REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
June 27, 2023
FROM
LYNN FYHRLUND, Chief Information Officer, Innovation and Technology Department
SUBJECT
Title
Agreements with International Business Machine Corporation for Enterprise Server Usage, Software Licensing with Support, and Professional Services
End
RECOMMENDATION(S)
Recommendation
1. Approve the following non-financial agreements, including non-standard terms, with International Business Machine Corporation, for enterprise server usage, software licensing with support, and professional services, for the period of July 24, 2023, through July 31, 2028:
a. Client Relationship Agreement, which includes the IBM Attachment for Mainframe Software Maintenance, IBM Attachment for Mainframe Monthly License Charge Programs, and Attachment for IBM System z Advanced Entry Workload License Charges.
b. International Passport Advantage Agreement
c. International Program License Agreement
d. International Agreement for Acquisition of Software Maintenance
2. Authorize the Purchasing Agent to issue purchase orders to International Business Machine Corporation, in an aggregate amount not-to-exceed $16,000,000, to purchase enterprise server usage, software licensing with support, and professional services, for the period of July 24, 2023, through July 31, 2028.
3. Authorize the Chief Information Officer to execute non-substantive amendments with International Business Machine Corporation as they pertain to changes to the proprietary enterprise server usage, software licensing with support, and professional services, subject to review by County Counsel, provided the documents do not increase the total not-to-exceed purchase order authorization of $16,000,000, as set forth in Recommendation No. 2, or change the duration of the agreements.
4. Direct the Chief Information Officer to transmit all non-substantive amendments related to proprietary enterprise server usage, software licensing with support, and professional services to the Clerk of the Board of Supervisors within 30 days of execution.
(Presenter: Lynn Fyhrlund, Chief Information Officer, 388-5501)
Body
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
FINANCIAL IMPACT
Approval of this item will not result in the use of Discretionary General Funding (Net County Cost). The Innovation and Technology Department’s (ITD) operating costs are recovered via service rates approved annually by the Board of Supervisors (Board). The aggregate not-to-exceed amount of $16,000,000 will allow ITD to make purchases to renew existing International Business Machine Corporation (IBM) software licensing and related services for a five-year period. Sufficient appropriation is included in ITD’s Computer Operations 2023-24 budget and will be included in future recommended budgets.
BACKGROUND INFORMATION
The ITD Enterprise Infrastructure Division manages multiple enterprise systems including the Enterprise Server and the Enterprise Content Management System (collectively, IBM Systems). These IBM Systems serve many County departments and run countywide departmental applications, such as the Jail Information Management System, the Juvenile Network, the Property Information Management System, the Tax Collector Systems, and the Treasurer System. The IBM Systems utilize software licensing and support services only available through IBM. Professional services are required to implement new software products on the Enterprise Server and conduct system health checks, and IBM requires the payment of monthly license charges based on usage of the Enterprise Server.
Since 1997, the Board has approved annual purchase orders and agreements with IBM for IBM Systems software licensing and support. ITD recommends approval of the IBM non-financial agreements, as outlined in Recommendation No. 1, including non-standard terms, and the purchase authorization to allow the County to maintain compliance with IBM’s usage and software licensing requirements. This will enable ITD to continue to receive support and professional services from IBM.
The total not-to-exceed amount of $16,000,000 for these agreements covers the five-year period of July 24, 2023, through July 31, 2028, and includes an estimated annual cost of $1,641,121 for the renewal of the existing enterprise server usage, software licensing with support, and professional services. The remaining not-to-exceed amount of $14,358,879 will provide ITD the ability to renew existing enterprise server usage, software licensing with support, and professional services and purchase additional services and licenses, as necessary, from IBM.
ITD also recommends authorizing the Chief Information Officer to execute non-substantive amendments with IBM related to professional services and software licensing and support, subject to review by County Counsel and provided they do not modify the total not-to-exceed amount or the duration of the agreements. Authorization is requested for projects which may occur during the five-year contract period and that may require execution of statements of work or other similar documents with non-substantive amendments. Furthermore, as projects progress, new requirements or technical revisions may arise and similar documents with non-substantive amendments may need to be executed. Authorization will ensure timely authorization of necessary amendments and avoid unnecessary delays and interruptions in the implementation of projects.
The IBM Client Relationship Agreement (CRA), International Program License Agreement (IPLA), and International Agreement for Acquisition of Software Maintenance (IAASM) are IBM’s standard commercial agreements, which include terms that differ from the standard County contract and omits certain County standard contract terms. IBM is unwilling to negotiate these terms. The non-standard and missing terms include the following:
1. IBM’s maximum liability to the County under the CRA, IPLA, and IAASM each is limited to direct damages up to the greater of the amount paid for the product that is the subject of the claim or $100,000, excluding infringement claims and damage that cannot be limited under applicable law.
• The County standard contract does not include a limitation of liability.
• Potential Impact: Claims could exceed the liability cap and the CRA, IPLA, or IAASM amount leaving the County financially liable for the excess.
2. Neither party may bring a legal claim under the CRA, IPLA, or IAASM more than four years after the cause of action arises.
• The County standard contract does not include a limit on the time to bring action.
• Potential Impact: Limiting the County’s ability to bring suit to four years may amount to a waiver of the Statute of Limitations for claims and shorten the period of time in which the County may file a lawsuit under the CRA, IPLA, or IAASM.
3. Payment terms are due upon receipt of invoice and payable within 45 days from the invoice date with late payment fees in the amount of 1.5% per month.
• County standard payment terms are Net 60 days with no interest or late payment penalties.
• Potential Impact: County standard processing time is Net 60 days or more. Failing to pay within 45 days from the invoice date will result in a material breach of the CRA, IPLA, or IAASM, which would allow IBM to terminate the CRA, IPLA, or IAASM and seek other legal remedies, including charging the County fees of 1.5% per month, which would exceed the CRA, IPLA, or IAASM amount.
4. There is no termination of the CRA, IPLA, or IAASM for convenience without penalty. If the County terminates without cause, the County is required to meet all minimum commitments, pay termination charges as specified in a transaction document and pay additional cost reasonably incurred by IBM because of such early termination.
• The County standard contract gives the County the right to terminate the contract, for any reason, with a 30-day written notice of termination without any obligation other than to pay amounts for services rendered and expenses reasonably incurred prior to the effective date of termination.
• Potential Impact: Upon termination by the County without cause or by IBM with cause, the County is required to meet all minimum commitments, pay termination charges as specified in a transaction document, and pay additional cost reasonably incurred by IBM because of such early termination, which could result in payment liability where no funds are available due to lack of allocation or loss of funding.
The IBM International Passport Advantage Agreement (IPAA) is IBM’s standard commercial agreement, which includes terms that differ from the standard County contract and omits certain County standard contract terms. IBM is unwilling to negotiate these terms. The non-standard and missing terms include the following:
1. IBM may change the terms of the IPAA by posting notice on its website.
• The County standard contract requires that any changes to the contract to be reduced to writing, executed and attached to the original Contract and approved by the person(s) authorized to do so on behalf of Contractor and County.
• Potential Impact: The County could be agreeing to new terms without review by anyone, including County Counsel, and without approval of the new terms by the Board.
2. IBM’s maximum liability to the County under the IPAA is limited to direct damages up to the greater of the amounts paid for the product that is the subject of the claim or $100,000, excluding infringement claims and damage that cannot be limited under applicable law.
• The County standard contract does not include a limitation of liability.
• Potential Impact: Claims could exceed the liability cap and the IPAA amount leaving the County financially liable for the excess.
3. Neither party may bring a legal claim under the IPAA more than four years after the cause of action arises.
• The County standard contract does not include a limit on the time to bring action.
• Potential Impact: Limiting the County’s ability to bring suit to four years may amount to a waiver of the Statute of Limitations for claims and shorten the period of time in which the County may file a lawsuit under the IPAA.
4. Payment terms are due and payable within 45 days from the invoice date with late payment fees in the amount of 1.5% per month. Payments through periodic billings are absolute, unconditional, and not subject to setoff.
• County standard payment terms are Net 60 days with no interest or late payment penalties.
• Potential Impact: County standard processing time is Net 60 days or more. Failing to pay within 45 days from the invoice date will result in a material breach of the IPAA, which would allow IBM to terminate the IPAA and seek other legal remedies, including charging the County fees of 1.5% per month, which would exceed the IPAA amount.
5. There is no termination for convenience while a party has outstanding obligations under the IPAA.
• The County standard contract gives the County the right to terminate the contract, for any reason, with a 30-day written notice of termination without any obligation other than to pay amounts for services rendered and expenses reasonably incurred prior to the effective date of termination.
• Potential Impact: The County can only terminate the IPAA during the term for an uncured breach by IBM. Any attempted termination by County while the County has outstanding obligations under the IPAA would result in payment liability for the full IPAA amount, which could result in payment liability where no funds are available due to lack of allocation or loss of funding.
ITD recommends approval of the agreements, including non-standard terms, to maintain compliance with IBM’s usage and software licensing requirements, which are necessary to continue to operate various County applications as identified above, and receive support and professional services from IBM.
PROCUREMENT
The agreements, including non-standard terms, will be used to accompany future purchase orders to be approved, as necessary, per County Policy 11-04, Procurement of Goods, Supplies, Equipment, and Services. The IBM Systems utilize proprietary software licensing and support services provided exclusively by IBM. The IBM enterprise server runs mission critical applications for County departments, some of which are currently being modernized and moved to different platforms.
ITD has also developed a significant number of peripheral systems that utilize the enterprise content management system to meet the document storage and retrieval needs of County departments. IBM Systems remain the most cost-effective option at this time and therefore a competitive process to consider alternative systems was not completed. Implementing a different platform would require a substantial financial investment and potentially disrupt County operations. It would also require additional resources to re-train employees on a new platform.
ITD has actively assisted departments in migrating their applications to other platforms, such as virtual servers, when cost effective and will continue to work with departments to identify other opportunities for further migration. The Purchasing Department concurs with the non-competitive justification for proprietary licensing and support.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Bonnie Uphold, Supervising Deputy County Counsel, 387-5455) on June 1, 2023; Purchasing (Tevan Stremel, Buyer III, 387-2098) on May 31, 2023; Risk Management (Victor Tordesillas, Director, 386-8623) on June 1, 2023; Finance (Ivan Ramirez, Administrative Analyst, 387-4020) on June 5, 2023; and County Finance and Administration (Paloma Hernandez-Barker, Deputy Executive Officer, 387-5423) on June 9, 2023.