Taleo: The Software Counting Method That Raised TSA’s Price

Taleo agreed to pay $6.49 million to resolve allegations over the software counting method that raised TSA’s price. The government alleged that Taleo promised commercial list rates with discounts, then charged the Transportation Security Administration a higher rate that did not use its actual employee count. The Justice Department announced the agreement on August 16, 2011. For someone who knows the company’s commercial pricing, the important comparison starts before the final bill: how did the supplier decide which rate applied?

How Taleo’s Software Price Reached TSA

Taleo supplied human-resources software through a prime contractor, CPS Human Resource Services. In 2002, CPS contracted with the Transportation Security Administration to perform human-resource services, and Taleo subcontracted with CPS to provide supporting software. Taleo was based in Dublin, California.

The Justice Department described a subcontract promising commercial list rates with specified discounts. The discount came off that starting price. The government’s allegation was that Taleo used a different basis to set it.

A former Taleo employee brought the False Claims Act whistleblower case. The investigation was conducted by the Justice Department’s Civil Division, the U.S. Attorney’s Office for the District of Columbia and the Department of Homeland Security’s Office of Inspector General.

The Employee-Count Method That Raised the Rate

The alleged overcharge turned on the number of employees used to set the commercial rate. According to the Justice Department’s account of the allegations, Taleo usually based its commercial list rates on a customer’s actual number of employees. The government alleged that the rate charged to the agency did not use its actual employee count and was higher than the normal procedure would have produced.

That comparison gets underneath the discount. A promise to discount a commercial list rate means little if the starting rate comes from a different counting method. The alleged discrepancy was already built into the rate to which the promised discount would apply.

We have a problem with that bargain: promise commercial pricing, then allegedly charge a rate the customer’s own workforce would not support under the usual method. The discount starts in the wrong place. On the government’s account, taxpayers were left paying the inflated rate.

When a federal contract’s software price uses a different counting method, the comparison starts with how the supplier chose the rate. The promised discount is only part of the price.

How a Subcontract Price Became a Federal Claim

The government alleged that Taleo knowingly caused false claims to reach the Transportation Security Administration through the prime contractor. In that account, the allegedly inflated price originated with the software subcontractor and reached the agency through CPS.

The subcontract identifies the commercial comparison that was promised. The rate calculation shows how the supplier applied it. The prime contractor’s claim connects that price to the federal customer. We examine the billing records alongside the pricing terms because the amount on an invoice alone cannot explain how the rate was selected. Commercial pricing records, employee-count information and communications about the rate can supply that explanation.

Software Pricing Cases Turn on the Commercial Comparison

Oracle‘s separate software case concerned a General Services Administration contract for software licenses and technical support. The government alleged that Oracle supplied incomplete commercial-sales and discount information during negotiation and contract administration, then failed to make required price reductions when commercial discounts improved. These General Services Administration Schedule pricing cases turn on the commercial information behind the government price.

The Oracle allegation covered both the information used to negotiate the price and later discounts that should have changed it. That makes the timing of commercial transactions part of the comparison. Taleo’s allegation instead focused on the employee count used to select its rate.

Informatica supplies another useful parallel. The government alleged that the manufacturer gave resellers false discount information for GSA price negotiations, causing inflated maximum prices and government purchases.

That manufacturer-to-reseller pricing chain helps explain why the company submitting the government bill is only part of the inquiry. The supplier may hold the commercial information that determined the amount.

What Proof Do You Need as a Whistleblower?

For a software counting-method case, useful proof connects the subcontract’s pricing promise, the ordinary commercial calculation and the rate used for the government customer. We work through those connections with the person who understands the accounts and the decisions behind them.

Commercial customer records matter because they can reveal the comparison the government buyer cannot see in its own purchase. The working paper Whistleblowing Threat and Corporate Disclosure explains why customer information can help expose an overcharge:

Whistleblowing Threat and Corporate Disclosure, University of Toronto seminar working paper

The study examined corporate disclosures following the adoption of general state False Claims Acts. It found that companies reduced disclosure of customer identities, with a stronger effect among companies that had governments as customers.

The paper also found a stronger reduction among companies in more competitive industries, those with more local media coverage and those in more regulated industries. It connected those findings to the threat of outside whistleblowers. The commercial relationship itself can be a source of information, which helps explain why hiding the customer’s identity matters.

In Taleo’s case, the practical value of commercial knowledge is unusually clear. Someone familiar with the normal counting procedure can explain what an employee count meant to a customer’s price. Someone familiar with the subcontract can explain the commercial-rate promise. Someone handling the prime’s billing can see the charge that reached TSA. We connect those views to the alleged overcharge and the decisions that produced it.

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

A whistleblower case under the False Claims Act can pay a government procurement whistleblower reward of 15% to 30% of what the government recovers. We assess the pricing information you know and help build the case around it.

You Know How the Software Rate Was Built

If you know the commercial rate sheets, employee-count calculations or pricing passed to a prime contractor, talk with our whistleblower experts about the government charge. We build the pricing case with you and bring in government procurement fraud whistleblower lawyers who understand software contracts and commercial comparisons. We stay beside you as that knowledge becomes the foundation of your case.