Credibility Concerns Raised in IT Industry Settlements

By Kerrie Spencer, staff writer – September 21, 2011

Out of court settlements are supposedly not admissions of guilt. But what is a company hiding when they pay to make a lawsuit vanish?

An interesting whistleblower lawsuit between the Justice Department in Arkansas and New York based Accenture LLP examined whether the company ripped off the government by overpricing goods and services. [1] The suit alleged that the tech services company rigged bids, inflated prices for computers and services and took kickbacks for at least 10 years.

By the look of things, Accenture is not the only company inflating prices to government customers. The problem of fleecing the government seems to run extremely deep in the IT industry and includes a Who’s Who list of some of the biggest names that include EMC, Computer Sciences Corp., Cisco Systems, Westcon Group North America, IBM, and Price Waterhouse Coopers. Previous settlements without admission of liability involve Hewlett Packard for $55 million, $87.5 million from EMC, $1.4 million from Computer Sciences, $3 million from IBM, $2.3 million from Price Waterhouse Coopers, and $48 million from Cisco Systems and their distributor Westcon.

There is a lot of money being spent to keep a company not guilty versus going to court and perhaps being found guilty with an even bigger price tag. In other words, many settlements are preemptive bids to pay off the government, which has enough ammunition to make a serious court case against them.

There is also the embarrassment factor that could greatly affect Accenture given its history. Accenture is considered the world’s second-biggest IT consulting firm, which spun off from Arthur Anderson, the accounting firm that imploded after a U.S. court ruled it had obstructed an investigation into Enron. Anderson audited their books. [2]

In this latest case, Accenture vehemently insisted the accusations were false and that the settlement they agreed to was not in any way an admission of guilt. Just what else the settlement means for this particular company is another question. The initial lawsuit was filed under the federal False Claim Act in the eastern district of Arkansas by Neal Roberts and Norman Rille. However, the federal government did not join the suit until 2007. [3]

Once the feds came on board, Accenture was bluntly accused of taking kickbacks just after it recommended certain types of software and hardware for a particular government contract. They also suggested the company had gone ahead and blatantly inflated the prices of the equipment and rigged bids to land federal IT contracts. The fact is that the federal government went into the process seeking treble damages and civil penalties on top of that. If these serious accusations were found to be true, the federal court ruling would have handed down a mega-monetary judgment. Had they made it to court, the math would have seriously put a crimp in Accenture’s (and the other companies) bottom line. This is likely the real reason that these IT companies have been offering settlements instead.

The plain truth is that the federal government does not join in a whistleblower lawsuit unless they feel it has merit and that it will recover substantial funds for the government. They join about 22 percent of false claims cases, and recover roughly 98 percent of the claims.

There is an interesting twist with the government now taking a more active part in whistleblower cases – they need the money. Seriously, they are chasing the money to help find more avenues of funding for the government. The official government line is that bid rigging and kickbacks adversely affect the integrity of the procurement process and hampers funds that are needed by the government to conduct essential services.

The two citizens that blew the whistle on the IT industry are Neal Roberts and Norman Rille, who are uniquely positioned to know what they are talking about because Rille was a former manager at Accenture and Roberts was a partner with Deloitte & Touche where he investigated various alliances between IT companies in the industry. [4] Although both are positioned to get a percentage of the monies recovered in this suit, the federal government has not yet indicated what their share may be. Typically, it could run anywhere from 15 to 30 percent, which is not exactly chump change when the settlement totals $64 million.

Employee whistleblowing has increased in the last six years and employment and business attorneys are seeing an influx of claims and cases. From fraud and corruption to unsafe workplaces, employees are taking legal action to report wrongdoing that can harm themselves, their colleagues, and even the government or consumer.

“Any uptick [of whistleblowing] is a good sign,” said University of Toledo professor Geoffrey Rapp. [5] “The goal here is to get information about fraud before it becomes so serious, as in the collapse of [Bernard] Madoff and Enron, where the whole company falls apart, or the economy falls apart.”

Despite the fact that Accenture got its wrist slapped and lost some of its credibility, the Justice Department has still named the company as one of 20 who will be a part of a $1.1 billion contract for IT services. [6] Accenture, which employs roughly 223,000 employees, made $628 million in the three months ending May 2011.

One wonders what monies this contract gives them and if the bid had to be resubmitted in light of the accusations and sheepish, but defiant settlement. The federal government did add in their news release that they acknowledged the value of IT industry alliances that presumably were to benefit customers and vendors, not rip them off.

It is a safe bet that we have not heard the last of these lawsuits. When one stands back and takes a good, hard look at the whole package, the realization that it is not just the government that experiences wrongdoing in nefarious dealings like this – it is also the taxpayers who are ultimately footing the bill for very expensive IT equipment and services. It is time for a change in how the government does business. Lawsuits like this also show it is time for a change in how contractors submit bids for government work. But most importantly, it is time for honesty in doing business as well.

Sources

  1. http://www.mercurynews.com/breaking-news/ci_18878530
  2. http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/8758787/Accenture-ends-bribe-case-with-63.7m-deal.html
  3. http://www.pcworld.com/businesscenter/article/239866/accenture_pays_637_million_to_resolve_govt_kickbacks_case.html
  4. http://www.washingtonpost.com/business/accenture-agrees-to-64m-settlement-in-govt-lawsuit-company-accused-of-paying-kickbacks/2011/09/12/gIQAyu9YNK_story.html
  5. http://www.msnbc.msn.com/id/44524270/ns/business-personal_finance
  6. http://www.businessweek.com/technology/content/apr2007/tc20070425_301086.htm

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