Cisco and Westcon pay $48m to settle contract complaint

Cisco Systems and distributor Westcon Group North America have agreed to pay the US government US$48 million to settle charges that they misrepresented prices in contracts with the US General Service Administration and other agencies.

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Cisco Systems and distributor Westcon Group North America have agreed to pay the US government $48 million to settle charges that they misrepresented prices in contracts with the US General Service Administration and other agencies.

The settlement resolves assertions by the US Department of Justice that Cisco and Westcon knowingly provided incomplete information to GSA contracting officers during negotiations over Westcon's contract with GSA, the DOJ said. The omission caused US agencies to pay more for Cisco products than allowed in contracting law, the DOJ said.

Contracting law requires companies doing business with the US government to disclose any discounts they give commercial customers and then offer the government the same discounts.

"Contractors that do business with the United States must deal fairly with federal agencies," Tony West, assistant attorney general for the DOJ's Civil Division, said in a statement. "When contractors provide incomplete and untruthful information to the government, we will take action to restore the integrity of the procurement process and protect taxpayer dollars."

Cisco and Westcon have been "working with the DOJ on this issue for years, and we are very pleased to resolve this matter," Cisco said in a statement.

The settlement covers a "small fraction of sales" to GSA from 1997 to 2009 and does not affect any current government business, Cisco added. Westcon has an active contract with GSA, and Westcon and other distributors continue to sell Cisco equipment to the US government, the statement said. A Westcon spokesman wasn't immediately available for comment.

As part of the settlement, the DOJ has agreed to dismiss a whistleblower lawsuit filed in 2004 in the US District Court for the Eastern District of Arkansas. In that lawsuit, two former employees of US contractors alleged a widespread kickbacks scheme among IT vendors in contracts with the US government.

Whistleblowers Norman Rille and Neal Roberts accused several IT companies of paying kickbacks to systems integrators in exchange for preferential treatment on government contracts the systems integrators were working on, or in exchange for strong recommendations to potential government customers.

On August 30, the DOJ announced a settlement in the Arkansas case with Hewlett-Packard. HP agreed to pay $55 million to settle the kickbacks charges and allegations that HP had not disclosed discounts it offered to other customers in a 2002 contract with GSA. In May, EMC agreed to pay the US government $87.5 million to settle similar charges. IBM, Computer Sciences and PricewaterhouseCoopers have also settled the Arkansas case for smaller amounts.

Accenture and Sun Microsystems continue to face lawsuits in Arkansas over the alleged kickbacks. Both companies insisted they did nothing wrong.

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