The Orange County Board of Supervisors are scheduled to vote again Tuesday on a massive information technology contract for Xerox that has caused controversy at the county and threatening communications from the company.
Last week, supervisors delayed the vote because of questions regarding an unexplained $27-million price hike in Xerox’s contract. Xerox responded with a letter to the county in which it threatened to withdraw an offer to run the county’s computer networks and data center past the end of the month.
Top county leaders immediately took notice, with county CEO Michael Giancola and Chief Operating Officer Mark Denny personally delivering the letter to supervisors. Xerox then backtracked the next day, acknowledging that the move had worried top officials that the county government, which serves 3.1 million county residents, could be cut off from critical computer services.
“Regarding my letter to you last evening indicating that Xerox was withdrawing our Amendment 20 submission, we regret that it caused some concern that Xerox was not willing to extend our current contract,” wrote Michael Moore, senior vice president at Xerox State & Local Solutions.
Asked about the episode, county IT chief Mahesh Patel emphasized that a deal was ultimately reached to keep Xerox on board.
“We worked through whatever issues we may have had with respect to that,” said Patel. “There’s always concern when a contract is coming to an end.”
Tuesday, supervisors are expected to vote on a new $134-million computer contract with the company. Records show that Xerox funneled more than $12,000 in campaign contributions to supervisors from 2010 to 2012.
Last week, supervisors were surprised by the $27-million price hike, especially since the company had reassured them in November that it would stick by its $107-million final offer.
“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,” Michael Davis, senior vice president at Xerox State and Local Solutions, told supervisors concerned about IT firms underbidding on contracts.
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.
The staff report’s explanation of the increases was brief: “Xerox’s costs to perform these services have increased by $26.8 million over five years from their final proposal cost to the final negotiated cost.”
And staff’s attached document on “pricing changes” attributes Xerox’s multimillion-dollar price hike simply to “governance, extended transition schedule, responsibility for all transformed circuits, performance of subcontractors,” without further explanation.
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, add overpriced change orders.
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.