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"It just seems like an unhealthy kind of system," said Council Member Cam Gordon, who has advocated breaking up the Unisys contract.

Glen Stubbe, Star Tribune

Minneapolis spent millions on no-bid IT contract

  • Article by: ERIC ROPER
  • Star Tribune
  • August 4, 2012 - 9:06 PM

Nearly a decade after Minneapolis outsourced its IT services to Unisys Corp., no other company has had a chance to bid for what has become the city's largest contract -- worth $143 million over its lifetime.

Now some top city officials are casting doubt on whether the 10-year Unisys relationship, which dates back to the era of dialup modems, remains the best deal for taxpayers. What's more, a recent audit found the company wasn't following some of the requirements in its contract.

Several of the city's IT players who guided the contract's extensions over the years, all of whom have since left the city, had employment ties to Unisys.

In 2007, the chief information officer, a former Unisys employee, took a job with a consulting firm that then reviewed the Unisys contract. A former Unisys executive landed a top position in the city IT department in 2009, supervising the employee who was monitoring the contract. In 2010, the subsequent chief information officer left to work at a company headed by Unisys's former outsourcing chief.

"It just seems like an unhealthy kind of system, an unhealthy process to have this many close connections and relationships," said Council Member Cam Gordon, who has advocated breaking up the Unisys contract or bringing some services back in-house.

City auditors found in June that Unisys wasn't proving that the city is getting favorable prices on equipment and services, a stipulation of the contract.

"I'm just surprised ... that we did not go out and get bids," Stephanie Woodruff, a member of the city's audit committee and software company executive, said during a review of the audit. "To me that is a basic control when contracts are of this size."

Most data at City Hall now flows through Unisys property, including 3,300 PCs used by city employees and 198 servers in Eagan. The city has extended its contract with the company twice without seeking competitive bids; the latest version is slated to expire at the end of 2015.

Based in Pennsylvania, Unisys provides IT services to a range of other public entities, including the city of Chicago and a number of federal government agencies. In 2004, auditors found the company was overbilling for work related to a Transportation Security Administration contract, the Washington Post reported.

The longstanding setup with Unisys is getting fresh scrutiny from Minneapolis' city coordinator and chief information officer, who are both relatively new to their jobs. The chief information officer, Otto Doll, believes the Unisys agreement is written for a bygone technological era and is too rigid for volatile city budgets.

While he's pleased the audit didn't find more problems, Doll said the equipment pricing issue is "one of many reasons why we need to go back out on the street for this contract." His department has done its own comparisons to ensure the city gets favorable PC prices.

"Unisys has worked cooperatively with city personnel to address the issues that the city raised with Unisys as a result of the recent audit findings," Unisys spokesman Brian Daly said in a statement. "Unisys stands ready to assist the city with any other issues in the audit report on which the city seeks our assistance."

Doll and others largely agree that the city is saving money by outsourcing IT, which replaced a chaotic and unpredictable city-run infrastructure. And seeking bids on the contract won't be cheap; a request for proposals alone will cost the city hundreds of thousands of dollars, and could result in a renewal with Unisys. It ensures the contract is still the best the city can get, however.

Unisys beat out its competitors to win the contract in 2002. Before renewing the contract in 2007, the city paid for a broad outside analysis which concluded that the Unisys relationship was largely paying off. The city also sought out whether other companies were interested -- three responded affirmatively, including IBM. The city chose to sign a new contract with Unisys later that year, and then opted for an early extension in 2010.

Close relationships

A former Unisys employee who became the city's chief information officer, Karl Kaiser, was one of the architects of the city's first contract with the company. In 2007, Kaiser left to take a job with EquaTerra, a consulting firm. About a month later, Kaiser's successor Lynn Willenbring signed a $49,500 no-bid contract with EquaTerra to review the Unisys contract. Willenbring said in an interview that she was preparing the deal with EquaTerra before Kaiser got hired there, and then made it clear he could have nothing to do with the Unisys review.

In 2009, Willenbring hired a former Unisys executive, Joseph Shneider, to be a director in the IT department.

Willenbring noted Shneider had spent more than a year away from Unisys, and said he brought a unique perspective to day-to-day negotiations with Unisys. "He understood from the inside how things work and where he could get those leverage points," Willenbring said.

One of Shneider's responsibilities was supervising Stephen Thomas, who was monitoring the Unisys contract during a brief stint with the city in 2009. Thomas believed his new supervisor had a "conflict of interest" as a former Unisys employee.

"From an audit and compliance standpoint, you don't do that. Plain and simple. That's a red flag," said Thomas, who left months later because of city "favoritism" toward Unisys and he was skipped over for a promotion. "And I've been a certified auditor for several years."

Shneider said there was no conflict because he had no financial ties with the company -- he sold all of his Unisys stock before joining the city. "I know how to hold somebody accountable, because I've been on both sides of it," Shneider said.

Willenbring then departed the city for an executive position at IT firm Fujitsu America, Inc. Her boss at Fujitsu America was Anthony Doye, who had recently left Unisys as senior vice president overseeing outsourcing. Willenbring said she contacted him about possible openings in the industry, but only because he had left Unisys. "I could never have that conversation with him when he was at Unisys, that would have been completely inappropriate," Willenbring said.

Several months before he left the city in 2010, Shneider successfully made the case for opening and prematurely extending the Unisys contract to save money during a budget crunch -- about $1.5 million over five years.

Council President Barb Johnson, one of five on the council to vote against the deal, questions whether it was worth it. "By signing up for all these more years, [the savings] was kind of a pittance," Johnson said.

The city's budget chair, Council Member Betsy Hodges, disagrees. "The exchange we got for that choice was significantly reduced costs," she said. "It was basically like refinancing your mortgage."

What's next

Doll arrived several months after the Unisys contract was extended. His team is now laying groundwork to complete rebidding on the contract by the summer of 2014.

"I think it's prudent for us to investigate what the IT outsourcing industry has to offer," Doll said. "Because it's been a long time since we've been out testing the waters."

Shar Habibi, resource center director of In the Public Interest, a Washington nonprofit focused on privatization and contracting, said Unisys has a "track record" of seeking no-bid extensions on government contracts.

"Even though the contract started off as a shorter-term contract, without regular oversight and review and competitive bidding upon renewal, the city has essentially created a private-sector monopoly over the public service," Habibi said.

Eric Roper • 612-673-1732 Twitter: @StribRoper

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