Report Prepared by: Jeff Bennyhoff, Director of Information Technology
Title
SUBJECT: Authorization to Utilize the Public Entity Agreement and a Five-Year Master License Agreement From the State of California Department of Technology for Microsoft Subscription Services With the Total Cost of the Agreement to be $895,455 and Authorization to Spend $223,864 Over the Duration of the Five-Year Agreement for Licenses, Additional Software, and Subscriptions
REPORT IN BRIEF
Approval to utilize the Public Entity Agreement and a Five-Year Master License Agreement from the State of California Department of Technology for Microsoft subscription services. The total cost of the agreement is $895,455 including associated administrative fees. Staff is requesting additional authorization to spend $223,864 over the agreement amount of $895,455 over the duration of the five-year agreement for additional licenses, software, and subscriptions.
RECOMMENDATION
City Council - Adopt a motion:
A. Waiving the City’s competitive bid requirements as stated in Section 3.04.210 of the Merced Municipal Code; and,
B. Authorizing the use of a five-year master license agreement with California Department of Technology, for Microsoft software subscription licensing; and,
C. Authorizing the use of a Public Entity agreement with California Department of Technology; and,
D. Authorizing the City Manager or Deputy City Manager to execute all necessary documents; and,
E. Authorizing the Finance Officer to make necessary budget adjustments; and,
F. Authorizing the City Manager or the Deputy City Manager to execute future contract amendments that do not exceed 125% of the total agreement value for the five-year duration of the agreement; and,
G. Authorizing the Finance Officer to make necessity budget adjustments for future contract amendments; and
H. Authorizing the Finance Officer to transfer any required funds to the PC Replacement Fund and appropriate to be used explicitly for encumbrances and expenditures of new software licenses or subscriptions during the agreement.
Body
ALTERNATIVES
1. Adopt the motion as recommended; or,
2. Decline to award contract; or,
3. Refer to staff with direction.
AUTHORITY
Bidding for items over $33,000.00 may be waived with the approval of the City Council under Merced Municipal Code Article III of Title 3, Chapter 3.04, Section 3.04.210. Waivers may be authorized for, but are not limited to, cooperative purchasing in conjunction with other governmental entities, professional services, annual service or supply agreements, or purchases necessary for standardization on particular types or equipment.
CITY COUNCIL PRIORITIES
As provided for in the 2021-22 Adopted Budget.
DISCUSSION
Background
On April 15, 2019 council approved a three-year Enterprise Agreement for Microsoft software and subscription services. The Enterprise Agreement covers all Microsoft software and subscriptions used by all department in the City. This agreement was piggybacked off the County of Riverside Microsoft contract which provided the best discount for a City in California.
The California Department of Technology (CDT) released a new Enterprise Licensing Agreement in March 2021 for Microsoft subscription software which California local governments can utilize to get the full buying power of the state. This new contract guarantees the highest possible discounts for a local government in the United States.
The current Enterprise Agreement allows the City to receive the same pricing as the County of Riverside but the City contracts directly with Microsoft and purchases through a reseller. With the CDT enterprise licensing agreement, the City will be sublicensing through the state CDT and making payments directly to the CDT.
The CDT enterprise license agreement is a five-year term with a fixed start date of March 1, 2021 and an end date of February 28, 2026. The City can utilize the agreement mid-year and get the prorated pricing based upon the number of months remaining in the first year of the agreement. The pricing discounts percentages for the primary licensed item, M365 G5, are based upon two factors, what year you enter the agreement and the tier rate. The tier rate of the agreement has additional discounts if the combined total of licenses across all state and local agencies exceeds 200,000 licenses at an anniversary year. The state has an active license count of 116,000 at the writing of this admin report. The state anticipates moving into the Tier 2 discount rating in year three. All other software and subscriptions on the agreement are prices at the same discount rate as the current 7.5% discount provided for with the County of Riverside agreement for years 1 and 2.
|
Tier 1 |
Discount |
|
Tier 2 |
Discount |
|
Year 1 |
34.7% |
|
Year 1 |
39.7% |
|
Year 2 |
31.8% |
|
Year 2 |
34.7% |
|
Year 3 |
31.8% |
|
Year 3 |
34.7% |
|
Year 4 |
21.8% |
|
Year 4 |
22.1% |
|
Year 5 |
14.4% |
|
Year 5 |
15% |
Microsoft has a provision that allows the City to remove subscriptions from our current Enterprise Agreement and move them to the new CDT agreement. The current Enterprise Agreement requires the City to prepay for a year of services in advance. The City will receive a credit for the monies paid to Microsoft through our reseller for the prepaid services from the current agreement and apply the credit to the new CDT agreement.
The CDT contract does not cover all the Microsoft software used by the City. The City will need to bifurcate the software and subscriptions used into multiple contracts. On-premises software and Azure cloud-based services and will stay on the current Enterprise Agreement and will need to be renewed in April 2022 into two new contracts; while subscription based services will utilize the CDT enterprise license agreement.
The CDT enterprise license agreement has an administrative fee that must be paid to the state by local government agency to take advantage of the contracted discounts. The fee is based upon the total cost of the Enterprise license agreement for the City. This administrative fee is broken into two components, the CDT Administrative fee of 2.71% and the CDT Distribution fee of 3.5% for a total CDT administrative fee of 6.21%. The CDT is considering waiving the Security operation Center fee to local government, but this has not been finalized as of the writing date of this staff report.
The City will make annual payments at the yearly anniversary date to the CDT based upon the chart below. The chart below assumes Tier 1 pricing through the entire duration of the contract and does not include the CDT administrative fees.
|
Year 1 |
$20,632.54* |
|
Year 2 |
$186,885.06 |
|
Year 3 |
$186,924.26 |
|
Year 4 |
$214,231.86 |
|
Year 5 |
$234,423.64 |
|
|
|
|
Administrative Fee’s across all years |
$52,357 |
|
|
|
|
Grand Total |
$895,455 |
*This takes into account prorating and credit from existing Enterprise agreement.
Over the duration of the five-year agreement the City will need to add additional software and subscription services than what is currently outlined in the proposed quote. For example, the City will add additional staff that will need access to Microsoft software and subscriptions. The agreement accounts for this with two provisions via a true-up and new software licensed mechanism. It would be prudent to authorize the licensing of additional software subscriptions via the CDT agreement. Staff recommend council to authorize the expense up to 125% above the current proposed amount for add on and true ups of additional software and subscription. Any item that would push the City above this 125% threshold during the duration of the five-year agreement will be brought back to council for additional expenditure authority.
If council chooses to not to approve the agreement with CDT, the City will maintain our current Enterprise agreement that will expire in April 2022. At the end of the agreement the City will need to enter into new agreements or cease to use all Microsoft software that is subscription based as the City will no longer be entitled to use the software. As Microsoft software is a core component to almost all business processes within the City it would be devasting to the services we provide residents. The City would not have access to email, excel files for budgeting, and web conferencing to just document a few items that would be affected. Microsoft has stated they plan on renewing the Riverside Agreement but not providing the 7.5% discount the agreement currently provides. The City would need to pay market rate for the software and subscriptions utilized or the City’s will need to use the CDT agreement to get a governmental discount rates.
Each time a Microsoft software renewal agreement is taken before council staff are asked if there is cheaper alternative than Microsoft software, for example using Google software. The City has extensive business solutions that integrated with Microsoft software and it would cost significantly more funds to remove that interdependency. For example, in January 2019 council approved the purchase for a replace Enterprise Resource Planning system for $4.1 million dollars. The new ERP requires the City to have Microsoft software to be ability to utilize all the features of the new ERP software. For the City to not utilize Microsoft software and instead utilize another vendor software would require the City to unwind dozens of contracts worth millions of dollars.
IMPACT ON CITY RESOURCES
Funding for Microsoft licenses for Fiscal Year 2021-22 is available within the Technology Replacement-Fund 672 budgeet. Future year payments will also be budgeted and made from the Technology Replacement fund annually. Through the City’s annual budgeting process, the Technology Replacement-Fund 672 will be reimbursed from the various departments based on number of licensing used for each department.
ATTACHMENTS
1. CA CDT Master License Agreement
2. Quote from Crayon Software Experts, LLC
3. CA CDT Public Entity Agreement STD213