Sun Microsystems: Influencer Fees and the Prices Built on Sun’s Disclosures

Oracle America agreed to pay $46 million in the Sun Microsystems pricing and influencer fees settlement, resolving allegations that Sun paid consulting companies to influence federal purchases and supplied inaccurate information used to negotiate government prices. Sun allegedly promised consulting companies a fee each time they steered an agency to buy its products. The government also alleged that Sun’s pricing disclosures distorted prices paid by the Postal Service and through resellers. The government alleged that taxpayers paid for purchases shaped by those recommendations and prices.

The Justice Department announced the settlement on January 31, 2011. Sun had merged with Oracle in 2010. Sun’s General Services Administration contracts covered information technology products and services sold to federal agencies.

How the Alleged Sun Influencer Fees Worked

Sun allegedly paid systems integrator companies for recommending its products to federal agencies. According to the Justice Department, Sun’s agreements with consulting companies provided for a fee each time a company influenced an agency to buy a Sun product. The government pursued those allegations under the False Claims Act and the Anti-Kickback Act.

That payment arrangement put the product vendor’s money behind the recommendation. The consulting company could influence the agency’s choice, and Sun allegedly agreed to pay when that influence produced a purchase.

By the time of Sun’s settlement, the wider technology-vendor investigation had produced settlements with six other companies. In its August 2010 Hewlett-Packard settlement announcement, the Justice Department described the same alleged arrangement: influencer fees paid to systems integrators for recommendations that federal agencies buy the vendor’s products. That case also included incomplete pricing disclosures. The recurring combination matters because the recommendation and the negotiated price are different decisions, each capable of being influenced by information or money coming from the vendor.

What Is GSA Fraud?

GSA fraud is deception in contracts through the General Services Administration, including hiding commercial discounts used to negotiate government prices. In Sun’s case, the government alleged that incomplete and inaccurate commercial information distorted the prices it negotiated. The Justice Department said Sun supplied that information during negotiations for its 1997 and 1999 GSA Schedule contracts.

The General Services Administration used Sun’s account of its commercial business to negotiate a fair price for government customers. Sun had to disclose fully and accurately how it did business in the commercial marketplace. The company controlled the information that the government needed to bargain with it.

The industry’s traditional Commercial Sales Practices disclosures reached beyond published price lists. They sought actual discounts and concessions, including departures from written sales policies. The information had to be current, accurate and complete, with changes disclosed before negotiations ended. A sales policy described what was supposed to happen. Commercial transactions showed what customers actually received.

Pricing staff and commercial sales employees know the deals behind those disclosures. Commercial invoices, rebates, disclosures and government invoices show the comparison: the commercial deal, what the seller told the government and the price the government paid. If the disclosure leaves out the concessions, the buyer starts bargaining with an incomplete picture of the seller’s business.

How Sun’s Disclosures Reached the Postal Service and Resellers

The government alleged that Sun’s disclosures affected prices beyond its direct General Services Administration contracts. According to the Justice Department, the Postal Service relied on the information when negotiating its own contract with Sun, and the General Services Administration used it to negotiate Schedule contracts with two resellers of Sun products.

On the government’s account, different sellers and government buyers arrived at their prices using the same manufacturer’s information. The relevant commercial history belonged to Sun even when a reseller held the government contract. The alleged defect traveled with the disclosure.

Under the traditional Commercial Sales Practices format, a reseller with few commercial sales of its own may need its manufacturer’s pricing information. The manufacturer might therefore hold the commercial transactions while the reseller supplied information for the government’s negotiation. In Sun’s case, the Justice Department specifically alleged that information Sun had disclosed to GSA was later used in those reseller negotiations.

The same dependence on a manufacturer’s information appeared in the Informatica settlement announced in May 2019. The government alleged that Informatica supplied resellers with false information about its commercial discounts, which the resellers then used in GSA negotiations. According to that announcement, the disclosures caused GSA to accept less favorable prices and government purchasers to be overcharged.

For a reseller employee, the source of the pricing information can be as important as the submission itself. For a manufacturer employee, the route the information takes explains how a commercial-sales disclosure can affect a government contract held by another business.

The Whistleblowers Brought Kickbacks, the Audit Added Pricing

The Sun case joined allegations from whistleblowers with pricing claims based on a General Services Administration Office of Inspector General audit. The whistleblowers brought the kickback allegations. The government joined those allegations and added the defective-pricing claims. The audit had concluded that Sun supplied inaccurate information during contract negotiations.

The Justice Department also credited the Postal Service’s Office of Inspector General, the Treasury Inspector General for Tax Administration, the Defense Criminal Investigative Service and the Department of Energy Office of Inspector General. The investigation reached across agencies buying the technology.

Sun’s Contracts and Oracle’s Separate Software Settlement

Oracle’s separate software-pricing case concerned its own 1998 General Services Administration contract for software licenses and technical support. In that matter, the company agreed to a $199.5 million settlement announced in October 2011.

The government alleged that Oracle withheld accurate information about its commercial sales and discounts and failed to pass along discounts required by its contract. A former Oracle employee brought that case. Here, the allegations concerned Sun’s consulting payments and the commercial information used to price Sun products.

How Much Money Can a Whistleblower Get From a Qui Tam Lawsuit?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In a matter involving consulting payments and commercial-pricing disclosures, we work with you to identify the conduct your information reveals and bring in government procurement fraud whistleblower lawyers with the experience to pursue it.

You Know What Earned the Fee or Changed the Price

If you know how a vendor’s consulting payments or commercial disclosures shaped a federal purchase, talk to our whistleblower experts about what you saw. We build the government procurement case around your knowledge, match it with whistleblower lawyers who understand technology sales and government pricing, and stay beside you through the case.