Report Prepared by: Jeff Bennyhoff, Director of Information Technology
Title
SUBJECT: Authorization to Use the State of California Department of Technology (CDT) Cooperative Microsoft Agreement and Approve Use of SHI International Corp. as the State-Awarded Reseller for Microsoft Licensing of Software, Subscriptions, and Services for the Period of April 1, 2026, to March 31, 2031, in a not-to-Exceed Amount of $1,922,641 and Approving Contract Documents
REPORT IN BRIEF
Considers authorizing the State of California Department of Technology (CDT) cooperative Microsoft agreement for licensing of software, subscriptions, and services with vendor Software House International for the period of April 1, 2026, to March 31, 2031, in a not-to-exceed amount of $1,922,641, and approving contract documents.
RECOMMENDATION
City Council - Adopt a motion:
A. Waiving the City’s competitive bid requirements as stated in Section 3.04.210; and,
B. Authorizing the City Manager to execute the Agreements with SHI International Corp, and State of California Department of Technology (CDT) for Software Licenses, Subscriptions, and Services; and,
C. Authorizing the City Manager to execute future contract amendments that do not exceed 125% of the value of the agreement for subscriptions-based cloud services totaling $1,922,641 for the five-year duration of the agreement and contingent upon approval as to form by the City Attorney; and,
D. Authorizing the Finance Officer to make necessary budget adjustments for future contract amendments during the contract term; and,
E. Authorizing the Finance Officer to make any necessary transfer and appropriation for funds to be used explicitly for the expenditures of new software license, subscriptions, and services during the contract term.
Body
ALTERNATIVES
1. Adopt the motion as recommended; or,
2. Refer to staff for further evaluation; or,
3. Deny.
AUTHORITY
Bidding for items over $38,000.00 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 2025-26 Adopted Budget.
DISCUSSION
Background
In 2021 and 2025, the City Council approved multiple agreements for Microsoft-based software licenses, subscriptions, services, and support to ensure continuity of the City’s core business systems. These approvals intentionally established separate Microsoft contract vehicles to align with Microsoft licensing requirements, cooperative purchasing opportunities, and differing contract term structures. One agreement was executed through the State of California Department of Technology (CDT) for a specific subset of Microsoft licenses. By leveraging the State’s purchasing power, the City obtained discounted pricing on license types that were most cost-effective under the CDT agreement. The CDT agreement operates on a fixed statewide start date with a five-year term, which cannot be prorated or aligned with the City’s other Microsoft contracts. Because the CDT agreement covered only a limited set of Microsoft license types, the City was required to establish additional contracts to procure other Microsoft software, subscriptions, and services not available through the State contract. To address this need, the City utilized the County of Riverside’s cooperative master agreements for Microsoft Server and Cloud Enrollment (SCE) and Select Plus licensing. These agreements were competitively awarded, and operate on three-year terms, which council approved the last renewal in April 2025. The CDT Microsoft agreement is now approaching its expiration and requires renewal to ensure uninterrupted access to the Microsoft licenses covered under the State contract.
Action
The State of California recently completed a competitive procurement process for Microsoft reseller services and awarded the CDT Microsoft agreement to SHI International Corp. As a participating agency under the State contract, the City is required to utilize the State-awarded reseller for all Microsoft purchases made through the CDT agreement. While SHI International Corp. is also the City’s authorized reseller under its separate Microsoft SCE and Select Plus agreements, each agreement remains administratively distinct. Renewal of the CDT agreement ensures continuity of Microsoft licensing, avoids service disruptions or renewal penalties, and maintains alignment with prior Council actions that intentionally structured Microsoft licensing across multiple cooperative agreements to obtain the most favorable pricing and contractual terms for each category of software and services.
Cost Comparison and Contract Value
Staff compared the State of California Department of Technology (CDT) cooperative Microsoft agreement versus the County of Riverside cooperative agreement and determined that renewal under the CDT agreement represents the most fiscally prudent option, as there is a cost savings of approximately 4.1 percent. The County of Riverside agreement is currently mid-term, and future price escalators beyond its expiration are also unknown. In the final year of the existing CDT contract, the City incurred an annual per-unit cost of $501.44 for 555 licensed units. Under the proposed five-year CDT agreement, the 555 licensed units are now split into two different part numbers. The annualized per-unit cost decreases to $498.00 for 474 of the City’s licensed units and increases to $549 for 81 of the City’s licensed units in Years 1 and 2, representing an approximate 0.69 percent decrease and an approximate 8.7 percent increase respectively from the final year of the current contract. Costs in year 3 of the proposed contract further increase to $515.00 and $563.00 respectively, representing an additional 3.3 percent and 2.5 percent increase from Years 1 and 2, with pricing remaining flat through Year 5. As detailed in the table below, based on a total license count of 555 units, the estimated five-year licensing subtotal is $1,447,091, with additional ancillary licenses required representing a de minimis portion of the overall contract value. When including the applicable administrative fee of 6.29 percent, the total estimated not-to-exceed cost for the five-year term is $1,538,113.
|
Microsoft State of California CDT Contract |
|
License Type |
No. of Units |
Current Contract Unit Cost |
Yr 1 Unit Cost |
Yr 2 Unit Cost |
Year 3 Unit Cost |
Year 4 Unit Cost |
Year 5 Unit Cost |
Subtotal |
|
AAL-48033 |
474 |
$501.44 |
$498 |
$498 |
$515 |
$515 |
$515 |
$1,204,434 |
|
AAL-45735 |
81 |
$501.44 |
$549 |
$549 |
$563 |
$563 |
$563 |
$225,747 |
|
VA1-00001 |
4 |
|
$427 |
$427 |
$427 |
$427 |
$427 |
$8,540 |
|
KXJ-00001 |
15 |
|
$72 |
$72 |
$72 |
$72 |
$72 |
$5,400 |
|
HWT-00001 |
10 |
|
$45 |
$45 |
$45 |
$45 |
$45 |
$2,250 |
|
EP2-04913 |
6 |
|
$24 |
$24 |
$24 |
$24 |
$24 |
$720 |
|
Sub total |
|
|
$283,903 |
$283,903 |
$293,095 |
$293,095 |
$293,095 |
$1,447,091 |
|
State of CA admin fee 6.29% |
|
|
$17,857 |
$17,857 |
$18,436 |
$18,436 |
$18,436 |
$91,022 |
|
Sub Total |
|
|
$301,760 |
$301,760 |
$311,531 |
$311,531 |
$311,531 |
$1,538,113 |
|
25% Contingency |
|
|
|
|
|
|
|
$384,528 |
|
Grand Total |
|
|
|
|
|
|
|
$1,922,641 |
Future Licensing Needs and Budget Authorization
Over the five-year agreement term, the City anticipates the potential need for additional software, subscriptions, and related services beyond the quantities currently quoted, such as those resulting from staffing increases, expanded technology requirements, or regularity compliance obligations. The agreement includes true-up and new license mechanisms, to accommodate such growth. To provide sufficient fiscal authority and avoid procurement delays associated with incremental approvals, staff recommends that the City Council authorize a not-to-exceed expenditure amount equal to 125 percent of the proposed contract total, or $1,922,641 based on the current estimated contract value of $1,538,113. This authorization establishes an upper spending limit only; the City is not obligated to expend the full amount, and any expenditures beyond this threshold would require additional City Council approval.
Evaluation of Alternative Software Solutions
Each time Microsoft software and services contracts come up for renewal, staff evaluate whether more cost-effective alternative solutions are available, including cloud-based productivity platforms such as Google or open-source office productivity suites. While alternative platforms may offer lower per-user licensing costs in isolation, the City’s extensive reliance on Microsoft-based enterprise systems and integrated business workflows makes a transition cost-prohibitive. Moving to a non-Microsoft platform would require unwinding multiple existing contracts and systems, retraining staff, redesigning cyber security, compliance controls, and reconfiguring core business processes, resulting in millions of dollars in additional one-time and ongoing costs. In addition, alternative and open-source solutions lack native integration with the City’s enterprise identity and cybersecurity controls, audit compliance, eDiscovery requests, litigation holds and accessibility tools required to meet ADA and public records obligations. When accounting for transition costs, increased compliance risk, and higher long-term total cost of ownership, staff have determined that renewing the City’s Microsoft licensing agreements through cooperative purchasing arrangements remains the most cost-effective, operationally feasible, and least disruptive approach.
Impacts if Contracts Not Approved
If the agreements are not approved, the City would lose access to critical Microsoft-based software, severely impacting operations. This includes the loss of all Microsoft-hosted email accounts, including historical records, disrupting internal and external communications. Staff would no longer have access to essential office productivity applications such as Word, Excel, and PowerPoint, hindering document creation, editing, and sharing. Additionally, collaboration tools like Teams and SharePoint would become unavailable, limiting remote in-field work capabilities and document management. The City would also lose access to security updates, patches, and compliance protections, increasing cybersecurity risks. Given the City's heavy reliance on Microsoft services, not renewing these agreements would significantly disrupt essential functions and service delivery of the City.
IMPACT ON CITY RESOURCES
Funding for Microsoft licenses for Fiscal Year 2025-26 is available within Fund 7009-PC Replacement budget. Future years costs will be included in Fund 7009-Computer Replacement be part of the annual budget process. Fund 7009-Computer Replacement will be reimbursed from the various departments based on number of licensing used for each department.
ATTACHMENTS
1. Request for Offer (RFO) #25-0198737 - Microsoft Online Subscriptions
2. CA CDT Purchasing Authority Purchase Order
3. CA CDT Service Catalog General Terms and Conditions
4. SHI Quote-27123418