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DOJ Names Dozens of IT Vendors in Kickback Scheme

Posted by CowboyNeal on from the jig-is-up dept.

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."

25 of 174 comments (clear)

  1. A show of hands if you are surprised by Mathness · · Score: 4, Funny

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

    --
    Carbon based humanoid in training.
    1. Re:A show of hands if you are surprised by Detritus · · Score: 4, Insightful

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

      --
      Mea navis aericumbens anguillis abundat
    2. Re:A show of hands if you are surprised by deopmix · · Score: 5, Insightful

      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.

    3. Re:A show of hands if you are surprised by hcmtnbiker · · Score: 5, Insightful

      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.

      --
      If i had one dollar for every brain you dont have, i would have $1.
    4. Re:A show of hands if you are surprised by jeevesbond · · Score: 5, Interesting

      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. :)

      --
      I'm going to transform myself into a mighty hawk. Either that or I'll just go and work at Dixons, haven't decided yet.
    5. Re:A show of hands if you are surprised by Ungrounded+Lightning · · Score: 5, Informative

      ... 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.

      --
      Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
    6. Re:A show of hands if you are surprised by vought · · Score: 4, Funny

      Gonzales: "Quick - look over there!"

    7. Re:A show of hands if you are surprised by Mathness · · Score: 5, Insightful

      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

      --
      Carbon based humanoid in training.
    8. Re:A show of hands if you are surprised by psxman · · Score: 5, Informative

      "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)

    9. Re:A show of hands if you are surprised by timmarhy · · Score: 4, Insightful

      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.

      --
      If you mod me down, I will become more powerful than you can imagine....
    10. Re:A show of hands if you are surprised by Jarjarthejedi · · Score: 4, Funny

      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.

      --
      There are two kinds of fool One says 'This is old therefore good' Another says 'This is new therefore better'- Dean Ing
    11. Re:A show of hands if you are surprised by rucs_hack · · Score: 4, Funny

      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...

  2. Don't expect much ... by aeschenkarnos · · Score: 4, Funny

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

    1. Re:Don't expect much ... by ScentCone · · Score: 4, Insightful

      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.

      --
      Don't disappoint your bird dog. Go to the range.
  3. Re:kickbacka by The-Ixian · · Score: 5, Insightful

    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...

    --
    My eyes reflect the stars and a smile lights up my face.
  4. Inaccurate Anecdote by Frosty+Piss · · Score: 4, Interesting

    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".

    --
    If you want news from today, you have to come back tomorrow.
  5. Re:same crooks, new name by Expertus · · Score: 5, Informative

    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)

  6. It ain't that easy by Opportunist · · Score: 4, Insightful

    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.

    --
    We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
    1. Re:It ain't that easy by Opportunist · · Score: 4, Interesting

      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.

      --
      We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
  7. Re:same crooks, new name by afidel · · Score: 5, Informative

    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.

    --
    There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
  8. Can someone explain this to a non-business grad? by Sandcastle · · Score: 5, Interesting
    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).

    --
    The fact that a fish swims in water does not make it an expert in fluid dynamics. GogglesPisano (199483)
  9. A bit about the inner workings of "kickback" by Opportunist · · Score: 4, Interesting

    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.

    --
    We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
    1. Re:A bit about the inner workings of "kickback" by ShinmaWa · · Score: 4, Informative

      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.

      --
      The /. Effect: Thousands of users simultaneously accessing a site to not read its content.
  10. Re:A list of those who don't would be shorter by The_Wilschon · · Score: 4, Funny

    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...)

    --
    SIGSEGV caught, terminating

    wait... not that kind of sig.
  11. How to win a tender by smorar · · Score: 5, Funny
    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!!!"