SAP faces probe in the US over alleged price fixing in government contracts

German software giant SAP is under investigation by US officials for allegedly conspiring to overcharge the US government for its technology products over the course of a decade.

The probe, led by the Department of Justice (DOJ), is focused on whether SAP and its reseller, Carahsoft Technology, colluded to fix prices on sales to the US military and other government entities, a Bloomberg report said.

According to the report, DOJ lawyers have been investigating SAP since at least 2022, reviewing whether the company “illegally conspired with Carahsoft to fix prices” on SAP technology used by the US government. Federal agents have searched Carahsoft’s offices in Washington, DC, and the DOJ is reviewing court records filed in Baltimore.

The investigation centers on more than $2 billion worth of SAP technology purchased by US government agencies since 2014. Federal prosecutors are also examining the role of other software resellers in potential market manipulation.

While SAP is at the center of the investigation, Carahsoft Technology, one of its key resellers, is also facing scrutiny. Carahsoft, which has the second-highest value of IT contracts with the US government since the beginning of fiscal 2020 — totaling $3.5 billion — was reportedly raided by FBI agents and military investigators earlier this week.

“Carahsoft received more than 600 federal contracts for SAP tech worth more than $990 million and ‘facilitated’ as much as $1 billion more in additional sales,” the report said citing prosecutors’ statement in court filings, adding, it is unclear what portion of these sales prosecutors believe might have been shaped by bid rigging.

Agents were seen removing computers and documents from Carahsoft’s Virginia offices and served multiple subpoenas, including one related to a False Claims Act case, the report added.

This isn’t the first time SAP has faced legal challenges related to its business practices. Earlier this year, the German software developer agreed to pay $222 million to settle allegations of bribery schemes in seven countries.

“SAP paid bribes to officials at state-owned enterprises in South Africa and Indonesia to obtain valuable government business,” Nicole M. Argentieri, Acting Assistant Attorney General of the Justice Department’s Criminal Division then said in a statement.

While that case was unrelated to US government contracts, it underscores the increasing scrutiny SAP faces globally over its compliance and business practices.

“The ongoing investigation into SAP and Carahsoft for potential price-fixing may affect their market reputation, prompting federal agencies and organizations to enhance due diligence and transparency in procurement, potentially with third-party support,” said AS Yamohiadeen, practice director at Everest Group.

Besides, the DOJ investigation raises questions about Carahsoft’s role in selling SAP products to federal agencies, particularly the Department of Defense, and whether both companies engaged in bid-rigging and price fixing to inflate government contract prices.

“As a rule, we do not comment on ongoing legal proceedings including those concerning other companies,” an SAP spokesperson said.

Carahsoft did not immediately respond to a request for comment.

Legal and market implications

The investigation is particularly concerning for SAP, which has a long history of providing software solutions to the US government. With the DOJ scrutinizing potentially illegal practices, SAP risks significant financial penalties and reputational damage that could affect future federal contracts.

In addition, the probe into SAP and Carahsoft’s activities could have wider implications for government procurement in the IT sector. Federal agencies rely on vendors like SAP to deliver critical technology infrastructure, and any proven malfeasance could prompt stricter regulations and greater oversight of pricing practices for government contracts.

According to Yamohiadeen, the impact will largely depend on existing investments and relationships, as “high vendor lock-in can make switching vendors challenging.” “Historically, similar investigations have occurred in the industry and have often resulted in settlements that create win-win scenarios for both parties,” he added.

The civil probe could take time to unfold, but the stakes are high for both SAP and Carahsoft. As one of the largest technology vendors to the US government, SAP is navigating a delicate situation that could have long-term consequences for its standing in the federal IT procurement market.

Carahsoft, meanwhile, finds itself under heightened scrutiny for its role as a reseller of SAP technology and other IT products.

According to Bloomberg, the DOJ is investigating other software resellers and entities involved in SAP’s federal contracts, signaling that the scope of the investigation may expand beyond the two companies initially named.

As the investigation continues, both SAP and Carahsoft could face serious legal and financial repercussions if evidence of price fixing, or collusion is uncovered.