IBM, PWC pay up to settle contracting kickback charges

Whistle-blower lawsuits result in companies agreeing to fines totaling $5.3M

The U.S. Department of Justice announced Thursday that IBM and PricewaterhouseCoopers (PWC) have separately agreed to pay $5.3 million to settle allegations that they joined with other vendors in receiving and making improper payments to one another while working on technology contracts with federal agencies.

IBM will pay just under $3 million and PWC will pay $2.3 million as part of the settlements. The allegations of improper contracting practices stem from a group of whistle-blower lawsuits that were filed in U.S. District Court in Arkansas in September 2004. The lawsuits, filed by workers at PWC and Accenture LLP, claimed that those two companies and other prominent IT vendors engaged in a multimillion-dollar kickback scheme involving work on numerous government contracts.

The DOJ, which in April joined three lawsuits targeting Accenture, Hewlett-Packard Co. and Sun Microsystems Inc., said today that IBM and PWC knowingly requested or made kickback payments under so-called alliance benefits programs.

The payments were shared between IT vendors and systems integrators in exchange for preferential treatment in dividing up government contracts, according to the DOJ, which has said that any rebates or discounts given by one vendor to another should have been passed along to the government.

Despite agreeing to the settlements, both IBM and PWC continue to deny the allegations.

"IBM did not engage in any kickbacks, false claims or any other illegal conduct," IBM spokesman Fred McNeese said. He added that IBM officials are "not going to discuss the reasons for the settlement."

In a statement, PWC said the settlement covers the actions of its consulting business unit, which was sold to IBM in October 2002. "PWC believes that the allegations of the complaint characterizing conduct as 'kickbacks' are completely without merit," the statement said. But, it continued, the company "chose to settle the case, without any admission of wrongdoing, in order to avoid the expense, distraction and uncertainty of litigation."

In April, Accenture and HP also denied any wrongdoing as part of the alleged alliance benefits program. Sun said last month that it was cooperating with the government's investigation and that it is "proud of what we have achieved for the American taxpayer."

The lawsuits allege that a cozy relationship existed between the systems integrators that were hired by federal agencies to oversee large IT projects and the technology vendors that worked with them on the contracts. Court documents accuse the companies of exchanging millions of dollars in illegal rebates and other payments since the late 1990s.

The companies also failed to disclose conflict-of-interest relationships that resulted from the payments, the DOJ claimed today.

"The payment of kickbacks or illegal inducements undermines the government procurement process," Peter Keisler, assistant attorney general in the DOJ's civil division, said in a statement. "The Justice Department is acting in these cases and in the overall investigation to protect the integrity of the procurement process for technology products and services."

Ben Ames of the IDG News Service contributed to this report.

Copyright © 2007 IDG Communications, Inc.

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