Conflict Over Maintenance Fees

Agencies and vendors disagree over the degree to which vendors should reduce prices to save government jobs.
by | June 22, 2010

A debate is happening among local government IT departments over the degree to which contracted vendors should adjust their prices to save government jobs. Some revenue-starved municipalities are targeting ongoing maintenance fees paid to IT vendors as an area for cutting costs. One of them is Montgomery County, Md., where CIO Steve Emanuel wants vendors to lower their profit expectations.

Typically when a government buys hardware or software, it also purchases an ongoing service plan for repairs and replacement of parts. Maintenance fees can be lucrative for vendors, and they frequently grow on an annual basis. Some CIOs like Emanuel believe today's maintenance charges no longer reflect realistic amounts that governments can pay. He wants the county's vendors to lower the profit expectations they attach to those services, but many vendors are not showing much willingness to do that, according to Emanuel. "If we've been a good long-term customer, then this is an investment they need to make in order to keep that long-term relationship as a partner," Emanuel said.

Emanuel said lower service fees from vendors could enable him to save more government jobs. However, some say government officials tend to lose sight of the reality that vendors need to survive this economy just as governments do. Dick Leurig, director emeritus of future technology and innovation initiatives for Montgomery College in Maryland cautions agencies to be careful about how much they ask vendors to sacrifice.

"If they go out of business, there would be even less money for local government. Local governments want to go out and do economic development, and in the next breath they're saying, 'Well, let's just get the vendors to [sacrifice] all the money they can. There is a disconnect there," says Leurig. "You need to encourage the vendors to work in your area, to help put money back in the economy, but also be fair to the governments."

Vendors need to achieve the right balance with their pricing. They have to charge enough to stay fiscally healthy, but not open a window for hungry competitors. Emanuel said vendors risk losing government business if they don't adjust to governments' current fiscal realities.

"In some cases, it's going to drive us to other products. In some cases, it's going to drive us to other service providers. In some cases, it's going to make us take the risks we really don't want to take when, in some cases, there really isn't a whole lot of added cost to our providers," Emanuel said.

Emanuel dismissed concerns that forcing vendors to drop maintenance costs would cause them to stop offering services to governments. He said such a move on the part of vendors would look bad to other governments with whom those vendors still wanted to do business.

"Guess what happens with that public opinion? It resonates through my partners. It resonates through my jurisdictional partners. It resonates through other agencies. That's not a good choice for business," Emanuel said. "They need to understand we are vocal."

As agencies and technology vendors wrestle their way to a balance with which both sides can live, non-technical employees should expect a change in repair services, said Leurig.

"I think there should be a level of expectations set," Leurig commented. "We talk about service level agreements, and I think there should be an expectation agreement out there -- the expectation being maybe it will take a day now for someone to come and fix your PC. It used to be you would call, and somebody would show up."


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