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07.05 Information Technology Services Report ti��OPPO��`�C $;� . �;_� .�GEND� ITEM ycF�o�i s:�4A��°� , �U+�� February 12, 2019 TO: Honorable Mayor and Members of the City Council THRU: Rick Otto, City Manager FROM: Will Kolbow, Administrative Services Director U.r.ii i�� REVIEW: City Mana er inance �� 1. SUBJECT Information Technology Services Report. 2. SUMMARY The City has contracted for Information Technology (IT) services since 1984. The current contract for these services will expire on June 30, 2019. Staff engaged a consultant to assist in evaluating the City's current IT services and provide options for the future of IT services for the City. This report outlines the current IT services environment, various service delivery options and related risks for each option, and staff's recommended direction. 3. RECOIVIMENDED ACTION Discuss and provide direction. 4. FISCAL IMPACT None. 5. STRATEGIC PLAN GOALS Goal 4: Provide outstanding public service. . c: Enhance technology to improve public accessibility to information and services. 6. DISCUSSION AND BACKGROUND The City has contracted for Information Technology (IT) services since 1984. The current contract, which began on July 1, 2011, was originally entered into with Affiliated Computer Services (ACS). Subsequently, ACS was acquired by Xerox in late 2011. In 2016, Xerox spun off its business process sourcing services into a company called Conduent, Inc. In 2018, Conduent sold its Local and Municipal Constituent Government Software Solutions business to Avenu. Avenu does not have previous experience in the managed IT services sector, and has delegated oversight of services to the company's Chief Information Officer (CIO). ITEM � • 5 � 02/12/2019 TMe current contract had a five-year term, with three one-year optional extensions. The City exercised each of those options, and tMe last remaining option year expires on June 30, 2019. In the time since the current contract was negotiated, the City's IT needs have increased drar�natically. As our operations become more technology-focused, and the � demands of residents and businesses increasingly rely on technology, the terms of the current contract no longer align with the current and future needs of the City. As such, City staff engaged SDI Presence to assist in evaluating the City's IT needs and recommendations for accommodating those needs. SDI previously assisted the City with the bidding and negotiating of the current contract. SDI's services included evaluating the performance of Avenu against the terms of the contract, including Service Level Agreements (SLA's), and with industry standards, interviews with both IT and City staff, and researching the IT service delivery models of other Orange County cities. SDI then prepared a report based on this evaluation, which is attached to this memo. The report includes their findings, information about the current IT services environment and market, a general background on outsourcing, and � recommendations on structuring our IT services to meet current and future needs. Current IT Services Staffing The City's contract with Avenu includes ten full-time employees working in various capacities. The staff members include the IT Manager, Service Delivery/Project Manager, Network Engineer, five Desktop Technicians, Systems Administrator and Help Desk Coordinator. Currently, the Service Delivery/Project Manager is vacant, and the Systems Administrator and Help Desk Coordinator positions are being filled by temporary employees. The IT Manager is the top employee on-site at the City and is responsible for all day-to-day operations at the City. The IT Manager reports to a regional director, who, in turn, reports to Avenu's CIO. The Administrative Services Director is the City's contract manager and is the liaison for IT issues within the City. The on-site staff has done a tremendous job in supporting the City's IT infrastructure. There has been relatively low turnover in staff despite the numerous acquisitions that their company has experienced. This can be attributed primarily to the culture and work environment of the City because they are assigned full-time to the City. While the on-site staff have done a great job, Avenu, and its previous iterations, have failed to meet expectations when it comes to value-added services. One of the primary benefits of outsourcing is being able to leverage the corporate resources of the provider. However, in the past four-plus years, the City has not received the value-added services that are required under the current contract. The City has expressed its dissatisfaction to both current and former regional and corporate managers. Additionally, regional managers and staff have failed to fill vacancies in a timely manner, putting further strain on the employees working at the City. As such, the City is currently receiving no additional benefit for the differential between staff costs and total cost of the contract and has received no compensation or credits for the lost productivity of the vacancies. Options for IT Services SDI's report outlines four alternatives for the future of IT services, including advantages and disadvantages of each approach. The options are as follows: ITEM 2 02/12/2019 • Status Quo — Negotiate a new contract based on the parameters of the current contract; • Re-compete — Prepare a Request-for-Proposals (RFP); • In-house — Create a model similar to the current contract, but staffed with City employees; and • Hybrid — Bring higher level employees in-house and supplement with contracts. Findings and Recommendation Based on staff's experience with IT services, the report from SDI, and looking at what other Orange County cities are doing, staff has identified the following key findings: • The current contract is inadequate to meet the needs of the City's increasing reliance on technology. Additionally, the provider has failed to provide the value- added benefit of the outsourcing relationship. As such, the status quo option would not be viable solution in both the short and long-term. • Based on the bids received in 2011 and the evaluation of the current outsourcing environment, it is evident that the market for full outsourcing of IT services for an organization of our size is small to nonexistent. Simply put, the City is too big for the small providers and too small for the large providers. • The City is the only city of its size in Orange County that continues to fully outsource its IT function. The City of Irvine recently transition to a hybrid delivery model, with key IT personnel being in the employ of the city. The City of Anaheim has utilized a hybrid model for quite some time. Finally, the cities of Fullerton, Garden Grove, Huntington Beach, and Newport Beach have their IT function in- house. • As stated previously, the current IT staff onsite at the City have many years of experience in the City's IT environment. This institutional knowledge would be difficult to replace, and they have provided tremendous value and service to the City. As such, it would be in the best interest of the City to retain many of these employees. The annual cost of the current contract is approximately $1.36 million. By comparison, using salary data and current City benefits, the fully burdened cost of the ten positions currently in the contract is estimated at $1.1 million. However, staff recognizes that there would be service contracts required to ensure full functioning of the City's IT environment. As such, bringing the function in-house would likely be cost neutral. Based on the findings of the report and in the best interest of the City's IT environment, staff is recommending that the City brings the IT function in-house. With the City Council's concurrence with this recommendation, staff would bring a final recommended model to the City Council for consideration and adoption within 60 days. 7. ATTACHMENT ' • IT Service Delivery Analysis Report by SDI Presence ITEM 3 02/12/2019 � 'y, � �it � . ��l�� ~��+ . , � `: i' ' `�! *` .� }, �. J�'s ;"'.� ^��' � � , { ),... , .•�. ,.. � �,='";�,�� ' � , , �r.' . . '.� r►`3;:a ��.y ��i�'. .�� / , ;� �� •�y.� .�:. � . . . , • . '..�.w,�;. r� . ,S tf'f � `,�. r�s�' .�j � � : . .ti . .., i. �:, f��t "i ."A,•` r� .t ` , • • '� '. y � '+,�„1++ !t � k�t . _ �j•� ..� ��. `+ j. � ��f� ' w'Y ��, � ,s +J ., ! t. •:�. , y `� ��w�l�� ;. '.. "' � ��3.' j �r� « - - �� ; �,, ' �' ,1� ��' .. . . . .:r«.,ri. _.. . ♦+�. ��;- _ -' � ,. � _ .i; �� ,.� .� '� ,� ,� �� ,��. t�� _ �s. ..�•r t 4�, ' , The City of Orange IT Service Delivery Analysis Report �anuary �6, zo�g ■ � • � � ` ' � • Introduction This report, entitled IT Service Delivery Analysis Report, was developed for the City of Orange (City) by SDI Presence LLC(SDI) to review the City's current Information Technology(IT) service delivery contract (Agreement) and to identify and analyze potential delivery alternatives. SDI,formally NexLevel Information Technology, Inc., assisted the City in the development of the IT Outsourcing RFP in 2010, the selection of Affiliated Computer Services (ACS), and the negotiation of the Agreement with ACS. Document Organization and Contents .. . ... r ,�. �, , : �� ' �. Figure 1, Document Organization Figure 1, Document Organization, depicts the major sections of the report which includes: ■ Introduction: Provides information regarding the organization and contents of the report. ■ City's Current IT Environment: Provides background information regarding the City's current IT environment, the changes it has experienced over the course of the current sourcing agreement, a review of the history of the City's sourcing of IT services, information regarding the general objectives of sourcing IT services, and an analysis of the benefits and challenges realized by the City. ■ Transformations in the Delivery of IT Services: Provides information regarding the changes in how local governments are using information technology, changes in information technology, and how these changes have impacted how cities obtain,govern, manage, and deliver IT services today. ■ Alternatives Available to the City: Provides information regarding the alternatives available to the City, including the relative advantages and disadvantages of each alternative, and identifies SDI's opinion as to the most feasible of the alternatives. ■ Implementation Considerations: Provides information regarding the steps that the City should consider in the implementation of the new approach to the delivery of IT services. ■ Observations: Provides information for the City regarding observations developed by SDI's consultants in the course of developing this analysis as well as from the consultants' experience in working with other local government entities in similar engagements. ■ Conclusion: Provides additional information for the City based on SDI's experience in working on similar engagements for municipalities in California. lanuary 16, 2019 Page � 1 � �D' • • � ` ' � • Current IT Environment The City presently obtains IT services through an Agreement with Avenu Insights&Analytics (Avenu). IT staff support an extensive, complex, and diverse environment that includes over 900 computers, 1�0 physical and virtual servers, 800+end users, and more than 100 software applications. Software support and services are provided for the Eden financial system, the Police Department's Computer Aided Dispatch/Records Management System ("CAD/RMS"), the building permit and code enforcement tracking system, business licenses, utility billing, work orders,fleet, geographic information system, and document management. The IT staff provided by the City's sourcing vendor is responsible for Citywide IT support and consists of the following ten full-time equivalent (FTE) positions: ■ IT Manager ■ Service Delivery/Project Manager ■ Network Engineer ■ Desktop Technician (5) ■ Systems Administrator(Temp to Permanent) ■ Helpdesk Coordinator(Temp to Permanent) In addition, there are several IT staff inembers employed by the City in other departments (2 in Public Works and 2 in the Library). The IT staff manages and supports the City's IT environment twenty-four hours a day, seven day a week. The infrastructure includes servers, storage devices, network devices, desktop and mobile computers all of which are owned by the City and located in City-owned facilities. In addition,the IT staff provides management oversight for various information technology projects. IT service levels and the procedures for periodic reporting of status and conformance to the service levels are also specified in the Agreement. History of the City's Sourcing of IT Services Since 1984 the City has obtained IT services from various service providers beginning with CM51 from Portland, Oregon. CMSI was acquired by BRC from Dallas,Texas, and BRC was subsequently purchased by Affiliated Computer Services, also from Dallas, Texas.TX. ACS then served as the City's IT service provider from 1998 until its acquisition by Xerox in 2011. As shown in Figure 3, City's Sourcing Vendors Since 2011, the current sourcing Agreement was signed by the City in 2011 shortly after Xerox acquired ACS. Services were provided by Xerox into 2016 when Xerox announced its decision to separate its businesses into two publicly traded companies. Xerox's business process sourcing services were then provided by Conduent Inc. January 16, 2019 Page � 2 � �D� • � � ` ' � • City Issues ��ty Executes RFP for IT Sourcing Services A6reement with ACS 2010 2031 2012 2013 2014 2015 2016 2037 2018 Xerox Xeroa Divests 8usiness Avenu Acquires Acquires ACS Outsourcing Services Local&Municipal IT c� lo Conduen[ Servjces Operations �'i�� ofConduent Figure 3,City Sourcing Vendors Since 2011 In 2018, Conduent sold the assets and operations of its Local and Municipal Constituent Government Software Solutions business to Avenu, a portfolio company of Mill Point Capital. Prior to this acquisition, Avenu's business primarily focused on municipal revenue (i.e., tax compliance analysis and reporting; tools for licensing, fees and fines, and administration; and automated payment options for taxpayers) than on IT services delivery. Despite four changes in corporate ownership over the course of the Agreement (two of them within the last three years),the IT staff members assigned to the City have remained fairly constant, with little turnover. This is remarkable and an apparent testament to the positive work environment within the City and dedication of IT personnel. As depicted in Table 1, Sourcing Costs to City, the annual cost for these services has gradually increased based as provided in the Agreement. Included in the annual fee are personnel salaries, benefits, training, site expenses, other overhead, and profit. scal Year 11� `Annual Cost FYll/12 $107,916.67 $1,295,000.00 FY12/13 $107,916.67 $1,295,000.00 FY33/14 $107,916.67 $1,295,000.00 FY14/15 $107,916.67 $1,295,000.00 FY15/16 $107,916.67 $1,295,000.00 FY16/17 $111,461.86 $1,337,542.35 FY17/18 $112,576.48 $1,350,917.79 FY18/19 $113,702.25 $1,364,426.97 Table 1,Sourcing Costs to City General Sourcing Background Sourcing, by definition, is the contractual arrangement in which an entity delegates some of its in-house operations/processes to a third party. Thus, sourcing is a contracting transaction through which one organization purchases services from another while keeping ownership and ultimate responsibility for the underlying processes. January 16, 2019 Page � 3 � �D' • � • / � � � • Since the decision to source was made over 34 years ago and most of the personnel involved in the decision process are no longer working at the City, it is useful to understand why entities explore and utilize IT sourcing. According to the Outsourcing Institute (http://www.outsourcing.com), a professional association dedicated solely to outsourcing and recognized for its intellectual capital, sourcing practice expertise, and unbiased thought leadership, there are many reasons why organizations source the IT organization. The top four are: ■ Reduce and control operating costs: By sourcing, an organization can eliminate the costs associated with hiring an employee, such as management oversight,training, health insurance, employment taxes, and retirement plans. ■ Improve technology focus: It is neither practical, nor possible to be a jack of all trades. Sourcing lets an organization focus on its core competencies while another company focuses on theirs. ■ Gain access to world-class capabilities: The return on investment is greater when an organization sources IT to a firm that specializes in the areas the organization needs. Instead of just the knowledge of an individual person,the organization benefits from the collective experience of a team of IT professionals. ■ Frees internal resources for other purposes: Sourcing allows the organization to retain employees for their highest and best use, rather than spending their time on things that may take them longer than someone who is trained in these specific areas. Dr. Yvonne Lederer-Antonucci, Associate Professor, Management Information Systems,Widener University writes in her article "The Pros and Cons of IT Outsourcing," for the Journal of Accountancy, that businesses who consider outsourcing IT functions need to be aware of the following risks: ■ Some IT functions are not easily sourced: IT affects an entire organization; from the simple tasks to complex automated processes. The outside vendor must be well qualified to take care of the organization's greatest needs. ■ Control may be lost: Critics argue that an outside vendor will never be as effective as a full-time employee who is under the same management as other employees. Other concerns include confidentiality of data and disaster recovery. ■ The organization may get"locked in:" If the vendor does not document their work on the network and system, or if the jurisdiction has purchased proprietary software, it may feel as though it can't get support anywhere else. But, according to Lederer-Antonucci,there are many rewards that can be expected from sourcing IT functions as well: ■ Access to the latest and greatest in technology: Sourcing can give an organization the benefit of having more than just one IT professional knowledgeable of a product or service. And since it often the core competency of the sourcing company, they should be able to provide sound advice on how to better utilize the local IT dollars. ■ Cost savings: Sourcing IT services often provide financial benefits such as leaner overhead, bulk purchasing and leasing options for hardware and software, and software licenses, as well as potential compliance with government regulations. January 16, 2019 Page � 4 � �D' • • � ` ' r • ■ High quality of staff: Since it may be their core competency, sourcing vendors look to hire staff with specific qualifications and certifications. ■ Flexibility: Sourcing vendors may have multiple resources available to them, while internal staff may have limited resources and capabilities. ■ Job security and burnout reduction for regular employees: Using a sourcing services firm can reduce the burden on local IT staff who often take on more than they were hired for because "someone needs to do it." Sourcing Benefits Realized by the City Based on SDI's interviews, observations, document reviews, and other data points, SDI has identified the following benefits that the sourcing vendors under the current Agreement have brought to the City in the management and operation of its IT environment: ■ Recruiting and Staffing: The IT organization is staffed by the vendor's employees; therefore, the City does not recruit, hire, or train IT resources. As vacancies occur,the vendor is responsible for filling the open position with qualified IT professionals. The vendor accepts the responsibility for ongoing staff training and development, relieving the City from the costs associated with maintaining qualified staff to effectively support the IT environment. ■ Personnel management: The sourcing vendor provides the day-to-day management of employees including payroll, benefits, task and performance management, sick leave,vacations, retirement, training, etc. The City is not burdened with providing employee benefits for the sourcing vendor's staff. ■ Predictable costs: The costs for base services can be predicted in advance to allow the City to plan, and budget, for core IT Infrastructure support. If additional services are required, and budget is available, then the Agreement can be modified to address the new scope of work. ■ Agility: The sourcing vendor has the ability to quickly change or add to their local IT staff.This flexibility allows the vendor to bring additional resources or specific expertise to the City for new or modified technology projects. ■ Capability: Sourcing vendors have been able to deploy information technology best practices to the City's IT organization. By leveraging their staff and experiences, they have been able to provide the City insight and guidance on best practice implementation. This is particularly true for operational certifications such as 1509000 and ITIL CSDM. Sourcing Challenges Experienced by the City SDI conducted interviews with members of the City's management team, department heads/managers, IT Manager, and technical staff to understand the challenges the City is experiencing regarding the delivery of information technology services, difficulties being experienced by the IT staff, and issues identified with the Agreement. Key elements are summarized below. ■ Scope issues: The current agreement was primarily intended to enable the City to reduce costs while "keeping the lights on," during a period of financial austerity. The agreement also provided for the delivery of services which would enable the City to better use information technology; however,this goal has been only partially realized. Since the adoption of the agreement in 2011, both City-wide use of information technology and the City's dependence on IT for the delivery of services to the community have grown and the scope of the services January 16, 2019 Page � 5 � �D' • � � ` ' � • provided under the current agreement may not meet the City's current and future requirements. ■ Contractual/performance issues: Employee control and retention: The City does not have any direct control over the number of employees assigned to the IT Department. The sourcing vendor can reduce staff or leisurely fill open positions without City approval. In addition, there is no mechanism to reward exceptional performers or provide input to IT staff's performance evaluation.The sourcing vendor could also relocate key staff to other engagements at any time which can become problematic as significant portions of the City's IT knowledge could simply disappear. Process reviews:There are no formal review processes to evaluate IT documentation, use of best practices or validating technical competency of the sourcing provider. The current Agreement does not allow the City to ensure that effective IT practices are being utilized within the City. Key personnel: The IT manager and project manager are key to quality service delivery and the ongoing success of the contractual relationship. As personnel change on both sides, the working relationship between these individuals and the City, or within their own company, may change which will cause delivery variances and different degrees of success. Outside resources: The City's sourcing vendors have, historically, made very little use of resources or expertise outside of the City assigned staff. Accordingly, the City may not be obtaining full benefit from its contractual arrangement. The City expects the sourcing vendor to proactively bring innovative practices, IT leadership, and other expertise to improve its day-to-day business operation. Contract performance: While the sourcing contractors have performed well in recent years in providing effective day-to-day service to the City and reporting against contractual service levels, several obligations have not been provided. These include quarterly program management reviews involving the sourcer's executive management and subject matter experts with the City's leadership, reduction in training for all on site personnel from 80 hours per year to 40 hours, semi-annual briefing with City leadership to discuss new information technology processes,technologies, strategies, and trends, submission of two new proposals each year to improve IT efficiency, streamline operations, and/or reduce costs to the City, proposals for the reduction in costs of service delivery, and the hiring of qualified personnel to fill vacant positions. ■ Stability and continuity: Since the signing of the current agreement in 2010 with ACS; the City has seen the responsibility for the delivery of services change three times: from ACS to Xerox, from Xerox to Conduent, and from Conduent to Avenu. This instability causes concern and creates risks for the City relative to the retention of the IT staff(who also experience the consequences of this instability including changes in benefits, compensation, and opportunities for promotion), and relative to the ability of its service provider to meet contractual requirements regarding staffing, services, and service levels. Although the situation appears to be stable for the moment and the City is optimistic regarding Avenu's immediate commitment to this new component of its business; Avenu's long-term business plan and commitment are unknown. January 16, 2019 Page � 6 � �DI • • � ' ' � • It was reported to SDI (although not independently verified)that Avenu is managing its sourcing contracts through its internal IT organization. If true, this could call into question Avenu's ability to sustain service delivery levels in the long-term. Transformations in the Delivery of IT Services As a consequence of the trends in information technology, in particular the transformation of IT from a "back office" operations support function to an integral component of how public-sector organizations deliver information and services to their"customers", organizations have revisited how they govern information technology and manage the delivery of IT services. In many respects, the transformation being experienced in the public-sector mirrors well-established trends in the private sector where online services have taken precedence over"brick and mortar" facilities. Whereas most organizations used to rely on internal or sourced IT departments to deliver services using business applications and IT infrastructure that were located on-premises; they now increasingly rely on services that are hosted remotely and delivered through the Internet. This is known as the "Cloud" and includes a wide-range of services that can be either"public" (i.e., shared with other organizations) or "private" (i.e., dedicated to a specific organization). Organizations often elect to use "private" Cloud services, despite their greater cost, to have greater control and security. SDI has noted that the move to Cloud-based services in the public sector is being driven by a number of factors including: ■ The need for business units to quickly respond to new requirements (often independently of the IT organization). ■ The need for organizations to refresh their existing information technology infrastructures without incurring the initial capital investments associated with the purchase of new equipment or for the upgrade of existing facilities. ■ The need for organizations to reduce the costs related to the operation, maintenance, and support of on-premises IT infrastructure and facilities. Additionally, the shift by Commercial-off-the-Shelf(COTS) software providers from on-premises installations to products that are licensed and delivered as Cloud-based services is reducing the need for on-premises IT infrastructure As a result, the mission of IT organizations (whether sourced or internally staffed) must shift from being primarily internal service providers to become service brokers and service managers who can advise business units, and who can optimize an organization's use of internal and Cloud-based services. This change in the mission of IT organizations necessitates changes in how they are organized and staffed with reduced emphasis on IT operations and increased emphasis on project management, business analysis and planning, and the management of external services. For the City, the first concern in this changed environment should not be whether to continue with the sourcing of IT services or to bring the IT staff in-house; but rather,what the City will need the IT organization to do in the future. While the use of a hybrid environment of Cloud-based services and on- premises services can provide greater resilience, agility, and sustainability; business units will find it difficult to derive the greatest possible value from these services without having access to IT resources to advise them. January 16, 2019 Page � 7 � �D' • • � ' ' � • Alternatives Available to the City SDI believes there are four feasible IT service delivery models for the City to consider: a) Status Quo: Renegotiate/extend the current Agreement. b) Re-compete: Issue a new RFP for IT services with the objectives of identifying and evaluating alternative/innovative approaches to meeting the City's requirements. c) In-House: Transition all IT functions/staff to City employees. d) Hybrid: Combination of in-house and sourcing with new contract(s) and a new mix of services. It should be noted that the emergence and maturation of cloud-based services(particularly software as a service and platform as a service) as well as managed services being provided by mid-sized, local, service providers, have given local governments alternatives to sourcing that were not previously available. This has resulted in the emergence of"hybrid" models for the sourcing of IT services in which activities such as planning, project management, program administration, and business consulting are often provided by internal staff inembers while other services such as support for IT infrastructure (and sometimes even components of the IT infrastructure) are provided by external service providers. Despite the complexity of managing multiple contracts, local governments find that the hybrid model provides increased flexibility, scalability, and effectiveness. a) Status Quo This IT sourcing alternative retains IT support services as they exist today within the City; however, the City could renegotiate the term of the existing Agreement and incorporate minor modifications and selected best practices(SLAs) within that Agreement. The Status Quo alternative would be the simplest to execute. The City could negotiate an extension to the existing Agreement with limited modifications to the contract terms and conditions for a short period of time while the City considers other long-term strategies. The advantages and disadvantages of this alternative are: ■ Advantages: There would be no transition of services or staff from the current vendor to a new sourcing vendor and thus there would be less risk of disruption. The current vendor is a new, but nonetheless a known,vendor. Although the firm's long- term commitment to sourcing cannot be foreseen, its corporate culture, on-site personnel, and service delivery method have thus far been working for the City. Staff knowledge of the City and its operations would be preserved (important for legacy systems and undocumented components of the City's IT environment). Negotiating an amendment to the existing Agreement regarding the length of the contract (short term or multi-year extension), the scope of the services to be provided, and the service levels could be easier than re-competing the contract. January 16, 2019 Page � 8 � �D' • � � ' ' � • ■ Disadvantages: Based on staffing, not on scope of service or quality of service.The Agreement specifies a set number of IT personnel per year as opposed to services measured by quality and metrics regardless of the size of staff. Special requests and significant changes in delivery scope are outside of the Agreement and must be contracted separately or with other providers. Extending the existing Agreement may not reflect the current information technology environment or incorporate planned upgrades or use of cloud-based services. Significant changes have been experienced in the delivery of technology since the current Agreement was executed.The cost of the existing Agreement has not been market tested; therefore,there is an uncertainty as to price when compared to today's competitive environment and managed service providers. Under the terms of the existing Agreement, staffing can be reduced, or positions left unfilled, for any length of time by the vendor.This is unacceptable as service to the user community degrades significantly with any vacancy within a small staff. The City does not have Agreement protection to help ensure key staff retention. Several important requirements are not being met by the vendor under the Agreement today. There is no guarantee that performance under the extended Agreement would be any better. Consequently, the City may not receive any additional value for its continued investment in this Agreement. b) Re-compete As noted earlier, the IT sourcing industry is changing with the emergence and maturation of Cloud-based services and managed services provided by mid-sized, local IT service providers, as alternatives to the traditional sourcing of IT organizations. It is possible that by issuing a new RFP that the City might be able to identify and evaluate innovative service delivery solutions, but this could potentially result in the loss of the knowledge and experience of the current IT staff. The advantages and disadvantages of this alternative are: ■ Advantages Enables City to identify and evaluate innovative approaches to the sourcing of IT services, potentially with lower costs and improved service levels for the City. Enables the City to potentially leverage cloud-based services (particularly platform as a service) with components of the City's IT infrastructure being hosted in the Cloud thus lowering (if not eliminating) initial costs for the acquisition of hardware, potentially lowering continuing costs for hardware maintenance, etc., as well as the costs for operations (i.e., backing up systems and supporting business continuity and disaster recovery procedures). Ensure competitive pricing for services. Allows the City to consider innovative offerings in the use of tools, processes, and service level management. Provides the City an opportunity to update the Agreement to reflect today's priorities and IT environment. January 16, 2019 Page � 9 � �D' • • � ` ' � • ■ Disadvantages The processes for the development and issuance of the RFP for IT services as well as the review of proposals submitted in response to the RFP,and the selection of a finalist are time-consuming and can be expensive. The City might not receive a proposal that appropriately meets it needs. During the last procurement, only two vendors responded to the City's RFP. The City could potentially lose the experience and knowledge of the current IT staff. A different vendor may, or may not, retain existing staff.The loss of this historical perspective many disrupt services to departments throughout the City. The City might end-up with a complex, multi-vendor environment with one or more new IT service providers that would be difficult and time-consuming to manage. Costs, service level measurements, and service delivery could be significantly different from the existing Agreement. c) In-House This alternative creates a City-wide IT organization that would be staffed by City employees with contracted services being used as needed (i.e.,for activities such as hardware and software maintenance, and for specific projects such as one-time technology implementations). New City IT positions would be created, and applicants would be recruited, screened, and hired. It is possible that the applicants would include members of the current IT staff. The advantages and disadvantages of this alternative are: ■ Advantages: The City could potentially realize savings which could be applied to increasing the level of IT support provided to the City. The City would have direct control over the staffing and management of the IT organization and over IT directions and priorities. The City will be able to reduce its cost for IT staffing compared to the cost for the current sourcing agreement. The City will be able to retain some of the current IT staff members, thereby retaining institutional knowledge. Internal staff would be accountable to serve the best interests of the City verses their corporation. The City would be able to encourage a more collaborative approach between IT and end users. This would be particularly evident in the shifting of business application ownership to department-based subject matter experts. IT will select and implement technology and processes that "fiY' the City, not the delivery objectives of the outsourcing vendor. ■ Disadvantages: The effort involved to recruit, screen, and hire applicants will be significant, particularly for those applicants who must meet CJIS vetting requirements. January 16, 2019 Page � 10 � �D' • � � ` ' � • The City will have less fiexibility in IT staff assignments due to restrictions in having IT staff members work"Out-of-Class." The City could potentially lose current IT staff inembers who have valuable knowledge and experience, particularly where they are already well-above the salary mid-point for their classification. On-going IT staff turnover will become the City's problem rather than the sourcing provider. d) Hybrid The Hybrid sourcing alternative treats the IT function as a portfolio of activities, some of which should be sourced and others that should be performed by internal staff. This alternative would likely create a multi-vendor environment that would require a strong, well-staffed organization to ensure coordination of activities and contract management. This method would select sourcing vendors for specific functions using formal RFP processes and incorporate best practices of service levels, performance incentives, and contract terms. The process ensures that prices are competitive for the marketplace, but overall IT service costs for the City may be higher than the City is paying today as additional resources would need to be retained to effectively manage a multi-vendor environment.The advantages and disadvantages of the Hybrid alternative are: ■ Advantages The City retains, as their own employees, key IT positions who provide a strategic focus on Citywide initiatives controlled and prioritized by City leadership. The scope of work for services to be performed by an outside vendor can be modified to reflect the current environment. At the same time, services that will be retained by the City (IT management, project management, etc.)will not be included in the contract thereby making it simpler and more focused. For those services to be provided by an outside vendor,the City will be able to define current requirements and the level of time and effort to support them in smaller, more manageable segments. Reduces performance risks as multiple vendors are familiar with the City's IT environment rather than relying on a single provider. The City may receive new, creative IT service delivery model proposals for those commodity services the City wishes to contract with outside vendors. Allows the City to select"best of class" for any specific service or solution. Costs for services will be market driven and supplied by local managed service vendors as the components are easier to support than total sourcing engagements. ■ Disadvantages The total cost of IT delivery may increase due to multiple contracts, replication of some tasks between vendors, duplicate vendor overhead, and City contract management. The technology support organization may be more difficult to manage. With in-house staff, outside vendor(s), and multiple contracts, the City will need to carefully monitor and January 16, 2019 Page � 11 � �DI • � � ' ' r • oversee all service providers to ensure compliance with contractual terms as well as the delivery of services to user departments. Transition to new or multiple vendors may be difficult. At the very least,the City will need to carefully management the transition so that it does not impact day to day operations. The City could lose the historical knowledge of non-transitioned personnel.Without extensive infrastructure documentation, losing existing staff may cause service interruptions or delays prior to the vendor's thorough understanding of the City's operational environment. The processes for the development and issuance managed services RFP(s) as well as the review of proposals submitted in response to the RFP, and the selection of a finalist can be time-consuming and expensive. January 16, 2019 Page � 12 � �DI • • � ' ' r • Implementation Considerations SDI is of the opinion that the best course of action for the City is a migration from its present IT environment to a hybrid sourcing model, particularly since this model has largely supplanted the full- service sourcing of IT services in the middle market. As noted above, the organization and staffing for the delivery of IT services that has been used by the City will not enable it to fully derive the benefits of a hybrid, Cloud-based environment since the current organization is oriented towards the operational support of the City's IT infrastructure with minimal resources for project management (one staff member, who has recently resigned) and no resources for business analysis and consulting, nor does the City have resources dedicated to the management of its IT services contracts. A phased migration should minimize risk and the potential for disruption in the delivery of IT support services and will also enable the City to better evaluate its options. Since even the first phase of this implementation could not be completed by July 1, the City will need to extend its current agreement with Avenu (likely with modifications as to scope, staffing, and cost). The stages in this migration are depicted below beginning with Figure 2, Current City IT Organization, which depicts the City's current organization. Current IT Organization �ny Manager Department Neads — R Steering Committee — Director of � Administratfve Services 5 � Avenu - - - - - - - i � Departmental i � Cloud Services � IT Manager � � I Gry Positions � � I IT Support Staff � �f Outsourced Positians � I L - - - _ _ - - - - � Figure 2,Current City IT Organization As depicted in Figure 2,Avenu provides on-premises IT support personnel for the City including an IT Manager and IT staff. The City's Director of Administrative Services is the primary contact for Avenu's IT Manager and provides general guidance as to the City's policies, requirements, and priorities, and receives periodic status reports from the IT Manager. IT services beyond those provided in the Agreement with Avenu are provided by City departments who engage Cloud services (such as NeoGov for HR). January 16, 2019 Page � 13 � �DI • � 1 - � � � • Interim IT O/ganixation �PO��s City Mana6er New Gry VoslUon QI[TOYILlQ OOSIt10115 D�tlC[Of O� Ertmul ServkK Department Heads _ R Steerieg Commktee - pdministretive Servkes Departmental Cioud Services IT Manager � Avenu - - - - - - - -- 1 � Project Manager �o^sultants � On-Premises Enterprise 7 (As Needed) � IT Support StaH Cloud Services Figure 3, Interim IT Organization Figure 3, Interim IT Organization, depicts SDI's recommended interim organization for the City. This organization is based on converting two of the positions presently provided by Avenu, the IT Manager and the Project Manager(position currently vacant) to City employees. The agreement with Avenu would then be amended to extend the period of performance and to reduce the scope of services provided to the City and its associated cost. This organization anticipates that the City may need to make use of consultants, as needed, to facilitate the transformation of the IT organization, to support new, high-priority projects, and to assist the City in planning for the transformation of the IT organization to the target state depicted in Figure 4,Target IT Organization. Target iT Organi:ation ��ty Manager Cky VoAcbm -.---_—- = New Gry Palebn Dlrectorot �sourcedva�eb�n Department Heads _ R Steering Commktee - Adm{nistrative Services Extarnal Servky Departmental Cloud Services � IT Manager' � � TBD - - - - - - -� I Conwltants Security Manaeer i On-Premises � Enterprise (As Needed) i IT Support Staff i Cloud Services Project Manager - ` `The City may consider creating the position of Chief Infarmation Officer in the tuture Business Analyst Contract Manager [TBD� figure 4,Target IT Organization January 16, 2019 Page � 14 � �DI • • � - ` ' � • SDI believes that the organization depicted in Figure 4 would enable the City to become more agile and better able to leverage IT services (whether they be based on legacy applications and on-premises IT infrastructure or on the Cloud). As depicted,the City should consider the creation of several new IT staff positions including: ■ Security Manager: SDI prefers that the City employ a Chief Security Officer. However, the timing for this position may not be appropriate as the function needs further definition and could be performed by the IT Manager or Consultant until the City is appropriately staffed and organized for a full-time security position. ■ Business Analysts: The City should have at least one Business Analyst reporting to the IT Manager who would be responsible for working with the user community to ensure that existing business applications are being used as effectively as possible and that new requirements for automation are developed from an enterprise standpoint. ■ Contract Manager: The Contract Manager would be responsible for providing oversight for the City's service contracts (managed services, software-as-a-service, or platform-as-service, etc.) including independently monitoring conformance to the delivery of contracted services and conformance to service levels. This is consistent with industry best practices that stress the importance of contract management to ensure that the City obtains the fullest possible benefit from its sourcing contracts. Please note that this position could be filled by an existing City employee. Please note that in the future, the City may find it desirable to create the position of Chief Information Officer(CIO) reporting to the City Manager, as have many of its neighboring communities as well as other cities in the State. The CIO would be responsible for working with the City's management team and IT Steering Committee to develop, implement, and support the City's strategic vision for the use of information technology. The CIO would also be responsible for the development of the IT architecture to support the implementation of the City's strategic vision. Figure 5, Area IT Organizations, summarizes current IT organizational placement, and staffing for cities within the City of Orange's area. City In-House IT Hybrid IT Sourcing IT Reports To Anaheim Within Dept. Yes Perspecta Dep. Fin. Dir. Brea* Yes - - Adm. Ser. Dir. Costa Mesa Yes - - City Mgr. Off. Fountain Valley Yes - - City Mgr. Off. Fullerton Yes - - Adm. Ser. Dir. Garden Grove ( Yes - - City Mgr. Off. Huntington Beach Yes - - City Mgr. Off. Irvine IT Staff Yes Perspecta Adm. Ser. Dir. Newport Beach Yes - - City Mgr. Off. Riverside Yes - - City Mgr. Off. Santa Ana Yes - - City Mgr. Off. Yorba Linda L Yes - - City Mgr Off. * The City provides sourcing services to other area municipalities. Figure 5,Area IT Organizations January 16, 2019 Page � 15 � �D' • � / � � � • Observations The following comments are provided for the City's consideration based on SDI's consultants experience and knowledge of the managed services environment in California, as well as information technology best practices: ■ From an IT staff perspective, employees indicate they have received little tangible benefit from the corporate culture. On site staff do not share with, or learn from, other vendor managed organizations, receive few personal or professional growth opportunities, receive no input from the City on their job performance, and are faced with regular changes in their senior management and employee benefits. Consequently, IT staff feel they placed in an uncomfortable position where they are not City staff but are not closely tied to their corporation either. ■ With any outside vendor, it is possible that on site, assigned staff could work on other client projects or be assigned to projects outside the City. Contract language should be developed to protect the City from these "re-allocations" or provide a credit to the City for any non-City assignment. ■ Currently IT staff can be assigned to any information technology task without concern of working "out of class". This creates a flexible environment and provides IT management resources for the delivery of services without undue concern staff and time management. If the City moves to an in-house alternative, the "working outside of class" option may not be feasible under the City personnel guidelines. This will place a burden on IT management to closely monitor project assignments and resource utilization. ■ As indicated,the current IT organization is effective in its delivery of services today; however, the City should take necessary precautions to ensure that in the event of significant turnover service delivery remains at a satisfactory level.This can be accomplished with thorough documentation, cross-training of personnel, and the use of managed service vendors as "back- up" to existing staff. All of which can be effectively executed with any sourcing alternative the City selects. ■ The staff currently assigned to the City"know what they know." Several employees have worked in technical positions with other organizations but for most,their technical training and assignments have come through the City.An advantage to contracting with outside vendors is they often bring an outside influence or knowledge that can be very beneficial to problem solving, short-term assignments, and special one-time projects. In addition, outside vendors often provide a level of innovation and consulting to assignments that may not be available with existing staff. lanuary 16, 2019 Page � 16 � �D' • • � ` ' � • Conclusion Irrespective of the direction that the City elects to take regarding the delivery of IT services, IT governance and management of its sourcing agreements will be vital to the City's ability to obtain greater benefits for its investments in information technology. The City has a mature process for the governance of information technology including executives who are committed to using IT to improve the delivery of services to the community as well as an IT Steering Committee that has provided a forum for collaboration on IT directions and priorities. The City's ability to continue to realize improvements in its return for its investments (R01) in information technology will be related to its ability to better leverage this governance structure in the future, particularly with regard to the continuing alignment of IT directions and priorities with the City's resources, business objectives, and priorities. The availability of Cloud-based services offers an opportunity for greater agility; however, absent effective IT governance agility can become anarchy. The other component of improving R01 is related to the management of sourcing agreements. SDI is of the opinion that as a result of the transformation in IT service delivery noted above that the City will likely be dealing with more sourcing agreements in the future. Change is a constant in the public sector: user requirements, public expectations, resources are continually changing as is IT. The City will need to be able to adapt its sourcing agreements to respond to these changes and the City will need internal staff inembers who can manage projects and contracts as well as analyze business processes. Regardless of the direction,greater rigor in the management of sourcing contracts will help ensure that the City continues to derive the intended benefits from these agreements. January 16, 2019 Page � 17 � �D' • • � - ` ' � • Appendix The City has asked SDI to provide guidance regarding appropriate position titles should the City elect to bring IT staff in-house.Table 2, Map of IT Positions, assists the City in aligning the recommended and existing IT staff positions with classifications used in neighboring communities. ��, ��.�''° .4 � r� r ,w�:�,. .`�.�.��. � , ,., � . F,�.`, IT Manager Information Systems Manager IT Director Service Delivery/Project Manager Asst. IT Manager Information Systems Project Manager Network Engineer IT Network Administrator IT Network Architect Desktop Technician IT Technician IT Specialist Systems Administrator IT Systems Administrator IT Systems Specialist Help Desk Coordinator IT Technician IT Specialist CIO Chief Information Officer Chief Technology Officer Security Manager Chief Security Officer IT Security Manager Business Analyst Business Information Systems Analyst IT Systems Analyst Contract Manager Procurement Manager Project Manager Table 2, Map of IT Positions January 16, 2019 Page � 18 � �D� CITY COUNCIL MINUTES FEBRUARY 12, 2019 7.5 Information Technology Services Report. (C2500.0) NOTE: Mayor Murphy recorded an abstention on Item 7.5 due to a potential conflict with employment and left the dais at 7:54 p.m. Mayor pro tem Alvarez conducted the meeting for discussion of this item. Administrative Services Director Will Kolbow provided the staff report noting that the City has been contracting its IT services since 1984. He explained that the current contract no longer aligns with the CiTy's needs. During discussion, Council agreed that a hybrid model would be the right approach at this - - time and directed staff to explore this option further. Mayor Murphy returned to the dais at 8:08 p.m. 7.6 Status of Fiscal Year 2018-19 budget and preliminary projections for Fiscal Year 2019-20 budget preparation.(C2500.E.4) Administrative Services Director Kolbow presented the staff report. He noted that sales - tax reporting errors from the State for Fiscal Year 2017-18 appear to have been corrected and are included in the Fiscal Year 2018-19 figures. The error is estimated to be around $1.5 million. MOTION —Monaco SECOND —Alvarez AYES —Alvarez, Murphy,Nichols, Monaco Moved to receive and file report; and approve the following: 1. Authorize the transfer of$1,000,000 from the unreserved fund balance of the General Fund to the Business Investment Fund(115). . 2. Authorize the transfer of$1,500,000 from the unreserved fund balance of the General Fund to the Capital Projects Fund(500). 3. Authorize the transfer of$600,000 from the unreserved fund balance of the General Fund to the Computer Replacement Fund(790). 4. Authorize the transfer of$100,000 from the unreserved fund balance of the General Fund to the IT Maintenance Fund(780). 5. Authorize the appropriation of$20,000 from the Public Education and Government (PEG) Fund (130) unreserved fund balance to expenditure account number 130.0000.51670.00000,PEG Fund—Other Professional& Consulting Services: 6. Authorize the appropriation of$18,000 from the General Fund unreserved fund balance to expenditure account number 100.1401.51640.0000, General Fund — Medical & Psychologic Services. � 7. Authorize the transfer of$631,482 from the unreserved fund balance of the Worker's Compensation Fund (730)to the Liability Fund(740). PAGE 12