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Hewlett-Packard Canada vs. the Department of National Defence

Ottawa is demanding the vendor repay $160 million after accusations of fraud. Lawyers and procurement specialists offer best practices to help users avoid similar disputesrn

IT procurement experts say a dispute between Hewlett-Packard Canada and the federal government over services agreements worth hundreds of millions of dollars raises important issues about how contracts should be managed.

The fallout between HP and the government was triggered by the deputy minister

of Public Works, who sent a letter to the vendor demanding it repay $160 million the government says was fraudulently invoiced. HP has refused, blaming six unidentified subcontractors it says were hired at the government’s request as part of work done for the Department of National Defence.

Earlier this year, HP disclosed in a filing to the U.S. Securities and Exchange Commission it was still owed $10 million for the DND work, which was being audited by the department’s chief of review services for suspected “”irregularities.”” The dispute may end up in civil court, but in the meantime the government has demanded HP submit records concerning $366 million in contract billings to the DND between 1991 and last year.

Organizations like Ottawa-based Partnering and Procurement Inc. (PPI) regularly assist public sector clients in establishing contracts with IT vendors. Howard Grant, PPI’s founding partner and president, said his firm has acquired in excess of $20 billion with all levels of government and done more than 300 procurement deals. In that time, he said he has never seen any inappropriate behavior, but he noted the timing of the HP dispute comes on the heels of Auditor General Sheila Fraser’s report on the mismanagement of contracts involving federal sponsorship programs.

“”The thing that’s emerged from the government’s point of view is that it seems there’s a succession of this stuff,”” he said. “”In the case of the HP one, it doesn’t matter how tight your processes are. If someone wants to commit fraud, they’re going to commit fraud.””

Grant said clients often prefer to deal with a limited number of large private sector firms, but form an umbrella contract that forces smaller firms to act as subcontractors. “”There’s some efficiency there,”” he said. “”If a company has five people working on a client site, if they get one invoice from the five people, it’s better than five separate invoices.””

Duncan Card, a lawyer with Toronto-based Ogilvy Renault, did not want to comment specifically on HP’s dispute with the government. He did say, however, that the increased specialization of IT vendors is leading to more situations where IT services agreements pull in many different firms, potentially complicating the management of the transaction.

“”Sometimes the public sector insists on dealing with one prime contractor,”” he said. “”I think public sector (organizations) all over the world are starting to reevaluate how they’re going to deal with consortia transactions, and whether the traditional one-stop-shopping solution is actually in their best interest.””

Grant said government may not have enough checks and balances to ensure certain things have been approved.

“”A client will sign off an invoice from a subcontractor. The subcontractor will send that signed timesheet or whatever it is saying that he’s done the work to, for example in this case, maybe HP,”” he said. “”(HP) has something signed by the client, so they then invoice the client. Well, the client’s signed off, so from a process point of view, they probably acted correctly.””