Cash-Strapped Agencies Seek Lower IT Maintenance Fees

Some revenue-starved municipalities are targeting ongoing maintenance fees paid to IT vendors as an area for cutting costs.

by / November 2, 2010

“If we’ve been a good long-term customer, then this is an investment they need to make in order to keep that long-term relationship as a partner,” Emanuel said.

Testoni said a partnership is a two-way street on which governments must acknowledge that vendors need to survive this economy just as governments do. And agencies need to be careful about how much they ask vendors to sacrifice, said Dick Leurig, director emeritus of future technology and innovation initiatives at Montgomery College in Maryland.  

“If they go out of business, there would be even less money for local government,” Leurig said. “Local governments want to go out and do economic development, and in the next breath they’re saying, ‘Well, let’s just get the vendors to [sacrifice] all the money they can.’ There is a disconnect there. You need to encourage the vendors to work in your area, to help put money back in the economy, but also be fair to the governments.”

But not all governments are demanding cuts that would ruin their vendors. According to Vicki Irey, director of IT for Overland Park, Kan., Oracle was the only one of her vendors that refused to renegotiate maintenance fees. Oracle’s JD Edwards Enterprise powered the city’s financial system, and Oracle’s PeopleSoft supported human resources.

Irey responded to Oracle’s refusal by soliciting a third-party vendor to replace the software giant’s maintenance support.

“I will say that Oracle called us and called us and begged us not to leave them, but they didn’t want to negotiate,” Irey said.

She hired software maintenance provider Rimini Street at half the price of Oracle’s maintenance.

“We knew going into it if we left Oracle and went to a third party for support, we would no longer be able to receive any upgrades. That meant we were at the end of the road on that software,” Irey said, explaining that she’d have to repurchase Oracle’s software if Overland Park wanted to resume the company’s maintenance.     

Irey acknowledged that running Oracle’s software without upgrades was only a temporary fix. She’s convinced, however, that she can get a better price from Oracle by repurchasing the vendor’s software. “That is the one and only time you’re in the driver’s seat with negotiation,” Irey said.

Any government attempting this tactic should make sure to include fixed annual maintenance fees into the new contract, insists Catherine Maras, CIO of Bexar County, Texas. This way, she said, a CIO can be sure the vendor isn’t offering a lower price up front with the intent of later backfilling it with maintenance fee increases.  

Irey added that several attractive alternative providers have cropped up since Overland Park signed with Oracle in 2000.

 “We have found [Rimini Street] supports us better,” Irey remarked. “Their callback times are better.”

Oracle did not respond to multiple e-mails from Government Technology requesting a response.

Smaller vendors tend be more willing to negotiate maintenance fee reductions, according to Cory Casazza, chief information management officer for Washoe County, Nev.

“Some of the smaller firms knew we could go somewhere else,” Casazza said. “We leveraged the threat of open source against a lot of the vendors saying, ‘Either do something, or we’re going to end up replacing your product.’”

Casazza said he had to follow through on that threat with a few vendors. “I think the bigger firms we deal with, like SAP and Esri for our GIS, know they have us locked in, and they were not as willing to negotiate,” he added.

SAP increased its maintenance fees, Casazza said, which angered him given that Washoe County frequently invited potential SAP customers onsite to view the county’s success with its products.   

“Probably once a month we’ll either host a site visit or we’ll do reference calls for them. I think we’re one of their better customers,” Casazza said. “It kind of left a sour taste in our mouths, and I think we’re a little more cautious and spend less time promoting their product now than we did before.”

Testoni said SAP is willing to work with customers on any service revisions within the customers’ existing contract stipulations. He said the company couldn’t justify “arbitrarily” cutting fees for some customers and not others.

“We have contractual arrangements and agreements with tens of thousands of customers,” Testoni said. “We can’t just disenfranchise, or in the case of one group, say we’re going to reduce and make up that cost from somewhere else.”

In Casazza’s office hangs an organizational chart with pictures of his employees that he used to make a point with providers. In vendor meetings, Casazza displayed the photos and asked vendors whom he should fire if they didn’t lower their maintenance prices. He said the tactic worked occasionally.     

Demands on vendors to cut maintenance fees also raise the question of whether vendors consider working with some governments worthwhile. Emanuel dismissed worries that forcing vendors to drop maintenance costs would cause them to ignore parts of the public-sector market. He said such a move on the vendors’ part would look bad to other governments with which those vendors still wanted to do business.

“Guess what happens with that public opinion? It resonates through my partners. It resonates through my jurisdictional partners. It resonates through other agencies. That’s not a good choice for business,” Emanuel said. “They need to understand we are vocal.”

Andy Opsahl

Andy Opsahl is a former writer and features editor for Government Technology magazine.

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