California cancels Oracle contract

"We are pleased with Oracle and Northrop Grumman's assistance in unwinding this contract," Clothilde Hewlett, interim director of the Department of General Services, said in a statement. "Their efforts to return the state to the conditions that existed prior to the (enterprise license agreement) made it possible to avoid any additional financial burden to the state." Northrop Grumman is the parent company of Logicon, Oracle's reseller in the deal.

The $95 million contract, signed in 2001, became the subject of a politically charged, two-month hearing by the state's Joint Legislative Audit Committee after a state audit report released in April estimated the contract would cost California $41 million--rather than save the state $100 million over six to 10 years, as Oracle contended.

During the course of the hearing, four high-ranking officials resigned over allegations of negligence and misconduct in dealing with Oracle and its reseller Logicon. The disclosure that an aide to California Gov. Gray Davis had accepted a $25,000 campaign contribution from Oracle just days after the state signed the contract was a political embarrassment to Davis, who is running for re-election. Davis returned the contribution to Oracle shortly after that fact came to light.

The scandal led to the dismantling of the state's department of information technology. Legislators recently voted against renewing the department's charter, which recently expired. Elias Cortez, the head of the department, was an advocate of the Oracle contract and resigned from his post after being suspended by Davis during the hearings.

Oracle officials admit the company erred in using the lobbyist it had hired to represent its sales team to the state to also deliver the Davis campaign contribution, but stands by its claims that the contract was a good deal for the state.

"Oracle Corporation is pleased to have resolved this matter to the satisfaction of the state of California," Jim Finn, Oracle's vice president of Worldwide Corporate Communications, said in a statement. "We look forward to working with the state in the future."

In early May, Davis declared that the state intended to cancel the contract and promised that California taxpayers would not pay a dime for the software. That same month Oracle also offered to end the deal, which was signed in May 2001.

Negotiations between the state and Oracle to cancel the complex contract took more than two months because some money had already changed hands and state agencies were starting to operate under the new deal.

Although the state hadn't paid any money, by early 2002, Koch Financial, which financed the deal, had already paid $52.7 million to Logicon, which passed $35.5 million on to Oracle.

Additionally, dozens of state agencies using Oracle software stopped paying maintenance and support under the new agreement and had to sort out what they owed Oracle for the last several months of lapsed payments.

Dean Florez, the outspoken Democratic assemblyman who led the hearings into the contract, said he felt vindicated by Tuesday's news.

"From the beginning, my agenda was to get our money back," Florez said in a statement. "We did."

Florez was viewed by many as a political maverick for leading the charge in an investigation that that proved embarrassing for the Democratic governor. Herb Wesson, the speaker of the Assembly, ousted Florez earlier this month as the chairman of the Joint Legislative Audit Committee.

"Any price I paid politically was worth it," he said.