How A CIO Saved His County $300K (By Reading His Contract)

When Ira Rosenthal was named CIO in November 2003 of Solano County, located 60 miles north of San Francisco and adjacent to Napa Valley, he noted that its IT outsourcing contract with Affiliated Computer Services was due for renewal in a month. Recognizing that he couldn't complete the process for a new request for proposal in such a short time, he did a preliminary contract review. The contract covered a wide range of services including infrastructure, database administration, network services, PC support, help desk and data communication, though the county continued to own its equipment and did handle some applications.

Upon reading the contract, red flags arose for Mr. Rosenthal, who worked for many years at Educational Testing Services in Princeton, considered a cutting edge technology shop. Solano's IT contract has been with one company since 1989, but it was first signed with one IT company, which morphed into a second IT company, which was acquired by ACS.

"Having been in place for so long and containing so many modifications, it was a confusing document in terms of deliverables, measurable fees for service, and establishing service levels," Mr. Rosenthal said. "It wasn't clear in terms of what we getting for the money and how those services would be evaluated."

–> TIP #1: Negotiate a way to modify the contract.

Facing an imminent deadline, he agreed to renew the ACS contract, with the caveat that the contract could be modified in certain terms and conditions where appropriate. In fact, four months later ACS and the county agreed to an amendment to the contract, modifying certain conditions. ACS agreed to address some of these service issues and establish more specific measurements for fees for service. The new contract was signed in January 2005 and was valued at $13.9 million in an ACS press release.

–> TIP #2: Focus on concretes, not qualitative measures.

The fees that Solano County paid ACS fluctuated from year to year, depending on the level of services provided. In fact, Solano County had paid ACS $5.8 million in 2002, $7.3 million in 2003 and $5.9 million in 2004. Yet when he scrutinized the contract, Mr. Rosenthal noticed that it had "qualitative measures for service levels including user satisfaction surveys" but no concrete, specific or objective measures.

–> TIP #3: Temporary workers can be costly.

One major oversight that Mr. Rosenthal uncovered in the contract was that the county had agreed on a baseline of IT levels of service and then added supplemental work on an as-needed basis. But hiring on as-needed basis led to maintaining a staff of contract workers for years, such as email administrators and systems support staff for certain applications, often through the length of a five-year contract, who were paid more because they were on consulting contracts. By making them permanent ACS employees, Solano County saved $200,000 last year.

–> TIP #4: Cut services that are under-utilized.

The county also saved an additional $100,000 by reducing some services that staff wasn't taking advantage of such as PC training. It also cut back on systems support for certain applications that weren't being used to their full extent.

In renewing the contract with ACS, Mr. Rosenthal strived for establishing fixed fees based on measurable service levels. "We used more specifics such as the number of PCs supported by technicians and specific request levels of wait time for the help desk," he said.

–> TIP #5: Ask to modify the contract even if there's still time on the clock.

In terms of scrutinizing contracts, focus on the "scope of the project, the time line, the milestones, the deliverables, and who's responsible for what," explained Lou Sostilio, manager of IT staffing at Surrex Solutions Corporation in Newton, MA. If the terms are very unfavorable and the contract still runs for an additional three years or more, consider a buyout. Just as Solano County did, ask the IT outsourcer for modifications, even if the contract has been signed. Most companies will modify the contract because "Good business sense says make the sure client is happy. The contract is coming up for renewal in just three more years, so don't get the client upset," he said. If the details of the contract are obfuscated in legalese, Sostilio also recommends hiring a lawyer. The attorney's fees might be $300-$400 an hour, but it could lead to additional savings with greater value.

Through the original IT contract with ACS' precursors was signed in 1989, Mr. Rosenthal does not think that continuing with one company for so long is inherently a bad business practice; but it does have its pitfalls. The county had hired consultants to review the contract and found the fees to be in line with the marketplace. Since IT executives had changed through the year, new ideas were generated. Yet he acknowledged that when contracts get "passed from manager to manager, it eventually becomes unworkable because too many agendas get included in the wording incorporating too many opinions that the agreement can lack coherent vision." It, in fact, becomes a patchwork quilt of IT ideas.

When the contract is up in 2007, Mr. Rosenthal will issue an RFP and seek better definition of services and more specific measurements.

What could you learn from Mr. Rosenthal's ability to evaluate a contract? "Focus on the scope of service. Look for measurable items that set performance benchmarks," he said.

Useful Links:


ACS press announcement about contract extension

Solano County

Proposed 2005/2006 Solano County Budget for MIS
/docs/free/Solano County MIS Proposed Budget 2005-2006.pdf