Two big government IT vendors are paying a $75.5 million settlement after overcharging the government according to new information released by the Department of Justice. Both companies are facing allegations that they violated the False Claims Act by misrepresenting their commercial pricing practices and overcharging the government on VMware software products and related services.
According to the complaint filed against both companies, VMware and Carahsoft made false statements to the government in connection with the sale of VMware products and services under Carahsoft’s MAS contract. These false statements allegedly concealed the companies’ commercial pricing practices and enabled the companies to overcharge the government for VMware’s products and services from 2007 through 2013.
The $75.5 million settlement will resolve the claims.
The settlement comes as the result of a lawsuit resulting from a whistleblower claim filed in the Eastern District of Virginia by Dane Smith, who is a former vice president of the Americas at VMware Inc. Mr. Smith’s share of the recovery has not been determined.
“Government contractors who seek to profit improperly at the expense of taxpayers face serious consequences,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Department of Justice’s Civil Division, in a statement announcing the settlement.
According to information in the complaint, private sector clients of both companies were getting significantly greater discounts on products and services than the government. Public sector clients were getting a 12 percent discount on services that were discounted some 70 percent for private sector clients. In fact, even foreign governments were getting bigger discounts than the US government.
Not surprisingly, consultants for both companies were also advising US government clients to buy more software than they needed – a practice fairly common throughout the procurement process, leading to the spaghetti tech that plagues public sector. In the complaint, investigators allege that both companies made materially false statements about the capabilities of their software in order to up-sell buyers. Senior executives at both companies were also allegedly aware of this practice.
**Complaint supplied by IDG News Service