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California to break free from Oracle

California's doomed $95 million contract with the database giant may be officially canceled as soon as next week, but could the state incur a penalty as a result?

California's doomed $95 million contract with Oracle may be officially canceled in about a week, officials said Friday, after two months of untangling the sprawling six-year deal that united scores of individual contracts under one megadeal.

Negotiations between state finance officials and Oracle would have gone faster, but some money had already changed hands. Additionally, dozens of state agencies using Oracle software stopped paying maintenance and support under the new agreement and have been sorting out what they owe for the last several months of lapsed payments.

"There are a few more details to work out," Steve Maviglio, a spokesman for Gov. Gray Davis, said in an e-mail message. "We expect resolution soon."

An announcement could come as soon as next week, according to Jennifer Hanson, a spokeswoman for Assemblyman Dean Florez, who led an investigation into the contract.

Florez, the chairman of the Joint Legislative Audit Committee, and fellow legislators recently wrapped up two months and 110 hours of testimony from state workers, lobbyists and representatives of Oracle and Logicon, the Oracle reseller that negotiated the deal.

The investigation was the result of a scathing state auditor's report in April that estimated it would cost California $41 million to use Oracle's software--rather than save the state $100 million over six to ten years, as Oracle contended.

During the hearings, there was conflicting testimony about whether concerns about the contract were raised to supervisors before it was signed and about the level of scrutiny given to the deal before it was approved by the governor's office and other state agencies. Several people testified that senior managers dismissed their concerns regarding the contract, saying there was not enough time or resources to fully evaluate the contract before a May 31, 2001, deadline.

In the wake of the scandal, four state officials have resigned or have been suspended, including the head of California's Department of Information Technology. Campaign donations from Oracle to the governor and other state officials have been returned.

By early May, Davis had declared that the state intended to cancel the contract and promised California taxpayers would not pay a dime for the software. Oracle similarly offered to end the deal, which was signed more than a year ago in May 2001.

Although the state hadn't paid any money by early 2002, some money had changed hands and state agencies were starting to operate under the new deal, preventing an easy exit.

Koch Financial, which financed the deal, had already paid $52.7 million to Logicon, which passed $35.5 million on to Oracle. The state is scheduled to make a $14 million payment to Koch in September.

Additionally, state agencies that had previously purchased Oracle databases were ordered to stop paying maintenance and support fees to Oracle in September 2001 because those fees were to be accounted for differently under the new, statewide contract. Consequently, dozens of agencies, including the California Water Resources Board and the California Department of Justice, are out of compliance with their maintenance and support fee contracts and owe Oracle payments for the last several months of support.

The Water Resources Board owed $50,000 to Oracle for the lapse in support fees, according to Stuart Lott, the board's chief information officer.

The switch disrupted plans to buy additional Oracle development tools that the Water Resources Board is using to create a new water information management system to keep track of permits for disposing of waste and conducting watershed analysis, he said. With the state now facing a budget crisis, the board no longer has the budget to purchase the tools at all.

"This whole Oracle problem threw a monkey wrench into the procurement process," said John Ellison, the assistant chief of the board's IT department.

But Lott said his team can complete the project and there won't be an impact because of the Oracle deal falling through.

It's still unclear whether the state will incur some penalty as a result of canceling the contract.

"The intent of the state throughout all of our negotiations has been to make this as painless as possible for California taxpayers," Nathan Barankin, a spokesman for the California Attorney General's office, said on Friday. "But there is no final agreement."