Last month marked the 5-year anniversary of the elimination of WCC’s IT Department in favor of managed services via Ellucian. In June, the WCC Board of Trustees voted to approve the five-year renewal contract for these services at a cost of $32,807,520. In addition, the motion tacked on the implementation costs of transitioning to the SaaS version of Banner. That inflates the cost of this motion to $37,904,525. Here’s the discussion:
First, the original contract with Ellucian – which was never bid out or negotiated to determine the best possible contract price – cost WCC $5,200,000 per year. The replacement contract is $6,561,401 per year. According to Trustee David DeVarti, that’s a 10% increase. I’m not sure what kind of math Trustee DeVarti used here, but $6,561,401/$5,200,000 does not equal 10%. It’s an annual increase of nearly 26.2 %.
(Maybe Trustee DeVarti’s calculator needs fresh batteries.)
The total value of the new contract is $32,807,520, which compares to $26,000,000 for the first contract. (Checked. Still a 26.2% increase.) It is not a “modest” increase, as Trustee DeVarti framed it. It redefines the phrase “sticker shock.” I am not surprised that none of the other trustees called out the cost of the contract, since they don’t ask questions about what gets put in front of them.
The fixed price contract means that Ellucian has already built in the inflationary increases to this contract and is amortizing those increases across the term of the contract. The actual annual inflation rate on the Managed Services Contract is about 7.855%, but this arrangement allows Ellucian to frontload the contractual revenue. Good for Ellucian. Not good for WCC and not good for Washtenaw County taxpayers. It also allows the WCC administration to whitewash the actual fifth-year cost of the contract, which is $7.59M.
Managed service contract cost increases are unsustainable
For those of you keeping score at home, the renewal cost of the next five-year “fixed price” managed services contract (2029) will be in the neighborhood of $9.58M per year.
Nobody gets to be shocked by these numbers. But at some point, SOMEBODY on the Board needs to figure out how to calculate cost increases correctly and start asking some damned questions.
During the presentation, Linda Blakey indicated that the college will also implement Banner’s cloud product. The cost is spread over five years, but the implementation will only take two years. The remainder of the cost is purported to be the software subscription itself.
In that case, the request for funds should have indicated what portion of the $1.01M per year is implementation costs, what portion is subscription costs, whether any of this cost represents financing for the two-year implementation period, and how these new costs compare to the current cost of the Banner on-premises software.
Interestingly, Linda Blakey assured the Board that the funding for this five-year agreement is available through the General Fund. I point this out for two reasons: first, no one knows with any degree of certainty the value of the General Fund in any future year. WCC has two millages that will be coming up for grabs in the next few years. Should one or both be declined by the voters, that would substantially change the college’s funding picture. (Unless she’s saying that the college will escrow $33M now to ensure that the Ellucian contract gets paid later.)
So, who’s managing whom?
I also want to point out that – just as with the first contract – this contract renewal was not put out for bid. No one on the WCC Board can say with any certainty that WCC is paying the lowest cost for managed services, that Ellucian is the only company that can provide managed IT services, that the managed services contract saved the college money, or that this is even the path WCC should continue on.
As of right now, the managed services contract has cost Washtenaw County taxpayers nearly $70M when factoring in the actual contract and renewal costs, the buyout costs of the IT staff, the technology infrastructure upgrades, and the transitional costs of moving to Banner’s cloud product. Cloud software is a fundamentally different product than on-premises software. This should have gone out for bid to determine whether Banner is the most cost-effective ERP. (I should also point out that the terms of the Ellucian contract effectively prohibit this.)
Every last dime of that $70M has been approved outside of the College’s contracting policies, and not one dime of that expense has been negotiated on behalf of the Washtenaw County taxpayer.
Photo Credit: Amanda Farah , via Flickr
