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Shaka, When the Walls Fell

by Administrator on August 31, 2007

One of my favorite episodes of the old Star Trek: The Next Generation series focused on the difficulties of two species trying to understand each other’s language.  Captain Picard must try to figure out what his counterpart, Dathan (a Tamarian played by Paul Winfield), means by expressions such as “Darmock and Jilad at Tinagra” and “Shaka, when the walls fell.”  Turns out these are all allusions to well known — but to everyone else, esoteric — stories in the Tamarian species’ oral history.  Without understanding the source material for the allusions, it is difficult for Picard to understand the meaning — even with a universal translator.

darmok.jpg Sometimes I worry that some of my more esoteric posts here are not fully understood.  For example, we sometimes switch quickly between a deep dive into some technology issue and then to a point of order in advertising/marketing statement factuality and then to a rant against unethical business practices by vendors and then to a discussion of Chinese politics.  Along the way, some visitors might get the impression that they need to understand the meaning of an esoteric reference to Darmock and Jilad to get it!

I hope most visitors are tracking with us, despite the fact that one of the most popular searches that lands on this site is a post I made a year or so ago about NFL Cheerleaders on Saturday Night in Tampa — a mini-scandal involving some idiotic Carolina Panther cheerleaders in a bathroom of a nightclub here.  In context, I said that some storage companies had about as much common sense as these brainless bimbos who created a major line at the restroom for other patrons while they “partied” in the urinal. 

So be it.

From the previous lighthearted commentary on the Archive Crisis, we quickly shift gears to a piece that appeared in the Wall Street Journal today.  Since reading the full story on line requires payment to WSJ, I will synopse it here.

The piece is entitled Suits Focus on Secret Computer-Industry Fees.  It is penned by William M. Bulkeley and dated August 30, 2007 (appearing on Page B1 if you have a copy of the paper handy). 

It details a federal investigation into alleged kickbacks paid by computer vendors on government contracts.  Based on whistleblower accounts from a former Accenture employee, the suits claim that most computer-industry players regularly violate the Anti-Kickback Act of 1986 by forming marketing partnerships involving what some companies call “influencer fees” or “referral fees” — payments or discounts that pass between companies doing business together on federal contracts but aren’t revealed to the government.

The companies argue that the payments at issue are common rebate and discount programs widely used in their industry to help peddle $150 billion a year of information technology products and services to the fed.  Accenture, Hewlett-Packard Co. and Sun Microsystems Inc. are publicly charged; other suits remain sealed.

IBM has already settled for $3 million and PricewaterhouseCoopers will pay $2.3 million to settle allegations that they “solicited and provided improper payments and other things of value on technology contracts with government agencies,” according to the Justice Department. Each company said that it didn’t do anything illegal and that it cooperated with the government, but declined further comment.  I guess this means that they either knew they had a bad day coming in court, or they didn’t want the negative press, or $2 to $3 million was regarded as a charitable contribution to the national debt.  More settlements are expected. 

IDC was queried for insights in the article, not that I really care what IDC thinks about most things.  Their probing insight:  “A smart buyer is going to look harder to make sure costs and discounts are all disclosed.”  No duh.

Here’s the nub:  Technology companies routinely announce marketing partnerships between computer services firms and makers of hardware and software. But the financial incentives tied to the deals are usually closely guarded secrets. System integrators are hired to make sure that products work and play together, sort of advisors to the customer.  However, marketing deals between system integrators and vendors create conflicts of interest.  While GSA scheduling requires vendors to give the government the lowest price and to fully disclose costs, they aren’t disclosing payments made to system integrators to influence purchasing decisions.  Those payments are legally interpreted as kickbacks under the aforementioned law.

Accenture has been made the whipping boy in this case, having alledgedly taken lots of bucks from its partners for peddling its influence.  Accenture says, of course, it has done nothing improper.  Its partners include Dell Inc., Cisco Corp. and NCR Corp.  All of them are playing coy for now.  Dell says the fed has dismissed charges against the company — probably because the company is already in deep shit over fraudulent accounting.

Says a legal droid and rep for most of the companies involved, “I don’t think they are kickbacks. The Justice Department has litigators, so they pick the most loaded phrase.” However, the prosecution seems to have a case.  In one instance, a PowerPoint file submitted into evidence shows clearly that NCR would pay Accenture up to 8% of the contract value for new installations and 5% for repeat business. Much of the business was at private companies, but some was with federal agencies. These payments were to be kept confidential and not disclosed to the customer.

Under the government False Claims Act, whistle-blowers — technically known as “relators” — can receive from 15% to 25% of the damages recovered in such suits if the Justice Department intervenes. Independent whistle-blowers are successful only about 2% of the time, but when the Justice Department believes a case is good enough to intervene, the suits are successful around 40% of the time.

Plaintiffs will argue that the kickback payments led the government to overpay many millions of dollars for computers or software.

Justice Department filings in the cases don’t specify how much the kickbacks may have cost the government. However, in the case the department filed against Hewlett-Packard, it cited numerous payments that H-P refers to as “influencer fees.” According to the court papers, H-P in 2004 paid $611,969 to Accenture; $599,962 to Capgemini, a Paris-based outsourcing and consulting company, and $514,238 to GTSI Corp., a Chantilly, Va., systems integrator.

Sun also paid 10% rebates under its “competitive knock-out program” if a partner persuaded a government organization to replace a customer’s systems with Sun products. Sun denies paying kickbacks and says that the rebate and discount programs at issue “were conducted in an open and aboveboard manner.”

This all comes down to a question of legality versus ethics.  I have worked in the Systems Integrator world and know the drill.  As a systems architect, I wasn’t involved in the financial end, but I knew that deals often involved cooperative arrangements between suppliers in which, I assumed, money changed hands for recommendations.  I was given the technologies that we would be integrating and told to play the hand of cards I had been dealt.  Still, I remember feeling very badly when a contract proposal that my team had slaved over was rewarded with a success (a win in a competitive situation), but I was later told that the fix was in before the proposal was received, thanks to some financial dealings with an influencer.  Took many years to wash off the stink of that one.

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