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HomeMy WebLinkAbout1997-08-06 City CouncilTO: City of Palo Alto Manager’s Report HONORABLE CITY COUNCIL ATTENTION: FINANCE COMMITTEE’ FROM:CITY MANAGER DEPARTMENT: UTILITIES and ADMINISTRATIVE SERVICES DEPARTMENTS AGENDA DATE: AUGUST 6, 1997 CMR:347:97 SUBJECT:AWARD OF CONTRACTS TO SCT UTILITY SYSTEMS FOR UTILITIES CUSTOMER INFORMATION SYSTEM ACQUISITION AND IMPLEMENTATION, AND APPROVAL OF BUDGET AMENDMENT ORDINANCE FOR THE UTILITIES CUSTOMER INFORMATION SYSTEM CAPITAL IMPROVEMENT PROJECT REQUEST: This is a request for approval of a Budget Amendment Ordinance and award of contracts with SCT Utility Systems (SCT), a wholly-owned subsidiary ofSystems and Computer Technology Corporation, for a Utilities Customer Information System (CIS). The contracts include acquisition, installation, data conversion, training, implementation, enhancements, and maintenance of the SCT Banner sottware package. A total fixed price contract has been negotiated in the amount of $1,100,000. A Budget Amendment Ordinance in the amount of $750,000 is required to add funding to the existing Capital Improvement Project. RECOMMENDATION: Staff recommends that Council: 1)Approve the Budget Amendment Ordinance in the amount of $750,000 for the Utilities Customer Information System (CIS) Project (CIP 9357). 2)Approve and authorize the Mayor to execute the attached contracts with SCT Utility Systems, a wholly-owned subsidiary of Systems and Computer Technology CMR:347:97 Page 1 of 9 3) Corporation. The total amount of the contracts is $1,100,000. The Software License and Services Agreement includes: acquisition of the software, software modifications, interfaces to existing City systems, data conversion, technical and functional training, implementation, and project management services. The Technical Currency Agreement includes first-year maintenance and enhancements for the sol, rare. Authorize the City Manager or her designee to negotiate and execute one or more change orders to the contracts with SCT Utility Systems for related additional, but unforeseen, work which may develop during the project. The total value of the change orders shall not exceed $110,000. POLICY IMPLICATIONS: This report does not propose any change to existing City policies. BACKGROUND: In November 1996, staff informed Council of a change in direction for the Utilities Customer Information System (CIS) project from in-house development to the pursuit of a purchased software solution (CMR: 455:96, Attachment I). That report detailed the history of the CIS Project and reported on the difficulty the City had in recruiting and retaining full- time and contract personnel to complete the in-house development. The report also indicated that there had been significant advances in computer technology and improvements in vendor solutions since the City’s initial review in 1992. The analysis of alternatives concluded that, in light of the difficulties experienced with in-house attempts to develop the sottware and, due to improvements included i~ vendor software offerings, staffplanned to re-direct the CIS project to evaluate purchased sottware to address the requirements of the Utility billing and customer service functions. Staffbelieved that a purchased software approach would be less risky and the final product would contain industry standard functionality required in a competitive utilities environment. The City’s goal remains the same: to implement a new CIS to ensure the Utilities’ competitive position. However, the method and Cost of accomplishing that goal have changed. When staff initially proposed that the City pursue purchasing a vendor’s CIS product, cost estimates indicated that the existing CIP budget would be adequate. Those estimates were based on discussions with vendors. Since then, staff has solicited proposals from software vendors, viewed system demonstrations, completed evaluations of proposals, and selected a product, The rising demand for new CIS systems to cope with electric and gas deregulation, combined with an urgent need for billing systems to be year 2000 compliant, CMR:347:97 Page 2 of 9 has made the market value and cost of a proven CIS rise significantly above staff’s earlier estimate. American electric, gas, and water utilities currently are involved in a massive upgrade bf their customer information systems.. Forty-two percent of one hundred and nine utilities surveyed are currently involved in upgrading their CIS. In addition another 31 percent of the utilities plan a major upgrade within the next one to five years. Only twenty-four percent of the utilities are not planning an upgrade to their CIS in the near future, and many of these have already completed the upgrades. The need to upgrade is driven by five factors: competition, obsolescence, marketing, customer service, and cost. Nowhere is competition more fierce than in California. Obsolescence is significant because it threatens the competitive position. Marketing is the need to gain and retain customers while competition and deregulation are occurring. Customer service is one of the primary elements to distinguish one utility from others during competition. The initial cost of the upgrades is offset by reduced cost in continued operation which provide a competitive advantage. Although the cost of implementing a CIS system is high, the cost of not upgrading could be even higher. The CIS will be a strategic tool for the Utilities Department, allowing it to achieve higher levels of customer satisfaction and improve staff productivity. In addition to providing timely ahd accurate billing of customer accounts, CIS will be an important management information system for responding to customer inquiries, and prioritizing, sctieduling, and monitoring work assignments and workflow processes. It will also be a tool for sales revenue forecasting, rate analysis, credit management, transformer replacement studies, and maintaining meter inventory and historical meter reading records. Furthermore, it will accommodate the requirements to offer flexible rate options and menus under deregulation. The present billing system was created in the mid-1970’s, and no longer supports Utilities’ needs in today’s market place. In addition, the current billing system has a limitation with respect to operating in the year 2000 and beyond. Given. the enormous strides in technology and the Utilities’ need to position itself in a competitive deregulated environment, the implementation of a CIS system is critical. Recent studies and developments have reinforced the City’s 1993 decision to replace the current Customer Utility Billing System. A Resource Management International consultant report on Analysis of Competitive Issues Facing the City of Palo Alto’s Electric Utility stated, "the current utilities billing system is marginally adequate to perform current day-to-day activities, and is likely to be substantially deficient in a more competitive environment requiring quick response to customer needs and/or customized services for customers’? (June 1995). More recently, the Theodore Barry and Associates Utilities Organizational Review Study stated, "the current billing system needs improvement. Commit to implementation of new CIS with highest priority." (November 1996). CMR:347:97 .Page 3 of 9 PROPOSAL DEVELOPMENT AND SELECTION PROCESS: Staff developed a comprehensive request for proposals (RFP) to reflect the critical nature of a CIS and to ensure that the selected system would meet Palo Alto’s needs in the changing competitive environment. The RFP documented 157 specific requirements in the areas 0f customer information, bill processing, accounting, rate flexibility, credit and collections, field service, meter management, reporting capabilitie.s, interfaces and integration with existing systems, and usability. The RFP was distributed to 13 vendors known to develop CIS software. The four vendors who responded were: Electronic Data Systems (EDS), Systems and Computer Technology (SCT), HTE, and Harris Computers. The review team evaluating the proposals was comprised of staff from the Utilities, Administrative Services and Public Works Departments. Utilities was represented by management, customer services staff, meter management, resource management and operations. The team conducted a detailed analysis of each of the proposals and participated in on-site demonstrations. An evaluation matrix covered all elements of system functionality and cost (Attachment II). System Functionali _ty The most critical aspect of a new CIS is the system functionality. In addition to matching the needs and requirements of the City, a highly-functional software package will be easier to install and implement because the vendor will not have to make as many modifications to its code. Moreover, implementation efforts, such as training, data eonv.ersion, and project management will be easier, which reduces the costs and risks. In addition, with a sotb,vare package that closely matches the organization’s requirements, the City will be able to take advantage of future releases to the software, allowing the City’s system to change in response to changes in utilities regulations and the competitive utilities environment. The review team rated the four vendors’ systems on their capability to provide each of the City’s 157 identified requirements. The following table displays how the vendors answered questions and demonstrated their ability to meet the specific City requirements. CMR:347:97 Page 4 of 9 TABLE OF FUNCTIONALITY Criteria Total Questions Answered -Yes Reply. - Partial Reply Total Positive Replies - No Reply EDS 157 89 57% 32 20% 121 77% 36 23% Harris 145 128 82%. 14 9% 142 91% 2% HTE 138 122 78% 14 9% 136 87% 2 1% SCT 157 125 80% 19 12% 144 92% 13 8% Based upon this information, three of the vendors (Harris, HTE and SCT) demonstrated an impressive ability to meet most of the City’s requirements. The Harris proposal, however, was eliminated because its software does not have the ability to process multiple utilities (critical for Palo Alto’s structure with 6 utilities), and other elements of its proposal were incomplete. HTE was evaluated, but eliminated on the basis of technology; its system processes on outdated IBM equipment, which the City does not own or have any desire to purchase. The SCT software addressed the greatest number of the City’s requirements. Through vendor demonstrations, SCT was shown to have the capability to meet 98 percent of the City’s requirements. More importantly, the requirements SCT indicated they could not meet were not critical requirements. Each vendor was asked to provide a cost breakdown of its proposal. The cost elements consisted of: software license fees; implementation costs; functional and technical training; customization, including modifications, enhancements, interfaces and integration; travel and expenses; and annual software maintenance fees. The range of system costs was significant, with a low of $121,250 (customization cost not provided) and a high of $1.7 million. The Table of Vendor Cost summarizes these elements from the four vendors. CMR:347:97 Page 5 of 9 TABLE OF VENDOR COST Criteria Price Summary - Software - Implementa- tion Training Total Base Customization Expenses Total EDS $ 65,000 $ 5O4,OOO included $ 569,OO0 $1,060,000 $ 64,000 $1,693,000 Harris $ 99,000 $ 10,000 $ 11,250 $121,250 Not Provided Unknown $121,250 plus HTE $180,600 $ 77,OOO $ 37,041 $294,641 Not Provided Additional $294,641 plus SCT $250,000 $316,450 $ 70,600 $637,050 $182,325 Additional $819,375 plus Based upon system cost and the high level of functionality, further discussions and negotiations continued with SCT. Staff visited the company’s facilities in South Carolina and spent the day with SCT’s senior management.’ Negotiations included a review of programming necessary to make the SCT software interface with Palo Alto’s accounting and collections programs, and identification of mandatory customizations required for implementation. The addition of these factors, in combination with the request for a fixed price contract, increased the total cost of the SCT solution from $819,375 to $1,100,000. This figure includes a!l software licenses, enhancements and interfaces, data conversion, ¯ training, implementation, project management, travel and expenses, data base tools, and first year’s -maintenance. This amount represents a fixed price contract negotiated for all SCT efforts and costs, and is still significantly lower than the remaining initial bid from EDS, which was the only other vendor to include estimates for customization. Because of the track record in the industry for cost overruns of CIS installations, staffhas held firm on negotiating a fixed price contract with SCT, which effectively transfers risk to the vendor instead of the City. FISCAL IMPACT: The necessary funding to complete the CIS effort is $1,310,000, which includes:-the SCT contracts totaling $1,100,000; a contract contingency amount of $110,000; and $100,000 for continued support from a current City contract programmer during the planning and implementation phases of the project. The City has had a contract programmer assigned to CMR:347:97 Page 6 of 9 this project for over a year; leveraging his technical expertise with that of City staff will be vital to the success of the project. The Utilities CIS Capital Improvement Project (CIP 9537), has a funding balance 6f $560,000. An additional $750,000 is required to augment the CIP project. These funds will come from Utilities reserves. Due to the current strength of the Utilities reserves, this amount will not adversely impact the financial condition of the Utilities and is a one-time expense appropriately funded from reserves. To date, the City has spent approximately $900,000 on the CIS project. Funds have been used to acquire the necessary computer hardware, operating system, data management tools, and consulting services. Consulting has included business process re-engineering, data base modeling, data conversion, requirements definition, and application prototyping and development. Approximately $730,000 of these expenditures were for hardware, tools and efforts that are still essential with the purchase of vendor soRware. Palo Alto’s cost and schedule are comparable to or below averages for other municipalities undertaking a CIS effort. Staff has received an independent report, The Chart’well CIS Report, a comprehensive examination of what utilities are doing to upgrade their customer information systems to ensure their competitive abilities in the changing marketplace. The report included case studies of municipal utilities, showing costs for implementing comprehensive CIS systems ranging from $1 million to $10 million, with an average cost of $72 per customer. Including what has been spent to date in the development, and now acquisition, of a Customer Information System for the City of Palo Alto, the cost will be $2.2 million, or $76 per each of the City’s 29,000 customers. Many municipalities involved in CIS implementations operate only one or two utilities, while the City of Palo Alto operates six. If total project costs are spread among the various utilities, Palo Alto’s costs compare favorably. Data from the studies of other municipal utilities showed a range of $16 to $106 per customer when costs are spread among their utilities; Palo Alto’s costs would be only $12 per customer. The Utilities reserves will be decreased by $750,000 to fund this one-time, major acquisition. Ongoing annual system maintenance of approximately $50,000 will be included in future proposed operating budgets for Information Technology in the Administrative Services Department. Any future upgrades to the SCT sottware are included as part of the annual system maintenance.- CMR:347:97 Page 7 of 9 NEXT STEPS: The CIS implementation and training schedule is currently 14 months. However, electric deregulation will begin early in 1998. Consequently, there are information systems requirements that staff must address prior to having the new CIS in place. Staff reports may be forthcoming to address these interim needs, which include special rate and billing requirements not possible with the present billing, system. Staff is in the final stages of an RFP process for the interim billing solution. This solution will facilitate innovative pricing structures, unbundling rate components, and will allow the City to incorporate third party services into bill statements. The interim solution will have minimum functionality and will not address all of the functions contained within the CIS. This request and similar requests may be presented to Council throughout the year as Palo Alto Utilities prepares for deregulation. ENVIRONMENTAL ASSESSMENT: The CIS does not constitute a project for the purposes of the California Environmental Quality Act. ATTACHMENTS: Budget Amendment Ordinance Software License and Services Agreement withSCT Utility Systems, Inc. Technical Currency Agreement with SCT Utility Systems, Inc. Attachment I:CMR:455:96: Change in Direction for the Utilities CIS Project to Solicit Proposals from Sotbccare Vendors Attachment II:Proposal Evaluations CMR:347:97 Page 8 of 9 PREPARED BY: Rob Pound, Manager, Information Technology DEPARTMENT HEAD APPROVAL: Melis~a Cavallo Acting Director, Administrative Services DEPARTMENT HEAD APPROVAL: Edward J. Mrizek Director of Utilities CITY MANAGER APPROVAL: City Manager CC: n/a CMR:347:97 Page 9 of 9 ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 1997-98 TO PROVIDE AN ADDITIONAL APPRQPRIATION FOR UTILITIES CUSTOMER INFORMATION SYSTEM CAPITAL IMPROVEMENT PROJECT, 9357 WHEREAS, pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 23, 1997 did adopt a budget for fiscal year 1997-98; and WHEREAS, the Capital Improvement Project 9357, the Utilities Customer Information System was created to develop and augment the utilities billing system which is obsolete; and WHEREAS, in a deregulated utility industry, an upgraded billing system will capture critical data to enhance customer service functions and retain customers, and aid in the development of marketing strategies and competitive rates; and WHEREAS, a vendor has been identified that can provide the software and expertise needed to meet the City’s numerous and varied billing requirements; and WHEREAS, the budget needs to be amended to provide an additional appropriation to Capital Improvement Project 9357, the Utilities Customer Information System, of $750,000 and funding is available in the Water, Electric, Gas, Refuse, Wastewater Collection, and Storm Drainage Funds’ Rate Stabilization Reserves; and WHEREAS, City Council authorization is needed to amend the 1997-98 budget as hereinafter set forth. NOW, THEREFORE’, the Council of the City of Palo Alto does ORDAIN as follows: SECTION i. The su~ of Seven Hundred and Fifty Thousand Dollars ($750,000) is hereby transferred from the reserve funds hereinafter described, to the appropriation for Capital Improvement Project Number 9357, ~Utilities Customer Information System." The amounts so transferred are from the following reserve funds, which will be reduced by the amount listed: Water Rate Stabilization Reserve $75,000 Electric Rate Stabilization Reserve $375,000 Gas Rate Stabilization Reserve $210,000 Refuse Rate Stabilization Reserve $37,500 Wastewater Collection Rate Stabilization Reserve $37,500 Storm Drainage Rate Stabilization Reserve $15,000 SECTION 2. The appropriation transfers approved by Section 1 will reduce the following Rate Stabilization Reserves (RSR): From: Water RSR ~ $6,159,000 $6Electric RSR [$19,796,000 i$19,421,000 Gas RSR ~I$ii,576,000 ~’$ii,366,000 Refuse RSR $4,844,000 Wastewater Collection RSR $8,614,000 $8,576,500 Storm Drainage RSR $1,123,000 SECTION 3. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 4. The council of the City of Palo Alto hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 5. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Acting Director, Administrative Services Department Director of Utilities City ATTACHMENT I City of Palo Alto Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:NOVEMBER 7, 1996 CMR:455:96 SUBJECT:CHANGE IN DIRECTION FOR THE UTILITIES INFORMATION SYSTEM PROJECT TO SOLICIT FROM SOFFWARE VENDORS CUSTOMER PROPOSALS REQUEST The purpose of this report is to inform Council regarding a proposed change in direction for the Utilities Customer Information System (CIS) project from in-house software development to the pursuit of a purchased software solution. .RECOMMENDATION ¯ This is an informational report; no Council action is required. OLICY MPLICA ION This report does not propose any change to existing City policies. BACKGROUND _ The Customer Information~ System (CIS) project was initiated by the Utilities Department’s requirement to provide quality customer service, while remaining efficient and effective in an increasingly competitive, deregulated environment. The new system must support the processing of information for multiple utilities, receive meterreadings and service charges, generate customer utility bills, and maintain accurate utility revenue accounting. In addition, it will serve as an important management decision tool for forecasting, planning, and analyzing the current and future needs of the Utilities Department. In 1991, a needs assessment was initiated to identify the requirements of the new system. A Request for Proposals (RFP) was issued for acquisition of a customer information system. CMR:455:96 Page 1 of 4 The P,.FP process resulted in two alternatives: development of an in-house application, or purchase of software from an outside vendor. At that time, the proposed vendor application would have been more costly than in-house development efforts, and its functionality was not sufficient to consider its implementation. The proposed package would have required extensive effort from staff and the vendor for system modification; staff estimated that 50 to 70 percent of the software would have to be modified or enhanced to satisfy the requirements of the Utilities organization. Due to the cost, functionality limitations, and required modifications for the purchased package, the City decided to pursue in-house development. In 1993, a Capital Improvement Project was adopted to fund the CIS project. Initial in-house development efforts consisted of determining the system architecture, the software development tools to be used, and obtaining training in those tools. Efforts to date have focused mainly on establishing the framework for a new customer information system: documenting requirements; acquiring computer hardware and operating system software; performing data base modeling and conversion; and developing acceptance test criteria. The new two-sided utility bill format was implemented (including methods for printing, folding and stuffing the bills) and a five-year customer history was established. Actual programming of the core on-line system for maintaining customer information has yet to begin. DISCUSSION The CIS project has suffered from the loss of key staff, the inability to fill vacant positions, insufficient staff training in new programming tools, and a lack of continuity due to the number of contract programmers brought in to work on the project. Contract personnel have been hard to recruit and even more difficult to retain. Although the contractors are paid comparatively high wages, only one has continued on the project for more than a three month period of time. Consequently, while in-house development.efforts proceeded, staff has continued to monitor the vendor marketplace for applications that could be purchased. In the interim, vendors with experience in application development, new technologies, and utilities processes and .procedures have been enhancing and expanding their offerings. Recently, two vendors have upgraded their software to contain many of the features and functions required for the Utilities organization to remain competitive. These applications are consistent with the computing architecture used within the City. Staff was given a demonstration of one application and was favorably impressed; therefore, staff is encouraged that a review of the current application soffcvare market could result in finding an "off-the- shelf’ package containing many of the features and functions required by the Utilities Department. CMR:455:96 Page 2 of 4 Analysis of Alternatives The alternate approaches of in-house system development or the purchase of vendor software both offer advantages and disadvantages for the City. Software developed in-house would ¯ be designed to fit exactly the specific requirements for Palo Alto. System modifications could be made at any time and completely under the control of City staff. However, the disadvantages mentioned above including small staff, high turnover, and a lack of training in new technologies and software, result in ~Jifficulties that have prevented successful advancemem for the project. Purchase of a packaged system offers several advantages. The vendors of these soitware solutions expend a great deal of time, effort and money to develop state-of-the-art applications capable of addressing the functional requirements of utility organizations. The resources available to these vendors are far greater than the personnel and funding available to the City for such an effort. The vendors have eXtensive experience in utilities application development; software is tested and revised before it is installed on the City’s computer. In addition, these vendors may deliver some functionality beyond that defined for the City as part of their basic software. Enhancements would continue to be provided to the City as the vendors upgrade their software to keep utilities competitive. The disadvantage with purchased software is that it would not be developed specifically for Palo Alto. Some of the requirements identified by the City may not be met, or solutions may be addressed in a manner different from that to which the City is accustomed. In light of. the difficulties experienced with in-house development attempts, and the improvements made to packaged utilities software, staff plans to re-direct the Customer Information System project to evaluate purchased software to address the remaining requirements of the CIS project. Staff plans to develop an RFP and evaluate responses from software vendors. Based upon preliminary investigations, the cost and schedule for purchasing the CIS system appear to be the same as for continuing in-house system development. Both the Utilities and Information Technology staff support the vendor approach. They believe the purchased approach will be less risky, and the final product will have incorporated the elements necessary in a competitive utilities environment. CIS project management is now focusing efforts on tasks that need to be performed, regardless of whether development continues in-house or software is solicited from vendors. This report does not propose changes to the funding level of the Utilities Customer Information System project. The CIS is a Capital Improvement Project (CIP 9357) funded by the six City utilities. Costs for the project will remain the same whether the sot~tware is developed in-house or purchased from a vendor. CMR:455:96 Page 3 of 4 The original Capital Improvement Project requested $700,000 for the development of a CIS. In 1995-96, a Budget Amendment Ordinance of $256,000 was added to the project to provide computer hardware and memory, stafftraining, and contract programming support. The CIP budget also allocates approximately $510,000 for the project in FY1996-97 and FY 1997-98. To date, funds have been used to acquire the necessary computer hardware, operating system, data management tools, and consulting services.. ,Consulting services have included business process re-engineering, data base modeling, data conversion, requirements definition, and application prototyping and development. The majority of efforts and expenditures to date would have been required with either the in-house development effort or the acquisition of. vendor software. The existing CIP supports either approach. For in-house development, funds would continue the contract systems .analysis and application development efforts. In the purchased so~ware alternative, the funding would acquire the computer software, provide implementation and data conversion support,-and some degree of customization. Either approach is expected to cost approximately $500,000; the proposed CIP budgets contain adequate funding. ENVIRONMENTAL ASSESSMENT This is not a project for the purposes of the California Environmental Quality Act (CEQA); no environmental assessment is required. PREPARED BY:Libby Dame, Sr. Financial Analyst, Administrative Services Rob Pound, Manager, Infoirnat.ion Technology Services Em~ Harrison Deputy City Manager, Administrative Services DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: Related report: CMR:510:95 Utilities CMR:455:96 Page 4 of 4 m D,. o z D.. ATTACHMENT II "E "E 0 r 0Z 0z 0 ~o~ o OOw 0 00~-- o e=oo o (~o °~