Cisco, Westcon Pay $48 Million to Settle GSA Overbilling Allegations

The U.S. Department of Justice (DOJ) said that Cisco Systems Inc. and Westcon Group North America have agreed to jointly pay $48 million to settle allegations that they overcharged the government for technology products on certain Government Services Administration (GSA) contracts.

The government claimed that Cisco and Westcon intentionally withheld information in negotiating a GSA contract leading to artificially inflated pricing. Westcon’s Comstor business unit specializes in Cisco networking equipment.

“Contractors that do business with the United States must deal fairly with federal agencies,” said Tony West, DOJ Civil Division assistant attorney general.

“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,” he said.

As part of the settlement the government agreed to dismiss a so-called whistleblower lawsuit filed in 2004 in U.S. District Court for the Eastern District of Arkansas (U.S. ex rel. Rille v. Cisco Systems Inc., case number 04-cv-988) by Norman Rille and Neal Roberts, under the False Claims Act.

The Act, which dates to 1863, allows private citizens to sue on behalf of the government and share in any recovery.

Rille and Roberts, at the time employed by Accenture Plc., a technology consultant, charged that Cisco, Westcon, Sun Microsystems Inc., Hewlett-Packard Co., IBM Corp., Accenture and others colluded to influence the government to purchase their products.

IBM settled with the government in 2007 and HP followed suit last month, reportedly paying some $50 million to conclude the case.

“This district has been aggressively pursuing cases involving defective pricing by contractors,” said Jane W. Duke, U.S. Attorney for the Eastern District of Arkansas.

“The prices paid by government agencies for commercial products are ultimately borne by the taxpayers, and the producers and sellers of those products must be held accountable for any questionable practices,” she said.

“These reported allegations are associated with events that go back several years and in no way reflect Westcon’s business practices,” Westcon said in a statement.

“It is important to note this does not in any way affect our current government business, as Westcon maintains an active GSA contract, nor does it affect our strong relationship with Cisco. We are pleased to have this issue behind us and will continue to build on our reputation as the market’s leading specialty distributor in data center, networking, convergence, security and mobility,” the company said.

A number of government agencies were involved in the investigation and settlement of the case, including the Justice Department’s Civil Division and the Office of the U.S. Attorney for the Eastern District of Arkansas, the GSA’s Office of Inspector General, the Department of Energy’s Office of Inspector General, the Defense Criminal Investigative Service and the Defense Contract Audit Agency.