San Jose scandal highlights issues in government buying

The scandal resulting from collusion between Cisco Systems Inc. and the city of San Jose on an US$8 million voice over IP (VoIP) installation highlights how the rules differ for IT buying in the public and private sectors.

With taxpayer money on the line, IT executives from local, county and state governments are under a microscope designed to elicit maximum value for their constituencies while avoiding appearances of back-room dealings.

A report released this week from the San Jose city auditor showed impropriety in the city’s selection of Cisco for an US$8 million converged voice/data network for the new city hall. The auditor’s report found that Cisco helped city IT staff design and plan the network even before the contract was put out to bid, and that only network integration firms that resold only Cisco gear were allowed to bid.

As a result, the contract bidding process will be restarted, and vendors offering competitive technologies will be allowed to bid. This could result in delays for the US$388 million city hall, slated to open next spring. Last week, San Jose CIO Wandzia Grycz resigned under pressure.

“The other issue” was that “Cisco had been interacting with our staff during the procurement process,” which violates the city’s municipal code, says Edward Shikada, deputy city manager city of San Jose.

As a result of the auditor’s finding, the IT staff that communicated with Cisco during the bidding process will not be allowed to work on the convergence project.

Additionally, the convergence aspect of the project created more legal gray areas, Shikada says. While the city had moved towards formally standardizing on Cisco data gear, he says, that process wasn’t completed, and there was never mention of making Cisco a standard telephone vendor. The city has codes for data and voice technology procurement, but not converged voice and data from the same vendor.

IT executives from state and local governments say that keeping the process for IT contracts open, and defending technology choices through research and testing, are keys to the balancing act of running good networks and maintaining public trust.

“In the private sector, it’s easy to get things done quickly in (IT),” says Sheng Guo, CTO for the New York State Unified Court System. “In the public sector, you want to be fair and responsible to the taxpayers.”

Contracts for most large technology projects in cities and states must be put up for bid and advertised in newspapers or government publications.

“We usually have to pick the lower-cost bids,” Guo says. This bidding process also can be long, he says, adding that “six months is a miracle, and nine months if you’re lucky” is to be expected to go from bidding to the start of work. “A year is not unusual.”

Standardizing on one vendor’s products can be done when the right case is made, other IT executives say.

“You have to be careful to show that there is a business need or advantage for standardization,” says one executive from a midsize city that uses all Cisco switches and routers. “If you already have an installed infrastructure with a certain vendor, it’s easy to show the advantages of standardizing,” says this executive, who asked not to be named.

Guo agrees with this strategy.

“You have to create a proposal showing that (one vendor’s) products can perform better at a lower cost — not only on the equipment side, but in terms of staff training and management,” he says. The court system recently standardized on Nortel switches and routers, but uses some Cisco optical routing equipment for connecting courthouses over long distances.

In the city of Burbank, Calif., Extreme Networks Inc. switches are the standard, and Compaq servers, laptops and PCs are used exclusively in city offices and server rooms.

“It’s one thing if I do my homework and I say, ‘Given our budget and our resources, (Compaq) will work best,'” says Perry Jarvis, network operations manager for the city of Burbank. “But Compaq didn’t come in here and tell us what type of PCs and servers to buy.”

“Lots of people buy all (single-vendor), but the key is in the way you do it,” Jarvis says. “If you evaluated five products, and your tests come up with one as being the best, that’s how you make a case for standardization.”

In the case of San Jose, the city already had an end-to-end Cisco network for routing and switching from a contract Cisco won in 1997, city manager Shikada says.

While the municipality had explored the legal aspects of making Cisco the standard data provider for the city, not all the legal steps were made to allow that. As a result, the city still was legally required to look at multiple vendors when making large purchases for new projects.

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Jim Love, Chief Content Officer, IT World Canada

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