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United States Businesses Government The Courts IT News

DOJ Names Dozens of IT Vendors in Kickback Scheme 174

Posted by CowboyNeal from the jig-is-up dept.
grantus writes "Today, the U.S. Department of Justice joined three whistleblower lawsuits against Hewlett-Packard, Sun Microsystems and Accenture alleging a massive kickback scheme on government contracts. Among the IT vendors listed in the lawsuit as Accenture partners are Microsoft, Cisco, IBM, Dell and Oracle."
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DOJ Names Dozens of IT Vendors in Kickback Scheme More

DOJ Names Dozens of IT Vendors in Kickback Scheme

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  • A show of hands if you are surprised (Score:4, Funny)

    by Mathness ( 145187 ) on Thursday April 19, 2007 @09:45PM (#18807833) Homepage
    A show of hands if you are surprised by kickbacks and corruption in the goverment.

    • Re: (Score:1, Insightful)

      by FMota91 ( 1050752 )
      Nothing to see here, move along...

    • Re:A show of hands if you are surprised (Score:5, Insightful)

      by Detritus ( 11846 ) on Thursday April 19, 2007 @09:49PM (#18807863) Homepage
      The corruption in question isn't in the government, it's in the vendors that sell products and services to the government.
      • As if. IBM's head intellectual property attorney once bragged (under an NDA'd room that included Vint Cerf and Dave Farber) that they'd spent all $60M of their DC lobbying budget to make sure no new tlds were created.

        • Re:A list of those who don't would be shorter (Score:5, Funny)

          by The_Wilschon ( 782534 ) on Friday April 20, 2007 @02:21AM (#18809225) Homepage
          And how, out of curiousity, were you privy to this information?

          In Other News, Steve Ballmer once bragged (under an NDA'd room that included Margaret Thatcher and Celine Dion) that he'd just spent the night with three monkeys in a sleazy motel. (They were typing the windows source code on a couple of typewriters for him...)
        • I'd be interested to see a citation for that quote, as IBM's written policy is not to donate to political candidates.

      • Re:A show of hands if you are surprised (Score:5, Insightful)

        by Mathness ( 145187 ) on Thursday April 19, 2007 @10:21PM (#18808123) Homepage
        I see your point, but if you look at the two parties involved, buisness and goverment. Buisness (capitalism) is doing what "it is", makeing sure it obtains a surplus of funds and market, where as the goverment (democracy) fails to be ruled by the people and follow a few select people.

        A democracy that is allowed direct contact with special interest groups and lobbyism will drift towards an oligarchy, unless both (goverment and buisness) have a strong morale and/or rules (law) that are upheld. An oligarchy can, of course, only happend if the people let it, but I will let that be up to you (plural) to judge if that will happen.

        Note to self: Don't try to write political posts at 5AM when you haven't been to bed yet. XD

        • Re:A show of hands if you are surprised (Score:5, Funny)

          by rucs_hack ( 784150 ) on Friday April 20, 2007 @01:11AM (#18808997)
          Note to self: Don't try to write political posts at 5AM when you haven't been to bed yet. XD

          On the contrary, since you are commenting on slashdot, that is the ideal time.

          Not only that, but you make no direct reference to the article, hinting that you haven't read it, which again, is spot on.

          However, using words like Oligarchy at 5am can be dangerous, and you used it twice...
        • Yeah, except for the fact that the US is NOT a democracy, never has been, and hopefully never will be. The US is a constitutional republic in which the representatives are democratically elected.

          Democracy is 'two wolves and a sheep voting on what to eat for dinner'. Or more realistically, democracy is the majority voting to outlaw the speech and opinion of minorities. And even more realistically, democracy is 10 of your neighbors voting to take your land and divide it up among themselves. Majority rule is a

    • Re:A show of hands if you are surprised (Score:5, Insightful)

      by deopmix ( 965178 ) on Thursday April 19, 2007 @09:50PM (#18807871)
      If you had RTFA, you would have seen that the corruption wasn't with the govt. but with other companies. The other companies received money from Microsoft, Cisco, IBM, Dell and Oracle, among others for preferential treatment when it came to govt contracts.
      • Okay then, show of hands for those surprised that corporations are acting corrupt.

        Hmm...looks like the same number of hands...3...oh wait, little timmy's got both hands up. Balmer...put your other hand down...that won't work anymore.

      • Re: (Score:3, Funny)

        by Anonymous Coward
        As an IBM employee, I can assure you that such kickbacks are against the corporate code of ethics. Every employee is required to be trained and tested on proper ethical behavior, and therefore it is impossible that IBM is involved in any way.

        Please excuse me while I retreat to the washroom and express amusement at a funny story I just remembered.

      • the corruption wasn't with the govt. but with other companies. The other companies received money from Microsoft, Cisco, IBM, Dell and Oracle, among others for preferential treatment when it came to govt contracts.

        The claims are that discounts and rebates are offered to the contractor - Accenture (slime warning) [wikipedia.org], so that they would recommend Dell, M$ and all that as just what the government needs. The rebates would not be passed onto the government, so they are simply bribes.

        When you talk about bribe

    • Re:A show of hands if you are surprised (Score:5, Insightful)

      by hcmtnbiker ( 925661 ) on Thursday April 19, 2007 @09:53PM (#18807891)
      RTFA, the US government was the ones that where getting scammed.

      Effectively with government contracts all the companies would agree to estimate far higher then it would ever take to fill the order. Step two, the contract winner would take the amount of money for the contract, subtract how much it really would have taken(this being raw "bonus" profit) and split that amongst the group since it involved the entire group to go along with it for it to work. Wait for the next contract and do it all over again, scamming millions if not billions from the US government who thought that it was getting a good deal off of each company fighting for the deal when really it was getting scammed by a pseudo-monopoly.

      • Re: (Score:2, Insightful)

        by mdhoover ( 856288 )
        It is no surprise this happens, but how much of this is due to perverted "preferred supplier" agreements within the govt organisations, usually setup via the old hand under the table wad of cash from supplier to head bureaucrat to ensure competitors are left out. Then it is a matter for those excluded vendors to try to "piggyback" someone elses contract to get their foot in the door... None of this surprises me, it happens everywhere...

        • Inaccurate Anecdote (Score:5, Interesting)

          by Frosty Piss ( 770223 ) on Thursday April 19, 2007 @10:11PM (#18808035)

          usually setup via the old hand under the table wad of cash from supplier to head bureaucrat to ensure competitors are left out.

          It's popular to suggest government bureaucrats (employees) are getting cash kickbacks, but that rarely pans out as true. Sometimes is does workout to a favorable job after the bureaucrats time in government is over, but before that, cash rarely changes hands. It's almost an "urban legend".

          • Re: (Score:2)

            by HUADPE ( 903765 )
            Here's a more plausible scenario:

            CEO of Big Firm Inc., his immediate family, and a few friends/board members all donate the legal limit, $2300, to a Congressman's campaign. Say it totals $25k in donations. Then, when Congressman wins his campaign, a lobbyist calls to talk about the next contract coming out of the Congressman's committee. Congressman listens intently, and says that he will "do what he can" to assure a "fair bidding process." Congressman then makes a call to mid/upper level bureaucrat a

            • A more likely scenario would be the mid/upper level bureaucrat simply writing the specifications to the product in question.

              "The office suite selected shall be 100% compatible with all documents produced with Microsoft Office 2007", etc.
          • Almost. [washingtonpost.com]

      • Re:A show of hands if you are surprised (Score:5, Informative)

        by Ungrounded Lightning ( 62228 ) on Thursday April 19, 2007 @10:10PM (#18808025) Journal
        ... scamming millions if not billions from the US government who thought that it was getting a good deal off of each company fighting for the deal when really it was getting scammed by a pseudo-monopoly.

        Term is "oligopoly". Means a collusion of a number of companies to act like a single monopolist.

      • Re: (Score:2, Interesting)

        by inode_buddha ( 576844 )
        This is actually one of the oldest tricks in the book. During the early 1900's, the victorian-era "robber barons" were routinely caught at this sort of industrial collusion, informal agreements at "social clubs" and parties, etc.

    • HP has done nothing wrong
      This sounds all too familiar [slashdot.org].

      HP might be a decent company but for its management.

    • Re:A show of hands if you are surprised (Score:5, Interesting)

      by jeevesbond ( 1066726 ) on Thursday April 19, 2007 @10:04PM (#18807979) Homepage

      As someone else pointed out the corruption is not in the US government but with the companies supplying IT services to them. Practically every large company in IT seems to be involved, from Microsoft to HP, IBM and Sun. Which is annoying for those of us who love a good Microsoft bash, it seems they are not the worst offenders in this case.

      As I read it the /. economic model for these scams goes something like this:

      1. Company A has a contract to provide US government with an IT solution
      2. Company A looks to Company B to provide part of that solution (some specific software product or service)
      3. Company B gives Company A a discount for purchasing their services
      4. Company A charges US government full amount that would be charged by Company B without the discount
      5. ???
      6. Profit!

      There seem to be other variations on the theme, such as giving share options instead of discounts. Either way the US government have been overcharged it seems. Hope I'm right about this as it's a complex issue and the article is a little vague on the details, that's why I thought this summary would be useful. :)

      • Actually, you just described how the large military companies operate (boeing, l-mart, etc).
      • So according to your checklist, the only thing wrong is that vendor B managed to cut costs? That's not a kickback. That's smart business. Trust me, Walmart, Toyota, or McDonald's doesn't pass every price drop they negotiate in products or supplies on to the consumer.

        I RTFA, and although TFA wasn't extremely clear it doesn't seem that's all there is to it. If that's the entire hanging point, that a vendor saved some money by outsourcing and didn't pass the savings on, then I think the government has a pretty

        • Re:A show of hands if you are surprised (Score:4, Insightful)

          by timmarhy ( 659436 ) on Thursday April 19, 2007 @10:43PM (#18808281)
          you don't get it at all do you? let me break it down some more. company A and company B secretly agree to quote a lot more then what they would normally quote, and which ever one of them wins the contract sub contracts the REAL price out to the other, with the winner skimming the fat off the top of the "arranged" price and the loser getting the work(which would still be a very healthy profit). everyone wins - except the tax payer which gets screwed with artifical prices.
          • That's what I was getting at, my /. economics could do with some work! Thanks for the defense and clarification.

          • Re: (Score:3, Insightful)

            by ShinmaWa ( 449201 )
            Nowhere in the TFA does it say that these alliances were secretly agreeing on anything or even bidding on the same contracts. If that were the case, I would think that that would be very prominent in the article, but its not. I read into it the same as the previous posts. The article said quite plainly that the contract winners outsourced to their strategic partners (at a reduced rate, which is true on government and non-government contracts alike) and they weren't passing the rebate onto the government

            • Re: (Score:2, Interesting)

              by jimdread ( 1089853 )
              Here are a couple of relevant quotes about what was happening from the article:

              The lawsuits, originally filed by Accenture employee Norman Rille and another whistleblower, accuse the companies of creating alliance relationships with dozens of other vendors, giving each other discounts or rebates on products or work for government contracts. The companies did not pass the rebates on to their government clients, according to a DOJ court filing.

              So that's "creating alliances between the companies", "giving each other discounts and rebates", and "not passing on rebates to the government".

              Any rebates vendors receive as part of a U.S. government contract belong to the government, the DOJ said.

              If that's part of the contract, that the vendor has to pass on rebates to the government, then it looks like the vendors have been pulling a scam. It might seem fair that they could keep the rebates for themselves, unless the rules specifically say they have to give them to the governme

              • Thank you for bringing in information that makes the case sound stronger. The Infoworld article really does have the deficiencies I and ShinmaWa stated. Reread it and see. Perhaps the Financial Times article should have been linked in the summary.

                The "creating alliances between the companies" could very well mean that they know who they like to outsource to because they've had reliable service from them in the past. "... giving each other discounts and rebates" is common practice for large-volume purchases
          • Where in TFA does it say that? Where in jeevesbond's post does it say that?

            Even if it's all true exactly as you say, the vendor still bid on the contract at a particular rate. The government accepted that rate as the lowest (or the lowest cost/benefit reasonable proposal if it was an RFP instead of RFB). The vendor subcontracted some work out at list. A discount is applied due to volume. This is sand-on-a-beach standard business practice.

            The only thing that causes anything wrong is if there's a contractual
        • lots of contracts are what's called "cost plus." the government agrees to pay the contractor however much money it costs them to do the job, plus an award fee that's determined by performance. In the case GP describes, Company A pockets the difference between what Company B charged and what the government payed in violation of the contract. This should get picked up in an audit unless the organization involved is particularly incompetent.

          It's also possible (and more likely) that because of their partner

      • Re: (Score:2)

        by Barny ( 103770 )
        Hehe, I worked out step 5 for you :)

        5. lobby to have overseas (eg lenovo) banned from getting US govt contracts.

      • Re: (Score:2)

        by jimicus ( 737525 )
        Which is annoying for those of us who love a good Microsoft bash, it seems they are not the worst offenders in this case.

        I'm not sure they need to bribe that much. Given their current market position, all they need to do is spread a few seeds of FUD in the minds of people who are wondering if it's necessary to stick with a Microsoft-based solution and they've got the contract. If that doesn't work, plan B is to publicly agree to a special price "because you're such a large customer/because you're the gove
      • For many products the "developer studio" software is quite expensive, indeed these days with "zero foot print" web clients no user software is needed. Now then there is an attempt to monetize based on number of users of system, server flops, i/o etc but sometimes this can be blurry/hard to determine. Overall for a large installation it ends up being blended pricing in a bespoke negotiated contract.

        The installation & software writing is often do by consultants/systems integrators - I work for one of the

    • Re:A show of hands if you are surprised (Score:5, Funny)

      by vought ( 160908 ) on Thursday April 19, 2007 @10:14PM (#18808059)
      Gonzales: "Quick - look over there!"

    • Re: (Score:3, Insightful)

      by iminplaya ( 723125 )
      Show of hands if you are surprised that the voters don't give a damn* and continue to re-elect said corrupt politicians and buy from corrupt corporations.

      *to the point of being just as corrupt if the politician brings home a sufficient amount of bacon. Dan Rostenkowski has always been my favorite example since he also exemplified Chicago politics as well. Monkey see, monkey do. Can't blame the politicians when they have full public approval.
    • A show of hands if you are surprised by dumbass anti-government comments by Slashdot-pseudo-libertarians who haven't read the RTFA.

      (Since you probably still haven't read TFA, here's a hint: the corruption is in the companies, not the government. The government--that is, you and me--are getting defrauded.)

    • The DOJ is filing he lawsuit, because they didn't get their share of the kickback.

  • Microsoft in a kickback scheme? I'm shocked! Simply shocked!

  • Don't expect much ... (Score:4, Funny)

    by aeschenkarnos ( 517917 ) on Thursday April 19, 2007 @09:56PM (#18807919)
    Some say "kickbacks and corruption", some say "rewarding loyalty and encouraging capitalist innovation". Tomayto, tomahto. It depends if you're honest, or a Republican.

    • Re: (Score:2, Informative)

      by ArcherB ( 796902 ) *
      Some say "kickbacks and corruption", some say "rewarding loyalty and encouraging capitalist innovation". Tomayto, tomahto. It depends if you're honest, or a Republican.

      Are you saying that Democrats don't take "kickbacks"? [boycottliberalism.com] Do bribes count? [cnn.com]

      • Some say "kickbacks and corruption", some say "rewarding loyalty and encouraging capitalist innovation". Tomayto, tomahto. It depends if you're honest, or a Republican.
        Are you saying that Democrats don't take "kickbacks"? Do bribes count?
        No, no. He's saying that the Democrats are really Republicans. Search your heart, you know it to be true.

    • Re:Don't expect much ... (Score:5, Insightful)

      by ScentCone ( 795499 ) on Thursday April 19, 2007 @10:23PM (#18808135)
      Yeah, yeah. And some say "new Senate majority leader makes shady real estate deals in Las Vegas and hides the income" or "the Democrat congressman from Louisiana with $90,000 of bribes found in his freezer was just put by Pelosi on the committee overseeing Homeland Security affairs" too. Are you really prepared to assert that none of the thousands of career agency and departmental procurement people that have their hands in the administration of federal IT contracts weren't hired during the previous administration, or don't consider themselves to be Democrats? Wake me up when the party you clearly prefer doesn't, while wagging its finger at the other party and promising to cut down on pet project funding once they got control of congress, graft almost $4 billions in pork onto a defense appropriations bill (peanut storage? giving tax dollars to spinach growers that weren't insured against e coli losses?) to buy supporting votes from their otherwise skittish fellow party members. Nah, never mind. Cuz, that would require some honesty about your double standards. Want to bitch about politicians? Fine. Me too. Just don't pretend that your preferred political camp isn't also a fabulous source of shallow, grasping, corrupt twits and the inevitable resulting satire.
      • "the Democrat congressman from Louisiana with $90,000 of bribes found in his freezer was just put by Pelosi on the committee overseeing Homeland Security affairs"

        That actually sounds about right.

      • Re: (Score:2, Interesting)

        by dasuridai ( 606603 )
        Sure a lot of the politicians fall victim to the same greed and malice regardless of political party. But both parties aren't the same and the reason is who is their constituents.
        When half of the Republican Congress gets hauled off to jail, evidenced by regular indictments and scandals, Conservative voters are happy to shout, "hey, the other side does it too."
        When a Democratic member of Congress is found to engage in criminal behavior, their base is shouting with the rest to have them put in prison.
        So ye
  • Who's innocent? And more importantly why does the entire industry feel the need to play dirty?

    • Re: (Score:3, Insightful)

      by Opportunist ( 166417 )
      why does the entire industry feel the need to play dirty?

      I waver between "old habits die hard" and "never change a running system".

    • Re: (Score:3, Insightful)

      by macshit ( 157376 )
      And more importantly why does the entire industry feel the need to play dirty?

      Because they're all greedy as fuck and "... everybody else was doing it!"
      • Everyone doing it. You don't do it? File for bankrupcy.

        High profile business is a dog eat dog world. Playing fair is no option. You either participate in the corruption and bribe the right people or you go under.

        Yes, that's sad. Yes, that's business.

    • Re: (Score:2)

      by Sloppy ( 14984 )

      And more importantly why does the entire industry feel the need to play dirty?
      "I wanted the money." [imdb.com]

  • same crooks, new name (Score:3, Informative)

    by PatentMagus ( 1083289 ) on Thursday April 19, 2007 @09:57PM (#18807933)
    Isn't Accenture the scumbags formerly formerly known as Arthur Anderson? I bet their next name begins with an 'A' too. Gotta keep that early listing in the directory.

    • It gets better (Score:2, Informative)

      by WindBourne ( 631190 )
      They moved their HQ offshore to avoid paying taxes AND to avoid prosecution. I yet, they won massive contracts with the feds.

    • Re: (Score:2)

      by vought ( 160908 )
      Isn't Accenture the scumbags formerly formerly known as Arthur Anderson? I bet their next name begins with an 'A' too.

      Just so that they're right behind "Aasshole bail bonds and towing" in the phone book.

      I mean really, what else matters?

    • Re:same crooks, new name (Score:5, Informative)

      by Expertus ( 1001346 ) on Thursday April 19, 2007 @10:22PM (#18808133)
      While Accenture was formed by Arthur Anderson as a consulting division in 1953, they split from the company (1989) before the ugliness with Enron, and finally severed all contractual ties in 2000. Arthur Anderson had a separate consulting branch that directly competed with Accenture after the split. So, yes, they used to be a part of AA, but as far as I know, they had nothing to do with the questionable accounting practices that led to AA's downfall. (http://en.wikipedia.org/wiki/Accenture [wikipedia.org])

    • Re:same crooks, new name (Score:5, Informative)

      by afidel ( 530433 ) on Thursday April 19, 2007 @10:42PM (#18808275)
      Actually they were the IT consulting wing of AA that fought tooth and nail to separate themselves from AA because of the bad practices going on over at AA. They even took a several hundred million dollar loss in the spinoff because the accounting side hide losses from another division in their side of the ledger, there was a lawsuit but Accenture dropped it because they were just sick of dealing and being associated with the accounting firm. They aren't choir boys but they really did have more ethics than AA. I never worked for them but did have them as a client and got to meet quite a few of the guys at a couple of their offices.
      • Do a google search for +accenture +disaster - same old story, different cover.

      • Re: (Score:2)

        by hughk ( 248126 )
        Wasn't it was more the pressure on accounting companies to separate from their consulting divisions. Having both together ws being flagged as a massive clash of interest since the early nineties. Also the partnership model was seen to be limiting to growth. Accenture still uses a 'virtual partnership' system for profit sharing but it is now conventionally incorporated.
      • I'm pleased to hear that they were driven by pure hearts and ethical imperatives as they made that decision.

        But if so, ethics aligned with financial incentives: in particular, the differences in revenue generated by the consulting partners (in Accenture) versus that generated by the audit partners (in Arthur). While they were a single firm, revenue was pooled (well, partially), so Accenture was essentially subsidizing Arthur. Going independent enabled the Accenture partners to keep a bigger piece of the

  • Anecdote (Score:1, Interesting)

    by king-manic ( 409855 )
    I work for a fairly large company. We recently had an upgrade of our frontline order entry software, we contracted out to an off shore firm (Israeli). The parts we made work very well with a few bugs. The parts we sourced out to hardly works. We had to launch it for financial reasons recently and it basically drops 3/4 of the orders into a stuck state. It has 109 known cases that need work around, we expect call center grunts to be aware of all 109... It has one reoccurring error that is so far unfixable an

    • Re: (Score:2)

      by mpapet ( 761907 )
      Of course the former exec got "a little bonus" from the vendor.

      Practically every software vendor with some money in the bank does the same thing. I assure you the former employee is not the only one.

      Judging by the comments posted so far, many of you need to buy a clue and cash in.
    • How exactly is this flamebait? BEcause I meantion an isreali firm? because you recognize the situationa nd you work for th efirm in question? Or your the guy who got canned?
      • Don't take it too personally, it happend to me too. Sometimes, moderaters squander away their modpoints in incomprehensible ways. This is slashdot, after all; there are some pretty weird folks around here.

        It's sometimes frustrating, I ,know, but moderators are, ultimately, like every human population: they are comprised of intellectually honest people and of assholes wanting to make a point while being inept in making a rational argumentation - and everything in between those two things.
    • Name and shame, man. If this company is just as bad as you described you should have no qualms mentioning their name. Lest anyone else of us will have to deal with that same company again.

  • Let's wait for the laws ... or not (Score:4, Insightful)

    by Opportunist ( 166417 ) on Thursday April 19, 2007 @10:10PM (#18808029)
    Imagine this being a normal person. Like, someone cheating at taxes. What does immediately follow a revelation like this? I mean, besides the lawsuit that strips him to his bones and beyond (though I doubt the same is gonna happen to Cisco, MS and the rest of the organized cri... I mean honorable corporations).

    Right. New laws that should increase "transparency". Read: Make you more transparent for the powers that be, and any complaints from the ACLU would be shot down with reference to those crooks that dared to cheat Uncle Sam and his poor children (i.e. the citizens of the USA), how dare you be against laws protecting them?

    So... I'm now waiting for the corresponding laws, or at least suggestions, to make corporations more transparent and make them better manageable and taxable.

    Though... I think I better not hold my breath. Suffocating is one of the worst ways to die.

    • So... I'm now waiting for the corresponding laws, or at least suggestions, to make corporations more transparent and make them better manageable and taxable.

      As in many "zomg this is a big deal" legal issues that get talked about, the laws are already in place to deal with it.

      The problem was that the companies didn't make the legally required disclosures.
      (Because they probably knew what they were doing was illegal)

      They hid the kickbacks behind creative accounting.
      The IRS has the power to tweak GAAP, somethin

      • True. The necessary laws are already there. But when did it stop lawmakers before?

        Never noticed it? There are laws concerning violence in games and ratings, and still with every school shooting some backbencher bursts into the front row with the demand for tighter legislation. There are pretty tight and rigid copyright laws by now (beyond anything their creators wanted them to be), but with every year the mafiaa's profits don't shine the cry for more burden on the back of the courts gets louder. The laws fo

  • Definitly shades of grey (Score:3, Insightful)

    by afidel ( 530433 ) on Thursday April 19, 2007 @10:12PM (#18808041)
    Giving other vendors discounts for work performed on certain types of high volume contracts might well be standard practice. The fact that one of those type of contracts was US Federal Government contracts just means that someone with guns feels they deserve the discount. I mean what right does the government have to deserve a certain price, the government puts a job up for competitive bid and they get whatever the best price they get, if someone outside these cartels can perform the same service at the same cost then they should be able to come in at under the other bids by not having to include the cross rebates in their pricing structure. If the outsider can't give that better price then the government can STFU and take the best deal available.

    • It ain't that easy (Score:5, Insightful)

      by Opportunist ( 166417 ) on Thursday April 19, 2007 @10:25PM (#18808155)
      Usually, governments don't order a dishwasher or a fridge. They order power plants and recycling centers. And there are only so many companies who can offer those.

      Also, as the government you can't only take price and quality into consideration. There is a reason why the feds drive around in US built cars and not in BMWs. Simply 'cause one of their goals is to increase the own infrastructure and business power and rely as far as possible on goods built in the country.

      Military hardware is even more complicated, since you have to trust the companies far further than with some ordinary civilian stuff.

      So your choices become very, very narrow. You usually only have a handful of companies to pick from, if that. So it's easy for them to form a cartel, if only a "secret" one, by fixing prices and splitting the revenue. And that, in turn, is illegal.

      So you can't simply assume there is someone "outside" the cartel. The company would have to be in your country, it would have to be large enough to be able to offer the service requested. And if it isn't part of the cartel, they would quickly find a way to acquire and split that competitor.

      Business is a shark's world. Don't think they would accept a competitor without fighting him with claws and teeth.

      • Re: (Score:2)

        by afidel ( 530433 )
        So your saying they are restricting themselves to buying from an Oligopoly. Well, by definition an Oligopoly has the ability to set non perfect pricing for the buyer so thats what they should expect. I mean these companies could just all jack up their rates by the same amount as the shared profit and pay full fare for the other members services and the result would be even higher prices for the government. I don't understand how the government is dictating what profit the companies can make. As long as the

        • Re:It ain't that easy (Score:5, Interesting)

          by Opportunist ( 166417 ) on Thursday April 19, 2007 @10:46PM (#18808307)
          No, but the intention of the discount is. It is, technically, a bribe. A bribe given to your competitor to not undercut you for the mutual benefit of both of you.

          Government cannot and does not dictate what a company may charge. What they can and do dictate is, the price fixing doesn't happen.

          What allegedly happened here is this: Company A is a contractor for the government. Company B gives company A money so they are their "prefered partner". There may be companies that offer the same service offered by company B cheaper, but company A still sticks with company B because of the money they gave them. So the product itself gets more expensive than it has to be, since company A has to forward those increased costs to the government.

          In a nutshell, the benefit lies with the companies, at the expense of the government.

          Imagine this: Company A is one of the few, maybe the only one, who can offer a certain product. I.e. the government HAS to buy with them. Company B (the one paying to be prefered partner) paid company A to be in the deal as well. They might have competitors, but they paid to be in. Technically, they bought themselves a monopoly position.

          Whether it's illegal or not should be determined by a court. I'm no lawyer, I earn my money honestly. At the very least it is dishonest and looks very bad, as a taxpayer I would like to see my tax money spent on quality products not bribes.

          • Re: (Score:2)

            by KDan ( 90353 )
            Actually, I suspect it's rather more simple and boring than that. I have worked for Accenture. This company has strategic alliances left right and centre. They give rise to various discounts. For instance, the strategic alliance with BEA allows free usage of WebLogic in development environments, to all Accenture clients (on Accenture projects).

            Now, that might be construed as a "kickback", perhaps, but it isn't much of a kickback, really. What is likely to have happened here is that either the "whistleblow

  • Can someone explain this to a non-business grad? (Score:5, Interesting)

    by Sandcastle ( 563801 ) on Thursday April 19, 2007 @10:58PM (#18808387)
    Sure sounds bad when you first read it, but I'm not sure exactly "why" it's bad, other than it feels like it is ;-)

    giving each other discounts
    - What is the difference here between this and other's who make a living as a middleman? KMart might have a clothing manufacturer offering a discount to them compared to some other chain because they like the target market, or know they'll get good volume. Can't intel offer discounts on their chips, greater than just volume discount, to Apple because they'd love the boost to their image? MS prices OEM cheaper to get pre-installed. What differentiates these examples from the one in the FA? Does KMart or Apple have to show us the discount/markup made?

    Accenture received more than $735,000 in payments from IBM for "favorable treatment and influence"
    . This sure sounds worse, as they are Payments rather than discounts. Isn't it the same thing though? I assume they are only payments based on securing sales, so it's just the same discount in a separate transaction. Where is the line drawn?

    I'm not encouraging this or claiming it should go unpunished, but I know if I'd been in a management position along the line I don't know how/why I could/should be stopping such things (defensibly).

  • A bit about the inner workings of "kickback" (Score:5, Interesting)

    by Opportunist ( 166417 ) on Thursday April 19, 2007 @11:07PM (#18808425)
    To make things clear (sorry to sound like a lecture, but some people appearantly got things wrong, judging from the comments), a bit about how this works:

    Some company has a contract with the US feds. That company didn't do anything wrong (yet), they got the contract fairly. Let's assume that for a moment, because TFA doesn't mention anything different.

    Some other company now paid the company above a sizable sum to be their "prefered partner". I.e. to get them to buy the things they need to fulfill the contract from them. This, by itself, is not yet illegal, but at the very least a bit smelly.

    The first company (and here comes the allegedly illegal practice) now did not forward this "discount" to the government but decided to keep it for themselves. Furthermore, if there wasn't that "prefered partner" deal, they might have gotten the items bought from the second company cheaper with another company.

    Why is this illegal.

    Governments usually have a very narrow selection of companies to choose from when they hand out contracts. Said companies usually have to adhere to very specific standards, are closely monitored, they do have to have specific features (varies from type of contract to another, but usually includes things like transparency clauses, being in the country the government is and so on). In other words, there aren't many.

    If now another company "buys their way" into being the supplyer of such a company, they can expect to be part of government contracts without going through the same ordeals and strict standards. Furthermore, they have the liberty to choose their price freely (in other words, make their products more expensive than they "should" be), because there is no competitor. In other words, they "buy" a monopoly position.

    • Re:A bit about the inner workings of "kickback" (Score:5, Informative)

      by ShinmaWa ( 449201 ) on Friday April 20, 2007 @12:05AM (#18808743)
      You make some excellent points. However, there's a few places where the pieces don't quite fit together.

      The winning vendor (the contract holder), is still responsible for the all the terms of the contract, even if the work is outsourced. Besides, there was no mention in the TFA of the contract terms being broken and all the players involved are large vendors to the government on their own, even without these alliances. IBM, Oracle, etc don't need a proxy to work for the government. They are already there. If this was some po-dunk ma'n'pa or some firm from Outer Offshoristan, you may well have a point here, but that's not the case here.

      Also, nearly all federal government contracts are fixed price. If a subcontractor raises the price after the bid is won, it's the winning vendor who gets hurt, not the government, since they get paid the same no matter how much it actually costs.

      However, you are absolutely RIGHT when we slightly rearrange the order of events as you presented them. Let's say the subcontractor contracted with the (soon-to-be) winning vendor DURING the bidding process. The supplier says "it'll cost us $X to do this" and the vendor puts that down on the contract as part of the overall cost, THEN the contract is signed, and THEN the rebate occurs. _That's_ a kickback and quite illegal. The bid was _artificially_ inflated before the contract was signed.

      The legality of this all boils down to where in the process the subcontractor was engaged and when this "rebate" occurred. That's what the DOJ wants to find out. It's a shame that the article was not more clear on this all-important detail.

  • Sounds like it's time... (Score:3, Funny)

    by Guppy06 ( 410832 ) on Thursday April 19, 2007 @11:35PM (#18808593)
    for several US Attorneys to be fired for wholly unrelated reasons that the Attorney General had no involvement in.
  • It's not obvious to me that there is any corruption here. If, as is likely, these companies contracted with the government in a public bid process, their legal and ethical obligation is to deliver the stated project for the stated fee. These aren't defense contractors here, where the contracts are cost plus. These contracts are typically granted after lengthy bidding and contracting processes. If the companies violated the contracts, the remedy is in civil court, and should be straighthforward.

    If th

  • How to win a tender (Score:5, Funny)

    by smorar ( 520638 ) on Friday April 20, 2007 @04:05AM (#18809581) Homepage
    This story reminds me of a joke I received via email in the context of South Africa:

    The Minister of Public Works wanted to remodel her office, so she invited different contractors for tenders. One was from Johannesburg, one from Durban and the last one from Soweto.

    "OK gentlemen, I want a nice job," She said, "Let's hear from Jhb?"

    The guy took out his ultrasonic measuring device and laptop and began measuring, scrawling on the computer, calculating. Eventually he said "R90 000, Madam Minister,"

    "That seems like quite a lot of money! Why R90,000?"

    "You see," he replied, "that's R40 000 for material, R40 000 for labour and R10 000 for my profit".

    She seemed OK with that and turned to the Durban contractor. "So how much do you want to do the job?" she asked.

    The Durban fella took out a rusted tape measure, broken clipboard and a blunt pencil. He took some measurements, scratched some calculations on the back of his Rothmans box and came up with a figure of R70,000.

    "That's interesting!" said Stella. "Explain the R70 000?"

    "Simple, Madam Minister, I got a brother-in-law in the hardware trade, so that's R35 000 for materials, R30,000 for my guys, and R5,000 for my profit and all."

    She was amused but happy to accept the explanation.

    Then she asked the Soweto contractor for his quotation. He just smiled, looked the minister in the eyes and said, "R270 000!"

    "Yoh Yoh Yoh!.... How did you come to that amount without even taking your measurements? What is that amount for?"

    "That's R100 000 for me and R100 000 for you!"

    "So what about the remaining R70 000?" "We hire that guy from Durban to do the job!!!"

    • Re: (Score:3, Informative)

      by jafac ( 1449 )
      Unfortunately, thats no joke.

      All too real.

      In this case, it's why KBR (Durban) is going broke, and Halliburton (JHB) is moving to Dubai.

      Bonus Question: Who pays the cost of a war, when a "used car salesman" convinces folks that one is needed, whether or not it actually is needed?
      Answer: 3000 US troops, the taxpayers, and hundreds of thousands of innocent Iraqis who were in the wrong place at the wrong time.

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