Channel Cronyism Vs. CorruptionBy Michael Vizard | Posted 2009-03-05 Email Print
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Several vendors are facing government accusations that they used kickbacks to influence federal contracts, resurfacing suspicions of corruption in the channel. Now is not the time to follow the money blindly.
Justified or not, there are more than a few people in this industry that think the channel engages in shady business practices on a regular basis.
Adding some real fire to a concern that has usually been made up of more smoke is an allegation of misdeeds involving government contracts that has ensnared Accenture, EMC and NetApp.
It’s way too early to say whether the case has any actual merit. But the mere fact that the accusations are being leveled taints the reputation as a whole. The U.S. government is alleging that EMC paid kickbacks to companies such as Accenture to make sure its products were included in several government contracts. Worse yet, the U.S. government is claiming that EMC charged the government higher prices for those products than comparable private-sector contracts.
NetApp, meanwhile, has agreed to pay the government $128 million to resolve allegations that it also charged the government more for products than they would have normally cost under a comparable private-sector contracts.
Apparently, the government has a number of these types of cases pending against technology vendors. It’s not the first time this type of thing has happened around government contracts, and it most certainly won’t be the last.
But with a new administration in office that has a greater zeal for regulation and oversight; chances are pretty good that more deals going through the channel are going to run afoul of the law. The fact is that there is not a whole lot of oversight applied to most IT contracts. This creates a huge opportunity for abuse. It’s also true that there is a whole lot of cronyism that goes on involving vendor sales representatives, solution providers and end customers. In the eyes of the law it’s sometimes very difficult to distinguish between a bunch of buddies who play golf on a regular basis and a conspiracy to consistently rig contracts with favorable terms in return for perks that have actual monetary value.
In the wake of major financial scandals, prosecutors ranging from New York State’s Andrew Cuomo down to assistant district attorneys in the most remote counties of the United States are looking to make names for themselves by rooting out financial corruption. And with various whistle-blower statutes on the books that actually pay people to alert the government about financial misdeeds, you can bet that the number of people in this economy that are willing to provide evidence is only going to climb.
In these tough times, it’s easy to get caught up in the idea of pursuing revenue at all costs. But senior managers at solution providers would be doing themselves and their investors a major favor by applying a little more scrutiny around how certain deals are constructed, especially when they know those deals are derivatives of special relationships that have been built by their salespeople.
The vast majority of the business that goes through the channel is legitimate. And most salespeople don’t start out with the intention of violating the law. But without supervision, it doesn’t take much for salespeople to find themselves unwittingly violating the letter of the law and then making it worse by trying to cover it up.
Of course, more than a few managers figure they might be just better off not knowing exactly how some deals do come together. But in this economic and legal climate, what you don’t know can really hurt you.