PURPOSE

To demonstrate cost efficiencies to be gained through outsourcing Municipal Service Bill printing and mailing, to provide information on electronic options for presenting and paying the Bill, and to request endorsement to enter into a contract with KUBRA to provide these services. 

BACKGROUND

Burbank Water and Power generates and mails invoices for municipal services to the City�s 50,000 business and residential customers each month. To date, the City has sent paper bills and they�ve been printed, folded, and mailed using City equipment and materials.  The process to produce bills is as follows:

• Household consumption information is collected in the field. 

• The data is run through the billing system to calculate charges and to add other monthly billing data.

• The raw billing data is run through our bill print application which formats the data onto the bills, notices, and letters.

• The bills are printed each evening.

• Staff manually sorts and separates multiple page bills in preparation for running the bills through the mail inserting machine which, through six inserting stations, places the bill, four inserts, and a return envelope into the primary envelope. 

• Staff monitors the mail inserter machine and prepares bills for mailing.

• Daily, staff delivers the bills to the Bulk Mail Post Office in North Hollywood, for mailing. 

The annual cost to provide this service including equipment and materials is almost $500,000. This process also consumes twelve hours of daily labor to produce, monitor and mail paper bills, which is not included in this annual cost.

Printing and sending a bill requires contribution from four separate work areas which use specialized software and hardware.  The four work areas are described below: 

Billing System & Print Application

The billing system, fundamental to our core business, maintains all customer account, meter, and billing information.  We recently upgraded the billing system to Indus� Banner billing system and it has been in use since April 2004.   As part of that implementation, Indus partnered with Group 1, a bill print vendor, to offer BWP an integrated package of account information and bill presentment.  There are many bill print vendors, however, the partnership between Indus and Group 1 saved BWP the time and cost of going through the competitive bid process to select a bill print vendor.  And, more importantly, allowed a single point of contact and coordination for the implementation and interface between both systems to produce our municipal services bill.   We still contact Indus directly when we have problems with our bill print application Group 1. However, Group 1 does have a significantly higher hourly rate than Indus. [COB1] 

High Performance Laser Printer

The high performance laser bill printer was purchased in 2000 and is scheduled for replacement within the next two years. Typically these high speed printers require a capital investment of approximately $70,000.   Annual maintenance plus the annual cost of consumables for the current printer is $27,000.  Bills are printed each night and require staff to stand by anywhere from two to four hours to ensure no problems arise and that the job doesn�t stop. The process can take considerably longer if a problem occurs.

Mail Inserter Machine

Folded bills are placed in a bin at one end and then travel along the mail inserter machine to five other stations which collate the bill with the four City inserts and a return envelope.  The machine places the package into the primary envelope, seals the envelope, and dumps it into a bin to be taken to the post office.  Since our bills are mailed as bulk mail for maximum postal discounts, we�re required to take them to the bulk mail post office in North Hollywood for processing.  This requires at least one hour of driving time each day. 

Our current mail inserter machine is over 10 years old and nearing the end of its useful life.  It does not have the capabilities of newer equipment such as intelligent inserting and an optical magnetic reader (OMR) to differentiate between bill types and multiple page bills.  Over the years, more and more bills have grown from one page to two pages and staff must manually separate these bills into two groups.  This task alone can take up to three hours per day.   OMR capability would automate this function.  In addition, intelligent inserting would allow us to send targeted mailing inserts to specified customer groups and allow us to suppress a return envelope for customers who have signed up for Flash Pay, the automatic payment deduction service.   Sending an envelope to customers who have elected to have their payment automatically deducted is a huge irritant to customers as well as a waste of resources.

Funds were budgeted in FY 2005/06 to upgrade the mail inserter machine.  Staff conducted a needs assessment, issued a request for proposal, and reviewed bids from five vendors.   This process occurred in March of 2005.  The initial bids received ranged from $65,000 to $110,000.

The Perfect Storm

The cost of the mail inserter machine was not surprising, however, coincident with receiving the bids staff encountered other issues which caused us to stop and approach this project more globally.  

• Two large capital expenditures were in front of us; the mail inserter this year and the printer next year.

• During the past couple of years we have had several challenges with Group 1, our bill print vendor.  Although originally a subcontractor of Indus, they work autonomously from Indus at this point and have become increasingly non-responsive.  Also, their costs are extremely high and on the increase.

• We would like to offer an electronic bill presentment option to customers.  This is a service that many bill print vendors offer in addition to paper print and mail.  Having one vendor provide both paper bills and electronic bills would allow for a seamless and robust service for our customers.  Our experience has led us to understand that the fewer integration points needed for a computer application, the more efficient and cost effective a program operates.

Recognizing that the printing and mailing of bills is not our core business function and given the converging events described above, staff thought it timely and prudent to explore the marketplace for a less expensive print and mail option and possibly a solution integrated with electronic presentment. 

In addition, outsourcing these services will NOT displace any staff.  Both BWP and IT will be able to utilize existing staff more efficiently with other work duties and this solution will allow us the flexibility to make additional process and staffing improvements.  For example, IT would have the ability to reallocate staff for three hours daily and BWP will be able to optimize staff�s work efficiencies by nine hours daily (see labor reallocation opportunity chart).  BWP will continue all training and cross training of staff for developmental and promotional opportunities.  To reiterate, no one will be displaced and we would have the option to not fill a Customer Service Representative position in the future. 

Prior to seeking cost information from others, we needed to know what our costs were to produce and mail a bill using City equipment and materials.  Staff prepared a cost analysis in January 2006 comparing the equipment and materials necessary to print and mail a paper bill in-house; it is $ .55 per bill.  The detailed equipment analysis below includes the cost of equipment, maintenance, and programming for the next three years.  The material costs include paper, envelopes, return mail notification, and bulk postage rates. If we continue to print and mail bills, the costs over the next few years will include replacing the printer as well. Approximate annual costs for our current path are outlined below.

ANALYSIS

Staff regrouped and in March 2006, solicited bids for bill print and mail services and electronic presentment services.  Five vendors submitted proposals:  InfoSend; DataProse; KUBRA; Target; and PROforma.   Proposals were evaluated on the vendors� ability to meet the specifications, price for services, corporate stability, experience with and ability to interface with Banner, disaster recovery, and references. 

Based on this evaluation, both Target and PROforma were eliminated because they did not meet the specifications.  Three vendors were invited back to demonstrate their product. InfoSend, DataProse, and KUBRA.  InfoSend and DataProse had limited services, costs were higher, and did not have experience interfacing with the Banner Customer Information System.  During the demonstrations, KUBRA revealed themselves to have the superior product.  KUBRA�s references proved them to be a stable, reliable vendor and their proposal stood out from the other vendors with the features discussed below.

1. Ability to Meet Specifications:  Three enhanced features are offered by KUBRA. One, KUBRA restructures the billing data into a file format which allows more formatting flexibility such as the ability to use different sizes and types of fonts. This feature allows BWP the flexibility to change the bill format and present notices and letters with a more professional appearance.  The notices and letters we are currently printing are extremely limited in text format, font size, and may only be printed in black ink.   Two, the new file format would also allow OMR code assignments to support intelligent insertion to specific customer classes.  BWP does not have OMR capability with our current bill print vendor, Group 1, for marketing and informational materials.  To get this feature we would have to modify our current bill print format at an estimated cost of $8,000.  And, three, KUBRA facilitates address correction/verification, and editing/reports. BWP would not receive any corrections from the post office if an address is incorrect, KUBRA would handle those changes directly.  Currently, we receive returned mail and must manually verify account information corrections from the post office against our customer information system and make the necessary corrections.  This is a very time consuming process which can delay customers� receipt of their bills and ultimately impacts the utility�s cash flow and write-offs.

2. Reasonable Price for Services:  KUBRA has priced their solution below the other vendors and BWP�s current costs.  The BWP cost for printing and mailing a bill is $.55 cents.  Using KUBRA to provide bill print and mail services would cost $.40 cents per bill.  Other bill print and mail proposals varied from $.49 to $.70 cents per bill.  With an average volume of 71,825 documents per month, KUBRA would provide us a cost savings of approximately $126,000 annually. 

In addition, KUBRA has waived all upfront fees for the needs analysis, project management, system and design engineering, software programming and development, user and system acceptance testing, and production and pilot deployment/ testing.   This is a significant savings for BWP.

3. Corporate Stability: KUBRA was formed in 1992 and now has four facilities across North America.  They have 150+ full-time employees and comprise the largest portion of the bill presentment market.  KUBRA has the breadth and depth of skills necessary within their organization to successfully implement both bill presentment solutions.

4. Experience and Ability with Banner:  KUBRA was the only vendor who has had experience interfacing with Banner, our Customer Information System.   When dealing with system and application integrations there is no substitute for hands-on experience to mitigate problems during implementation and operation.

5. Disaster Recovery: KUBRA has four networked production facilities and produces 25 million mail pieces per month.  They run all facilities at 50% capacity for Disaster Recovery programs. 

6. References and Experience:  KUBRA has excellent references. The City of Charlotte, City of Riverside, and Toronto Hydro all use KUBRA and Indus�s Banner Customer Information System.  Sacramento Municipal Utility District (SMUD) and the Los Angeles Times are also KUBRA customers although they have different billing systems.  They all shared positive experiences with KUBRA�s implementation process, services, responsiveness, and corporate integrity.  

Electronic Bill Presentment and Payment (EBPP)

Along with bill print and mail data, the top three vendors also presented their EBPP solutions.  Based on their overall presentment KUBRA had the better solution.

KUBRA offers enhanced bill payment options not offered by the other vendors.  Their solution allows us to efficiently communicate with e-bill customers by providing intuitive and targeted e-mail notifications and reminders for a variety of situations such as rejected payments, payment reminders, and late payment notices.  Our staff will have the capability to perform a number of real-time functions like tracking activity, creating reprints, faxing and e-mailing copies of bills, and verifying all payments regardless of source, type, origin, channel or status.

KUBRA also offers a 30% savings to our customers choosing to pay their bill with a credit card.  By operating as our credit card vendor, they will drastically reduce our deposit settlement time from two to three days to just one day.  Any payment made before 7:00 pm is guaranteed to reach our bank by 5:00 am the next morning!  This provides better cash flow.

An important feature for us is that KUBRA can maintain customer�s bank information through world class security utilizing Secure Socket Layer, 128-bit, 1024 public key encryption and anti-fraud features such as Address Verification Service (AVS) and Credit Card Security Coding (CSC).

Besides providing a more technologically rich and convenient bill payment option, EBPP will, in the long run, reduce costs overall.  Printing and mailing will cost $.40 per item with KUBRA.  However, it only costs $.14 for KUBRA to send an electronic bill to customers electing to take advantage of this feature.  With over 850,000 bills and notices processed per year, at a targeted customer enrollment quota of 15% in the first year, the savings would be almost $25,000.  If we can move some of our walk-in customers into utilizing this service, the savings would be even greater.   We will aggressively market the new EBPP payment options to Burbank�s residents and BWP customers, both current and future.

FISCAL IMPACT

KUBRA is willing to enter into a three-year agreement to secure the fee structure.  Based on our current volume of production the bill print and mail services will not exceed $400,000 annually, a cost savings of over $100,000 annually.  Assuming a 15% adoption rate for EBPP, we expect to save approximately $25,000 annually by moving customers from paper to electronic invoices and notices.  

CONCLUSION

Outsourcing the bill print and mailing functionalities for the municipal services bills offers efficiencies and cost savings for customers, BWP, and the City.  Especially important is the ability to accomplish this without reduction in current staffing.  Also essential is the ability to finally provide greater customer service practices and broader payment options utilizing contemporary technology.   KUBRA can provide both print and electronic bill presentment options with a robust e-billing solution for our customers, offering multiple payment channels and payment types powered within one platform.  KUBRA has over 100 Utility clients across North America with 50-60% of the market share and can provide us with the support and services to glean sustainable savings and enhanced customer satisfaction.

RECOMMENDATION

Staff requests City Council approval to enter into a three-year agreement with KUBRA to provide bill print and mail and Electronic Bill Presentment and Payment services in an amount not to exceed $400,000 annually.

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