At a Denver City Council Finance and Governance Committee meeting in February of this year, Scott Cardenas, Chief Information Officer for Denver Technology Services, had a costly and embarrassing confession to make.
Denver had violated its licensing agreements with Oracle Corp. and in order to set matters right agreed to a nearly fourfold increase for the 2017 licensing fees the city pays to the California-based enterprise software and computer hardware products and services company.
What makes the City of Denver’s Oracle fail so noteworthy is not the specter of a major Oracle client overusing its software privileges. In fact, such licensing violations are quite common among Oracle’s large corporate and government clients.
It’s the public nature of Denver’s misstep that is unusual. Typically, when Oracle catches one of its licensed users operating outside the boundaries of its license, Oracle negotiates a settlement – or new contract – behind closed doors, where the terms remain shielded from public view.
Veteran Denver investigative journalist Brian Maass, who reports for the local CBS affiliate, KCNC-TV, broke the Oracle settlement story late last month. Using open records requests, Maass obtained hundreds of pages of back-and-forth emails between the city and Oracle discussing the matter.
According to KCNC, a Denver-area technology sales manager at Oracle warned the city last December that it faced a potential $10 million penalty for overuse.
Like the Highway Patrol, Oracle profits when motorists
exceed the limits – knowingly or unknowingly.
Talk about being caught between a rock and a hard place. If Denver didn’t capitulate to Oracle’s settlement offer – raising its 2017 fees from $1 million to $3.9 million – the city faced the grim prospect of being hit with $10 million in penalties and having to try to replace its reliance on Oracle products and services. Replacing an established Oracle system is a Herculean task that for many established Oracle users is next to impossible.
CBS’s Maass reported that he repeatedly requested an explanation of “precisely how the City of Denver got out of compliance with its software licensing and how far out of compliance the city had been.” But, according to Maass, Denver’s Cardenas declined to say.
By now, the city and its officials likely understand the nature of their error and Cardenas has pledged to look at Denver’s processes “and make sure they get better and better.”
Yet, truth be told, it comes as no surprise that Denver found itself in such an awkward and costly position. Many Oracle users, perhaps even most, don’t fully understand the restrictions that their licenses place on them. Moreover, given the constantly evolving nature of software and hardware – which can have a significant impact on compliance with Oracle’s license agreements – most users do not have the in-house knowhow and discipline to avoid overstepping their licenses.
While Oracle is not alone among major software providers – including IBM, Microsoft, and SAP – in auditing and cracking down on customers who exceed the limits of their licenses, Oracle does have an industry-wide reputation for being among the most aggressive companies when it comes to enforcing its rights and extracting additional payments from its clients.
Aggressive or not, at the end of the day, Oracle is only acting in accordance with the contract the company signed with its clients, such as the City of Denver.
I liken this dynamic to the highway speed traps you’ll find in most urban centers, which are situated where the Highway Patrol knows drivers are most likely to zoom by their hidden radar guns. Motorists should know the posted limits and can avoid being ticketed and fined if they remain within those limits. Like the Highway Patrol, Oracle profits when motorists exceed the limits – knowingly or unknowingly.
In the enterprise software universe, it is the responsibility of clients to be aware of their contracts’ rules and limitations, and to take the necessary precautions to remain in compliance and avoid penalties or costly contract renegotiations.
We at The Software Consulting Group operate from the premise that it’s always advisable – and cost efficient – to conduct an internal audit of the kind we regularly execute, before a vendor audit becomes necessary. Doing so allows Oracle users to correct and greatly limit their liabilities for exceeding the terms of their licensing contracts.
It is fair to say that had City of Denver officials turned to SCG to review their Oracle contract and compliance, the people of Denver could have saved millions of dollars – monies that could be put to greater municipal uses than making amends with Oracle.