HP agrees to pay $55 million to settle gov't fraud charges

Two whistleblowers had alleged widespread IT contracting fraud in a 2004 lawsuit

Hewlett-Packard will pay the U.S. government US$55 million to settle allegations that it defrauded the U.S. General Service Administration and other agencies by paying kickbacks to systems integrators in exchange for recommendations that agencies purchase HP products, the U.S. Department of Justice announced Monday.

The settlement also resolves government claims that a 2002 contract HP had with the GSA was defectively priced because the company provided incomplete information to GSA contracting officers during negotiations, the DOJ said.

The HP settlement is part of a huge investigation the DOJ launched after whistleblowers Norman Rille and Neal Roberts filed a lawsuit in the U.S. District Court for the Eastern District of Arkansas in 2004. The lawsuit centered on alleged improper payments and illegal rebates made by HP, Sun Microsystems and Accenture, but the lawsuit named dozens of IT companies allegedly involved in giving or receiving kickbacks.

The HP settlement is the second-largest of five settlements resulting from the lawsuit. In May, EMC agreed to pay the U.S. government $87.5 million to settle similar charges.

HP had announced a potential settlement in early August. The company denies any illegal activity. "We believe it is in the best interest of our stakeholders to resolve the matter and move beyond this issue," an HP spokeswoman said.

Among the Accenture partners named in the 2004 lawsuit were Cisco Systems, Microsoft, IBM, Dell and Oracle. In April 2007, the DOJ joined the lawsuit brought by Rille, a former manager for Accenture, and Roberts, a former partner at PricewaterhouseCoopers (PWC). Under the U.S. False Claims Act, private citizens can file lawsuits for fraud on behalf of the U.S. government and share in the recovery of funds.

"Contractors must deal fairly with the government when doing business with federal agencies," Tony West, the assistant attorney general for the DOJ's Civil Division, said in a statement. "As this case demonstrates, we will take action against those who seek to taint the government procurement process with illegal kickbacks."

In 2002, HP entered into a contract with GSA to sell computer equipment and software to federal agencies. Under applicable regulations and contract provisions, HP was required to tell GSA how it conducted business in the commercial marketplace so that GSA could use that information to negotiate a fair price for government customers, the DOJ said.

HP informed GSA contracting officials in 2007 that it may not have complied with all of the provisions of the contract. The disclosure led to an audit by the GSA Office of Inspector General, which concluded that the contract had been defectively priced.

"Americans deserve the best deal possible when their hard-earned tax dollars are used," GSA Inspector General Brian Miller said in a statement. "We will aggressively pursue companies that overcharge the government."

The DOJ has settled similar kickback allegations with IBM for $2.9 million, Computer Sciences for $1.4 million and PWC for $2.3 million. The same allegations were a part of the $87.5 million settlement with EMC. The EMC settlement also settled defective pricing claims found through an audit by the GSA.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.

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Grant Gross

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