Oracle Debacle Provides a Glimpse

As a career public official, Gov. Gray Davis plays up his knowledge of the mechanics of government, laying claim as a candidate four years ago to being the best-trained governor-in-waiting California had ever produced and ending his campaign ads with the line, “Experience money can’t buy.”

But as California’s latest computer debacle shows, Davis proved to be no better than his predecessors at high-tech procurement.

Though there is no evidence that Davis personally orchestrated the $95-million computer software deal with Oracle Corp., recently completed legislative oversight hearings provided unusual insight into his administration, portraying some top advisors as disengaged while others feuded. They all overlooked warnings from career civil servants--and none was willing to stand up and block a project that had not been vetted.

Although previous administrations fumbled computer projects, Davis and his aides added their own twists. Chief among them, Davis took a $25,000 campaign donation from Oracle in June 2001, a few days after the administration agreed to buy Oracle software without seeking bids from other firms. He returned the money once the deal ran aground, but not before fueling the perception that he trades policy for campaign money.

In the face of a critical state audit, and after more than 100 hours of oversight hearings, Davis is working to rescind the deal with Oracle and its partner, Northrop Grumman subsidiary Logicon. Still, fallout continues. Atty. Gen. Bill Lockyer is investigating circumstances surrounding the deal. Last week, Speaker Herb Wesson (D-Culver City) dumped the Democratic assemblyman who chaired the oversight hearing and was especially critical of Davis.

The Department of Information Technology, established in the 1990s to avoid such costly mistakes, was disbanded, and J. Clark Kelso, the McGeorge law school professor tapped by Davis to recommend improvements, last week suggested establishing a board, rather than a single czar, to set information technology policy. A board, said Kelso, would open the process to the public. That “sunshine” would help cleanse the procurement process and ensure open bidding by vendors, he said.

“We have to tighten the ethical standards,” Kelso said.

The Oracle deal gained wide attention when the Bureau of State Audits issued a report in April. In unusually direct language, the audit found little demand within the state’s 127 departments for the products offered under the $95-million, six-year contract, called an Enterprise Licensing Agreement. The report was so strong that it spawned legislative oversight hearings, a state Department of Justice investigation and at least an initial inquiry by the FBI.

In the view of Republicans and some Democrats on the Joint Legislative Audit Committee, that Oracle stood to gain a virtual monopoly on software for the state was significant. Oracle has not been a major campaign donor in California, and Davis’ aides testified during the hearings that campaign money had nothing to do with their decision.

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New Source of Funds

But Republicans nonetheless believe it was not lost on Davis’ aides that Oracle Chairman Lawrence J. Ellison is among America’s richest men, and potentially a new source of campaign money for the Democratic incumbent facing reelection this November.

“Every leader sets a culture for their office,” said Assemblyman Bill Leonard (R-San Bernardino). “This administration is more politically aggressive than others that I’ve worked with.... There is a culture that to get ahead, you’ve got to be known as someone who has contacts with interest groups. When Oracle and Logicon came knocking, here was a chance for up-and-comers to open the door. This was their ticket to advance.”

Republicans weren’t the only ones to suggest that procurement had become subject to politics.

“Political and monetary influences were brought to bear on this contract,” said Assemblyman Dean Florez (D-Shafter), who chaired the oversight hearings but was removed from the audit panel last week. “I am convinced this contract would have died a deserved death had it not been for those influences.”

That the issue even reached the governor’s top aides, if not the governor himself, was somewhat unusual.

Although Republican Gov. George Deukmejian’s administration was not without its missteps--a failed $50-million Department of Motor Vehicles computer project got its start during his years--Deukmejian had a policy against allowing procurement issues to reach his office. Career civil servants dealt with such matters, not political appointees.

“We never got involved in procurement, period,” said Sacramento attorney Steve Merksamer, who was Deukmejian’s chief of staff. “We just didn’t do it, as a matter of policy.”

The Oracle deal was odd in other ways too. Dispelling the notion that government moves slowly, a mere 22 days passed between the first sales pitch and May 31, 2001, when five top Davis administration officials agreed to it.

Despite more than 100 hours of legislative oversight hearings, questions remained unanswered. Why, for one, did Davis not know about the deal? The governor has been called a micromanager. But though he personally gets involved in many matters, particularly those related to politics, those who have worked closely with him dismiss the notion that he cares about such gritty detail of government as contracts and computer software procurement.

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Busy With Energy

Besides, in May 2001 the governor was busy with the energy crisis. Among the most pressing matters, Davis was fighting to avert a replay of the Pacific Gas & Electric bankruptcy and striking a deal to keep Southern California Edison afloat. To carry the bill implementing his deal, Davis tapped Sen. Richard Polanco (D-Los Angeles).

Polanco, meanwhile, had shown an interest in Oracle, urging that Finance Director Tim Gage meet with salesmen that May. Polanco scoffed at any notion that there was horse-trading. “That’s real deep-sea fishing,” he said.

Still, Gage directed one of his analysts, a veteran civil servant who headed a unit that is supposed to analyze such deals, to meet with salesmen pitching it. The analyst, Debbie Liebrock, could recall no similar instance in which she was expected to meet with vendors, she testified during the hearings.

Gage and other upper-level Davis aides who were involved in the debacle retained their jobs. Three others were forced to resign as a direct result of the deal:

* Elias Cortez, head of the Department of Information Technology and a booster of the deal. He became so emotionally distraught during his committee appearances that his testimony was delayed several times. He testified that he was cut out of the final decision-making.

* Arun Baheti, Davis’ director of e-government. He breached Davis’ policy by accepting a $25,000 donation from Oracle lobbyist Ravi Mehta a week after the Oracle deal was signed and sending it to Davis’ campaign committee. Baheti and Cortez often feuded when they tried to work together. Davis aides tell of having to act as mediators when the two were together.

* Barry Keene, a savvy former state senator. As head of the Department General Services, Keene was the official most responsible for procurement, and more than any other Davis appointee Keene fell on his sword. But the failure was not Keene’s alone.

Five top aides to Davis signed off on a document authorizing the deal. But the one who approved it, Steve Nissen, testified he wasn’t even in Sacramento when it was circulated. Nissen gave approval by phone after an aide called him in Los Angeles and read him parts of the memo. Nissen since has returned to private practice at Manatt Phelps, a law firm that counts Oracle as a client.

Aileen Adams, Davis’ consumer affairs secretary, who oversees departments responsible for protecting Californians against various types of fraud, also approved the proposal but said she assumed Gage would check the numbers.

Gage’s role was particularly surprising, given the Finance Department’s role in state governance. Finance’s analysts routinely oppose legislation because of cost, and serve as the governor’s main gatekeeper.

In this instance, Gage signed off on the deal without doing analysis--then took an apologetic tone in an e-mail to analyst Liebrock, the career state employee who repeatedly raised questions about the deal.

“Obviously,” Gage wrote, “this sort of on-the-fly review of such a significant proposal is not what we would prefer, but we don’t always set the rules.”

The state’s first computer debacle of note occurred in 1994, when then-Gov. Pete Wilson pulled the plug on the DMV project after the state spent $50 million on a system that never worked. Back then, an audit concluded that state officials were swayed by overly optimistic sales pitches.

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Logicon’s Dual Roles

In this instance, Northrop Grumman subsidiary Logicon served as a consultant to the state and later became Oracle’s main sales representative, standing to make $28 million on the $95-million deal. Lockyer, the attorney general, has said Northrop Grumman’s dual roles may have violated state law. Auditors looking at the Oracle deal concluded that, just like their predecessors a decade ago, state officials did not check claims and promises by salesmen.

Sen. Debra Bowen (D-Marina del Rey) is the one who pulled at the Oracle thread last year when she read a critical article about the deal in the San Jose Mercury News and called for the Bureau of State Audits investigation.

She and others note that California relies on outside consultants who may or may not place their own pay above the taxpayers’ best interest. Perhaps, some lawmakers suggest, the state needs to recruit high-tech experts and retain them by paying them salaries comparable to Silicon Valley pay.

“In the scheme of procurement,” said Bowen, “it is harder to buy computers than pea gravel, and we have trouble with pea gravel.”

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Times staff writers Miguel Bustillo, Nancy Vogel and Carl Ingram contributed to this report.