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SAP protest of Oracle contract called standard procedure

SAP is protesting an $88.5 million contract awarded to Oracle Corp., to install a combat support system for the U.S. Air Force. The protest delays Oracle's revenue gains.

SAP is filing a formal protest of an $88.5 million contract awarded to rival Oracle Corp., to install a U.S. Air Force combat support system.

In this case, there is no real downside for SAP. Anything that SAP can do to delay Oracle's ability to recognize revenue is worth the effort.
Jim Shepherd,
vice president of researchAMR Research Inc.

The protest, filed with the Government Accountability Office (GAO) last month, claims the U.S. Air Force evaluation team's criteria relied too heavily on cost. Oracle outbid SAP and was awarded the contract to install the U.S. Air Force Expeditionary Combat Support System.

Industry experts said the protest is a standard procedure for government agency purchases. SAP said in a statement that Air Force evaluators weighed cost much higher than lowest risk and software stability.

"The evaluation criteria stated that the U.S. Air Force wanted a 'best value' solution based on mission capability and lowest risk, which, when combined, are significantly more important than price," SAP said in a statement. "According to the written evaluation issued by the U.S. Air Force after award of the contract, SAP far exceeded Oracle in the required mission capability criteria and was rated the lowest risk offer."

The company filed the complaint to the nonpartisan government watchdog agency through its subsidiary, SAP Public Services Inc.

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Oracle's long-standing contract associated with the U.S. Air Force Expeditionary unit is more than five years old and includes licensing for nearly 90,000 users and a contract for Oracle database, application server and the E-Business Suite.

While protests of government contracts are common, the contract award is put on hold while the GAO conducts an investigation.

"In this case, there is no real downside for SAP. Anything that SAP can do to delay Oracle's ability to recognize revenue is worth the effort," said Jim Shepherd, vice president of research at Boston-based AMR Research Inc.

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Meanwhile, SAP continues to have success with the Department of Defense and has long-standing contracts with the Army, Navy and the Marine Corps, according to Shepherd. Losing a contract to Oracle in this case is not a setback, he said.

According to the Air Force, the $88.5 million contract consists of a base year and five one-year options. In the contract award announced Oct. 20, the Air Force said the project's goal is to eliminate legacy systems by providing ERP, advanced planning and scheduling products for the Air Force-wide combat support system program. Research for the project began in May 2004.

Despite its higher bid, SAP said its proposal "eliminated the need for substantial software and labor costs during the life of the program to meet basic customer requirements."

"SAP firmly believes that the Oracle proposal does not reflect the best value and lowest risk solution, and that the SAP offering is the superior solution for the U.S. Air Force," said Steve Peck, president of SAP Public Services Inc., in a statement. "We look forward to a formal review of the process, procedures and selection criteria for this award."

In a statement, Oracle called the Air Force's evaluation "exhaustive," and that its relationship with the Air Force has been long-standing.

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