PURPOSE:

To authorize BWP General Manager to approve a change order to the Indus Utility Systems, Inc. contract to provide additional implementation support services for the Customer Information and Billing System.

BACKGROUND:

In January 2003, staff began implementation of a new Customer Information and Billing System (CIS).  Implementation of major systems such as a CIS require about 12-18 months of intensive vendor and staff time.  At this point, we are halfway through the implementation process and project monitoring has revealed that additional information technology support and expertise is required for project success.

On September 16, 2003, staff presented several options to the City Council to acquire the necessary technical support.  The options were to put the project on hold until the required staff resources have been sufficiently developed.  Completely outsource the implementation and operation of the CIS.  Or, �outsource to in-source�.

The first option, putting the project on hold, is not an optimum solution.  Staff time, effort, and project expenses expended to date have been put to maximum use and a significant amount of very good work has been completed.  It would be a shame to lose this work and the momentum that has been built up over the past months.  The project can succeed with the addition of focused technical skills.

The second option, completely outsourcing the CIS implementation and support functions, seems, at first blush, to be a workable alternative.  There are several companies that provide these services.  However, staff decided it would be best to work directly with Indus rather than invite an unknown third party, at this point, to join the project and expose ourselves to another element of risk unnecessarily.  Since Indus owns and markets the software, having them provide the support places the risk of failure firmly on their doorstep, mitigates potential finger pointing, and increases the likelihood of Indus�s ownership and accountability for a successful implementation.  Indus was asked for an estimate to take over project implementation and they returned with a preliminary estimate of $2,000,000.  This price includes Indus assuming full responsibility for setting up a data center, complete management of the new data center, systems administration, conversion, database administration, and operations. 

While outsourcing in general can be a cost effective alternative and should be considered, outsourcing CIS implementation and hosting is an expensive option and does not appear to be a durable long-term solution for managing CIS technical support.

With the last option, �outsource to in-source� we would outsource sufficient technical staff activity to get us through implementation.  And, rather than displace Information Technology (IT) staff completely, the outsource vendor would work in cooperation with IT staff, training them to eventually reassume responsibility for CIS administration and operation after the system is up and running.  For the same reasons mentioned above, we asked only Indus for an estimate.  Indus�s estimate to perform this level of work is $1,000,000.

The specific areas of support for the �outsource to in-source� option are similar to the full outsourcing option.  The primary difference is the level of responsibility assumed by Indus for each activity.  Initially, Indus will take the lead in almost all areas.  However, over the duration of the contract, IT staff will take on greater and greater levels of responsibility as they move toward total independence.  This level of support requires Indus to provide three full-time equivalents assigned to the project from September through June 2004. 

The City Council unanimously supported �outsource to in-source� as the least expensive short-term solution and the most durable long-term solution for operating and supporting the CIS.  However, exception was taken with the hourly rate of the proposed agreement and staff was asked to reopen discussions with Indus to lower the rate. 

ANALYSIS:

The hourly rate originally proposed by Indus, $179 per hour, was a blended rate representing a range of staff and skills.  This approach is frequently taken with technology projects.   The rate was also all inclusive of labor, travel, and expenses.

In discussions with Indus they revealed that they have several existing contracts with large clients that include a favored nation�s clause promising those clients the lowest rate offered by Indus to any other client.  That rate is $135 per hour.  This is the rate that Indus has now offered to the City.   This rate is blended and covers all Indus project participants but does not include travel and expenses.  Indus has agreed to work with the City to secure the lowest possible travel and hotel rates.

The change order calls for 5,604 hours of work by Indus staff.  At the original rate, the change order cost would be $1,003,116.  With the new negotiated rate, the change order cost will be $756,540, $245,572 less than the original rate, plus travel and expenses.  Indus anticipates they�ll be on-site 50% of the time during the 40 week contract period, ending June 30, 2004.  Although staff intends to work diligently to minimize travel and associated expenses, for budgeting purposes, we estimate about $120,000 for travel.    

FISCAL IMPACT:

Funds budgeted within the existing BWP capital outlay program for the Oracle project will not be significantly used this fiscal year.  Therefore, these funds are available for other technology projects.

RECOMMENDATION:

Authorize the BWP General Manager to approve a change order to the contract with Indus Utility Systems, Inc. to provide CIS implementation support services in an amount not to exceed $1,000,000.

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