November 2, 2010 By Andy Opsahl
A conflict is brewing among local government IT departments and vendors over the degree to which vendors should adjust their prices to save government jobs. Some revenue-starved municipalities are targeting ongoing maintenance fees paid to IT vendors as an area for cutting costs. Typically when an agency buys hardware or software, it also purchases an ongoing service plan for repairs and parts replacement. Maintenance fees can be lucrative for vendors, and the fees frequently increase annually. Some CIOs, like Steve Emanuel, CIO of Montgomery County, Md., believe today’s maintenance charges no longer reflect realistic amounts governments can pay. He wants the county’s vendors to lower their profit expectations for those services, but many vendors seem reluctant to do so, according to Emanuel. CIOs often see maintenance fees as gravy for vendors, while vendors insist that maintenance fees seed future product upgrades and ensure quality service.
State and federal legislation frequently mandates changes in the way government systems operate, and these changes are included in vendor software upgrades. Government IT departments report that private-sector willingness to eat maintenance fees tends to depend on how easily government can switch vendors. Smaller companies seem more willing, while larger ones tend to dig in their heels. Emanuel said vendors risk losing government business if they don’t adjust to governments’ current fiscal realities.
“In some cases, it’s going to drive us to other products,” Emanuel said. “In some cases, it’s going to drive us to other service providers. In some cases, it’s going to make us take the risks we really don’t want to take.”
Vendors vary on their approach to revising maintenance fees, but most insist the charges amount to much more than gravy.
“We have a cost of doing business just like there is a cost of doing government,” said Mark Testoni, president of software vendor SAP’s Public Services division. “We have to balance that with our ability to make sure we don’t degrade the service that we’re offering to our customers.”
Video: Vendors charging high maintenance fees put on notice to cut their rates by Steve Emanuel, CIO of Montgomery County, Md.
Government agencies and vendors love to call each other “partners.” It makes the two parties sound like they’re on the same side. But many CIOs warn that willingness to cut maintenance fees will be a test of a true vendor partnership.
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