Oracle Pact May Have Violated Law

As state officials pressed to rescind an embarrassing $95-million computer contract with Oracle Corp., Atty. Gen. Bill Lockyer said Friday that a major government contractor that helped broker the deal may have violated state law by representing both the state and the software company.

Oracle spokesman Jim Finn reaffirmed the company’s offer to rescind the deal, and both Lockyer and Gov. Gray Davis said Friday they are working to do so.

“Unfortunately,” Davis said, “people made a bad judgment for the taxpayers of California. I do not want that to stand.”

In separate comments, Davis offered his first detailed response to the Oracle deal. The governor said he had no knowledge that it was in the works in mid-2001, and that there was no connection between Oracle’s $25,000 donation to his campaign and the state’s decision to sign the apparently overpriced software contract.

Davis said he is “acting decisively,” having removed three top officials who oversaw the deal, including Arun Baheti, a longtime Davis aide who resigned Thursday as director of e-government. Baheti accepted the $25,000 check from Oracle lobbyist Ravi Mehta last spring and sent it via overnight mail to the Davis campaign committee.

Davis also suspended Elias Cortez with pay as director of the Department of Information Technology, after the state Department of Justice began investigating document shredding in the agency responsible for protecting the state from computer debacles.

A third official, Department of General Services Director Barry Keene, resigned last week.

“The bottom line is, I’m as mad as anyone else,” Davis said. “This shouldn’t happen on anyone’s watch. We’re going to get to the bottom of it.”

With legislative oversight hearings set to resume Monday, political pressure continued to build. Davis’ general election opponent, Republican Bill Simon Jr., referred to a “scent of scandal” emanating from the deal. He called on the legislative committee investigating the matter to elicit testimony from Davis’ top political strategist, Garry South--an idea that the committee chairman dismissed.

Efforts to rescind the Oracle contract are complicated by the fact that other companies are involved, including Logicon, the Northrop Grumman subsidiary that Lockyer believes may have had a conflict of interest, and Koch Financial Services, which helped arrange financing.

Logicon said it would “work with the appropriate parties to find a mutually agreed upon resolution” if the state and Oracle agree to rescind the deal. “We have a long and successful history with the state of California and consider the state a valued customer.”

A Koch representative declined to comment.

The state’s first payment on the $95-million contract--$14 million--is not due until Sept. 1.

In his preliminary review, Lockyer said Logicon may have violated state conflict-of-interest law by representing both Oracle and the state during the negotiations.

A state audit released last month says Logicon played dual roles, working for both the state and Oracle. The auditors said they could not determine whether any state officials understood that Logicon stood to gain a $28-million profit from the Oracle agreement.

The Department of Information Technology hired Logicon in June 2000 to advise it on signing large-scale computer deals, called enterprise licensing agreements. The state had never signed such a contract, which permits buyers to use database software in many different ways on a large scale.

But by February 2001, Logicon had shifted roles. It was acting as a “reseller,” a company that packages hardware and software products of several companies to meet a customer’s needs. And no longer an advisor to the state, the company began pitching California officials on the merits of enterprise licensing agreements.

Though noting that the investigation is at an early stage, Lockyer said: “They were serving two masters. They were working for the state and at the same time secretly working for Oracle, without knowledge of state officials that that was the circumstance, as far as I can tell. That raises more serious questions for them.”

In a statement, Logicon called its role “open and acknowledged by the state officials involved.”

“The company believes it has acted appropriately and in good faith in all aspects of this transaction,” the statement said. “While we have not had the opportunity to review the attorney general’s comments, we believe he will come to the same conclusion when all the facts are known.”

Top aides to Davis say they were unaware of Logicon’s dual role. However, Cortez, the suspended information technology director who pushed for the deal, had hired Logicon to help arrange large computer software deals of the type it later struck with Oracle.

“Oracle is doing what every business does: peddling their products,” Lockyer said Friday. “And then you have the Logicon role, where they were serving at least two masters, and that involves conflict law. They were advising the state on how to get good contracts, and then secretly working for Oracle, and got a bonus if a contract was signed. So they had a conflict that seems serious.”

Moving to limit fallout from the week’s events, particularly the revelation that a high-level government employee had accepted a contribution to the governor’s campaign, Davis’ aides distributed his policy forbidding government appointees from getting involved in fund-raising, as Baheti did.

At his news conference, Davis said he had “no idea what [Baheti] was doing, why he was doing it. It came to a complete surprise to me.”

Simon juxtaposed Baheti’s acceptance of the campaign donation with comments last week by Davis Press Secretary Steven Maviglio that administration officials responsible for the contract “would be in no position to know about contributions, nor should they be.”

“We now know that the governor’s office is not telling the truth,” Simon said. “The dots are beginning to connect.”

Lockyer called Baheti’s decision to take the money “stupid.” But he also said Baheti violated no law merely by accepting the check. Though it’s illegal to pass campaign donations at the Capitol, Baheti apparently took the check at a restaurant.

Justice Department investigators said they will continue to interview Department of Information Technology officials on Monday about the shredding of documents this week.

Federal agents already had seized the department’s computer hard drives and 12 sacks of trash, including papers that apparently were shredded Wednesday.

At his news conference, Lockyer said that if any of the shredded documents related to the Oracle contract, there could be an array of crimes, ranging from obstruction of justice and destruction of state property to conspiracy.

Lockyer also said he has received no indication that Cortez was present when any papers were destroyed. Nor is he aware of anyone ordering that documents be destroyed.

Lockyer and Davis both are Democrats. But the attorney general brushed aside Republican lawmakers’ call for him to step aside and shrugged off criticism that he too had taken Oracle contributions: $50,000 since 2000.

“Our office is accustomed to professionally investigating wrongdoing,” Lockyer said. Responding to a reporter’s question about criticism of him for taking money from Oracle, Lockyer quipped: “I was wishing there was more.”

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Times staff writer Virginia Ellis contributed to this report.