California's Davis Is in Talks To End Oracle Software Pact (WSJ)

California Gov. Gray Davis is negotiating with Oracle Corp. about rescinding a controversial $95 million software contract with the state. But it won't be easy to unwind the deal or assess the potential impact on the company's finances.

The six-year software deal, signed without competitive bidding in May 2001, has turned into an imbroglio that has led to the resignation of two state officials, a probe of potential document shredding and fears for Gov. Davis's re-election bid later this year. Besides issues about the cost and need for Oracle's software, Republican opponents are raising questions about the timing of a $25,000 political contribution from the company to the Democratic governor. Gov. Davis, who is backing an investigation by California's attorney general, denied knowledge of the deal and said there was no connection with the donation.

In today's WSJ, by the same author, is

IBM Wrests Database Market Lead From Oracle as Sector Consolidates
International Business Machines Corp. last year surpassed Oracle Corp. in sales of database software, according to a new market research study.
IBM, which was aided by its acquisition of Informix Corp., narrowly edged out Oracle in database license revenue generated in 2001, according to Gartner Inc., a San Jose, Calif., market research firm. IBM, Armonk, N.Y., experienced a 4.3% jump in license revenue to $3.06 billion, boosting its market share to 34.6% from 33.7% in 2000, Gartner said. The Informix unit, which it purchased in December 2000, contributed $264 million to IBM's total.
Revenue for Oracle, of Redwood Shores, Calif., declined 4.9% to $2.83 billion, and its share of license revenue declined to 32% from 34%, Gartner said.

Increasing competition has caused some analysts to reduce earnings estimates for Oracle. But the company stresses that it still has a dominant share of databases currently in use. Oracle released a study Monday stating that 51% of the 100 largest companies use its software as their primary database.
The competition is also increasing from Microsoft Corp., whose share of database revenue grew 17.8% in 2001 to $1.4 billion, with market share that rose to 16.3% from 14%. "What's interesting is to notice the shifting and the power struggle among the vendors," said Gartner's Betsy Burton, an analyst who supervised the study. "It's down to the Big Three.
Gartner's figures reflect new revenue from database sales, and exclude upgrades that come free under many corporate purchasing agreements. The firm said total database revenue grew just 1.4% to $8.8 billion, compared to a 10% growth rate in 2000.

May 6, 2002
Calif Talks To Kill $95M Oracle Deal Could Take Weeks

DOW JONES NEWSWIRES
SACRAMENTO, Calif. (AP)--California's finance director began talks with Oracle Corp. (ORCL) Monday to discuss killing a six-year, $95 million, no-bid contract that auditors call wasteful, said an administration spokesman.
The talks could take up to two weeks, said Steve Maviglio, press secretary for Gov. Gray Davis. "We want to do this thoroughly and carefully, not quickly," he said.
Finance Director Tim Gage will meet this week with Oracle executives to negotiate an end to the state's contract to buy and administer database-management software from Oracle, Maviglio said.
The negotiations come as a legislative committee investigating the state's software contract with Oracle is scheduled to hear testimony from eight Davis administration officials.
The Joint Legislative Audit Committee hearings led by Assemblyman Dean Florez will focus on the roles of two Davis aides - Cynthia Curry, a top lawyer in the General Services Department, and Kari Dohn, a Davis policy adviser.
Curry will be asked how the contract was reviewed before it was signed, Florez told the Orange County Register. Dohn will be asked if Davis was told about the contract.
Davis has said he didn't know about the contract before it was signed.
Also testifying will be Elias Cortez, the suspended state technology chief, and Betty Yee, the chief deputy director of the Department of Finance.
Originally touted as a way for the state to save money through volume software purchases, the contract has turned controversial as a state auditor report says it would cost taxpayers as much as $41 million more than if the state had relied on previous suppliers. The state and Oracle previously said the contract would save the state $16 million.
Oracle has disputed auditor Elaine Howle's report, saying she severely underestimated the state's future database needs.
Last week, Oracle officials said they would end the contract with the state and, on Saturday, officials from Logicon Inc., the company packaging the software with Oracle, said they also would drop the contract.
Logicon, which stands to earn $28.5 million from the deal, prepared the cost-saving estimates that state officials relied on when negotiating the deal, Howle said.
The state Senate is set to vote on a bill by Sen. Debra Bowen, D-Marina del Rey, that would prohibit technology consultants from bidding on contracts they helped draft, legislation that would specifically deal with Logicon's role.
Davis and his predecessor, Republican Gov. Pete Wilson, have vetoed similar bills.
On Sunday, Maviglio welcomed the Logicon offer, but said that while Gage will meet Monday with Oracle, no meeting with Logicon has been arranged yet.
The contract has become a political embarrassment for Davis, as he prepares for an autumn re-election campaign against Republican Bill Simon.
Republican critics have suggested the contract is at least an example of incompetence by the Davis administration and that it may also involve corruption.
The no-bid deal was signed May 30, 2001. Adding to the controversy, state campaign finance records show Davis' re-election campaign reported a $25,000 contribution six days after the signing.
The contribution check was delivered by an Oracle lobbyist, Ravi Mehta, in a Sacramento bar to Arun Baheti, Davis' chief technology adviser.
These revelations led to the resignation April 26 of Barry Keene, a former legislator and Davis' head of the Department of General Services. A series of e-mails sent by members of Davis' staff indicate that Davis may have known about the contract before it was signed. Last Thursday, Baheti resigned, saying he should have "more vociferously raised questions" about the contract before it was signed.
Davis said he didn't know about the Oracle contribution, and Oracle executives denied the donation was an attempt to buy influence. However, Oracle officials called it "definitely bad judgment" for Mehta to give the check to Baheti, as he was involved in the contract talks.
The governor's office has a written policy against administration officials accepting campaign donations.
Ken Glueck, Oracle's vice president of government affairs, said he authorized the donation in March 2001 and wasn't aware of the state contract until after the deal was signed.
He said it took several weeks for the contribution check to reach him in Washington and then it sat on his desk for several more weeks before he forwarded it to Mehta in Sacramento.
While Oracle and Logicon are willing to end the contract, the move may prove difficult because of the involvement of other firms and various complications in the deal, said Oracle spokesman Jim Finn.

Minor detail: According to the other articles available on FR, the contract was signed May 31st, 2001, not May 30, 2001 as this article states.

Oracle has disputed auditor Elaine Howle's report, saying she severely underestimated the state's future database needs.

Here's the next person Davis will blame when he tries to get out of this deal. This still looks like more quid pro quo.

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