When the first reports surfaced last week that a number of big name IT companies (including Microsoft) had participated in widespread kickbacks on US government contracts, it wasn’t clear to me exactly how Microsoft was allegedly involved. Today, the details are a little clearer in Lorraine Woellert’s report at Business Week. First the big picture:
With some big players already named in lawsuits alleging a widespread kickback scheme, the information technology industry will see further scrutiny as federal prosecutors pursue additional charges in coming weeks. Last week, the Justice Dept. filed civil charges against Hewlett-Packard (HPQ), Sun Microsystems (SUNW), Accenture (ACN), and Accenture subsidiary Proquire as part of a two-year investigation involving potentially billions of dollars in government procurement projects.
The Justice Dept. unsealed complaints Apr. 19 in U.S. District Court for the Eastern District of Arkansas in Little Rock, charging the four companies with fraud and conspiracy in their attempts to win lucrative government contracts. Prosecutors also made public six whistleblower lawsuits that had been filed under seal in September, 2004, by former Accenture employee Norman Rille and Neal Roberts, a onetime partner with Deloitte & Touche who has investigated alliances between technology vendors.
The lawsuits accuse at least a dozen technology vendors of operating rebate and commission programs, referral systems, and strategic alliances that they kept secret from the government agencies that bought their systems or followed their advice. The practice has been going on in some cases for a decade, the lawsuits claim. The Justice Dept. is seeking treble damages plus civil penalties.
There are more details in the article, but the problem is with the payment of referral fees which aren’t uncommon or illegal in many business situations, but have to be disclosed on government contracts. The way the fees were so visibly institutionalized at these companies indicates to me at least that they didn’t understand what trouble they were getting themselves into with the government. Where’s a lawyer when you need one?
As for Microsoft:
According to court documents, the original six civil cases Rille and Roberts filed will proceed against Cisco Systems (CSCO), Electronic Data Systems (EDS), SAP (SAP), Lockheed Martin (LMT), Oracle (ORCL), American Management Systems, CACI International (CAI), SeeBeyond Technology, and Dell (DELL). At least five other defendants remain cloaked under court seal, including one identified in court documents as a wholly owned subsidiary of IBM (IBM).
Boeing (BA), Raytheon (RTN), Microsoft (MSFT), SAIC (SAI), and Exostar were named in the original complaints, but the court, at the urging of prosecutors, dismissed them from the cases last week. The lawsuits themselves describe a network of relationships that reads like a Who’s Who of the nation’s biggest IT companies. Based on documents and information he received while a senior manager at Accenture, Rille claims in one of the original lawsuits, “all the major systems-integration consultants and technology vendors were and are engaged in the same kickback scheme and associated conspiracies.”
So Microsoft isn’t on the hook right now, but they and a number of other big names still seem to have a significant risk. I wonder if it will rate a footnote in tomorrow’s quarterly report?
Microsoft is expected to get an revenue and earnings boost because there will be no undelivered element deferral for Vista. Actually, it’s not really a boost but an avoidance of delayed recognition, but it looks like a boost. This accounting change had been announced along with the accounting treatment for the Vista holiday coupons.
Reruns already? 1998 video deposition of Bill Gates shown at Iowa trial.
“Gears of War” made history today by becoming the fastest-selling next-generation game of 2006 and the fastest-selling exclusive Xbox game ever. Not to rain on the Xbox 360 parade, but consider that Sony’s PS3 Could Still Outsell Microsoft’s XBox 360 in 2006. I consider it unlikely, but only because of Sony product shortages.
Microsoft’s Avanade joint IT services venture with Accenture is doing well.
It was amusing while it lasted – Research Firm Clarifies: iTunes Sales Are Not Collapsing. Related: Digital Music Sales Soar in 2006.
More wrong conclusions – Vista flaw could haunt Microsoft. True, SQL Server 2005 Express SP2 with Vista support is late, but it has nothing to do with enterprise installations of SQL Server and competiton in that space with Oracle and IBM. It has everything to do with desktop applications from Microsoft and third parties which years ago bought into using the functionality of a desktop version of SQL Server which doesn’t exist yet in Vista compatible form.
The bad news: Third MS Word Code Execution Exploit Posted. The good news: Microsoft Patches Windows XP Wireless, Tells No One. I can’t explain it either.
Microsoft Corp. CEO Steve Ballmer today outlined the company’s vision for how people, armed with the right software, are the key to driving business success. Called “People-Ready,” this vision for business is the backdrop for a series of innovative solutions in new and existing categories that Microsoft will bring to market over the next year. Addressing more than 500 business customers, Ballmer showcased new business solutions and explained how they are enabled by the integration across the company’s forthcoming versions of the Windows Vista™ operating system, the 2007 Microsoft® Office system, Windows Mobile® software and the next version of Microsoft Exchange Server, as well as infrastructure offerings such as Windows Server™ 2003 and SQL Server™ 2005.
Ballmer also said the company would be aligning its global sales and marketing organization and its worldwide partner network to execute against the People-Ready vision. The company also announced a series of investments including a $500 million global marketing and sales campaign designed to broadly communicate the company’s software value proposition for business.
In a nutshell, Microsoft wants to sell more of their cash cows to businesses. There’s more by following the link and in the press Q&A, but it’s pretty turgid stuff. Mary Jo Foley has a nice round up at Microsoft Watch including an explanation of the “people-ready” part plus this gem:
In a question-and-answer session with press and analysts following his remarks, Ballmer singled out IBM as the primary target of the new people-ready campaign.
“We’re staking out a position quite different than our leading competitor. That’s IBM,” Ballmer said. “We are talking about making the people in the business making more productive. IBM is talking about a project. We’re talking about software….IBM increasingly is a services company. At the end of the day, we’re a software company.
True, but Microsoft is a software company with a number of strong services partners like Accenture. I don’t think they will be turning away folks who want more than to just buy software, but it is a talking point of sorts.
Update: IBM fires back via Reuters:
In a statement, IBM responded: “Microsoft’s marketing campaign — you can’t really call it a strategy — is Window dressing for a pitch to keep a one-size-fits-all, proprietary Windows world.
“This is a product-driven, instead of a customer-driven approach. It’s clear our survey of some 700 CEOs indicates that business process and business model innovation is what matters most to clients, and that can’t be achieved by another proprietary piece of software.”
Accenture will provide Microsoft with credit and collection services in Europe, the Middle East and Africa (EMEA) under a five-year business process outsourcing contract the two companies signed recently. Financial details of the agreement were not disclosed.
Under the terms of the contract, Accenture will manage the processes associated with receivables and collections from Microsoft’s business customers and channel partners throughout EMEA. Accenture will also provide support for Microsoft’s credit analysis, cash application, customer data management and associated business intelligence reporting processes.
The technology supporting the services consists of a sophisticated suite of enterprise resource planning (ERP), invoicing and receivables management applications all running on the latest Microsoft platform.
Accenture is a long time Microsoft partner on the selling side so it isn’t surprising that Microsoft turned to them for outsourcing, but the question is why did Microsoft feel the need for outsourcing this function in the first place? Ovum has some analysis:
We assume complexity of work was one of the drivers behind the deal. Microsoft’s indirect channel is huge. This means that management of account receivables must be a costly and time-consuming activity. The size of the contract is hard to quantify. Microsoft has 5,000 employees in general and administration, and derives 32% of its revenues from outside of the US. But certainly, this is big deal for Accenture.
And the implication, of course, is that Accenture has better tools and/or cheaper employees to handle the work.