Questions About Cost Again Delay Vote on Xerox IT Contract

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The Orange County Board of Supervisors again delayed a vote Tuesday on a massive information technology contract with Xerox, with questions still unresolved about $12 million the company added to the contract after promising no price increases.

The delay raises the likelihood that Xerox could lose the contract altogether. If that becomes the case, the board could have second-place bidder Verizon rebid the contract or have county employees handle many of the services in the contract.

Since November, when Xerox was chosen as the preferred vendor and agreed to charge $107 million, the company has added millions to its price for extra services that are still unspecified.

At one point, according to county officials, the company wanted to increase the contract to $160 million. That amount was eventually reduced to $134 million, which included $12 million in costs added by Xerox and $14.8 million added by county staff, according to county documents.

Things became particularly tense between Xerox and county officials last week when the company withdrew an offer to continue running the county’s phone and computer networks center past the end of the month when the current agreement expires. The company backed off the threat a day later.

At this week’s meeting, Chairman Shawn Nelson said the company was essentially trying to threaten the county into approving contract with a higher price tag.

“Nobody’s going to intimidate me. You want to take your ball and go home, pull that nonsense?” said Nelson. “I accept it for what it is. They want to play us, which is what that was.”

Tuesday’s vote was 3-1 to extend Xerox’s current contract until Sept. 10, with the board directing the staff to negotiate with Xerox on a contract amount somewhere between the original $107-million agreement and the $134-million that the board rejected.

Nelson opposed the extension. Supervisor Todd Spitzer was absent.

“I don’t like what I’m seeing, and I’m not going to get nickel-and-dimed,” said Nelson. “We want honesty from the get-go, not hide the walnut.”

He also questioned how Xerox could claim that it hadn’t foreseen the full costs when it made the final offer.

Pointing to a $6.4-million price jump for Xerox taking responsibility for more network circuits, Nelson said, “There is no way that looking at our original scope, a proposer wouldn’t have assumed that we’d have to use somebody’s infrastructure to get to all our remote locations.”

“I’m tired of that,” said Nelson. “I just want some comfort that I’m not going to be chasing a vendor around, because my appetite for that is zero.”

The Orange County Employees Association, the county’s main employee union, also joined in the criticism. Union officials brought up the county’s long history of IT contract cost overruns, which includes an ongoing fraud lawsuit against vendor Tata Consultancy Services.

Xerox “stood at this very podium and promised you that it wouldn’t be anything more,” said OCEA General Manager Nick Berardino. “That’s what this history is, and you’re going to repeat it again.”

Company officials did not comment at Tuesday’s meeting other than to agree to the extension of their current contract.

Given all the frustration with Xerox, several county IT workers made it a point to say that staffers could handle much of the work asked for in the contract.

“We are accountable to the Orange County taxpayers instead of the [Xerox] shareholders,” said Virgilio Fermin, an IT staffer at the county Health Care Agency. “Please allow us to help.”

They also suggested that by outsourcing, the county was making itself even more vulnerable to cost overruns.

“With this contract expanding by tens of millions of dollars, what is going to happen when we no longer have control over the infrastructure of IT?” asked Eric Dalnes, who works at the Social Services Agency.

County IT chief Mahesh Patel said that handling the services in-house would cost the county $32 million more than contracting with Xerox.

Vice Chairwoman Pat Bates suggested that Xerox could end up charging the county just as much by tacking on change orders. “It doesn’t take many $5-million add-ons to get up to that,” said Bates.

Nelson asked Patel whether he had analyzed which parts of the contract can’t be handled by county staff. Patel didn’t directly answer but said county staff didn’t have the expertise to redesign an entire county network that had “grown somewhat loosely, somewhat organically.”

Supervisor Janet Nguyen was the most vocal of her colleagues in wanting to move forward with approving Xerox’s contract on Tuesday.

She emphasized the importance of updating the county’s phone system to the newer Voice over IP standard, which is already installed at the county Public Works and Community Resources departments.

“The system needs to be upgraded. We have to do something to the system,” said Nguyen. “I would go with staff, I would go in-house, if we had the expertise and we had the money to spend.”

Nelson, meanwhile, said the phone system works just fine and that county staff could handle many of the phone upgrades.

“AT&T has delivered every phone call made to me so far,” he said, adding that “we know our staff can do Voice over IP, at least for departments with 800 to 1,000 people.”

Bates said she was “60 percent there, maybe 70 percent” ready to approve the new contract but is still “not totally comfortable” with the cost increases.

“We need to get to the bottom of these [questions], and I think most importantly we need to get to the truth,” said Bates.

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

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