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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