Oregon vs. Oracle: Settling for Less

Last week’s $100 million settlement between the state of Oregon and Oracle over a botched state health insurance website is both dismaying and illuminating.

It is dismaying because taxpayers are left holding the bag, once again, in terms of a huge loss while Oracle, initially hired to produce the site, ends up more entrenched in the state’s IT future.

The settlement is illuminating because it shows, once again, how enticing it is for entities, in this case Oregon, to stick with historically dominant vendors because doing so is often the path of least resistance—even though it’s often the path of least value, too.


Oracle Failed Oregon

In case you missed it, let me reiterate the saga. Oregon hired Oracle to set up that state’s healthcare exchange website as part of the Obamacare legislation. After several years of trying to deliver the system, the State of Oregon decided to throw the towel in the ring and signed up to have the citizens of Oregon use the highly successful Federal Healthcare.gov system. And, in 2014, the state sued Oracle, accusing the company of fraud, failing to deliver, overcharging, providing incompetent and shoddy work and submitting $240 million in false claims. Oracle countersued, saying the site was killed for political reasons.

To be clear, the citizens of Oregon never had access to an electronic healthcare marketplace until Oregon enabled its healthcare consumers to use the Healthcare.gov system provided by the federal government. This system is powered by MarkLogic.

Meanwhile, with this settlement, Oregon is now even more closely linked to a technology vendor that failed it big time. The settlement includes $60 million in “free customer service support,” the state says, and a “cost-free” 6-year license agreement for Oracle products. The agreement can be used to “significantly modernize state government’s IT systems,” the state told The Oregonian.

First off, there is nothing “free” about a botched $240 million job. What’s more, a settlement that ties Oregon to Oracle products and services fits well into Oracle’s business model of reining in customers with multi-year contracts. When it comes time to adopt new vendors or new technologies, it can be very hard for entities, especially ones similar to state governments, to extricate themselves from the old to adopt the new. The state’s press release also states that Oracle will give the state “guaranteed discounts for future purchases of Oracle software.” That sounds like more Oregon revenue for Oracle.

“When asked about the wisdom of exposing other state agencies and projects to Oracle, state officials said it would be difficult to launch an upgrade without Oracle given its dominance in the information technology business,” Jeff Manning of The Oregonian reported.

Exactly. Enterprises faced the same set of difficulties decades ago when trying to move from IBM’s dominant mainframe databases to Oracle’s relational databases which, at the time, was the better choice. Some of those entities are still working with mainframes in part, I’d argue, because change can be hard. The risk and fear of failure with technology and market shifts is perceived to be very high when in fact staying with the prior generation of technology is likely the riskiest of all strategies. In fact, if everyone stayed with the mainframes of the past, none of us would be talking about Oracle as they would be a completely unknown vendor.

Now, though, rather than have more means to make such shifts, Oregon is tied closer to Oracle as its relational database technology slips further behind next-generation database technology that more deftly integrates data and thus makes it more useable, searchable and valuable.

That the state relinquished this opportunity to get more for taxpayers, in and outside of Oregon, is sad. The federal government contributed $305 million for Cover Oregon but “may find it hard” to recoup any part of the “settlement’s ostensible value,” the Portland Tribune noted.

Oracle will pay $25 million in legal fees and $10 million for science, technology, engineering and math education in public schools, to be granted as “Oracle STEM Education Grants.” So, Oracle gets a nice PR boost, too.

What is most sad, though, is that state officials are selling this settlement as creative and saying that it’ll help the state’s IT systems. It’s hard to imagine how doubling down on technology and a vendor — which failed to deliver on an important project — can be considered creative.

Rather than be made whole by this settlement, taxpayers are left to watch Oracle and Oregon “skipping off holding hands now through the wildflowers,” the Tribune quoted a local law professor. The state and Oracle are “essentially back in business with one another,” the professor concluded.

It’s not hard to figure out who the big winner was — and will continue to be — in this scenario. It certainly isn’t taxpayers or the people of Oregon. Considering a move to the next generation may have been perceived as risky, but in fact, it was the strategy that would have delivered Oregon the healthcare marketplace they wanted for their citizens. Now, they simply have an extended relationship with the legacy vendor who already failed them.