[arivanov]

I find the second quote on that page more appropriate.

same crooks, new name

[PatentMagus]

Isn't Accenture the scumbags formerly formerly known as Arthur Anderson? I bet their next name begins with an 'A' too. Gotta keep that early listing in the directory.

Re:same crooks, new name

[vought]

Isn't Accenture the scumbags formerly formerly known as Arthur Anderson? I bet their next name begins with an 'A' too.

Just so that they're right behind "Aasshole bail bonds and towing" in the phone book.

I mean really, what else matters?

Re:same crooks, new name

[Expertus]

While Accenture was formed by Arthur Anderson as a consulting division in 1953, they split from the company (1989) before the ugliness with Enron, and finally severed all contractual ties in 2000. Arthur Anderson had a separate consulting branch that directly competed with Accenture after the split. So, yes, they used to be a part of AA, but as far as I know, they had nothing to do with the questionable accounting practices that led to AA's downfall. (http://en.wikipedia.org/wiki/Accenture)

Re:same crooks, new name

[afidel]

Actually they were the IT consulting wing of AA that fought tooth and nail to separate themselves from AA because of the bad practices going on over at AA. They even took a several hundred million dollar loss in the spinoff because the accounting side hide losses from another division in their side of the ledger, there was a lawsuit but Accenture dropped it because they were just sick of dealing and being associated with the accounting firm. They aren't choir boys but they really did have more ethics than AA. I never worked for them but did have them as a client and got to meet quite a few of the guys at a couple of their offices.

Re:same crooks, new name

[mimecine]

Right, some Anderson Consulting (as they at one point were named) once shmoozed his behind on the corner of my desk for a few minutes and of course my fave pen was nowhere to be seen afterwards. Long fingers, I'd say. I'll give him a kickback any day. To Mister Consultant Anderson: A real kickback, you Penron!

Re:same crooks, new name

[aproposofwhat]

Yep - and that's the problem.

When you get a firm of accountants, who are well used to working at the very edge of financial legality (and sometimes step over the line), involved in selling consultancy services, then you'd better expect some obscure financial arrangements to figure in their operations.

The fact that they have been caught out is good - though in my opinion it should be Accenture alone facing punishment, since they doubtless pressured the other companies involved to make the kickbacks, going with the supplier most prepared to bend over and take it like a bitch.

It's similar in my opinion to the price pressure put on suppliers by the big supermarket chains - Accenture are a preferred vendor to the government, and they have a lot of contracts to throw around, and will use their weight to pressurise their suppliers, maximising their profits while not passing the discounts on any more than they can get away with, exactly as the supermarkets do to the consumer.

The only difference here is it's the government that's getting shafted, and there are laws against that, whereas Tesco, Wal-Mart et al can get away with shafting the little guy (consumer and supplier alike) because the regulatory climate favours them.

I don't blame HP, IBM, Sun, or even M$ for this - the fault lies with Accenture and Accenture alone.

Re:same crooks, new name

[hughk]

Wasn't it was more the pressure on accounting companies to separate from their consulting divisions. Having both together ws being flagged as a massive clash of interest since the early nineties. Also the partnership model was seen to be limiting to growth. Accenture still uses a 'virtual partnership' system for profit sharing but it is now conventionally incorporated.

Re:same crooks, new name

[afidel]

Actually AA had started another internal consulting company so I don't think that the conflict angle had much at all to do with it.

Re:same crooks, new name

[Fujisawa Sensei]

Nothing wrong with charging $350/hr for consultants just out of college.

However there is something wrong with a company that signs a contract and is willing to pay $350/hr for consultants just out of college.

Re:same crooks, new name

[tom's a-cold]

I'm pleased to hear that they were driven by pure hearts and ethical imperatives as they made that decision.

But if so, ethics aligned with financial incentives: in particular, the differences in revenue generated by the consulting partners (in Accenture) versus that generated by the audit partners (in Arthur). While they were a single firm, revenue was pooled (well, partially), so Accenture was essentially subsidizing Arthur. Going independent enabled the Accenture partners to keep a bigger piece of the pie. And also, I'm sure, to feel ethical.

And the "loss" in the spinoff was a payment of revenue AC had withheld from Arthur Andersen during litigation. As part of the settlement, they had to pay that. It was part of the pre-separation agreement.

And it also appears to me that the separation didn't have to do with the SEC pressure on audit firms to divest their consulting operations. That came later. Furter evidence of that is that Arthur Andersen were building up their own consulting operations prior to the Enron debacle.

I don't think they're choirboys either, or devils either. But there are some strong temptations, weak regulation, and a climate of corruption in the higher echelons of both government and business. So it's plausible that at least some of those guys may have stepped over the line. It's likely that the majority of Arthur Andersen people were clean, too, but that didn't do them much good when Enron blew up.

Anecdote

[king-manic]

I work for a fairly large company. We recently had an upgrade of our frontline order entry software, we contracted out to an off shore firm (Israeli). The parts we made work very well with a few bugs. The parts we sourced out to hardly works. We had to launch it for financial reasons recently and it basically drops 3/4 of the orders into a stuck state. It has 109 known cases that need work around, we expect call center grunts to be aware of all 109... It has one reoccurring error that is so far unfixable and only affects our high value customers. The contractor is condescending, resentful of our questions and $900/h for any personnel they send. As well the whole system is down at least once a day for an hour.

Word from former employees of two other companies that contracted the same contractor, is that we are lucky that it runs at all. Their experience with them is that it had less running at the same point when they had contracted them.

Given that we had people in our company that had bad experiences with this off shore contractor why did we choose them? All we know is that mid way through the project one of the senior decision makers pushing for this particular contractor was fired. Perhaps this firm does the whole kick back thing. It would explain why our final products feels like an alpha build. Perhaps event the ambivalence and contempt from the contractor. If the contract we sign was stupid enough they can show open contempt without fear of being fired. I attended one meeting with one of their reps and the only word I understood was the work the resentful "okay" the lady kept adding to each of her supposedly English sentences.

I think we could have done in house in the same time (2 year overdue) with less money (I have no idea, but the number is large enough that the senior VPS feel nervous). Or even hired an shore and at least be able to yell at them at our leisure and have them reply in something resembling English.

Re:Anecdote

[mpapet]

Of course the former exec got "a little bonus" from the vendor.

Practically every software vendor with some money in the bank does the same thing. I assure you the former employee is not the only one.

Judging by the comments posted so far, many of you need to buy a clue and cash in.

Re:Anecdote

[king-manic]

How exactly is this flamebait? BEcause I meantion an isreali firm? because you recognize the situationa nd you work for th efirm in question? Or your the guy who got canned?

A list of those who don't would be shorter

[rs79]

As if. IBM's head intellectual property attorney once bragged (under an NDA'd room that included Vint Cerf and Dave Farber) that they'd spent all $60M of their DC lobbying budget to make sure no new tlds were created.

Re:A list of those who don't would be shorter

[The_Wilschon]

And how, out of curiousity, were you privy to this information?

In Other News, Steve Ballmer once bragged (under an NDA'd room that included Margaret Thatcher and Celine Dion) that he'd just spent the night with three monkeys in a sleazy motel. (They were typing the windows source code on a couple of typewriters for him...)

Re:A list of those who don't would be shorter

[Nefarious Wheel]

Well, three monkeys in a sleazy motel for the night is still better than Margaret Thatcher and Celine Dion in a five star hotel for the night. Much better sex.

And it's pretty certain Maggie and Celine wouldn't do it for washers (op.cit).

Re:A list of those who don't would be shorter

[metamatic]

I'd be interested to see a citation for that quote, as IBM's written policy is not to donate to political candidates.

It gets better

[WindBourne]

They moved their HQ offshore to avoid paying taxes AND to avoid prosecution. I yet, they won massive contracts with the feds.

Let's wait for the laws ... or not

[Opportunist]

Imagine this being a normal person. Like, someone cheating at taxes. What does immediately follow a revelation like this? I mean, besides the lawsuit that strips him to his bones and beyond (though I doubt the same is gonna happen to Cisco, MS and the rest of the organized cri... I mean honorable corporations).

Right. New laws that should increase "transparency". Read: Make you more transparent for the powers that be, and any complaints from the ACLU would be shot down with reference to those crooks that dared to cheat Uncle Sam and his poor children (i.e. the citizens of the USA), how dare you be against laws protecting them?

So... I'm now waiting for the corresponding laws, or at least suggestions, to make corporations more transparent and make them better manageable and taxable.

Though... I think I better not hold my breath. Suffocating is one of the worst ways to die.

Re:Let's wait for the laws ... or not

[TubeSteak]

So... I'm now waiting for the corresponding laws, or at least suggestions, to make corporations more transparent and make them better manageable and taxable.

As in many "zomg this is a big deal" legal issues that get talked about, the laws are already in place to deal with it.

The problem was that the companies didn't make the legally required disclosures.
(Because they probably knew what they were doing was illegal)

They hid the kickbacks behind creative accounting.
The IRS has the power to tweak GAAP, something that doesn't require an act of Congress to do.

There is no law you can pass to fix this.
The framework to resolve this is already in place.
Let the system work

Re:Let's wait for the laws ... or not

[Opportunist]

True. The necessary laws are already there. But when did it stop lawmakers before?

Never noticed it? There are laws concerning violence in games and ratings, and still with every school shooting some backbencher bursts into the front row with the demand for tighter legislation. There are pretty tight and rigid copyright laws by now (beyond anything their creators wanted them to be), but with every year the mafiaa's profits don't shine the cry for more burden on the back of the courts gets louder. The laws for making porn available to minors is pretty strict and actually enforcable, still the demand for more and tighter laws around porn and the net didn't decrease.

That laws exist to deal with something never meant that some senators and congressmen didn't think we really need some more direly. Especially if some voter demographic isn't yet satisfied with the amount of red tape.

Inaccurate Anecdote

[Frosty Piss]

usually setup via the old hand under the table wad of cash from supplier to head bureaucrat to ensure competitors are left out.

It's popular to suggest government bureaucrats (employees) are getting cash kickbacks, but that rarely pans out as true. Sometimes is does workout to a favorable job after the bureaucrats time in government is over, but before that, cash rarely changes hands. It's almost an "urban legend".

Re:Inaccurate Anecdote

[HUADPE]

Here's a more plausible scenario:

CEO of Big Firm Inc., his immediate family, and a few friends/board members all donate the legal limit, $2300, to a Congressman's campaign. Say it totals $25k in donations. Then, when Congressman wins his campaign, a lobbyist calls to talk about the next contract coming out of the Congressman's committee. Congressman listens intently, and says that he will "do what he can" to assure a "fair bidding process." Congressman then makes a call to mid/upper level bureaucrat at say the Commerce Dept and makes intonations about the contract negotiations. Bureaucrat would like to be an undersecretary under the next administration of his party, and so he picks the "right" bidder, Big Firm Inc. Thus Big Firm Inc. has more than recouped the political donations and fees to it's lobbying arm. IANAL, so I don't know if this is illegal or not, but remember, one of the people in this story writes the laws.

Re:Inaccurate Anecdote

[karmatic]

A more likely scenario would be the mid/upper level bureaucrat simply writing the specifications to the product in question.

"The office suite selected shall be 100% compatible with all documents produced with Microsoft Office 2007", etc.

Re:Inaccurate Anecdote

[TheLink]

Or getting the appropriate consultant to help write the specs.

Re:Inaccurate Anecdote

[StikyPad]

Almost.

Definitly shades of grey

[afidel]

Giving other vendors discounts for work performed on certain types of high volume contracts might well be standard practice. The fact that one of those type of contracts was US Federal Government contracts just means that someone with guns feels they deserve the discount. I mean what right does the government have to deserve a certain price, the government puts a job up for competitive bid and they get whatever the best price they get, if someone outside these cartels can perform the same service at the same cost then they should be able to come in at under the other bids by not having to include the cross rebates in their pricing structure. If the outsider can't give that better price then the government can STFU and take the best deal available.

Re:Hmmm.....

[Ungrounded Lightning]

I seem to recall that the main "cause" for firing some of the attorneys was failure to prosecute things the Bush administration wanted prosecuted.

Won't you feel silly if it turns out this was the sort of thing they wanted prosecuted and couldn't get to happen until they started firing prosecutors?

It ain't that easy

[Opportunist]

Usually, governments don't order a dishwasher or a fridge. They order power plants and recycling centers. And there are only so many companies who can offer those.

Also, as the government you can't only take price and quality into consideration. There is a reason why the feds drive around in US built cars and not in BMWs. Simply 'cause one of their goals is to increase the own infrastructure and business power and rely as far as possible on goods built in the country.

Military hardware is even more complicated, since you have to trust the companies far further than with some ordinary civilian stuff.

So your choices become very, very narrow. You usually only have a handful of companies to pick from, if that. So it's easy for them to form a cartel, if only a "secret" one, by fixing prices and splitting the revenue. And that, in turn, is illegal.

So you can't simply assume there is someone "outside" the cartel. The company would have to be in your country, it would have to be large enough to be able to offer the service requested. And if it isn't part of the cartel, they would quickly find a way to acquire and split that competitor.

Business is a shark's world. Don't think they would accept a competitor without fighting him with claws and teeth.

Re:It ain't that easy

[afidel]

So your saying they are restricting themselves to buying from an Oligopoly. Well, by definition an Oligopoly has the ability to set non perfect pricing for the buyer so thats what they should expect. I mean these companies could just all jack up their rates by the same amount as the shared profit and pay full fare for the other members services and the result would be even higher prices for the government. I don't understand how the government is dictating what profit the companies can make. As long as the profit sharing isn't outright bribes I don't see where the government will have a case, discounts to preferred partners isn't a crime last time I checked.

Re:It ain't that easy

[Opportunist]

No, but the intention of the discount is. It is, technically, a bribe. A bribe given to your competitor to not undercut you for the mutual benefit of both of you.

Government cannot and does not dictate what a company may charge. What they can and do dictate is, the price fixing doesn't happen.

What allegedly happened here is this: Company A is a contractor for the government. Company B gives company A money so they are their "prefered partner". There may be companies that offer the same service offered by company B cheaper, but company A still sticks with company B because of the money they gave them. So the product itself gets more expensive than it has to be, since company A has to forward those increased costs to the government.

In a nutshell, the benefit lies with the companies, at the expense of the government.

Imagine this: Company A is one of the few, maybe the only one, who can offer a certain product. I.e. the government HAS to buy with them. Company B (the one paying to be prefered partner) paid company A to be in the deal as well. They might have competitors, but they paid to be in. Technically, they bought themselves a monopoly position.

Whether it's illegal or not should be determined by a court. I'm no lawyer, I earn my money honestly. At the very least it is dishonest and looks very bad, as a taxpayer I would like to see my tax money spent on quality products not bribes.

Re:It ain't that easy

[KDan]

Actually, I suspect it's rather more simple and boring than that. I have worked for Accenture. This company has strategic alliances left right and centre. They give rise to various discounts. For instance, the strategic alliance with BEA allows free usage of WebLogic in development environments, to all Accenture clients (on Accenture projects).

Now, that might be construed as a "kickback", perhaps, but it isn't much of a kickback, really. What is likely to have happened here is that either the "whistleblowers" don't quite understand what they're talking about, or someone in one of those 1000-people mega-projects that the government likes made a small mistake somewhere in the billing. Believe me, as corrupt as all those organisations are, they don't do this kind of shit intentionally - that would be just plain stupid, given the potential repercussions of getting caught doing it. And also given the paltry "kickback". $20m? Over 6 years? Oh come on, that's an infinitesimally small drop in the bucket. You're talking about a company with a $13bn yearly turnover!... Why would any partners/senior executives (the only people at the level to make this kind of decision) bother making such a dumb decision?

Overall, I suspect this is all a load of hot air.

Daniel

Re:Hmmm.....

[surfingmarmot]

"Won't you feel silly if it turns out this was the sort of thing they wanted prosecuted and couldn't get to happen until they started firing prosecutors?" Ah, yeah, sure. I am not owrried about that possibility, I am more worried about how I'l spend my lottery millions since winning the lottery is more likely than your scenario. The Republicans fighting corporate corruption. Yeah, just like they did with that Jack Abramoff guy eh? Hey Mr. Lott, I didn't know you read Slashdot. How's retirement?

That's exactly the reason

[Opportunist]

Everyone doing it. You don't do it? File for bankrupcy.

High profile business is a dog eat dog world. Playing fair is no option. You either participate in the corruption and bribe the right people or you go under.

Yes, that's sad. Yes, that's business.

Can someone explain this to a non-business grad?

[Sandcastle]

Sure sounds bad when you first read it, but I'm not sure exactly "why" it's bad, other than it feels like it is ;-)

giving each other discounts - What is the difference here between this and other's who make a living as a middleman? KMart might have a clothing manufacturer offering a discount to them compared to some other chain because they like the target market, or know they'll get good volume. Can't intel offer discounts on their chips, greater than just volume discount, to Apple because they'd love the boost to their image? MS prices OEM cheaper to get pre-installed. What differentiates these examples from the one in the FA? Does KMart or Apple have to show us the discount/markup made?

Accenture received more than $735,000 in payments from IBM for "favorable treatment and influence" . This sure sounds worse, as they are Payments rather than discounts. Isn't it the same thing though? I assume they are only payments based on securing sales, so it's just the same discount in a separate transaction. Where is the line drawn?

I'm not encouraging this or claiming it should go unpunished, but I know if I'd been in a management position along the line I don't know how/why I could/should be stopping such things (defensibly).

A bit about the inner workings of "kickback"

[Opportunist]

To make things clear (sorry to sound like a lecture, but some people appearantly got things wrong, judging from the comments), a bit about how this works:

Some company has a contract with the US feds. That company didn't do anything wrong (yet), they got the contract fairly. Let's assume that for a moment, because TFA doesn't mention anything different.

Some other company now paid the company above a sizable sum to be their "prefered partner". I.e. to get them to buy the things they need to fulfill the contract from them. This, by itself, is not yet illegal, but at the very least a bit smelly.

The first company (and here comes the allegedly illegal practice) now did not forward this "discount" to the government but decided to keep it for themselves. Furthermore, if there wasn't that "prefered partner" deal, they might have gotten the items bought from the second company cheaper with another company.

Why is this illegal.

Governments usually have a very narrow selection of companies to choose from when they hand out contracts. Said companies usually have to adhere to very specific standards, are closely monitored, they do have to have specific features (varies from type of contract to another, but usually includes things like transparency clauses, being in the country the government is and so on). In other words, there aren't many.

If now another company "buys their way" into being the supplyer of such a company, they can expect to be part of government contracts without going through the same ordeals and strict standards. Furthermore, they have the liberty to choose their price freely (in other words, make their products more expensive than they "should" be), because there is no competitor. In other words, they "buy" a monopoly position.

Re:A bit about the inner workings of "kickback"

[ShinmaWa]

You make some excellent points. However, there's a few places where the pieces don't quite fit together.

The winning vendor (the contract holder), is still responsible for the all the terms of the contract, even if the work is outsourced. Besides, there was no mention in the TFA of the contract terms being broken and all the players involved are large vendors to the government on their own, even without these alliances. IBM, Oracle, etc don't need a proxy to work for the government. They are already there. If this was some po-dunk ma'n'pa or some firm from Outer Offshoristan, you may well have a point here, but that's not the case here.

Also, nearly all federal government contracts are fixed price. If a subcontractor raises the price after the bid is won, it's the winning vendor who gets hurt, not the government, since they get paid the same no matter how much it actually costs.

However, you are absolutely RIGHT when we slightly rearrange the order of events as you presented them. Let's say the subcontractor contracted with the (soon-to-be) winning vendor DURING the bidding process. The supplier says "it'll cost us $X to do this" and the vendor puts that down on the contract as part of the overall cost, THEN the contract is signed, and THEN the rebate occurs. _That's_ a kickback and quite illegal. The bid was _artificially_ inflated before the contract was signed.

The legality of this all boils down to where in the process the subcontractor was engaged and when this "rebate" occurred. That's what the DOJ wants to find out. It's a shame that the article was not more clear on this all-important detail.

Re:A bit about the inner workings of "kickback"

[Opportunist]

Second anonymous posting in 2 days claiming to be me... ponder...

Woohoo, I have a stalker!

God, I feel important. My ego needed that!

Thank you! It certainly brightened my day. :)

Re:Hmmm.....

[demachina]

"...the sort of thing they wanted prosecuted and couldn't get to happen"

Most of the crimes I've heard Bush and Gonzales wanted prosecuted by the fired U.S. attorneys were illegal immigration and voter fraud, not corruption by big contractors. The exception is Iglesias in New Mexico. They did want him to pursue a corruption case against a Democrat, for some courthouse contracts. Senator Domenici was pressuring him to do it before the 2006 election so the Republicans could use it as a campaign issue. When he balked because he didn't have a case yet, Domenici called Bush/Rove and he was apparently added to the black list almost instantly.

In at least three other cases, San Diego, Arizona and Nevada, there is a pretty good chance the U.S. attorneys were fired for having the audacity to pursue corruption cases against Republicans so the Bush administration was probably trying to suppress investigations of Republican corruption.

There is at least a 50/50 chance Carol Lam, the San Diego U.S. attorney, was fired precisely because she was aggressively pursuing contractor corruption cases against Duke Cunningham and defense contractor friends. As I recall there was a sudden additional surge in interest in firing her when the case expanded to someone in the top echelon of the CIA who was steering lucrative contractors to his college roommate.

So you are mostly off the mark dude. If anything Bush/Rove/Gonzalez were trying to fire attorneys pursuing corruption cases against Republicans, and failing to pursue them fast enough against Democrats.

A case of the complexity of this kickback scheme has probably been in the work long before the U.S. attorney fiasco came to a head. I imagine Gonzales is glad it was announced today because he needs some smoke and mirrors to divert U.S. Senators of both parties from calling for his head. He can point to this as something great DOJ is doing, at a time many people in the know are of the opinion Bush/Gonzales have nearly wrecked the DOJ.

Re:same crooks, new name- indeed

[symbolic]

Do a google search for +accenture +disaster - same old story, different cover.

Sounds like it's time...

[Guppy06]

for several US Attorneys to be fired for wholly unrelated reasons that the Attorney General had no involvement in.

Don't convict them yet...

[Alpha830RulZ]

It's not obvious to me that there is any corruption here. If, as is likely, these companies contracted with the government in a public bid process, their legal and ethical obligation is to deliver the stated project for the stated fee. These aren't defense contractors here, where the contracts are cost plus. These contracts are typically granted after lengthy bidding and contracting processes. If the companies violated the contracts, the remedy is in civil court, and should be straighthforward.

If the various partners contract between themselves, there is no obvious reason why that is unethical or dishonest. Accenture has had well publicized relationships with these companies for at least 15 years, and is a VAR for most of them (disclosure, I worked for Accenture for 10 years, back when it was Andersen Consulting). Accenture and Microsoft have a joint venture, Avenade. Accenture resells HP, Cisco, and IBM gear. It isn't clear that cash payments going back and forth in the context of projects indicates anything other than a business partner relationship, which no-one is denying. There may still be a law against what happened, but the putative illegal behavior might not actually be anything wrong.

This really smells like either some prosecutors trying to make a name for themselves, or, if you want to be paranoid, Gonzales trying to whip up another story for the papers to distract us from his butt reaming in Congress today.

Re:Don't convict them yet...

[portrayed]

That last sentence. It is possibly the most truthful thing I've read on this site in a long time about politics.

Re:"Do no evil"

[Duhavid]

You have to google for it.

Prior Artwork in Rights of Numbers

[BrendaEM]

I mentioned it years ago in my fiction book:

"While he held his finger back on the key, he
tapped a password into his portable using a
distinct rhythm."

http://www.brendamake.com/numbers/download.html

It also combined a "deadman's" switch program.

Wake up! Why your idiot IT boss isn't an idiot...

[Invisible Now]

Worked in corporate (non-government) IT very long? Wonder why the big vendors screw your bosses for Million$ when your existing team could deliver a better system, quicker, for next to nothing in cost? (comparatively...)

Ever consider offering your IT VP a trip to Aruba? Down payment on a ski cabin? "Cash back" from the war room filled with dozens of do-nothing H1-Bs billed at $150+/hr and "Project Manager" fly-in consultants at $200+/hr + expenses? Your boss can fill their well-deserved retirement fund from one big ERP or CRM project. Of course, WE ALL KNOW it is ALWAYS a BEST PRACTICE and "lower risk" to select a respected, industry-leading vendor! (at 10 to 100 times the cost...) Not your inexperienced band of idealistic engineers.

The FBI hauled a director out of my big bank for being too obvious, or perhaps not well-connected enough...

Wake up! This is why your proposal to save bucks and use your existing talented people and resources is never approved by your rich "idiot" bosses.

Try a long lunch and kickbacks with the "idiot" next time...

Wake up! It's the new EXtreme methodology...

we shall see.

[twitter]

the corruption wasn't with the govt. but with other companies. The other companies received money from Microsoft, Cisco, IBM, Dell and Oracle, among others for preferential treatment when it came to govt contracts.

The claims are that discounts and rebates are offered to the contractor - Accenture (slime warning), so that they would recommend Dell, M$ and all that as just what the government needs. The rebates would not be passed onto the government, so they are simply bribes.

When you talk about bribes, everyone wants a piece of the acction, so don't be surprised if administration hands are dirty. Single source contracts are everywhere right now and those are a good sign of bad behavior on the part of government officials. No one is really dumb enough to think those kinds of contracts will actually save their office money or result in better service.

Re:we shall see.

[Gr8Apes]

Sole source contracts are at times exactly what is needed. For instance, to buy a set of hardware that will run a specific program that will perform a certain task or to build a specific item with a specific process for R&D testing.

However, for general desktop/computer resources/services, no such driving requirements exist, and sole source should be a red flag.

ah yes...the modpoints...

[N3wsByt3]

Don't take it too personally, it happend to me too. Sometimes, moderaters squander away their modpoints in incomprehensible ways. This is slashdot, after all; there are some pretty weird folks around here.

It's sometimes frustrating, I ,know, but moderators are, ultimately, like every human population: they are comprised of intellectually honest people and of assholes wanting to make a point while being inept in making a rational argumentation - and everything in between those two things.

How to win a tender

[smorar]

This story reminds me of a joke I received via email in the context of South Africa:

The Minister of Public Works wanted to remodel her office, so she invited different contractors for tenders. One was from Johannesburg, one from Durban and the last one from Soweto.

"OK gentlemen, I want a nice job," She said, "Let's hear from Jhb?"

The guy took out his ultrasonic measuring device and laptop and began measuring, scrawling on the computer, calculating. Eventually he said "R90 000, Madam Minister,"

"That seems like quite a lot of money! Why R90,000?"

"You see," he replied, "that's R40 000 for material, R40 000 for labour and R10 000 for my profit".

She seemed OK with that and turned to the Durban contractor. "So how much do you want to do the job?" she asked.

The Durban fella took out a rusted tape measure, broken clipboard and a blunt pencil. He took some measurements, scratched some calculations on the back of his Rothmans box and came up with a figure of R70,000.

"That's interesting!" said Stella. "Explain the R70 000?"

"Simple, Madam Minister, I got a brother-in-law in the hardware trade, so that's R35 000 for materials, R30,000 for my guys, and R5,000 for my profit and all."

She was amused but happy to accept the explanation.

Then she asked the Soweto contractor for his quotation. He just smiled, looked the minister in the eyes and said, "R270 000!"

"Yoh Yoh Yoh!.... How did you come to that amount without even taking your measurements? What is that amount for?"

"That's R100 000 for me and R100 000 for you!"

"So what about the remaining R70 000?" "We hire that guy from Durban to do the job!!!"

Re:How to win a tender

[jafac]

Unfortunately, thats no joke.

All too real.

In this case, it's why KBR (Durban) is going broke, and Halliburton (JHB) is moving to Dubai.

Bonus Question: Who pays the cost of a war, when a "used car salesman" convinces folks that one is needed, whether or not it actually is needed?
Answer: 3000 US troops, the taxpayers, and hundreds of thousands of innocent Iraqis who were in the wrong place at the wrong time.

And...

[Capt James McCarthy]

So companies partnered up to win contracts. Good for them. It was an exchange of money for said partnerships though, not a 'kickback' in my book. One company gives another a deal on a product, then the second company can sell it to whomever they wish (in this case the Govt) without passing on the savings. Again, big deal.

If I'm buying a widget for a dollar and sell it to customers for 2 dollars, and the I find a different manufacturer who can sell me the widget for fifty cents, why would I be required to pass along the savings to anyone?

Re:And...

[Finuance]

If I'm buying a widget for a dollar and sell it to customers for 2 dollars, and the I find a different manufacturer who can sell me the widget for fifty cents, why would I be required to pass along the savings to anyone? That's fine in a "free" market where the many competitors would do the same thing BUT sell the widget cheaper to various consumers and put you out of business or drive your prices down.

Government contracts aren't a free market. Since there is ONE consumer and a very small pool of vendors.

In this case, a company can pay to be a preferred supplier even though they are more expensive and perhaps of less quality or equal quality to other suppliers.

The big factor is the lack of competition that these paid and potentially secret "strategic alliances" create in this environment.

Name and Shame

[bjourne]

Name and shame, man. If this company is just as bad as you described you should have no qualms mentioning their name. Lest anyone else of us will have to deal with that same company again.

Things are a little more complex than that...

[cyberianpan]

For many products the "developer studio" software is quite expensive, indeed these days with "zero foot print" web clients no user software is needed. Now then there is an attempt to monetize based on number of users of system, server flops, i/o etc but sometimes this can be blurry/hard to determine. Overall for a large installation it ends up being blended pricing in a bespoke negotiated contract.

The installation & software writing is often do by consultants/systems integrators - I work for one of the largets of these - we won't benefit from the product & also it suits the software companies to have us guys out there pushing their products. Thus software companies will give us free server & developer licenses. We'll use these for internal proof of concepts, training, evaluation before we even get near actual project work. So as a marketing effort it is quite valid to give us these licenses for free. But:

What if we use the software/package for our own internal business processes ?
or
Sometimes a very, very large software vendor (guess who) gets pretty pissed if we are recommending a competitor... even if the competitor's offering is more limited, specialized & regarded as the best available. So the very large software vendor instead of throwing chairs at us threatens to revoke all our developer licenses wordwide unless we ditch the competitor. :-(

Like any area of business software is quite murky.

OOPS

[Anomalyst]

I mentioned it years ago in my fiction book:

I think you meant to post this in the following article ;)
interesting point, I'll see if you make it in that article too.

Government Contracting is Different

[Anonymous Coward]

A bit of history, first. The government was being ripped off in the 70's through 80's by contractors who were overpricing goods and services. You've probably heard stories (most of which are terribly exaggerated) about the military buying $600 toilet seats and $400 hammers. The backlash led to many new laws and regulations clamping down on government fraud, waste, and abuse, as well as on contractor kickbacks and fair pricing.

In those days, it was quite common for contractors to give lots of free perks to government employees, in return for sending contracts their way. Similarly, government employees were sending contracts to favored contractors, in order to eventually retire from the government to a nice high-paying job with that contractor. Notice the common theme here is the sending of contracts based on personal gains of those involved, rather than the best value for the government.

The bottom line is that now contractors can neither give nor receive any non-trivial benefit to/from any government employee. Note that the rules go so far as to limit what was a common practice of holding a very nice business dinner, with a government employee and a contractor; now neither can offer to pay for the other, and they must--by law--split the check. There are even mandatory training classes, where contractors and government employees alike study scenarios where, for example, a government employee is stuck with a flat tire by the side of the road, and you are quizzed whether you as a contractor can stop and render free assistance (you can, by the way, within reason). There are detailed FAQs regarding cases where you can and can't buy doughnuts for meetings regarding established contracts. Further, unless you're a relatively small business or otherwise exempt, you can't even contract with the government unless and until you can prove you've provided this kind of training to all your employees. Yes, this may all seem a bit surreal, but that's where we are.

Now the issue noted in TFA should be fairly obvious in this context. As others have mentioned, most contracts are bid as "cost plus" (and those that aren't have to extensively justify the "cost realism" of their fixed-price or other styles of contract). The point is that you simply can't do what is so common in normal wholesale/retail practices. You must, when contracting with the government, pass the savings on to the government.

Let's say part of your contract is to purchase and install a piece of hardware, where the hardware costs $10,000. You markup the cost by 15% to cover your administrative expenses and a small bit of profit (the joint rate which must be disclosed) and charge the government $11,500. Later, let's say you receive some sort of $2,000 rebate on the hardware. At that point, you're obligated to refund that rebate (and its associated markup) to the government, otherwise you'd have overcharged the government. That's not just bad for taxpayers, but it also is seen as the government employees providing you $2,300 in benefits (indirectly though it may be) as a way to bribe you to hire them later.

Keep in mind the typical volumes we mean. You may be bidding to provide upwards of 10,000 laptops to the government at a time. You can be sure that various providers (HP and Lenovo, for example) will want you to choose them; that's a huge sale to close. They may offer to provide all kinds of benefits to your company, such as free support work for all your staff, if you choose to bid their products rather than the competition. That incentive is not directly attributable to the sale of the 10,000 laptops, which hides this "rebate" quite nicely. You're now suddenly not required to surrender the rebate, because there really was no rebate. Meanwhile the government still overpaid (if you can manage to think within the rules of this bizarre process) for these laptops, because all the benefit of the sale incentive should have been recovered by the government. Obviously things can be hidden even more indirectly, w

What?

[bondjamesbond]

What? Linux wasn't listed? I'm shocked! Goodness!

This may be hampering the growth of Linux

[ZoOnI]

A friend who is very anti-M$ is working for a medium sized business worth a few million dollars and had a Linux infastructure. Recently a new CIO was hired. The CIO then decided to move to Microsoft Technology and spent $500,000 to do it. I wonder if the CIO is aware of the M$ kickbacks.

Re:This may be hampering the growth of Linux

[ahodgson]

Don't worry, I'm sure he got some.

What you seem to consider evil here, is normal

[ToasterMonkey]

Hold on a minute, most of you don't know how resellers or VARS work... this applies to federal and commercial. Company B in your example almost ALWAYS gives a discount to Company A, the size of which is determined by their channel partner programs or volume sold. Of that whole list of vendors, there are thousands of products from each that for the most part do the same job as their competitors. Very often it comes down to personal preference or the discount a reseller gets. What do you think the deciding factor between low end PC servers is? Let's say Dell and HP for example. Do you think anyone really sits down with a HP DLXXX and an equivilant PowerEdge to do a side by side comparison? Or how about FC HBA vendors? It's the strength of the relationship between the VAR and the vendor that determines these things.

If VARS didn't get discounts, they wouldn't exist. The income doesn't come entirely from the VA part... The Govt still pays roughly what they would if they bought direct from a vendor.
The issue isn't really with the discount you morons think the end customer should be getting, it's with the type of incentives the vendors are offering resellers and whether they are legal or not. This is about competitivness. This news is probably WAY too overhyped, it isn't what you all think it is.

No democracy here...

[SonicSpike]

Yeah, except for the fact that the US is NOT a democracy, never has been, and hopefully never will be. The US is a constitutional republic in which the representatives are democratically elected.

Democracy is 'two wolves and a sheep voting on what to eat for dinner'. Or more realistically, democracy is the majority voting to outlaw the speech and opinion of minorities. And even more realistically, democracy is 10 of your neighbors voting to take your land and divide it up among themselves. Majority rule is a BAD THING!

Re:Your Government at Work

[Doc Ruby]

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