HP Canada on hold over unpaid $10-million DND bill

It could be many months before the federal government decides whether it is willing to pay the $10 million it owes under a product and services contract with HP Canada, spokespeople said Wednesday.

An audit is under way by the Chief

of Review Services in the Department of National Defence to investigate what DND public affairs advisor Doug Drever called “”irregularities”” in a contract initially awarded to Compaq Canada in 2000. Compaq was acquired by HP in 2001.

“”It’s going to be quite lengthy,”” he said. “”They’re very thorough. It’ll be some months.””

HP first reported the contract dispute in a filing with the U.S. Securities and Exchange Commission last September, said HP Canada spokesperson Rob Ireland. It was brought to light again on Tuesday in HP’s most recent filing.

Although the contract under dispute was originally awarded to Compaq Canada, the original relationship with DND began with Digital Equipment Corp., which Compaq acquired in 1998. The product and customer service history goes back some 10 years, Ireland said.

Drever said the contract was for repair and replacement and hardware and software. “”We’re talking about a lot of desktops, PCs and support too,”” he said. “”I’ve got a Compaq DeskPro right now. They’re everywhere. It’s not enterprise architecture, it’s not mainframe equipment of any kind as far as I know.””

Both Ireland and Drever emphasized that HP Canada has been cooperating fully with the audit and has launched an investigation of its own. While industry consolidation could create challenges around managing the two firm’s various customer relationships, Ireland said HP took great pains to ensure nothing fell through the cracks.

“”Leading up to the merger, there was a ton of planning through the clean room (where executives were sequestered to discuss strategy),”” he said. “”Our biggest customers were identified. We wanted to make sure that account executives got all the relevant documentation. It went as seamlessly as could be as expected. I don’t think this is indicative of other things that may have happened (through the merger) . . . It does make it more complicated when you’re inheriting a contract.””

The contract in question expired last year and was not renewed by Public Works and Government Services Canada (PWGSC), which handles procurement for all federal government departments.

“”A competitive procurement process to establish a replacement contract was issued,”” said PWGSC spokeswoman Irene Aguzzi, and a bridging contract was awarded to the Ottawa-based Baxter Group. Aguzzi was not certain what that contract covered.

Ireland said cost audits were a routine part of government IT procurement.

“”At any point in time, they’ve got a number of these sorts of things going,”” he said. “”They’ve got I don’t know how many audits. I’m not saying that this is exactly the normal course of business, but part of what they do is making sure that contracts are executed accordingly.””

Drever said the audit process includes a thorough scrutiny of invoices and other elements of the paper trail as well as interviews with the participants.

“”There are Treasury Board requirements that audit results be made public routinely. I’m sure that will be the case in this case,”” he said. “”We have a private sector company involved and the possibility of the RCMP looking at the issue as well.””

Ireland said the challenge for companies like HP is to continue to perform against the terms and conditions laid out by all its customers, some of which vary for government work or require additional layers of reporting.

“”The lesson to be learned is certainly you can’t take anything for granted, despite depth of relationship and length of partnership,”” he said. “”We hope that we don’t do that. Sometimes as well there’s things where we need to make sure we’re talking the same language, we’re giving people what they need. You don’t want to be guilty of a sin of omission.””

DND last year also signed a contract with IT services firm Computer Sciences Corp. worth $60 million to standardize and integrate functionality in its network operating system.

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