County Supervisors Postpone Vote on Giant Xerox IT Contract

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Xerox’s efforts to win a massive, $134-million county computer contract were dealt a setback Tuesday amid questions about a $27-million price hike to the contract even before it has been approved.

Orange County supervisors decided not to vote on the contract, instead postponing the vote until July 30.

While county leaders didn’t explain the delay, board Chairman Shawn Nelson spoke of Xerox having “problems.”

The postponement came as Voice of OC reported early Tuesday that Xerox’s price had jumped by nearly $27 million after it was chosen as the preferred vendor, with scant details from county staff.

County information technology staff said that about $12 million of that increase was added by Xerox itself, despite a company executive assuring supervisors last November that Xerox would stick by its $107-million final offer.

Faced with Xerox’s price increase after it was chosen over its competitor, Verizon, Supervisor John Moorlach asked on Tuesday whether Verizon should rebid on the contract.

“I’m just wondering if we should be encouraging IT staff to look at discussions with Verizon to see if their bid is any different,” said Moorlach.

The idea would be to “see if the delta has changed a bit and see if we’ve got a little bit more competition in the mix,” he added.

Chairman Shawn Nelson, meanwhile, said the gulf between Xerox’s $134-million bid and Verizon’s $171 million offer is still far too large.

“I assure you, my issue is more to do with Xerox and their issues than an additional $37.5 million that Verizon bid,” said Nelson. Verizon would need to drastically reduce its price if it wanted to be a viable candidate, he said.

“I made it very clear, having spoken with [Verizon] yesterday, that … at least if it wasn’t a $37.5-million shave from where they started, it was sort of a non-starter,” he added.

Moorlach had also suggested holding off on the vote until August when Supervisor Todd Spitzer can attend.

Nelson meanwhile noted that the current Xerox contract expires at the end of the month, so the board would need to discuss an extension at the July 30 meeting.

In an interview later Tuesday, Moorlach agreed with Nelson that Verizon has a huge gap to overcome.

“I think [Chairman] Nelson’s response is probably pretty accurate. [Verizon] might not come down” in cost, said Moorlach.

Asked whether Xerox had broken its guarantee to stick with its price, Moorlach said: “I’d rather reserve my comments.”

Last November when Xerox was chosen as the preferred vendor, supervisors had showed a sharp concern about computer companies underbidding contracts only to bump up the price later.

“If you’re lowballing us, we’re not going to take too kindly to it,” Supervisor Janet Nguyen told bidders.

In response, Xerox’s representative was unequivocal.

“There have clearly been questions about the price. So let me say without any question, we will guarantee that we will deliver the service we’ve offered in our proposal for the price we quoted,” said Michael Davis, senior vice president at Xerox State and Local Solutions.

At that point, both Xerox and Verizon had submitted “best and final offers” upon which they were evaluated.

But after Xerox was chosen as the preferred vendor, the company added $12.1 million to its price for extra services that are still unspecified. County staff also added a further $14.8 million in costs, according to staff documents.

It’s nearly impossible to evaluate the price jump. County staff’s entire explanation of Xerox’s added costs attributes them to “governance, extended transition schedule, responsibility for all transformed circuits, performance of subcontractors.”

Moorlach said that while he hasn’t delved into the details of the increase, he’s comfortable with staff’s recommendation to approve it.

“I didn’t have a problem with it, and I wasn’t going to make an issue of it,” said Moorlach.

Xerox spokesman Carl Langsenkamp said Tuesday evening that he wasn’t familiar with the proposed contract but would research the issue.

The new Xerox contract would have the firm running the data network for nearly all of the county’s 17,000 desktop computers as well as the county’s land line phone system.

The large-scale computer contract comes amid concerns that many IT vendors intentionally lowball their bids and then, once they win a contract, tack on overpriced change orders.

Such a scheme is alleged by the county in a recent fraud lawsuit against computer vendor Tata Consultancy Services.

That firm made “a series of false promises and intentional misrepresentations” during the bidding process and “made promises to complete the project on a budget and according to a timeline with which they had no intention of complying,” county lawyers allege in the suit.

“The county has suffered millions of dollars of damages as a result of defendants’ wrongful conduct, and it will continue to suffer damages for the years it will take to develop a replacement for the failed project,” they added.

Xerox’s current contract dates back to 2000 and was the subject of a series of critical audits, which led to the forced retirement of former IT director Satish Ajmani.

The deal was originally supposed to end in June 2011 but has been repeatedly extended as efforts drag on to choose replacement vendors.

That process has taken more than three-and-a-half years, dating back to February 2010 when county staff started developing the request for proposals.

Xerox and its lobbyists have steered considerable sums to all five county supervisors, often times in a less than obvious way.

A quick survey of campaign finance data found more than $12,000 in contributions between mid-2010 and mid-2012, though much of the funding is obscured through intermediaries.

You can reach Nick Gerda at ngerda@gmail.com, and follow him on Twitter: @nicholasgerda.

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