As the vendor enhances the system, usage will climb even further. "And they stand to get a little more remuneration in return for that," he said, adding that the vendor could earn more in the long run than if the state had paid the full price for the software at the outset.

"At the same time, we're protected, because we're not paying as much up front," Daxon added. Many software implementations fail, he observed. "I certainly don't expect to have that happen here. We're off to a good start; we're certainly going to have a successful project. But when you're making these decisions, you have to consider the fact that things may go wrong."

Daxon said he does not know of any other state that has negotiated a similar arrangement with the vendor of an enterprise system. But Oklahoma has gained valuable information from Oregon, which is financing the purchase of its statewide accounting system through assessments and service charges to state agencies.

"The charge-back method is a convenient way to spread the burden over all of state government and over time, so that current programs don't have to absorb a large, one-time hit to the state budget," said John Radford, Oregon's state controller.

Oklahoma is still determining the transaction fees it will charge and working out the mechanisms for assessing them. Each of Oklahoma's state agencies will receive an appropriation to cover the fees. As a result, much of the cost of the new system will come directly from these agencies' budgets, rather than from the budgets of the central service agencies.

Besides providing revenues to implement, maintain and upgrade the system from year to year, the charge backs will help the state better understand how to allocate costs to particular programs. This will be especially helpful when billing the federal government for subsidized programs, according to the state's budget policy statement. Today, when the state applies for reimbursements, it allocates the cost of operating the central service agencies and their computer systems to the state agencies on a proportional basis. "By separately billing the new system costs, agencies will be able to charge these costs directly to the related programs and, in many cases, realize greater reimbursements to the state," the budget policy statement said.

Fees Encourage Discipline

To some degree, the charge backs could also spur agency employees to work more efficiently. "For instance, somebody posts a bunch of entries, they were sloppy, and they find out they were wrong and they have to go back and correct them all," Daxon said. "If that costs them a couple of hundred bucks, it's going to be at least a blip on the radar screen that we need to make sure that what we send over there is correct when we send it."

The charge per transaction will be small enough that it won't force major changes. However, Daxon said, "I'm hopeful that at the margins we'll see some improvements in the efficiency with which we use these systems."

PeopleSoft's Web-based architecture will save Oklahoma money as well, since the state won't need to install and maintain any software on client machines, said Kimberly Williams, the company's director of marketing and industry strategy, education and government. Also, "you enjoy the ability to deploy this in a very dispersed environment," since employees anywhere in the state can access the system through its browser-based interface.

Savings aside, the big advantage of Oklahoma's financing approach is that it removes a major obstacle to innovation. Forging a partnership with its vendor, the state now has the wherewithal to achieve its larger goal -- providing better service to constituents online.

"I don't think we yet fully understand the potential for what we have here, marrying the portal and the core systems," Daxon said. "I think we're going to have agencies able to do things that we don't even realize we can do today."

Merrill Douglas  |  Contributing Writer