Philly eyes $50M deal with IT company that botched past city contract

The School District of Philadelphia is set to approve a nearly $50 million computer system overhaul with Oracle, a major municipal IT contractor that notably bungled a municipal water billing upgrade more than a decade ago.

After a competitive bidding process, the state-controlled School Reform Commission – which is due to be disbanded this year – will hold a final vote to approve the 10-year, $49.4 million contract at its Thursday meeting.

District officials defended their year-and-a-half-long search for a firm to implement an “enterprise resource planning solution” – jargon for an omnibus update to the district’s various payroll, human resources and accounting software, much of which is nearly two decades old.

“We have to modernize…We have schools that are doing budgeting on green screens,” said district CFO Uri Monson. “This was an intensive RFP process and this was probably the most thoughtful RFP process I’ve ever seen.”

He also pointed out that the new contract included costs for installation, training and cloud-based storage technology. According to Monson, the deal would result in $15 million in savings over 10 years through streamlined payroll costs for the SDP’s 18,000 employees and other efficiencies.

However, former Oracle VP Craig Guarente, who now runs a business consulting firm, said city residents should be concerned about any large, bundled municipal IT contracts.

"If I were a Philly resident I would be worried about this contract," he said, on Thursday. "Whenever I see that someone buying multiple Oracle products under one agreement, that customer is binding themselves to Oracle payments virtually in perpetuity whether or not their usage of Oracle’s products increases or decreases...Smaller contracts where Oracle has to prove the solution works over time before getting future payments is the ideal way to acquire from Oracle."

Like many cities, Philadelphia has a tortured history of big-money tech contracts, including some involving Oracle itself. The firm had previously been selected as a vendor in a 2002 endeavor called “Project Ocean,” a similarly intensive overhaul of the Philadelphia Water Department’s then-30-year-old billing software. The ensuing fiasco became something of a minor national news item as work stoppages, cost overruns and billing errors plagued the upgrade.

The city eventually paid out a total $25 million to implement the final product – almost triple initial estimates – not including anywhere from $5 to $10 million more on failed pre-Project Ocean upgrade attempts.

In a phone interview, Monson said the district had considered Project Ocean, as well as other troubled Philadelphia software upgrades and the failures of municipal agencies across the country to successfully complete similar IT projects.

“There are good stories and bad stories,” he said. “LA had a huge problem...Denver and Cleveland had more success finishing up their systems.”

Coincidentally, Denver also contracted with Oracle for a municipal software package that would later lead to the city being fined millions by the company for violating its terms of service agreement. 

During that incident, Guarente told Denver reporters that the company had deliberately constructed complex legal arrangements designed to compel cities into paying more on top of initial contract costs.

While Monson acknowledged that the optics of a “lame duck” SRC signing off on a major contract were not ideal, it was imperative to advance the long-delayed upgrade. He said there had been three prior attempts at similar upgrades – all of which failed – and asserted that another delay would push the process back another 15 months or disrupt the proposed contract altogether.

“Stopping any contracts now is silly…We have to run our schools,” he said. “We have to function as a school district and governance is almost secondary to that need.”

A district spokesperson seemed to blame agents for other failed bidders for meddling in the process, describing an anonymous letter circulated to City Council offices describing other problematic Oracle contracts. The district said that City Council had not raised any objections to the new contract.

If there have been efforts made to sabotage the latest contract, Councilman Mark Squilla, who blasted ineffective city IT contracting last year, didn’t notice them. He also said he hadn’t heard of the new RFP at all.

“I am not sure about this contract or if we were ever briefed,” he said, in an email. “(I’m) not sure what the upgrade is for.”

This story has been updated from its original version to include comments from Craig Guarente.