Report Prepared by: Jeff Bennyhoff, Director of Information Technology
Title
SUBJECT: Authorization to Use the County of Riverside Agreement #8084445 and #7754679 for Microsoft Licensing of Software, Subscriptions, and Services with Vendor Software House International and Microsoft for a Period of May 1, 2025, to April 30,2028 in a not to Exceed Amount of $686,614 and Approving Contract Documents
REPORT IN BRIEF
Considers authorizing to utilize the County of Riverside Agreement #8084445 and #7754679 for Microsoft Licensing of software, subscriptions, and services with vendor Software House International and Microsoft for a Period of May 1, 2025, to April 30,2028 in a not to exceed amount of $686,614 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 for piggybacking; and,
B. Authorizing the City Manager to execute Change of Channel Partner and Change of Reseller agreements; and,
C. Approving the Agreements with SHI and Microsoft for software Licenses, Subscriptions, and Services; and,
D. Authorizing the City Manager to execute future contract amendments that do not exceed 135% of the $267,270 value of the agreement for subscription-based cloud services totaling $360,814 for the three-year duration of the agreement; and,
E. Authorizing the City Manager to execute future contract amendments that do not exceed 135% of the $108,000 value of the agreement for usage-based technology services totaling $145,800 for the three-year duration of the agreement; and,
F. Authorizing the City Manager to execute future contract amendments to the Microsoft Unified Support Agreement that do not exceed $180,000; and,
G. Authorizing the Finance Officer to transfer $52,529 from Fund 7008-Support Services to Fund 7009-Computer Replacement and appropriating the same in the current fiscal year; and,
H. Authorizing the Finance Officer to make necessary budget adjustments for future contract amendments; and,
I. Authorizing the Finance Officer to make any necessary transfers and appropriation for funds to be used explicitly for expenditures of new software licenses, subscriptions, or services during the contract term.
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 $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 2024-2025 Adopted Budget.
DISCUSSION
Background
In late 2021 and early 2022, the City Council approved three contracts for Microsoft based licenses, subscriptions, services, and support. One contract was an agreement with the State of California Department of Technology (CDT) for a single type of Microsoft based license. By leveraging the state’s purchasing power, the City secured discounted pricing on this license type. However, since the CDT contract covered only a single license type, the City had to establish additional contracts to procure other Microsoft software, subscriptions, and services not included in the CDT agreement.
To address this, the City used the County of Riverside’s cooperative master agreement for its Microsoft Server and Cloud Enrollment (SCE) and Select Plus agreements. These agreements, which were competitively awarded, covered the remaining license types and are set to expire on April 30, 2025.
The CDT contract operates on a fixed start date with a five-year term. In contrast, the SCE and Select Plus agreements have three-year terms that could not be prorated to align with the CDT contract. Therefore, these agreements must be renewed separately to ensure continued access to necessary Microsoft software and services. Staff will bring forward a renewal for the CDT agreement in Fiscal Year 2025-2026.
Microsoft Server and Cloud Enrollment (SCE) and Select Plus Agreement Renewal
The City must now renew its Microsoft SCE and Select Plus agreements. The County of Riverside has been the prime agency that issues RFP’s for Microsoft based licensing and services that almost all Cities and Counties utilize in California. Multiple Licensing Solution Partners (LSPs) were awarded contracts under the County’s agreement, though not all LSPs can provide every type of Microsoft license, subscription, or service. Below is a breakdown of the markup each LSP applies above Microsoft’s Level D pricing:
|
Licensing Solution Partner |
Markup Above Level D Pricing |
|
SHI international Corp ( ITARC-00929 ) |
1.10% |
|
Insight public Sector. lnc |
1.75% |
|
Crayon Software Experts |
1.95% |
|
Zones LLC |
2.50% |
|
CDW Government LLC |
3.75% |
|
Dell Marketing LP |
4.00% |
|
Softchoice lnc. |
5.50% |
Staff recommends waiving the City’s competitive bid requirements per Section 3.04.210 of the Merced Municipal Code and selecting SHI International Corp (ITARC-00929), the lowest-cost LSP that meets the City’s needs under the County of Riverside’s RFP. The City Council previously approved using this contract vehicle for Microsoft software and subscription services in 2009, 2014, 2019, and 2022 with vendors CDW Government and Crayon Software Experts. During the 2022 renewal period SHI international and Crayon Software Experts where the exact same markup rate. In November 2024, the County of Riverside re-awarded the RFP to vendors, with SHI international now designated as the vendor offering the lowest markup rate.
As staff is recommending moving from one reseller, Crayon Software Experts, to SHI international Corp this requires the City to execute a contract for a Change of Chanel Partner and Change of Reseller agreements. The County of Riverside agreement offers some of the best available rates for Microsoft products not covered under the CDT contract. By managing Microsoft licensing through multiple contracts, the City ensures it obtains the best pricing for each software component. Under the proposed renewal, the Select Plus agreement will cover Microsoft on-premises perpetual licenses at $31,293 per year, while the SCE agreement will cover subscription-based cloud services at $57,797 per year. The total annual cost for both agreements is $89,090.
In 2022, the City's SCE and Select Plus agreements costs were $57,387 annually. Under the proposed agreement for 2025, the total expense for Microsoft licenses is projected at $89,090, representing an increase of nearly 65%. However, this increase is primarily due to departments acquiring additional technology rather than an increase in the per-unit cost of Microsoft licenses. In fact, most unit prices in the 2025 agreement remain unchanged from the 2022 contract; the overall cost increase is driven by the higher volume of licenses and new license types required to meet departmental service demands.
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.
Future Licensing Needs and Budget Authorization
Over the three-year agreement term, the City anticipates additional software, subscription, and service needs beyond what is currently quoted. For example, if the City hires additional staff, more Microsoft licenses and subscriptions will be required. The agreements provide flexibility for such expansions through true-up and new software license mechanisms.
To ensure sufficient authority for anticipated growth, staff recommends that the Council authorize expenditures up to 135% of the proposed agreement total. This approach allows for necessary purchases while avoiding delays in procurement. The City is not obligated to use the full amount but will have Council approval to do so if needed. Any spending beyond this threshold would require additional Council approval.
Usage-Based Technology Services and Budget Authorization
This agreement includes provisions for the procurement of usage-based technology services, which are expensed based on actual consumption. Costs are incurred according to measurable units such as the volume of data stored (e.g., gigabytes), data transmission and reception, and the number of operations performed. These services are invoiced on a monthly basis. The City currently incurs an average monthly expenditure of approximately $3,000 for these usage-based services.
To account for potential future growth in technology service demands, including increased data storage, higher transmission volumes, and expanded operational requirements, it is recommended that budget authorization be set at 135% of the current estimate. This would provide an authorization of $4,050 per month to ensure sufficient expenditure authority for anticipated expansion and unforeseen needs. The City is not obligated to use the full amount but will have Council approval to do so if needed. Any spending beyond this threshold would require additional Council approval.
Microsoft Support
The City has increasingly relied on Microsoft cloud-based services for our business operations. As more services and operations have transitioned to Microsoft cloud environments, the level of support required has also evolved. In some cases, City Information Technology staff lack direct access to critical insights and administrative controls over the technology that departments depend upon.
Currently, the City relies on the standard Microsoft support model designed for small businesses. However, this level of support is no longer sufficient given the City's extensive dependence on Microsoft services, and the public safety department we support for their technology needs. To address this gap, staff recommends procuring Microsoft Unified Support at an average annual cost of $53,430 over the 3-year agreement. This service would provide Information Technology staff with direct access to Microsoft technical support staff, enabling faster issue resolution and improved operational continuity.
The cost of Microsoft Unified Support is calculated as a percentage of the City’s total Microsoft contractual commitments over the three-year term, including agreements under the Software & Cloud Enrollment (SCE), Select Plus, usage-based services, and the California Department of Technology (CDT) contract. The contracted cost is based on a graduated pricing model, as detailed in the table below.
Microsoft made an error by omitting the City’s CDT contractual commitments when drafting the Unified Support agreement. Obtaining a corrected agreement requires several weeks of processing through Microsoft’s legal department. Delaying execution of the Unified Support agreement until the correction is finalized would cause the City’s SCE and Select Plus agreements to expire, resulting in renewal penalties. To mitigate this risk, staff recommends executing the agreement as currently drafted while securing the necessary authority to amend the contract once the correction is finalized. This approach ensures continuity of support services while avoiding unnecessary penalties.
The CDT agreement is scheduled for renewal in the next fiscal year, and its cost remains to be finalized. The table below reflects the pricing for the CDT contract that is proposed FY25/26 recommended budget. As this agreement directly impacts the City’s overall Microsoft spending and, subsequently, the Unified Support cost structure, staff recommends securing sufficient budget authority to accommodate potential cost adjustments when the CDT renewal occurs. To address these variables, staff requests authorization for a fixed, not-to-exceed expenditure of $180,000 for Unified Support and any necessary adjustments related to the CDT renewal, future licensing requirements, and usage-based services.
The contingency costs associated with future licensing needs and usage-based services are expected to also increases in Unified Support expenses during year 2 and year 3. By obtaining a not-to-exceed authority, the City ensures that adequate budgetary resources are available to accommodate these anticipated adjustments.
Microsoft requires a minimum annual expenditure of $50,000 for Unified Support, based on a graduated pricing model. As the City’s Unified Support cost currently falls below this threshold, the contract value is not expected to fluctuate significantly, even after incorporating the CDT commitment.
The Unified Support Agreement requires the City to utilize at least one professional services engagement per contract year. The agreement includes an annual $25,000 credit for Microsoft Professional Services, which may be applied toward eligible activities such as proactive training, technical education programs, or implementation support for the Information Technology Department. Additionally, the cost of professional services is subject to an annual escalation of approximately 3.5% per year, increasing the City’s financial obligations over the contract term.
Below is a breakdown of the cost structure under the Microsoft Unified Support Agreement. The total estimated fees under the Unified Support Agreement are distinct from the requested not-to-exceed expenditure authority. While the projected total fees for the three-year term amount to $160,299, staff is requesting an expenditure authority of $180,000 to ensure sufficient budget capacity for potential adjustments, including CDT contract changes and evolving service requirements. However, actual expenditures will be limited to the amounts required to fulfill the City’s contractual obligations, ensuring fiscal responsibility and compliance with budgetary constraints.
|
Description |
Year 1 |
Year 2 |
Year 3 |
Total |
|
Appraised Product Spend |
$145,192 |
$145,192 |
$145,192 |
$435,576 |
|
Missing Product Spend -CDT Contract renewal estimate |
$316,166 |
$316,166 |
$316,166 |
$948,498 |
|
Sub Total |
$461,358 |
$461,358 |
$461,358 |
$1,384,074 |
|
|
|
|
|
|
|
Commitment at 10% Value |
$46,136 |
$46,136 |
$46,136 |
$138,407 |
|
Commitment at 10% Value assuming maximum 135% contingency Expended |
$62,283 |
$62,283 |
$62,283 |
$186,850 |
|
|
|
|
|
|
|
Minimum Contract Obligation |
$50,000 |
$50,000 |
$50,000 |
$150,000 |
|
|
|
|
|
|
|
Professional Services Breakdown |
|
|
|
|
|
Professional Service Spend |
$25,529 |
$26,423 |
$27,387 |
79,339 |
|
Professional Service Spend Add-On requirement |
$2,000 |
$2,000 |
$2,000 |
$6,000 |
|
Professional Service Spend Credit |
($25,000) |
($25,000) |
($25,000) |
($75,000) |
|
|
|
|
|
|
|
Total Fees |
$52,529 |
$53,423 |
$54,348 |
$160,299 |
|
|
|
|
|
|
|
Not to Expenditure Authority |
$60,000 |
$60,000 |
$60,000 |
$180,000 |
Total Expenditure Authority
Staff is seeking authority for a not to exceed expenditure authority of $686,615, which includes the committed costs for two Microsoft license agreements and Microsoft Unified Support. Additionally, two 135% contingencies are allocated for potential true-ups, new licenses, and usage-based services. The budget allocation is detailed in the table below, distinguishing between committed costs and contingency authority.
|
|
Vendor |
Year 1 |
Year 2 |
Year 3 |
Sub Total |
|
Committed Costs |
|
|
|
|
|
|
Select Plus |
SHI |
$31,293 |
$31,293 |
$31,293 |
$93,879 |
|
SCE |
SHI |
$57,797 |
$57,797 |
$57,797 |
$173,391 |
|
Microsoft Unified Support |
Microsoft |
$60,000 |
$60,000 |
$60,000 |
$180,000 |
|
|
|
|
|
|
|
|
Contingency Authority |
|
|
|
|
|
|
135% True-up- Authority (If Required) |
SHI |
$31,182 |
$31,182 |
$31,182 |
$93,544 |
|
135% Usage/Consumption Based Authority (If Required) |
SHI |
$48,600 |
$48,600 |
$48,600 |
$145,800 |
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
$686,614 |
Evaluation of Alternative Software Solutions
Each time Microsoft software and services contracts come up for renewal, staff assesses whether a more cost-effective alternative exists, such as Google software. However, the City’s extensive integration with Microsoft-based business solutions makes switching cost-prohibitive. For example, in January 2019, the Council approved a $6.1 million replacement of the City’s Enterprise Resource Planning (ERP) system, which requires Microsoft software for full functionality. Transitioning to another vendor’s software would necessitate unwinding numerous existing contracts, resulting in millions of dollars in additional costs. Given these factors, renewing the Microsoft SCE and Select Plus agreements remains the most cost-effective and practical approach for the City.
IMPACT ON CITY RESOURCES
Most of the funding for Microsoft licenses for Fiscal Year 2024-25 is available within Fund 7009-PC Replacement budget; however, an additional $52,529 is needed to cover the total expense and it will be transferred from Fund 7008-Support Services to Fund 7009-PC Replacement. There is sufficient funding in the FY 24-25 approved budget for the current fiscal year costs.
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. City of Merced - SCE Renewal Enrollment
2. City of Merced Select Plus Quote
3. City of Merced SCE Quote
4. City of Merced Unified Support
5. Riverside RFP-CAO Signed
6. Change of Channel Partner
7. Change of Reseller