A RESOLUTION AUTHORIZING THE CITY MANAGER OR HIS/HER DESIGNEE TO NEGOTIATE AND EXECUTE A SEVEN YEAR CONTRACT FOR THE LEASE OF NETWORK EQUIPMENT AND SERVICES WITH CISCO SYSTEMS INC., FOR AN AMOUNT NOT TO EXCEED $360,000 ANNUALLY OR $2,520,000 OVER THE TERM OF THE CONTRACT WITHOUT RETURN TO COUNCIL.

PURPOSE AND SCOPE

In accordance with the Measure H Charter Amendment, which was passed by the voters at the General election of November 5, 1996, we have made an impartial financial analysis of the accompanying Council Agenda Report and Proposed Resolution.

Since the Measure H Charter Amendment specifies that our impartial financial analysis is for informational purposes only, we did not apply Generally Accepted Government Auditing Standards as issued by the Comptroller General of the United States. Moreover, the scope of our analysis was impaired by Administrative Instruction Number 137, effective May 21, 1997, which provides only one (1) week for us to plan, perform and report on our analysis. Due to this time constraint and our overall workload, we did not verify cost-savings projections that were referenced in the Agenda Report.

SUMMARY

The City of Oakland relies on two main technologies to communicate internally and with the citizens of Oakland: (1) voice [telephone] and (2) network [computer]. Failure of either of these technologies can disrupt the City's daily operations. The Finance and Management Agency proposes to replace the City's aging telephone equipment, voice mail system, and network infrastructure with a more modern and cost-effective system called Voice Over Internet Protocol, whereby telephones utilize the same network as computers.

This Proposed Resolution is a companion to another Proposed Resolution entitled:

A RESOLUTION AUTHORIZING THE CITY MANAGER OR HIS/HER DESIGNEE TO NEGOTIATE AND EXECUTE A SEVEN YEAR CONTRACT FOR THE LEASE OF TELEPHONE EQUIPMENT AND SERVICES WITH SHORELINE COMMUNICATIONS INC., FOR AN AMOUNT NOT TO EXCEED $600,000 ANNUALLY OR $3,600,000 OVER THE TERM OF THE CONTRACT WITHOUT RETURN TO COUNCIL.

The project is dependant upon approval of both resolutions. Accordingly, they need to be evaluated jointly, and in conjunction with our report No. 04094, dated March 23, 2004.

FISCAL IMPACT

The two contracts will total $ 6,120,000 over the lives of the leases, as summarized below:

Contractor	Purpose	Amount
Shoreline Communications	Telephone equipment and services	$3,600,000
Cisco Systems	Network equipment and services	$2,520,000
	Total	$6,120,000

According to cost studies, by implementing the Voice Over Internet Protocol the City will be able to reduce its SBC Centrex charges (currently $2,400,000 per year) by almost $1,000,000 per year. Moreover, the City will realize additional savings when a new phone line is installed, moved or changed - the costs and labor associated with these items will be reduced to less than 10 percent of their present costs.

While preparing the FY 2003-2005 budget request, OIT staff reduced maintenance costs by $500,000 in anticipation of savings to be realized through the Voice Over Internet Protocol. In order to bridge the period between the time that costs will be incurred under the leases and savings will be realized, the City Council approved $500,000 in Capital Improvement Funds. Staff also evaluated the feasibility of maintaining the existing telephone and network systems, and not making any changes. If this were to be done, additional funds would need to be allocated in the FY 2004-2005 budget.

Funds that have already been allocated in the Integrated Public Services System (IPSS) project will be combined into this lease, with the result that a single annual lease of $360,000 will cover all of the city's existing Cisco network equipment (excluding Eastmont Police station).

CONTRACTOR SELECTION PROCESS FOR NETWORK EQUIPMENT AND SERVICES

The City of Oakland currently uses network equipment provided by two manufacturers: Enterysys Network (formerly Cabletron) and Cisco Systems, Inc.

Enterysys Network - This equipment was first deployed as part of the construction of City Hall Plaza (Frank H. Ogawa Plaza), is no longer manufactured, operates at a speed that is one-tenth the speed of standard equipment sold today, and does not contain the security or service features needed in today's networks.

Cisco Systems, Inc. - This equipment meets the City's current networking needs and has been deployed over the last two years, including networking equipment that is part of the Integrated Public Safety System (IPSS). After several months of conducting interviews and assessments with Enterysys, Cisco and other leading network equipment suppliers, OIT staff concluded that there would be no significant advantage in changing from Cisco.

CONCLUSION

Based on our analysis of data as presented in the Agenda Report, the Proposed Resolution appears to be reasonable.

Prepared by:

Jack McGinity, CPA

Issued by:

Roland E. Smith, CPA, CFS
City Auditor

Report completion date:
February 27, 2004

Report Number:04-095