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Cisco at center of city contract controversy

Officials in the company's hometown of San Jose call into question Cisco's involvement in tailoring a tech contract for city hall.

Networking giant Cisco Systems is entangled in controversy in its hometown of San Jose, Calif., over a contract to build an IP telephony network for the new city hall.

On Tuesday, the city temporarily halted the project and reopened the evaluation process to allow for more vendors to submit proposals for consideration. Unisys, a Cisco reseller and systems integrator, had already been named as the winner of the $8 million contract.

Mayor Ron Gonzales suggested that the project be stopped after receiving a memorandum by an independent city auditor and the city attorney, who had been investigating the project since June. The two-page memo is a preview to a 100-plus-page report that is expected to come out Friday.

According to Rick Doyle, the city attorney, technology officials for the city did not follow an appropriate process when they called on Cisco executives to help them design the request for proposal (RFP) that was to be used by vendors and systems integrators bidding on the contract.

Doyle said that because the city had not explicitly standardized on Cisco equipment for the contract, it was inappropriate for city officials to be working so closely with Cisco. The IP telephony network proposed by Cisco used all Cisco equipment that was not compatible with other vendors' gear, he added.

"Cisco was working with technology officials and answering questions regarding the RFP and strategies for deploying the technology before we had even standardized on the Cisco solution," he said. "At the same time, Cisco had a vested interest in the outcome. It was a serious conflict that raised serious concerns."

Doyle said the problems that have arisen are the city's and not Cisco's.

"I am not faulting Cisco in any way," he said. "I believe they acted in good faith. I'm sure they felt they were just trying to help a potential client. The problem was that we had not formally standardized on their equipment."

An article in the San Jose Mercury News on Wednesday accused Cisco of "colluding" with city officials. Cisco has strongly denied this accusation.

"Cisco's interactions with the city are entirely open and appropriate," said Claudia Ceniceros, a spokeswoman for the company. "We welcomed the independent analysis that has taken place, and that is why we will cooperate enthusiastically and openly with any additional reviews or follow on activities related to the audit."

Cisco is a leading supplier of voice over Internet Protocol equipment and is the No. 1 supplier of IP networking gear to businesses throughout the world.

"Cisco wants customers to make informed decisions," Ceniceros added. "So it's appropriate and beneficial for potential customers to be in contact with Cisco and to have as full an appreciation as they can for what Cisco has to offer."

This is not the first time that a technology company has been in the center of controversy over a government contract. In July 2002, the state of California canceled a $95 million contract with software maker Oracle after an audit committee discovered that the contract would cost California $41 million, rather than save the state $100 million over 6 to 10 years, as Oracle contended.

Three state officials resigned from their posts as a result of the politically charged controversy.

Consulting company Accenture recently lost a to supply the Department of Homeland Security with technology when Congress failed to approve its funding. Congress voted against the project, saying it sent the wrong message to U.S. companies. Accenture's U.S.-based unit won the prime contract, but the parent business is based in Bermuda, where it can get more favorable tax treatment.