City of Missoula, Montana | Contract Negotiations Case Study

Background of Organization:

The City of Missoula, the County seat of Missoula County, is located in the western part of Montana. The city, with a 2000 population of 57,053, ranks as the second largest city in Montana. Since 1990, the City population has increased at an average annual rate of 2.2%.

Description of Situation:

Missoula was seeking of an integrated enterprise financial management package. The City desired a system that will: 1) utilize decentralized processes; 2) promote newer technologies, such as web enablement; 3) enhance management analysis through tools such as ad hoc reporting; 4) promote open technology; and 5) contain imbedded best business practices. The City had chosen to implement a "vanilla" software package and to limit the amount of modifications to the base application. The City engaged GFOA to perform the following: RFP creation, system selection and contract negotiations.

In addition, the City had a few other unique requirements. First, it only had the budgeted funds available to procurement and implement core financial modules, but a had a clear vision to eventually implement a full ERP system, including human resources and constituent relationship management. Also, the City was responsible for administering a highly specific "special assessment" against residents for the construction of sewer mains. This special assessments function was subject to a number of highly specific legal requirements. This meant that any accounts receivable system designed to automate the process of special assessments would have to conform to these legal requirements.

Description of Methodology:

One of the most valuable services that GFOA provides its clients is the negotiation of software contracts. Too often, governments are pitted against software vendors that have negotiated contracts many times before. Understandably, software vendors and their implementation partners want to maximize profit and minimize risk. In addition, they tend to get governments to do most of the "heavy lifting" and increase their involvement in other phases that may not provide the most value for the client. The GFOA has developed a unique "parallel negotiations" methodology that we utilized for the City. This approach seeks to retain the benefits of competition until the last moment of the procurement cycle. It also uses our membership network to benchmark prices and terms. In our experience, this disciplined approach can actually lead to a faster contract negotiation process with considerably lower risk. (The article Negotiating for Financial Software: The Methodology of Parallel Negotiations, was written by GFOA staff assigned to this project.) Finally, the GFOA has established a library of sample software contracts for its consulting practice that were utilized for this project.

GFOA's Solution:

GFOA first used a parallel negotiations strategy to first identify which of the two remaining vendors would be most amenable to contractual terms and conditions that would satisfy the City's unique requirements for this project. Upon identifying a single vendor to work with, GFOA and City, in partnership with the ERP vendor, proceeded to establish a number of contract documents. The first, and most basic component, was the software and services agreement, which established the City's rights to use the commercial off-the-shelf portion of the software, and also established the rules governing the software vendor's behavior during the implementation. GFOA and the City worked to establish provisions that GFOA regards as critical components of an ERP deal including a warranty period sufficient to uncover bugs, including bugs in end-of-year processes, after go live, retention to ensure satisfactory conclusion of the project, a fixed price for the entire project, a detailed statement of work to provide a roadmap for implementation, and guarantees on the future rates that the City would be charged for maintenance and support services.

GFOA and the City also worked with the Vendor to establish long-term pricing protections on both the software and services necessary for the City to realize its complete e-government vision. This solution provided budgetary certainty for the City, while still maintaining the City's flexibility to investigate other human resources or constituent relationship management solutions, if it perceived the need to do so.

Unsurprisingly, none of the vendors in the procurement process had an accounts receivable solution that was able meet the City's special assessment needs fully out of the box. This necessitated a custom-built solution. The key to a successful custom-built solution is to arrive at a solution that the vendor can market elsewhere, thereby maintaining the vendor's motivation to support and develop the product. As such, the City and vendor entered into a joint development agreement wherein the City and vendor would work together to establish the key requirements of a special assessment billing system, which the vendor was to build, test, and implement at the City. The City received a number of contractual assurances as to the quality of the end product including the ability to use the product under a "test" period after go-live. The City was not obligated to make full payment for the product until the City has ability to operate the system in a live environment, in a way that conforms with the City's key requirements.