Calif. questioning prompts Oracle exit

Tensions between the company and California officials flare unexpectedly when an executive walks out of a hearing after a state senator sharply criticized the company.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
4 min read
SACRAMENTO, Calif.--Tensions between Oracle and California officials investigating a controversial contract flared on Tuesday, when an executive walked out of a hearing room after a state senator sharply criticized the company.

Ken Glueck, Oracle's vice president of government affairs, was in the audience during Tuesday's committee meeting, part of a state investigation into the $95 million contract with Oracle. Glueck got up and left after state Sen. Steve Peace said he wanted Glueck--who on Monday had criticized the hearing process--to testify before the committee.

The hearings stem from a critical state auditor's report issued in April that said the contract could cost California $41 million more than the state's existing contracts, rather than save millions of dollars, as Oracle maintains. The auditor's report also criticized the speed with which the deal was approved by the governor's office and other state agencies.

Soon after Glueck's exit, he and Peace met up again in a hallway outside the committee room, and Peace continued to harangue the Oracle executive about testifying. Glueck appeared not to respond, and he later refused to comment on the exchange. Glueck told reporters that he would appear before the committee if he received a formal request.

The clash follows a flurry of angry letters and press conferences in recent days between Oracle executives and the committee's chairman, Assemblyman Dean Florez. After Oracle sent a formal complaint to Florez, blasting the way he was conducting the hearings, Florez fired off a letter to Oracle Chief Executive Larry Ellison characterizing the accusations as "utter nonsense" and "false." Oracle then had a hastily called press conference that criticized Florez's letter, and Florez in turn called his own press conference.

On Tuesday, Peace said Florez had the support of the committee and called Oracle's letter and press conference "the latest twist in Oracle's bizarre behavior" toward Florez.

Meanwhile, Debbie Leibrock, chief of the technology investment review unit for the California finance department, testified for a second time before the committee. She reiterated her earlier testimony that she had raised concerns about the contract with her boss, Finance Director Tim Gage, who was one of six officials to recommend the deal. She said she had questioned whether California would, as Oracle claimed, save more than $100 million during the six- to 10-year contract.

Leibrock also said she worried that the state agencies signing the deal had not yet verified Oracle's estimates on the amount of software that would be needed to establish a statewide enterprise licensing agreement.

Signing off "on the fly"
She said Tuesday that she had sent e-mail to Gage on May 30, 2001, recommending that the state wait on the contract, only to learn that Gage signed off on a recommendation to the governor's office the next day. May 31 also happens to be the end of Oracle's fiscal year.

"I was very surprised," she told the committee. "I was not expecting Tim to sign the (recommendation)."

She said Gage sent her e-mail that acknowledged that it had been unusual to sign off on such a large deal "on the fly."

Gage began his testimony under questioning by Florez by reiterating that he was concerned about the specifics of the contract. Gage said he signed off on the deal after a lengthy discussion with Barry Keene, who was then the director of the General Services Department.

Keene indicated that his department had looked at the numbers in the contract and was confident that the state could achieve significant cost-savings, despite concerns expressed by Gage's own staff, Gage testified.

Gage said that after signing off on the deal, he was asked by Susan Kennedy, cabinet secretary to Gov. Gray Davis, what he thought of the deal.

"I told her that Finance didn't do an independent review of the numbers and that I felt comfortable the state would yield significant savings from it," Gage testified.

He indicated that although the state Finance Department hadn't done an independent review of the numbers, Keene said the General Services Department had looked at the numbers.

In further questioning, Gage faced questions from legislators who wondered whether he thought he was performing as expected when he didn't verify the numbers in the contract for himself.

Critics of the contract have noted that Oracle has long been known for sales tactics considered aggressive even in the high-stakes, high-pressure world of corporate software sales. The state auditor criticized the state's negotiators who agreed to the six-year contract--unusually long in an industry with rapidly changing technology.

The audit also noted that state officials waived protection in the event Oracle lowered its prices, the purchase price didn't include software upgrades and the state purchased far more Oracle licenses than it had employees to use them.

Since the contract scandal broke, three state officials have resigned or been suspended and campaign donations from Oracle to the governor and other state officials have been returned.

Testimony from former California state auditor Kurt Sjoburg and current state auditor Elaine Howle is expected to move the hearings into the second phase of the investigation, which centers on the merits of the deal, Florez said. Oracle hired Sjoburg in January to draft an evaluation of the deal and to determine whether it would generate cost savings for the state, after a state senator sent a letter requesting the state audit.

Next week, the committee will hear testimony from state officials from Ohio, North Dakota, Montana and Toronto, where legislators are also worried that their Oracle contracts didn't live up to promised cost savings.