Feds nix Oracle blanket contract

Summary:The Feds pull the trigger on nixing Oracle contracts. It will cost Oracle dearly.

Last year Oracle agreed to settle with the General Services Administration (GSA) to the tune of $199 million in a reputation damaging case which saw Oracle accused of overcharging some government agencies. Today, we hear that as of May 17th, Oracle's GSA IT Schedule 70 contract is being terminated. To put that into perspective, last year, the government is reported to have spent some $388 million with Oracle.

Schedule 70 deals are effectively blanket purchase orders that allow federal agencies to buy pretty much anything they need from approved companies supplying IT services. The loss of this contract goes further than simply putting a block on future orders. According to Informatinon Week:

Mary Davie, assistant commissioner of the Federal Acquisition Service's Office of Information Technology Services, said in a statement only that the Oracle contract "was not in the best interest of the government."

... Due to the cancellation, agencies won't be able to exercise options on existing task orders or place new orders after May 17, and blanket purchase agreements for Oracle services made under Schedule 70 will be terminated.

Quite what this means in practice remains to be seen. It would be highly unusual for ongoing software solution implementations to be ripped yet that seems to be at least one implication from what the government is (or is rather not) saying.

In recent times, the Feds have been more disposed to favorably considering open source alternatives to proprietary software although this would likely have little impact on business applications - at least in the short term.

Neither party is commenting beyond what has already been said but it will almost certainly mean Oracle will need to go back to the negotiating table for unfulfilled contracts. In the meantime, government buyers can be sure that Oracle sales people will be all over them to maximise spend in the run up to Oracle's year end, which falls 31st May. The Feds can also be sure that Oracle will send in its audit crews, keen to wring out the most they possibly can from whatever is left on the table.

Of course this will not prevent Oracle from collecting maintenance fees on those contracts where the government continues to use Oracle hardware and software. Even so, losing such a lucrative contract is bound to cause ripples among customers.

I have long held the view that Oracle is shaping up for a fall as it continues to both squeeze and alienate its customers through predatory pricing and sales tactics. While the loss of $388 million will hardly be noticed in a business turning over north of $37 billion, the repercussions may be felt more widely. Not that Oracle will worry any time soon.

In March, it was reported that Oracle has effectively pulled a Schedule 70 in the UK, persuading UK government that it would make savings through centralised purchasing, bulk buying, a single discount (read government only price list) and shared services.

However, the UK's National Audit Office has been skeptical of these big deals. The Register recently reported that:

The NAO published a report highlighting that a £47m upgrade investment was required from the government to cover the costs of updating Oracle's ERP [enterprise resource planning] systems before November 2013 at three shared service centres.

At present, the Cabinet Office spends around £1.5bn a year on finance, procurement, HR and payroll systems.

The NAO noted in its report that Maude's department would be required to cough up around £50m of transition costs and between £26m and £77m on redeployment, offset by one-off savings of £32m by shunning the Oracle upgrade costs.

One has to wonder the extent to which UK government is watching what's going on in the US and asking itself whether it really has done the best deal it can for citizens. In the US, at least for time being, the answer seems an unequivocal 'no.'

Elsewhere, in a private briefing earlier this week, Rimini Street said that it continues to win large deals for Oracle customers looking to slash their maintenance costs. This follows a blow out Q1 and bullish forecast for the year. Rimini Street now claims a sales backlog of $450 million.

Topics: Oracle

About

Dennis Howlett has been providing comment and analysis on enterprise software since 1991 in a variety of European trade and professional journals including CFO Magazine, The Economist and Information Week. Today, apart from being a full time blogger on innovation for professional services organisations, he is a founding member of Enterpri... Full Bio

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