HP To Require Training For Partners In Wake Of $16M E-Rate Settlement

Hewlett Packard is implementing stiff new rules for solution providers bidding on E-Rate public sector contracts after paying the government $16.25 million to settle fraud charges involving HP partners.

HP said it will require partners bidding on E-Rate contracts to certify by December 31 that employees have been trained regarding E-Rate rules and regulations. HP also said it will provide an E-Rate Web-based interactive training module for partners.

The E-Rate government program, which is overseen by the Federal Communications Commission (FCC), provides Internet access for needy schools and libraries.

As part of the settlement, HP has agreed to pay the government $16.25 million, most of which the government said will be returned to the E-Rate program.

The stepped up government E-Rate partner watch comes after a government investigation found that two Houston HP solution provider partners, Analytical Computer Services and Micro System Enterprises (MSE) Inc., provided gifts to Houston and Dallas school officials in order to win government contracts. Acting on tips from whistle blowers, the FCC and the U.S. Department of Justice investigated allegations that HP solution providers "working with HP and other companies lavished gifts on Dallas Independent School District and Houston Independent School District personnel in order to get contracts that included some $17 million in HP equipment," according to an FCC statement.

The government said the gifts included meals and entertainment such as tickets to the 2004 Super Bowl and trips on a yacht. Those gifts were provided by the solution providers to "get inside information and win contracts that were supposed to be awarded through a competitive bidding process," according to the FCC.

The government also said it had settled two whistle blower lawsuits regarding the alleged contract violations.

Under the terms of the settlement, whistle blowers Dan Cain and Pamela Tingley, who brought a civil suit against HP solution provider MSE, will receive $1.42 million. Separately, Dave Richardson and Dave Gillis, who brought the lawsuit against HP solution provider Analytical Computer Services, will receive $796,280.

The two lawsuits were filed under the False Claims Act’s whistle blower provisions, which permit private parties to sue companies for false claims on behalf of the United States and share in any recovery.

Next: HP Partners React To The E-Rate Changes

HP, for its part, pointed out that the activities at the center of the investigation occurred more than five years ago. Furthermore, the company said, the partner relationships have been terminated and the HP employees involved are no longer with the company.

HP said in a statement to CRN that it "requires that all employees and partners adhere to lawful and ethical business practices."

John Convery, executive vice president of vendor relations and marketing for Denali Advanced Integration, one of HP's top public sector partners, said HP and its channel have a stellar reputation for integrity in the public sector market. "Our channel has a reputation for high ethical standards," he said. "Sometimes a few rotten apples can spoil it for the good of all."

That said, Convery welcomed the additional E-Rate training. "I think the more they do with training is good for partners," he said. "We expect our people to take the training and adhere to it and play by the rules. An employee doing something unethical wouldn't last a nanosecond at our company."

As part of the government settlement, the FCC will oversee a compliance agreement with HP. Under the terms of that agreement, HP must distribute by December 15 to each E-Rate solution provider a copy of the Gift Rule restricting gift giving to any E-Rate customer.

In addition, HP must roll out sometime between Feb. 2, 2011 and April 20, 2011 a mandatory annual interactive Web-based training module for E-Rate partners; the module is 90 minutes long.

’The FCC’s compliance agreement with HP ensures that HP will train its employees thoroughly on the FCC’s gift and other E-Rate rules, and provides for audits of HP’s E-Rate business,’ said Austin Schlick, general counsel of the FCC in a prepared statement. ’If HP fails to monitor its E-Rate activities closely and abide by E-Rate Program requirements, it will face substantial penalties.’

The FCC has also taken other steps aimed at preventing E-Rate fraud. In September the agency adopted "an order that bolsters and clarifies the prohibition against E-rate applicants soliciting or receiving gifts, and against service providers offering or providing gifts." The FCC said it also "codified additional rules to ensure a fair and competitive bidding process."

One HP solution provider partner that did not want to be identified said the rules around gift giving -- in the case of both public sector and commercial businesses -- have gotten a lot stricter in the last five years. "Five years ago it was nothing to give someone a $100 ticket to go to a game," he said. "Today people are not accepting that. They are making sure it is a valued relationship. You've got to be very careful today. You don't want to do something stupid."