KitzhaberCoverOregon_Cooper.JPG

Gov. John Kitzhaber wants the state to sue Oracle Corp. for its failure to deliver a finished, functional health exchange.

(AP Photo/Jonathan J. Cooper)

Oregon's long-simmering feud with Oracle Corp. is about to break out into open warfare.

Gov. John Kitzhaber

Attorney General Ellen Rosenblum to initiate legal action against the giant information technology company for its central role in the state's bungled effort to build a health insurance exchange. The state has paid Oracle well over $130 million for the exchange, which never operated as intended.

"There is ample cause there to file a lawsuit," Kitzhaber said. "We were not delivered a product that worked and we certainly weren't delivered a product on time."

Kitzhaber also reached out to officials in Washington, D.C. asking them to act against Oracle. In a

he asked the U.S. Department of Health and Human Services to "levy the appropriate fines and penalties" against the company. He also asked Oregon's two U.S. senators, Ron Wyden and Jeff Merkley to use their clout against Oracle.

It promises to be a difficult case. With $37 billion in annual revenue, Oracle is a deep-pocketed foe. That the company failed to deliver a functional product is well documented. But several poor decisions by state managers contributed to the mess. Opting not to hire an experienced technology company to serve as systems integrator, a sort of general contractor overseeing the project, was a big mistake, Kitzhaber conceded.

Also, the state signed Oracle to so-called "time and materials" contracts that typically didn't require Oracle to deliver anything specific. "There is no question that the failure to hire a system integrator and the use of time-and-material contracts contributed significantly to the culpability on the state side, and we have taken steps to address that," Kitzhaber said.

The state has not taken legal action earlier because it was concentrating on getting people enrolled under the Affordable Care Act using a hybrid manual process and reorganizing and restructuring Cover Oregon, the public corporation that oversees the health insurance exchange, the governor said. Kitzhaber has installed new leadership at Cover Oregon and at the Oregon Health Authority, which oversaw development of the exchange.

First Data, the firm hired by the state to assess how the Cover Oregon exchange project went so horribly wrong, blasted Oracle. "Oracle's performance is lacking," First Data said in a February report. "Their inability to adhere to industry standards and professional software and project management tenets warrant further review."

Kitzhaber quotes liberally from the report in his

to Rosenblum.

Oracle, meanwhile, has accused Oregon of creating a "false narrative" about the exchange that uses Oracle as a convenient fall-guy to mask its own culpability.

A company spokeswoman followed up today with the following statement on Kitzhaber's announcement. "Contrary to the story the state is promoting, Oracle has never led the Oregon Health Exchange project. OHA and Cover Oregon were in charge and badly mismanaged the project by consistently failing to deliver requirements in a timely manner and failing to staff the project with skilled personnel. The Governor admitted as much in his statement, and these facts are supported by extensive documentation. We understand the political nature of the announcement just made and that the Governor wants to shift blame from where it belongs. We are proud of the work that we have done to enable over 420,000 Oregonians to enroll in health care. We look forward to an investigation that we are confident will completely exonerate Oracle."

Kitzhaber rejected the Oracle false-narrative claim. He said he doesn't believe by "any stretch of imagination that Oracle ... had no idea that they were actually supposed deliver a product that worked. They did not become the largest software company in the world in that way. I just think that's laughable. Maybe there's a legal basis there, but c'mon."

Cover Oregon has become a political rallying cry for Kitzhaber's opponents. Kitzhaber is facing off against Dennis Richardson in November. He dismissed the notion the potential lawsuit or today's announcement is politically motivated.

"Whether people believe that I guess is up to them, and I guess we'll see in November. But reelection had nothing to do with this," he said.

A senior delegation from Oracle came to Oregon in late February issuing an ultimatum. It demanded payment of the money the state had been withholding or it would walk off the project and take its software code with it. With the open enrollment period at its height, Oregon could not afford that kind of disruption, Kitzhaber said. The state agreed to pay Oracle more than $43 million. It withheld $25.5 million.

"It was incredibly arrogant," Kitzhaber said. "We were at a pretty vulnerable period in terms of enrollment. It was very clear they had the code, they had the ability to walk. We would not have been able to enroll more than a 100,000 people. That was the leverage they had."

But that payment and temporary agreement should not be interpreted as a sign of the state's weak legal case, the Governor said. The state reserved all of its legal right to later file a lawsuit.

The timing and final decision of whether to sue will be up to the attorney general. Rosenblum

Kitzhaber saying the Department of Justice has been doing legal "legwork." She did not commit to filing suit, but said, "I share your determination to recover every dollar to which Oregon is entitled."

--Jeff Manning and Nick Budnick