Logicon Will Help Undo Oracle Deal

Angered by accusations that their company played a secret, conflicted role in crafting the state’s $95-million Oracle software contract, Logicon executives said Saturday they would join efforts to rescind the agreement.

Logicon’s offer could help ease California’s exit from a deal that state auditors have criticized as one-sided and unnecessary and that has become a political liability for Gov. Gray Davis.

With legislative hearings set to resume Monday, Davis and executives of Oracle Corp. offered to break the deal, but such a move requires assent from Logicon, which is a party to the contract, and Koch Financial Services, which arranged the financing.

“It’s evident that at the current time, the state of California is not a satisfied customer,” said William S. “Steve” Carrier, vice president of business development for Northrop Grumman Information Technology. “And we will do whatever it takes to fix that and make the state of California a satisfied customer, up to and including walking away from the contract.”

Davis’ Press Secretary Steven Maviglio welcomed the offer.

“The governor said he’d be willing to do that in a New York minute,” Maviglio said. “We’re pleased that all parties are on board and are willing to look at the steps to rescinding the deal.”

In the last several weeks, furor over the contract has led to the resignation or suspension of two department heads and Davis’ chief of e-government. It has raised questions about the timing of a $25,000 Oracle contribution to Davis, prompted the governor to send police officers to prevent document shredding at a state office and spurred Republicans to call for a federal investigation.

On Friday, Atty. Gen. Bill Lockyer said Logicon may have violated conflict-of-interest laws by representing both the state and Oracle in contract negotiations. In an interview Saturday, Carrier disputed that characterization. He called the contract a good deal for the state and defended his company’s behavior as open and ethical.

Logicon wants foremost, he said, “to make this thing right at the end of the day.”

A Virginia-based subsidiary of aerospace giant Northrop Grumman, Logicon was the driving force behind the state’s six-year agreement to license Oracle software for thousands of users. Logicon approached the state about doing business together after being hired to advise the Department of Information Technology on large software purchases.

Carrier said the company is also willing to rescind its side agreements with Arizona-based Koch Financial Services.

“There will be a lot of contracts folks and lawyers involved in unwinding this thing,” Carrier said. “But if that is the ultimate deal the state wants, we’re going to work with our partners Koch and Oracle to make that happen.”

Oracle executives offered to repeal their portion of the contract on Thursday. Koch refused to comment Friday on the possible nullification, and no representative could be reached Saturday.

Maviglio said the governor’s legal advisor and the Department of Finance director have begun analyzing the legal and financial implications of ending the contract.

The Oracle contract was sold as a way for the state to save as much as $111 million over 10 years on its software purchases. However, an April report by the state auditor concludes that rather than save money, the state stands to spend between $6 million and $41 million more on database licenses and maintenance than it would without the Oracle agreement. The auditor found that the state signed the deal in spite of Department of Information Technology surveys that showed little demand for the products within the government.

Furthermore, the audit concluded, the state approved the agreement without independently verifying Logicon’s claims of drastic savings.

Logicon first began talking to state officials about signing a broad software licensing agreement in February 2001, Carrier said. Up until a week before the contract was signed on May 31, it was intended to be a deal between Logicon and the state, with Logicon arranging separately with Oracle for licensing. But state officials decided to contract directly with Oracle because they thought that would help them better meet the state’s rules for contracts that avoid competitive bidding, Carrier said.

In a news conference Friday, Lockyer said he is investigating whether Logicon may have violated conflict-of-interest laws by working for the state at the same time it was working for Oracle.

Logicon had been hired by the Department of Information Technology for $93,000 in June 2000 to write a “white paper” analyzing various approaches to buying software licenses on a large scale. The company delivered a draft analysis, but never finalized the paper because the state showed no interest in the draft, said Neil H. O’Donnell, a San Francisco attorney representing Logicon.

Logicon was never paid, and that contract was formally severed in November 2001, he said.

Carrier said the company had no conflict of interest, even though it had begun negotiating with the state as a business partner on a software licensing agreement in February 2001.

“The white paper in no way contributed to the state’s enterprise license agreement,” he said. “We were not a consultant in this deal whatsoever. We were a participant in a business arrangement with Oracle and Koch, and it was all aboveboard.

“Our internal checks and balances wouldn’t allow any of this stuff to go on,” said Carrier, referring to Lockyer’s description of Logicon as “serving two masters.” “I really believe that when the attorney general gets all the facts and gets them all in front him, he’ll understand this very well.”

O’Donnell said it’s not clear yet what Logicon would have to give up if the contract is rescinded. As it is, Koch has already paid $52.7 million to Logicon, which in turn gave $36.5 million to Oracle. Logicon kept $16 million, but paid $3 million in sales tax, O’Donnell said.

“That’s something that’s going to have to be worked out among Logicon, the state, Oracle and Koch,” O’Donnell said. “My guess is that if the state concludes that it wants to undo the whole deal, there’s going to be some money that’s going to have to be given up.”