The US Department of Justice and the US Attorney for the District of South Carolina said Tuesday that Gateway had not honoured contractual price-reduction obligations over the delivery of computer systems, and that it had launched an investigation to determine the extent of the alleged overcharging.
In a brief statement Tuesday, Gateway said it chose to settle with the government in order to avoid the time and expense of going to court.
"We have admitted no wrongdoing and the federal government continues to be one of our most valuable customers," Gateway officials said.
The computer maker entered into a contract with the General Services Administration (GSA) -- the federal agency in charge of managing government office space and negotiating with contractors for services and products -- in which certain terms were set for the purchase of computers and computer components. The agreement said that the government would enjoy any price reduction set by Gateway from the period of May 1994 through March 1997.
"It is absolutely essential that contractors comply with government contract requirements and monitor closely their compliance with those requirements," said David Ogden, assistant attorney general of the civil division, in a statement.
The government, however, charged that Gateway did not set up any type of monitoring system to guarantees compliance with the contract up to January 31, 1997. After that time, Gateway developed what the government termed "an inadequate system" to handle orders from the end of January to the end of the contract in March of 1997.
The government said Gateway routinely failed to provide the price reductions.
"With this settlement, the United States will recoup the substantial overpayments to Gateway which were initially borne by the tax payers," said Ted McBride, US attorney, in a statement.
Gateway issued a brief statement regarding the agreement.