State Repeals Oracle Contract

California repealed a much-disputed $95-million computer software contract with Oracle Corp. on Tuesday and will lose no money under the deal, according to Gov. Gray Davis and officials with the state attorney general’s office.

The agreement with Oracle and Logicon Corp. puts an end to a broad six-year contract that was supposed to save money but instead became a political embarrassment for Davis, and another chapter in the state’s long history of bungled information technology purchases.

Under the terms of the deal to unwind the contract, Oracle and Logicon, a subsidiary of Northrop Grumman, will pay back the $52.3 million the state borrowed last summer to make an upfront payment on the contract. The state is also relieved of any future payments.

“Oracle and Grumman are paying the $52-million principle, $3 million in interest, and there’s a breakup fee of about $1.2 million,” said Barry Goode, the governor’s legal affairs secretary. “The state is not paying anything.

“We have confirmation that money has been wired, and the deal is closed,” said Goode. “It’s done.”

Lawmakers who spent more than 100 hours in hearings this spring examining the Oracle contract expressed relief.

Assemblyman Dean Florez (D-Shafter) called the agreement “a good deal.”

“I’m ecstatic that we got our money back,” said Florez, who headed the committee that examined why the Oracle contract was rushed through the state bureaucracy in less than a month. “We wouldn’t be rescinding this contract without hearings and enormous amounts of media attention.”

Florez called the original May 2001 Oracle contract a deal “so smelly and rotten” that Oracle and Logicon didn’t want to fight to keep a penny of it.

The hearings showed that Oracle employees intentionally withheld information from the state during contract negotiations. Testimony revealed a bureaucracy in which department supervisors overlooked warnings from career civil servants.

An Oracle lobbyist gave a $25,000 campaign contribution to Davis’ director of technology services just days after the Oracle contract was signed, but the hearings uncovered no direct evidence that political donations influenced the crafting of the contract.

Oracle Vice President Jim Finn issued a terse statement Tuesday, saying that the software company, based in Redwood Shores, “is pleased to have resolved this matter to the satisfaction of the state.”

Northrop Grumman Information Technology Vice President Steve Carrier said that although the company believes that the original contract “would have provided good value to the citizens of California, our principal concern remains customer satisfaction.”

In the agreement, the companies waive all claims against the state, and state Atty. Gen. Bill Lockyer agrees to release the companies from future prosecution for making false claims. But California retains the right to prosecute the companies for violations of the Political Reform Act, willful fraud or criminal activity.

A criminal investigation of the Oracle contract is still underway, said Christopher Ames, senior assistant attorney general.

The original contract was designed to save the state money as it bought a variety of Oracle software and database products for various agencies. The state had never before signed such a sweeping deal, called an “enterprise license agreement,” with a software company.

In a scathing report in April, the state auditor concluded that rather than save the state up to $111 million, as Logicon had claimed it would do, the contract could cost the state $6 million to $41 million more than it would have otherwise spent.

The auditor found that the Department of Information Technology, the Department of General Services and the Department of Finance failed to quantify how much Oracle software the state might need to buy over the next decade and failed to validate Logicon’s claims.

Fallout from the contract included the firing of three department directors and a member of Davis’ staff, the dissolution of the Department of Information Technology and an overhaul of state guidelines for buying computer goods and services.

“What happened the first time will never happen again,” said Clothilde Hewlett, the interim director of the Department of General Services.