04/16/2009

News / GSA Contractor NetApp Agrees to Pay U.S. $128 Million to Resolve Contract Fraud Allegations

WASHINGTON – The United States has reached a settlement with NetApp Inc. and NetApp U.S. Public Sector Inc. (collectively NetApp), following an investigation of alleged false claims and contract fraud, the Justice Department announced today. NetApp has agreed to pay the United States $128 million, plus interest. This is the largest contract fraud settlement the General Services Administration (GSA) has obtained to date.

The settlement relates to contracts entered into by NetApp, a computer storage and data management solutions company, to sell hardware, software and storage management services for computer network environments to government entities through GSA’s Multiple Award Schedule (MAS) program. The MAS program provides the government and other GSA- authorized purchasers with a streamlined process for procurement of commonly-used commercial goods and services. To be awarded a MAS contract, and thereby gain access to the broad government marketplace and the ease of administration that comes from selling to hundreds of government end users under one central contract, contractors must agree to disclose commercial pricing policies and practices, and to abide by the contract terms when selling to purchasers under the MAS contract.

The settlement resolves allegations that in contract negotiations and over the course of the contracts’ administration, NetApp knowingly failed to meet its contractual obligations to provide GSA with current, accurate and complete information about its commercial sales practices, including discounts offered to other customers, and that NetApp knowingly made false statements to GSA about their sales practices and discounts. The settlement further resolves allegations that NetApp knowingly failed to comply with the price reduction clauses of their GSA contracts by failing to disclose to GSA discounts NetApp gave to its commercial customers when they were higher than the discounts that NetApp had disclosed to GSA, and by failing to pass those discounts on to government purchasers. Because of these allegedly fraudulent dealings, it is alleged that the United States accepted lower discounts and paid far more than it should have for NetApp products.

"This settlement shows that the United States will not tolerate misconduct in the pricing of government contracts," said Michael F. Hertz, Acting Assistant Attorney General for the Department of Justice’s Civil Division.

The settlement resolves the lawsuit filed on behalf of the U.S. government by former NetApp employee, Igor Kapuscinski, who will receive a $19,200,000 share of the recovery in the case. Under the False Claims Act, private citizens can bring suit on behalf of the United States and share in any recovery obtained by the government.

"Especially in these difficult economic times of stretched government budgets, we will ensure that government contractors provide the government with the price it has been promised and all of the discounts to which it is entitled," said Jeffrey A. Taylor, U.S. Attorney for the District of Columbia.

This settlement was the result of a coordinated effort by the Department of Justice, Civil Division, Commercial Litigation Branch; the U.S. Attorney’s Office for the District of Columbia; and the General Services Administration, Office of Inspector General, in investigating and resolving the allegations.

This case was investigated as part of a National Procurement Fraud Initiative. In October 2006, the Deputy Attorney General announced the formation of a National Procurement Fraud Task Force designed to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in government contracting activity for national security and other government programs. The Procurement Fraud Task Force is chaired by the Assistant Attorney General for the Criminal Division and includes the Civil Division, the U.S. Attorneys’ Offices, the FBI, the U.S. Inspectors General community and a number of other federal law enforcement agencies. This case, as well as others brought by members of the task force, demonstrate the Justice Department’s commitment to helping ensure the integrity of the government procurement process.

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