Dripping Dollars
Will Portland Take Another Bath on its New Water Bureau Billing System?
Going
Downtown
Waiting for my cab to arrive to take me to City Hall, I mentally reviewed
my presentation checklist. I’d prepared 10 handout folders. They
included a one-page outline of my talking points, customer references,
corporate accomplishments and plenty of business cards. My own notes covered
an expansion of my points, anecdotal experiences and plenty of facts to
back me up. I’d never been to City Hall before, but I
was ready. My shoes were shined, my hair was trimmed and I was wearing
my best suit. As the cab pulled into the drive I checked myself one last
time in the mirror.
I looked sharp.
“Where to?” the cabbie inquired.
“I’m going to City Hall,” I replied.
“You gonna see Vera?”
“I hope not,” was my response.
The driver had some words for me.
“You know”, he said “it costs me $125 a day to run this
cab and business is so slow I’m barely making $100 a day. And she
wants to raise my business taxes.”
We commiserated. The city did not care about small business. Vera wanted
a baseball stadium. Vera wanted to cap I-405. Vera wanted to cover the
reservoirs. They built a beautiful convention center but there was no
place for the conventioneers to stay. It seemed that the city gave tax
breaks to the rich developers but stuck it to the little guy.
When we got there I tipped him five bucks.
“You tell Vera hi for me,” he said as he drove off.
I climbed the steps and contemplated my mission. My mission was to convince
Commissioner Saltzman and his advisors that it was not necessary to spend
millions more dollars to get a water billing system up and running. They
could do it for less... much less.
The Green Approach
The trouble all began in 1996 when City Commissioner Erik Sten ended up
with the water bureau in his portfolio. With his vast life experience
of 28 years he determined that “sustainability” meant that
heavy water users should pay more and those who conserved should pay less.
Great theory, but the concept had to
be translated into computer code that would produce bills accordingly.
Enter Severn Trent Systems, a subsidiary of Severn Trent Ltd., a huge,
multi billion-dollar corporation headquartered in the United Kingdom.
Severn Trent provides water and sewage services to much of England, Scotland
and Wales. Evidently, in developing systems to handle the tracking and
billing of their vast enterprise, they ended up with what they thought
was a marketable suite of software. Hence, Severn Trent Systems, a spin
off software company.
Severn Trent did not have exactly what Commissioner Sten and his crew
were looking for. But it was close and, according to Severn Trent, it
could be modified to meet the initial requirements of the City. Sten and
the City bought it and agreed to a $6.5 million deal for a state of the
art system. At the time, the possibility was discussed that the system
might eventually let you dial in via the Internet and monitor your number
of flushes month to date.
The only problem was they couldn’t get it to work.
In February of 2000, despite warnings from Water Bureau staff that the
system contained at least 49 flaws, Erik Sten and his project manager,
Mike Rosenberger, gave the go-ahead for the system to be implemented without
parallel testing. Chaos ensued. Some businesses and householders got water
bills for hundreds of thousands of dollars. Others got no bills at all
for months and months. Lost revenues and overtime expenses ran up an incalculable
figure with some estimates as high as $30 million. No one will admit whether
Severn finally threw in the towel or whether the city could never actually
define its requirements, but the whole deal ended up in the crapper.
Conflicts ensued. The city wanted to hold Severn accountable for the damages.
Severn thought they should be paid for all their extra work attempting
to customize the system. In June 2001, Mayor Katz quietly pulled the Water
Bureau from Sten’s portfolio and gave it to poor Dan Saltzman. Erik
Sten, who might have been politically destroyed by his responsibility
for the fiasco, instead was re-elected for another term on the council.
His focus has since shifted to another utility issue: the prospect of
city acquisition of Portland General Electric.
Secret negotiations eventually resulted in a settlement. In January 2003
the Oregonian reported that Severn Trent had agreed to reimburse the city
$7 million, but would continue to be retained by the city for $385,000
a year to maintain the system.
Why was Severn Trent retained to continue supporting the botched system?
According to the Oregonian, Saltzman said it was because Severn still
retained copyright and control of the system source code.
Keys to the Hood
In order to fully understand the situation, you have to understand what
source code is. Stay with me now, it’s easier than you might think.
When a programmer develops software they write their instructions to the
computer in a human readable language. There is a wide variety of these
languages but some examples are C++, Visual Basic and Java. If you are
a little older, you’ll remember languages like Cobol and Fortran.
The written instructions in the selected language are the source code.
The programmer then runs a program that compiles, or converts, these human
readable instructions into the 0s and 1s
that the computer understands. The computer understandable code is called
“object” code. The conversion is a one-way street. In most
cases there is no way to convert the object code back into the human readable
source code.
Many of us use programs like Microsoft’s Word. When you click on
“Tools” in Microsoft Word, the program pulls down a list of
things you can do. The object code provides that functionality. If you
don’t like what’s on that list, too bad. You can’t change
it. The only way you could change it would be if you had the source code
and knew how to modify it. But you don’t have the source code. You
only have the program, the object code. So you couldn’t change it
even if you wanted to. Part of what led to Microsoft’s legal problems
over the last few years was that they wouldn’t allow other companies
access to the source code for Windows.
Look at it a different way. You just bought a brand new automobile. There’s
a key to open the hood. But you don’t have the key; the dealer has
the key. In order to change your oil or replace your air filter you have
to go to the dealer who has the key. The key is the source code. Without
it, you are totally at the mercy of the dealer to service your car. You
might figure, no big deal. I can get the key from another Ford or Chevy
Dealer. But in the case of business software, your car was not made by
Ford or Chevy. It was made by Thomason or Tonkin. They are the only ones
with the key, and if they go away, you’re out of luck.
Request for Proposal
As business software developers, with combined experience of over 50 years,
my partner Fred and I watched the fiasco unfold with a mixture of amusement
and bewilderment. We’ve written hundreds of systems of all types.
Billing systems. Inventory Control Systems. Purchasing Systems. Accounts
Receivable Systems. How could the City of Portland Water Bureau billing
system be so complicated as to require millions upon millions of dollars
in development? How different could it be from PGE, PP&L or Northwest
Natural? They read meters, send out bills and post payments. What’s
up with this?
It is rare that we ever hear of a government technology acquisition that
comes in on time and on budget. Usually, as in the case of the DMV computer
upgrade or the botched Water Bureau billing system, we hear of four, five
or six-fold cost overruns and target dates missed by months or years.
Often, the government agency will have to regroup and start all over again
while the taxpayers dutifully pick up the tab. How is it this happens
over and over again? The answer is the Request for Proposal (RFP) process.
What is an RFP? Well, when it comes to government purchasing, an RFP is
a combination wish list and contract, spelling out in intricate detail
what the product is supposed to do, how it is supposed to do
it, how it will be paid for and who will be allowed to submit a bid. These
voluminous documents, which require a team of attorneys to properly interpret,
will put fear in the hearts of many prospective vendors. After unfortunate
experiences with one RFP from the
U.S. Postal Service and another from the Oregon Department of Revenue,
we developed our own
unique approach of responding to RFP’s. We throw them in the trash.
For some vendors, however, RFP’s can be a godsend. We used to have
a client with a forms printing business. He was very adept at responding
to IRS RFP’s for forms 1040 and related schedules.
“How do you always manage to get the IRS contracts?” I asked
him one day.
“It’s easy,” he replied. “I always bid them below
my cost.”
“How do you make any money?”
At this point my client chuckled.
“Because they always change the specs,” he said, with a twinkle
in his eye. “Every change from the original RFP is at an additional
charge and we stick it to ‘em.”
And therein lies the rub. An RFP for purchasing five Chevy Astro vans
probably works pretty well. You specify the model, the color, the engine,
the interior and the trim package. The dealers can then all sharpen their
pencils, see how much they can tighten up their pricing and give you a
bid. No problem. But an RFP for technology, particularly software technology,
is not so cut and dried. In an RFP for software the issuing entity tries
to describe the look, feel and functionality of a computer program in
a written document. Imagine trying to describe the look, feel and functionality
of a product like Microsoft’s Word or Windows by writing it down.
It would be like trying to write a description of the Mona Lisa.
In the case of software, the vendor will insist that the intent of the
RFP is met. The issuing party will disagree. Arguments ensue. Anything
not envisioned by or specifically outlined in the RFP becomes a change
order and the vendor “sticks it to ‘em.” The Severn
Trent bid award was the result of an RFP. How much would you like to bet
that disputes over the verbiage of the RFP contributed to the complete
failure of the attempt to implement the system?
Thanks for Your Insights
I first wrote to Commissioner Saltzman in December of last year when I
read that the decision had been made to replace the Severn Trent system.
I pointed out to him that it might make sense to simply approach one of
the other local utilities that had a working system and see about licensing
their software. PGE, PP&L and Northwest Natural all have balance forward,
meter based billing systems. They seem to get their bills out without
any difficulty. In addition, I wrote:
“I would advise you to be wary of the RFP process. Presumably it
was an RFP which led to the Severn Trent contract and another RFP might
well go the same way.”
I had never written to a city official before. I didn’t really expect
a reply, but about a week later I received a very gracious letter from
the Commissioner. He thanked me for my suggestions and informed me that
the Office of Management and Finance (OMF) was heading up the procurement
of the new system. He also let me know that the city was committed to
an open and public process in selecting a replacement system and that
the RFP process was the best method for facilitating that. On the bottom
of the letter next to his signature was a handwritten note. It read:
“Thanks for your insights and suggestions.”
A few days later I received e-mail from the city. It contained a link
to the City of Portland Bid Host Site. When I clicked on the link, I was
presented with RFP 101935, the RFP for the new Water Bureau Customer Information
System (CIS). I downloaded the RFP. It was 145 pages. I resigned myself
to a long weekend of study.
There’s No Blueprint!
The RFP was disturbing. To begin with, I did not see how the city could
have produced a 145-page document in the three week interval between the
time they announced they were going to dump the Severn Trent system and
the time they posted the RFP on their website.
I also found it curious that the RFP contained a Y2K compliance clause.
If you remember back to the late 90s, Y2K compliance meant that the processing
of dates in a system would work properly after December 31, 1999. I couldn’t
understand why an RFP written in December of 2002 would have a Y2K compliance
clause.
Then it dawned on me. The new RFP was probably the same RFP, with minor
changes, that was used to recruit Severn Trent.
I don’t know about you, but if I’d entered into a contract
that ended up cleaning me out just a few years back, I’d probably
insist on a completely new contract the next time around.
And there was more.
Respondents to the RFP were required to provide a
bid for hardware along with their software, but at the same time the City
said they may or may not buy the hardware from the vendor or in fact may
not buy any hardware at all. Since most software companies don’t
sell hardware, this would really complicate the respondents’ ability
to bid.
But then I came across something that really blew
me away.
Vendors responding to the RFP were required to provide a fixed bid to
convert the data in the Severn Trent system to their own formats. But
no file layouts
or specifications were provided for the Severn Trent System.
You probably do data conversion all the time and don’t even know
it. If you have WordPerfect on your home system but Microsoft Word on
your office system you may often do a “save as” of your documents
and specify the file format for the program you are going to use next
time you access the document. The program you are using handles the conversion
for you. It can do this because it knows how the other program wants to
“see” the data; it has the specifications.
Asking a software company to give a fixed bid on data conversion without
providing the specifications of the data to be converted is like asking
a contractor for a fixed bid to build you a home without knowing how many
bathrooms or bedrooms the home is supposed to have. Obviously, a contractor
wouldn’t give you a bid. But these software vendors have to, in
order to even respond to the RFP. What would you bid? One million? Two
million? The vendor has to imagine the worst-case scenario and bid it
accordingly.
Finally, in the contract addendum portion of the RFP I noted the following
with interest:
“All work products resulting from this contract will become the
property of the City of Portland.”
Do Not Hesitate to Contact
Me
Upon completing my review of the RFP, I once again wrote to Commissioner
Saltzman. I pointed out that that the new RFP appeared to me to be a knock-off
of the original. I suggested that, since the original RFP could not be
implemented by Severn Trent, the new RFP might well end up producing similar
results. I discussed the fact that the inclusion of the hardware bid from
non-hardware vendors clouded and confused the RFP. Finally, I insisted
that it made no sense at all to ask for a fixed bid to perform the data
conversion without supplying the vendor the technical specifications of
the Severn Trent system.
I also took the opportunity to throw a sales pitch at the Commissioner.
When I reviewed the RFP I spent a good deal of time thinking about how
a company like ours would approach the project. It did not seem that complicated.
It would require: A customer database. A billing rate matrix to determine
the appropriate charges. An interface to accept the upload of scanned
meter readings. An accounts receivable to track the charges and payments.
Not at all unlike dozens of systems we had designed and coded over the
last 18 years. We already had the customer database and accounts receivable,
basic modules that we had tailored to the needs of many clients. Rate
matrixes and scanned data upload interfaces were also within our repertoire.
I did some quick calculations. Two of our staff working for 18 months
exclusively on the project would cost the city just under $500,000. I
didn’t see how it could be so complicated as to require more than
that. NASA probably didn’t spend more time than that developing
software for the Space Shuttle.
But I knew the city would never buy that small of a number. They just
don’t think in those terms. So I wrote the following:
“It is my feeling that our company, if allowed to undertake this
project utilizing a custom development approach could produce the basic
customer tracking and billing portions of the system in 12 to 18 months
at a cost to the City that should not exceed seven hundred thousand dollars.”
Eleven days later I received a response from the Commissioner. He informed
me that he had forwarded my comments and concerns to Mr. Dick Hofland
who was coordinating the procurement process at OMF and had requested
that Mr. Hofland respond to my concerns. In addition the Commissioner
wrote:
“Please do not hesitate to contact me with future questions or comments
after you have heard back from Mr. Hofland.” He cc’d Mayor
Vera Katz and Tim Grewe, Chief Administrative Officer of OMF.
A Thoughtful Response
In early February I received Dick Hofland’s response to my concerns.
In his preamble he wrote:
“I apologize for not being able to get back to you sooner. As you
can imagine, getting a replacement project off the ground for replacing
the City’s customer information system is quite a chore, but you
raise some important issues that deserve a thoughtful response.”
I was assured that, although the Severn Trent RFP was thoroughly reviewed
in developing the new one, the RFP was not a “knock-off” of
the first one. The city, in fact, had already reviewed a number of existing
systems and had determined that they would fit their needs.
The requirement for a hardware quote in the RFP was simply there to determine
the optimum operating environment and approximately what it would cost
to acquire it. “Just because we ask for the price from the vendor
does not imply that if we choose their software we will also select exactly
the hardware they propose, or buy it through them.”
With regard to the fixed estimate for data conversion without specifications,
Mr. Hofland replied, “You are absolutely correct that an accurate
cost for data conversion can only be known after a careful evaluation
of table layouts.” But he assured me that the city would only entertain
bids from firms “who have a clear, demonstrated, recent track record
in providing and installing their product in similar water and sewer
By Dave Lister
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