Hewlett-Packard: The Price and the Recommendation Behind the Sale

Hewlett-Packard agreed to pay $55 million to settle GSA pricing and influencer-fee allegations involving incomplete commercial information and payments for product recommendations. Taxpayers funded the purchases. Competing suppliers faced recommendations allegedly bought by HP.

The Justice Department announced the agreement on August 30, 2010. HP’s contract with the General Services Administration covered computer equipment and software sold to federal agencies. The kickback allegations came from whistleblowers. The pricing issue reached the agency through HP’s own disclosure, which prompted an inspector general audit.

Paying the Companies That Recommended HP

The government alleged that HP knowingly paid systems integrator companies influencer fees in return for recommending that federal agencies buy HP products.

The government called the fees kickbacks. That matters to suppliers competing for the same business on the merits of their equipment and software: the recommendation could have a payment behind it that their own product comparison would never reveal.

What Is GSA Fraud?

GSA fraud can involve hiding commercial pricing information the General Services Administration needs to negotiate what federal buyers pay. In the HP settlement, the pricing allegation concerned incomplete commercial information supplied during negotiation of the company’s 2002 contract.

That is why the commercial side of a technology vendor’s business matters to its government contract. A price list tells a buyer what a company says it charges. Actual discounts and concessions tell a fuller story about the deals it makes. The General Services Administration’s traditional commercial sales practices format sought those practices, including departures from written discount policies. The information was supposed to be current, accurate and complete, with changes disclosed before negotiations closed.

For resellers without significant commercial sales, the traditional format could also require manufacturer information. The commercial pricing knowledge needed for a government negotiation could therefore sit with the manufacturer, beyond the reseller making the submission.

The traditional Schedule model also distinguished between the most-favored customer whose terms the agency sought and the negotiated basis-of-award customer used as a pricing reference. The government could accept another fair and reasonable price. The comparison depended on the customer’s actual deal and what the contractor told the government.

In HP’s case, the Justice Department said contracting officers received incomplete information during negotiations. The alleged pricing problem began when the government agreed to the bargain.

For a sales or pricing employee, that is a recognizable difference. The discount policy circulated inside the company and the concessions customers actually received may tell different stories. We examine that difference alongside the account of commercial business given to the government.

Why Customer Information Matters

Commercial customers can hold information that helps explain a government price. The university working paper Whistleblowing Threat and Corporate Disclosure explains that prices charged to non-government customers can help evaluate whether a government contractor overcharged.

Its study of state False Claims Act adoptions found that companies publicly disclosed less about their customers’ identities after those laws expanded whistleblowing incentives:

The decrease was stronger among firms with more state-government business. A commercial customer’s knowledge of its own deal can help reveal what the government was missing.

The Whistleblower Lawsuit and HP’s Own Disclosure

The kickback allegations first appeared in a whistleblower lawsuit filed in 2004. HP separately told General Services Administration contracting officials in 2007 that it might not have complied with all applicable provisions of its contract. Those were distinct ways of bringing the conduct to the government’s attention.

The whistleblowers raised the alleged payments for recommendations. HP’s disclosure concerned the pricing side of the business and led to an audit by the General Services Administration Office of Inspector General. According to the Justice Department, that audit concluded that the contract had been defectively priced.

What the Settlement Resolved

The settlement resolved the influencer-fee and defective-pricing allegations together under the False Claims Act.

The same combination appeared in EMC Corporation’s separate $87.5 million settlement. The HP announcement describes EMC’s resolution as covering similar kickback allegations and defective-pricing claims found through a General Services Administration inspector general audit.

The HP whistleblowers brought a qui tam case under the False Claims Act. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Records Behind a Government Technology Sale

The most useful account of a sale may sit across commercial pricing, government contracts and the relationships that generated the recommendation. The HP allegations make each part concrete: the commercial information the General Services Administration received, the terms of the government bargain and the fees allegedly exchanged for recommendations.

For the pricing issue, we work with insiders to connect customer discount records and concessions to the commercial-sales-practice submissions used in negotiations. Versions and dates matter because they show what information reached the contracting officer while the price was being agreed. The person familiar with an exception to a discount policy may be able to explain a gap that the policy itself would conceal.

For the recommendation issue, we examine the connection between integrator agreements, fee records and communications about the products an agency should buy. The question is what the payment bought. Someone familiar with those arrangements may understand that connection even if their job never involved negotiating the government’s price.

These are the records and business knowledge we bring together with a whistleblower to understand the alleged conduct and build the case around it.

You Know the Deal Behind the Sale

If you know the commercial concessions or recommendation fees behind a government technology purchase, speak to one of our whistleblower experts about what the government was never told. We work beside you to build the case and bring in government procurement fraud whistleblower lawyers who understand GSA pricing and systems-integrator arrangements. You bring the view inside the transaction, and we bring the expertise and partnership to pursue it with you.