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Cloud Based Service Provider Reaches Settlement for Failing to Update Pricing and Disclose Discounts to Federal Government

VMware aHedge-Fund-Manager-Holding-Moneynd Carahsoft Technology Corp. reached a settlement of $75.5 million with the General Services Administration (GSA) on Tuesday, June 30. This settlement resolves allegations made by a former Vice President at VMware that the companies violated the False Claims Act (FCA). The whistleblower alleged that the cloud service providers overcharged the federal government for software products and related services from 2007 through 2013. Although VMware still asserts that the allegations are false, they have agreed to pay the settlement money in order to put an end to the lawsuit.

VMware and Carahsoft submitted inaccurate information regarding pricing to the federal government. They did not properly disclose required information to the GSA and did not submit complete information about the sales of their products to non-governmental customers. By concealing price levels, the companies reselling VMware products and Carahsoft services overcharged the government for seven years. The lawsuit alleged that, through these fraudulent actions, the government paid more than private companies for the same services. The discount offered by VMware and Carahsoft was 12 percent, which was below the deal it offered to commercial customers of a similar size. In fact, the discount deal was even less than VMware offers customers in foreign governments.

The claims of the lawsuit alleged that the companies failed to update their pricing over time and disclose discounts offered to commercial customers, as required by the GSA’s Multiple Awards Schedule (MAS). The GSA is a federal agency that handles logistics and office space for other parts of the government. Under the MAS Program, prospective vendors agree to disclose commercial pricing policies and practices to the GSA in exchange for the opportunity to gain access to the broad federal marketplace and the ease of administration that comes from selling to any government purchaser under one central contract. The GSA regulations require that during negotiations with GSA, prospective vendors seeking an MAS contract make current, accurate and complete disclosure of the standard and non-standard discounts they offer to commercial customers. The GSA relies on the accuracy of these disclosures in order to negotiate fair pricing for government purchasers. Additionally, after the MAS contact is awarded, regulations required that MAS program vendors disclose to the GSA any changes in their commercial pricing practices, including improved discounts that are offered to commercial customers, after the MAS contract is in place. Contractors must be very transparent in the disclosure of their discounts and prices offered to commercial customers in order for the GSA MAS program to be the most effective.

The former vice president of VMware, Dane Smith, brought the case as a whistleblower on behalf of the federal government. Under the qui tam provisions of the False Claims Act, a whistleblower can sue a company on behalf of the government. He accused the two companies of making false statements to the federal government in regards to the pricing of their products. He filed the lawsuit against the companies in 2010, alleging that he was unfairly terminated. He claimed to have even feared for his life after raising concerns to his superiors that the company was violating federal law by charging the government more than its commercial clients. Although this settlement resolves that lawsuit, Smith’s share of the recovery hasn’t yet been determined.

VMware, a market leader in cloud-based virtualization technology, is one of the largest software companies in the world, with more than $6 billion in revenue last year. The company is based in Delaware. The corporation, which has its principal place of business in Palo Alto, specializes in computer virtualization software. Carahsoft Technology Corp. is one of VMware’s reseller partners. Carahsoft is a privately held Maryland corporation that distributes information technology products to federal, state and local governments. Its principal place of business is in Reston, Virginia.

This settlement is one of the five largest recoveries against a technology company in the history of the False Claims Act, according to Cotchett, Pitre, & McCarthy, the prosecuting law firm in this case. This settlement demonstrates the government’s persistent surveillance of corporations attempting to defraud the federal government. The attorney general will continue to ensure that those doing business with the government give the taxpayers a fair deal. Government contractors who attempt to profit from the government through fraudulent acts will be punished accordingly.

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