Was Uncle Sam Bilked by IT Kickbacks?

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Boeing (BA), Raytheon (RTN), Microsoft (MSFT), SAIC (SAI), and Exostar were named in the original complaints, but the court, at the urging of prosecutors, dismissed them from the cases last week. On Apr. 24, plaintiffs asked the court to also dismiss CACI International (CAI), American Management Systems, and Lockheed Martin (LMT). The lawsuits themselves describe a network of relationships that reads like a Who's Who of the nation's biggest IT companies. Based on documents and information he received while a senior manager at Accenture, Rille claims in one of the original lawsuits, "all the major systems-integration consultants and technology vendors were and are engaged in the same kickback scheme and associated conspiracies."

'Influencer Fees' Outlined

Packard declined to comment on any particular case or corporation, but he described the alliances and reward system as a conflict of interest that ultimately costs taxpayers. "You are supposed to disclose and certify what conflicts of interest you have. The government is supposed to know who is paying their contractors and how they're being paid," Packard says.

In an example detailed in one government complaint, HP in November, 2002, launched PartnerONE, a program to boost sales and "triumph over competition" by paying "influencer fees," rebates, and other rewards to companies that steered federal business to HP. The computer maker's partners could profit, for example, by steering federal customers to buy HP hardware or reselling HP equipment to federal agencies as part of bigger systems-integration contracts.

Prosecutors claim that HP teamed up with Accenture, GTSI (GTSI), IBM, BearingPoint (BE), and other companies that were promised financial perks or commissions in return for persuading federal agencies to buy HP technology.

Fair Competition at Risk

Prosecutors say in one instance, Accenture billed HP on Aug. 27, 2003, for "influence and favorable treatment" that led the Defense Logistics Agency, part of the Defense Dept., to buy equipment from HP. The computer company paid Accenture nearly $788,000 in "influencer fees" between 2004 and 2005, the government alleges.

In another example, GTSI in 2005 asked HP to pay a fee in return for convincing the U.S. Army to choose HP hardware over that of Dell or Sun. Another scheme involved HP's New Business Opportunity program, which offered competitive pricing to partners that drummed up new business for HP. But prosecutors say those competitive prices weren't delivered to the end customer, in this case the federal government.

Because of the fees and commissions, "HP was awarded prime contracts with the U.S. government," prosecutors claim in their filing, leading the government to buy products and services it might not have bought if it had complete information. In the case of Accenture, the company's "focus on profits and alliance partner revenue, rather than the interest of their government clients, has destroyed their independence and eliminated fair competition," according to a government court filing.

With Steve Hamm
Woellert is a correspondent in BusinessWeek's Washington bureau.