The US General Services Administration (GSA) has announced an agreement with Oracle it claims offers a 75 percent discount on the vendor’s license-based technology.
However, experts have pointed out that heavy discounts are commonly offered to Oracle customers, and a 75 percent discount might not be as good as it sounds. Big Red can lock customers into deals stipulating that any attempt to reduce Oracle usage can see discounts disappear and prices rise.
As part of the arrangement, the GSA has agreed to other base discounts for Oracle Cloud Infrastructure (OCI) services including the vendor’s latest database, Oracle Database 23ai. The agreement eliminates data egress fees and provides pricing parity with commercial offerings, a statement said. The Register has asked the GSA how this was benchmarked.
In 2023, analysis by IT procurement consultant Michael Garland found that Oracle and Microsoft get at least 25 percent and 30 percent of their respective government revenue through purchase processes that are not competitive, collectively benefiting by $10-15 billion annually.
Departments across the federal government buy from Oracle. The bulk of the spending comes from the Department of Veterans Affairs, with contracts worth $7.5 billion, and the Department of Defense, with contracts worth $1.45 billion, according to federal government data.
The GSA said the OneGov agreement with Oracle would offer federal departments white-glove migration services and support credits, enabling seamless digital modernization.
“The Trump administration is focused on acquiring cutting-edge commercial technologies to modernize federal systems at scale,” said GSA acting administrator Stephen Ehikian. “This landmark agreement with Oracle marks a major step forward in that mission. Oracle’s advanced database, cloud, and AI solutions deliver unmatched speed, security, and scalability – core capabilities for transforming how government manages and secures sensitive data.”
Federal Acquisition Service Commissioner Josh Gruenbaum said: “We appreciate Oracle’s collaboration and alignment with our mission to deliver meaningful savings for the American taxpayer. Through OneGov, GSA is reshaping the federal marketplace – driving down software costs and leveraging the full buying power of the government to secure the best possible value.”
The GSA said the agreement offered a discount of $0.33 for every $1 used on eligible Oracle Cloud services to cover Oracle technology and technical support, and established pricing based on the volume of the entire government rather than individual departments.
However, Oracle licensing advisors said the level of discounts provided by the OneGov deal was far from exceptional compared to similar arrangements in business.
“Oracle is known to offer steep discounts to achieve customer lock-in,” said Nick Walter, CTO and vice president of licensing and commercial advisory company House of Brick Technologies. “The discounts are typically fleeting, in this case expiring in just a few months, but the ongoing stream of cloud costs and software support costs will net Oracle significant revenue over the years.”
Walter said the true costs of Oracle contracts were usually hidden in the long-term payment stream that Oracle will lock a customer into.
“Oracle usually has repricing penalty clauses built into the contracts for software, which means attempts to reduce the usage and ongoing costs will trigger contractual traps. For many customers, it’s nearly impossible to reduce the payments to Oracle without walking away from their software entirely, a daunting prospect that requires significant refactor efforts.
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“Oracle’s technology is pretty good, but their sales strategies and contracts are top-notch at locking customers into long-term costs that are painful to avoid.”
Craig Guarente, president and founder of Oracle licensing advisory firm Palisade Compliance, said the OneGov agreement was a shrewd move by Oracle because it makes it easier for agencies to buy its software and services.
“This will be most important for smaller transactions. Larger contracts will almost never use these contractual discounts. Most Oracle ULAs end with discounts from 96-99 percent so a 75 percent discount on software is not as good as it seems. The key for this one is the cloud contractual discount, which has not been made public. I would expect that to be about 30 percent.”
Guarente pointed out that Oracle has had a run-in with GSA before. In 2010, the US Justice Department sued the company, claiming the software giant overcharged the federal government by “tens of millions of dollars” after an Oracle employee alleged that large discounts offered to other customers were hidden from government agencies. A few months later, it filed a second complaint against Oracle under the False Claims Act. Both claims involved GSA pricing.
Big Red later succeeded in getting the DoJ to dismiss part of the claim, while the two sides later settled on the remaining claims.
“Hopefully Oracle won’t have the same compliance challenges this time around,” Guarente said.
The Register has asked Oracle to comment. ®
