Vancouver City Council

CITY OF VANCOUVER

ADMINISTRATIVE REPORT

Date: June 8, 2004
Author/Local: Terry Corrigan/7225

RTS No. 2693
CC File No. 1805

Meeting Date: June 22, 2004

TO:	Vancouver City Council
FROM:	General Manager of Corporate Services/Director of Finance
SUBJECT:	Revenue Systems Replacement - Request for Proposal PS03029

RECOMMENDATIONS

A. THAT Council approve the replacement of the Revenue Services billing and collection systems at an implementation cost of $4,632,800; source of funding to be $2,500,000 allocated in the 2003 Capital Budget; $750,000 from the Water, Sewer and Solid Waste utilities and $1,382,800 to be provided by an internal loan from the Capital Financing Fund on terms satisfactory to the Director of Finance to be repaid from net operating savings over a period of five years.

B. THAT, subject to the conditions set out in Recommendations F, G, and H, that Council authorize the General Manager of Corporate Services to enter into negotiations and subject to achieving a contract satisfactory to the Director of Legal Services, an agreement be entered into with Tempest Development Group Inc. to implement Tempest software modules to meet the billing and collection requirements for property tax, utilities, sanitation, bylaw fines and an integrated point of sale system at a cost not to exceed $2,089,000 (plus applicable taxes), source of funding to be provided from the project budget.

C. THAT subject to the conditions set out in Recommendations F, G, and H, Council authorize the General Manager of Corporate Services to enter into negotiations and subject to achieving a contract satisfactory to the Director of Legal Services, an agreement be entered into with Fairfax Imaging, Inc. to implement mail extraction and remittance processing hardware and software at a cost not to exceed $348,000 (plus applicable taxes), source of funding to be provided from the project budget.

D. THAT subject to the conditions set out in Recommendations F, G, and H, Council authorize the General Manager of Corporate Services to enter into negotiations and subject to achieving a contract satisfactory to the Director of Legal Services, an agreement be entered into with Tempest Development Group to provide support services for the Tempest software modules for a period of five years from date of system acceptance at a estimated cost $873,000 (plus applicable taxes), source of funding to be offset from the financial benefits realized in the annual operating budget.

E. THAT subject to the conditions set out in Recommendations F, G, and H, Council authorize the General Manager of Corporate Services to enter into negotiations and subject to achieving a contract satisfactory to the Director of Legal Services, an agreement be entered into with Fairfax Imaging, Inc. to provide support and maintenance services for mail extraction and remittance processing hardware and software for a period of five years at an estimated cost of $178,000 (plus applicable taxes), source of funding to be offset from the financial benefits realized in the annual operating budget.

F. THAT all legal documentation is to be in a form which is satisfactory to the Director of Legal Services and the General Manager of Corporate Services.

G. THAT upon approval of the legal documentation by the Director of Legal Services and the General Manager of Corporate Services that the Director of Legal Services be authorized to execute and deliver the necessary agreement on behalf of City Council.

H. THAT no legal rights or obligations shall arise hereby and none shall arise or be granted hereafter unless and until all contemplated legal documentation has been executed and delivered by all parties.

I. THAT Council authorize the creation of 18 temporary full-time positions for up to two years in Financial Services and Information Technology departments of the Corporate Services Group to support the implementation of the new revenue billing and collection system project, source of funding to be the project budget.

J. THAT Council approve the creation of two new Systems Analyst positions at an annual cost of $144,000, source of funding to be savings from the elimination of three Data Entry positions in Information Technology department effective at go-live date anticipated to occur at the end of 2005.

COMMENTS OF THE GENERAL MANAGER OF CORPORATE SERVICES

The General Manager of Corporate Services recommends approval of the recommendations to proceed with the replacement of revenue systems.

Funding of $2.5 million has been included in the 2003 Capital Budget approved by Council on May 15, 2003, and the balance of the costs will be recovered through Utility Rate Stabilization Reserves and future operating efficiencies that will result from the implementation.

The revenue systems are strategic systems that are critical to the City's business. The revenue systems are relied upon to bill and collect over $900 million in revenues annually. Currently these systems reside on 30 year old mainframe technology.

The urgency to replace these mainframe systems with a network system is driven by a number of factors including: the increasing risk of failure of the mainframe system; the current manual and redundant business processes required to keep information in the different non-integrated billing systems consistent, accurate and timely; the increasing difficulty to acquire technical support resources in the labour market to support 30 year old technology, and the inability to respond in a cost effective and timely manner to initiatives as well as to customer expectations for service delivery, including demand for electronic payment and other electronic information exchange.

The business case contained in this report to support the replacement of the revenue systems is built around hard dollar costs and benefits. The internal loan will be paid back with interest from net operating financial benefits, after providing for incremental costs of the new system, over a period of five years.

There are also many soft benefits that cannot be measured in economic terms such as the value of improved customer service that will be facilitated by the replacement of current systems. New core systems will enable the City to offer more choices to our customers in how they transact business with the City. Information will be more timely and accurate as a result of real-time live updating and single point of data capture. This will not only reduce the number of queries, but also allow staff to respond to customer queries with access to all customer information and assurance that information is timely. The City will be able to meet customer demands for electronic means to transact business with the City on-line on 24/7 basis. For example, one of the features of the new system is to allow taxpayers to file their Home Owner Grant application form electronically. Replacement of the core systems will build a base for eventually offering ratepayers electronic access to their account information. This will reduce the number of queries handled by staff and reduce backlogs on telephones during tax rush times. The implementation of core systems will facilitate the completion of the `one-stop' customer service model whereby a customer service clerk will be able to access all customer information to answer queries.

COUNCIL POLICY

Contracts with a value over $300,000 require approval of City Council. Contracts are awarded on the basis of best value to the City.

City Council has to approve the creation of regular part-time or full-time positions.

City Council approves the use of internal sources to finance projects with acceptable business cases. Terms of such financings are normally delegated to the Director of Finance.

PURPOSE
The purpose of this report is to recommend the award of contract for:

a) Supply and implementation of software and hardware to replace the existing mainframe revenue billing and collection systems for property tax, utilities, bylaw fines, as well as the point-of-sale system, and
b) Supply and implementation of software and hardware to support mail and payment processing functions in Revenue Services.

BACKGROUND

The Revenue Services Division of the Corporate Services Group collects approximately $900 million annually, approximately two-thirds of the City's total revenue. The property information held in the property tax billing system is critical to the City's property information systems such as Van Map.

Billing and collection of these revenues are currently supported by five computer systems. Four of these systems, Property Tax, Bylaw Fines, Sanitation Billing and Water/Sewer Meter Billing, were developed in the 1970's and are run with proprietary software on the City-owned IBM mainframe. The fifth system is a DOS-based cash register system processing mail and over-the-counter payments and dates from the late 1980's. The current mail and remittance process is manual.

On June 19, 1990, Council established information as one of the City's corporate priorities and directed that work proceed to "...plan for improvements in the City's information systems."

On December 18, 1994, Council approved the Information Plan (ISP) which was the first step towards a new vision of how information and technology were to be managed and utilized in the City. It set the strategic framework and a road map for advancing the overall goals and vision for the City's information systems.

Following the ISP approval, staff undertook a series of studies to define technical standards and architecture, as well as to set an overall migration strategy that would see the City move from a mainframe environment to the client server, network based environment envisioned in the plan. Both the Technology Migration Strategy and the Information Systems Plan were reported to Council as part of the Better City Government reports and are integral to the success of that program.

On May 18, 1995, Council approved the Better City Government - Next Steps report. This report established technology as a key enabler of process redesign and directed attention to necessary improvements in major corporate information systems, including the revenue billing and collection systems. Business process reviews that were undertaken as part of the Better City Government initiative also "...identified the need to replace existing software in order to make information more easily accessible in the organization, to eliminate manual work which added no value to business processes, to improve decision making, and to improve service to our clients and customers."

The replacement of the revenue billing systems has been delayed pending implementation of SAP financial and other systems of higher priority for the City. Many of these systems have now been implemented including payroll, accounts payable and material management, general ledger, asset accounting and preventive maintenance, human resource modules and plant and fleet maintenance systems. It is appropriate now to look to replace the revenue systems.

The need to replace these systems was also recognized in the 2003-2005 Capital Plan by the allocation of $2.5 million. This funding was approved as part of the 2003 Capital Budget and is available to partially fund the recommended project.

The Business Applications Committee has approved the replacement of the revenue billing systems as a priority. The Business Applications Committee has the mandate to approve and prioritize any new corporate systems development. The Committee is made up of senior staff from various service groups within the City and co-chaired by the General Manager of Corporate Services and Deputy City Manager.

DISCUSSION

The Revenue Services Division issues approximately 350,000 tax statements, 55,000 utility statements and manages collection of approximately 400,000 parking tickets annually. The current billing and collection processes are cumbersome, manual and error prone. The manual processes, in particular, mail opening and payment processing functions, direct valuable staff resources to clerical tasks and away from personal attention to customers via phone, counter service or correspondence.

The organization's current business processes, practices and systems are failing to meet the needs of both staff and customers alike. It is difficult to maintain the accuracy and timeliness of information provided to the public and relied upon by City staff to make business decisions.

The 30 year old non-integrated systems are becoming increasingly more difficult to support and less able to manage increasingly complex billing requirements. For example, implementation of fee structure variations for utilities that are designed to reflect Council policy direction is difficult, expensive and high risk to program in the mainframe environment. Examples include fee structures designed to encourage conservation of resources by modifying consumer consumption patterns, recovery of costs on user pay basis or subsidy of programs for longer term sustainable benefits to the environment.

Current systems limit the level of customer service that can be provided. Public expectations for more sophisticated methods of transacting business with the City have dramatically changed over the past few years, following the advent of the internet and their experiences with its use by other public and private sector organizations. Citizens are generally demanding a move to increased access to information and methods of transacting business electronically. The systems proposed will build the platform required for the effective migration to electronic business. For example, a taxpayer will be able to go on-line to file their application for the Provincial Home Owner Grant.

The following table summarizes the major business problems that exist today as a result of the old business practices and system deficiencies. The table also identifies the benefits to be derived through implementation of a new integrated system.

Business Problem	Solution offered by New Systems
Manual processes for mail and payment processing are labour intensive, error prone, lead to redundancy as the work must be verified throughout the process for accuracy and data verification. As these processes are labour dependent, backlogs arise during peak periods.	Manual processes will be automated and backlogs of work will be eliminated. As data capture is electronic, there is less redundancy in data verification.
During peak periods, all cash receipts are not deposited to the bank on the same day received. This results in lost interest revenue to the City, increased reconciliation work by staff and a delay in processing adjustments for returned cheques.	All cash receipts will be deposited the same day.
Customer accounts are not up-to-date. This prevents communication of up-to-date account information to customers and tax search information to lawyers. The result is increased customer enquiries, by direct contact in person or by phone. Customers can experience delays in getting responses and resolutions to questions, particularly during peak periods. This can also result in duplicate payments, increased staff resources to process adjustments and follow up on customer queries.	Integrated systems operating in real-time live update mode will mean information is current at all times. Timeliness of information will be improved to reduce unnecessary customer contacts.
Data entry of transactions such as Home Owner Grant applications account adjustments, meter readings, address changes and payments are performed outside the business unit. This adds to administrative costs preparing batches and subsequent reconciliation work.	Overnight batch process updating will be eliminated. Business unit staff will enter data on-line eliminating redundant paper work.
Customer account information is currently available only during business hours by direct contact in person or by phone. Delays may also occur when staff resources are not available to answer queries.	Customers will have web access electronically to account information.
Customers expect to be able to transact business on line. Extensive programming is required to implement any new electronic transaction processing functionality to the current system with a high risk of system failure.	Web applications are included in the solution offered and programming will be supported by the vendors.
Taxpayers can currently pay their taxes on-line through their financial institutions but still have to submit their Home Owner Grant application in paper form. This counteracts the convenience of on-line payments and also causes duplicate payment processing. Approximately 10 lower mainland municipalities have already extended on line acceptance and processing of grant applications creating the expectation that the City of Vancouver should be able to do the same.	A web application to accept and process Home Owner Grant applications is available in the proposed solution. This will eliminate the cost and risk to the City of developing our own electronic grant application process.
Lack of one common database for all customer information through multiple non-integrated systems result in inefficiencies in maintaining multiple systems and reconciling data, duplication of data across the various systems, double entry of customer information and data verification.	All billing systems will be totally integrated. Customer information will reside in one database and be accessed by all systems. There will be one point of entry.
The level of knowledge and training required for service delivery is magnified due to the number of separate non-integrated systems.	All billing systems will be totally integrated and built on one common operating system. Screens and functionality will be common across the system.
The Information Technology Department performs much of the administrative operating unit functions which is inefficient in terms of hand off of input documents and reconciliation of completed work.	New systems will be table driven. Operating unit personnel will be able to perform many of the administrative functions currently performed by IT staff.
Enhancements or upgrades to systems to reflect changing business practices or new legislation require in-house development and re-programming. In-house resources are scarce and expensive and due to the age of the system that has undergone numerous `patches', the risk of system failure is high.	Vendor is responsible for changes to applications. Such changes are usually supported by a large user group and costs are shared.
Technical support is becoming more difficult because of the fact that the maintenance of the current system requires skill sets not readily available in the market place.	New systems will utilize current state-of-the-art technology and programming languages. The support functions will be more efficient because of the new technology and programming languages. Vendor support will also add to the ability to maintain systems.
Lack of disk space limits the ability to maintain historical data, handle new functionality and system changes. Additional disk space is expensive to acquire.	Hardware will utilize client server technology thus facilitating greater storage capacity and the ability to handle new and changing functionality.
Search and retrieval of information is manual and paper based. The result is increased response times to customer enquiries, added costs associated with handling and storage of paper documents and increased labour resources to ensure documents are not lost or manipulated.	Paper transactions will be imaged, indexed and filed electronically. Staff will be able to search and retrieve information in a variety of ways.
The operating system is not easily supported in the City's disaster recovery plan. The risk is that the City's revenue streams could be disrupted in the case of a disaster. The current disaster recovery plan is limited to ensuring backup of critical data and in the case of prolonged outage, arranging for back up replacement hardware. The system recovery could be delayed.	Client server technology is more easily supported in the City's disaster recovery plan as offsite capability is easier to plan and support with common hardware.

Project Outcomes:

After implementation of the new system and realignment of the business processes Revenue Services expects to achieve the following business objectives:

· Automate manual process of opening mail and processing payments.
· Eliminate all processing backlogs and make same day deposits.
· Eliminate all resource intensive tasks in favour of more value-added customer service tasks.
· Reduce the cost of billing revenues.
· Improve customer service delivery - faster response, accurate and timely communication, more choice of ways to do business with the City, and greater access to information.
· Reduce paper and cost of document storage and retrieval.
· Establish core systems as a base for future electronic service delivery applications.

Request for Proposal

Proposals were sought for an integrated billing and collection system that could meet the following functional requirements.

· Mail Extraction - ability to open, extract image and index envelope and contents for electronic storage and retrieval.
· Payment Processing - ability to process medium volume of payments, create electronic file for updating account information and prepare bank deposit.
· Property Tax Billing - ability to produce property tax billing (interim and final) based on assessment roll and tax rates; ability to bill flat rate utility fees on tax bill using multiple fee structures; maintain historical transactions and assessment information.
· Metered Utility Billing - ability to produce utility bills based on meter readings, multiple billing cycles and complex fee structures.
· Sanitation Billing - ability to produce bills based on landfill or transfer station usage.
· Bylaw Fines - ability to maintain status of tickets, issue reminder notices, issue summons and interface to ticket manager.
· Point of Sale - ability to process over-the-counter payments and update billing systems on a real-time basis; ability to allow customer service clerks to access all customer information from a single work station.

An evaluation committee made up of staff from Financial Services and Information Technology assessed the proposals against the following broad criteria:

· Proven fully integrated software solution.
· Quality and experience of the company.
· Understanding of the project requirements.
· Proposed implementation approach, methodology and measures.
· Ability to meet functional requirements.
· Integration and technical solutions.
· Price.

Eleven responses were received with only three providing a comprehensive solution. Each of the proponents offering a partial solution or "specialized product" was evaluated. However, none were considered to have far superior functionality that would outweigh the enhanced integration benefits of a comprehensive solution. Further evaluation of the three proponents offering a comprehensive solution included interviews, demonstrations of their solutions and discussions regarding customization requirements, interface issues, licensing, pricing, confirmation of both City and vendor resources and implementation schedules.

Pursuant to a thorough and comprehensive evaluation process, including demonstrations of product and information clarification interviews, the group determined that only two proposals could provide the required functionality. These were:

· Deloitte Consulting offering an SAP solution for the billing systems, partnered with Infocorp, Opex, and Banctec for point-of-sale, mail extraction and remittance processing respectively.
· Tempest Development Group for billing systems and point-of-sale, partnered with Fairfax Imaging, Inc. for mail extraction and remittance processing.

Although both proponents were able to demonstrate their ability to provide the functionality needs of the City, each of the solutions came with very different price tags, risk levels and strategic impacts.

Implementation Cost Comparison of Two Proposals

	Deloitte/SAP	Tempest/Fairfax
Contract Costs	$4,742,000	$2,436,600
City Costs (includes applicable taxes)	$2,648,200	$2,196,200
Total Project Implementation Costs	$7,390,200	$4,632,800

Comparative Impact on 5 Year Operating Budget:

Since both proposed system solutions meet the same functional requirements, financial benefits are similar. However, as with the project capital costs, the two proposals have different operating costs associated with maintenance and support of systems. The table below summarizes for the two proposals the net cash flow over a five year period. The net financial benefits and incremental costs are summarized in the following tables, shown in constant dollars:

			Deloitte/SAP		Fairfax/Tempest
Financial Benefits
Total Operating Benefits (reduced costs, efficiency gains and additional revenues)			$3,470,000		$3,470,000
Incremental Operating Costs
Vendor maintenance services			$1,145,000		$1,092,000
Users License			46,000		--
City Maintenance Costs - IT			1,526,000		776,000
Total Incremental Operating Costs			2,717,000		1,868,000
NET Operating Benefits			$ 753,000		$1,602,000*

* Interest to be paid on interim financing from internal sources will be $219,200 reducing the net benefits that can be used to finance the initial capital expenditure to $1,382,800.

Utilities Contribution

The new revenue systems would play a key role in the billing and collection of utility revenues. Since utilities are self-sufficient with revenues recovering expenditures, it is appropriate that a portion of the capital and ongoing operating costs should be charged to the utilities. The allocation has been based on a ratio of both transactions and dollar volumes to total transactions and dollar volumes. The percentage split was approximately 17%.

Non-Financial comparative analysis:

The major difference in cost of the two systems is attributable to the fact that the Tempest solution is an "out-of-the-box" software solution providing the majority of functionality and interfaces to other external systems required by the City.

In comparison, the Deloitte/SAP solution requires configuration of industry specific and customer care modules. The configuration of the modules has not been done in any other municipal environment. The Deloitte/SAP solution also requires the development of the standard interfaces to external systems.

The latter approach not only adds cost but also risk to the project being completed on time and within budget as well as meeting the City's requirements.

Result of Evaluation of Proposals:

After a comprehensive and detailed analysis the evaluation team considers the Tempest/Fairfax solution to be superior and the best value for the City in terms of:

! Proven and relevant implementation experience.
! Business knowledge and experience of resources proposed.
! Local firm, available support and maintenance.
! Understanding of the project requirements.
! Lower Cost from perspective of both initial capital investment and ongoing maintenance and support of system.

PERSONNEL IMPLICATIONS
Implementation of an integrated revenue billing system and automation of the mail and payment processing functions will result in elimination of up to eight full-time positions: five positions will be from Revenue Services over a period of three years and three positions will be from Information Technology in the first year after implementation. These eight positions are under the jurisdiction of CUPE Local 15. Staff will report to Council on the deletions of the positions once the systems are implemented.

The ongoing maintenance of the new revenue systems will require the creation of two new Systems Analyst positions in the Information Technology Department at the time the new systems `go-live' at the end of 2005. The annual cost of $144,000 will be offset by savings from the elimination of three Data Services positions in Information Technology Department. These three positions are under the jurisdiction of CUPE Local 15.

The Systems Analysts will be required to perform the following duties:

· Business Analysis consisting of providing business support, managing changes to business application configuration and programs, managing the testing of problem fixes, configuration changes, enhancements and new functionality to applications and also provide training, on going support and guidance to the operating division.
· Data Base Management consisting of managing access to highly sensitive and business critical data from all City departments and database administrative work.
· Hardware/Software Support including system security administration, problem resolution for calls referred by Help Desk, investigation and follow up on business application errors/problems with operating unit and vendors as required and management of technical assistance related to upgrading of business applications, including integration with other applications.

The Data Services staff duties which will no longer be required include:

· Keypunching of property tax payments, home owner grant applications, master file updates and meter readings.
· Job Control for distribution of reports and scheduling of ad hoc jobs.

The 5 full time positions in Revenue Services are currently performing manual tasks related to mail opening and payment processing. Mail extraction, imagining of envelope and contents and payment processing functions will be fully automated.

In consultation with the General Manager of Human Resources, reductions will be realized through normal attrition once the new systems have stabilized. The reductions are scheduled to be phased over a three year period commencing the first year after go live. Staff will also be offered re-training opportunities.

There will be a requirement to establish 18 temporary full-time positions during the implementation and stabilization period starting in September, 2004. All positions will be classified by the General Manager of Human Resources and filled in accordance with City procedures and collective agreements.

The executive of CUPE 15 has been consulted regarding the personnel implications of the project.

FINANCIAL IMPLICATIONS

Costing is based on vendor proposals and a thorough detailed analysis of business solutions proposed. The estimated cost of implementing an integrated billing, point of sale and remittance processing system is $4,632,800.

Proposed funding for this project is $2,500,000 from the 2003 Capital Budget that was approved by Council on May 15, 2003, $750,000 from the water, sewer and sanitation utilities as their portion of the costs of the new billing system and the remaining $1,382,800 financed through an internal loan to be repaid with interest from net operating savings over a period of five years.

Future operating budgets will be affected by increases in maintenance costs associated with implementation and sustainment of the new systems. These increased costs will be offset by efficiency gains resulting in the net benefits to the City above as detailed previously in the report..

IMPLEMENTATION PLAN

The tentative work plan calls for implementation of all systems on an integrated basis with `go-live' date of November 2005 in time for the interim tax bill for 2006 property tax year. This will allow time to complete the fit/gap analysis, process re-engineering, data conversion, interface development, testing, training and documentation necessary to implement a major system.

AUTOMATED GARBAGE COLLECTION SYSTEM

Timing of the project is critical as a result of a decision by Council on January 29, 2004 to approve the implementation of fully automated garbage and yard trimmings collection. The plan calls for a `user pay' fee structure that will be beneficial in driving City costs down and address environmental concerns by encouraging less waste. It is imperative that the City moves forward with replacement of the existing billing systems in time to implement the new billing structure.

To put this in perspective, currently, residents are billed on a flat rate per household fee basis. Under the proposed program, the user pay fee structure will be based on cart sizes and levels of service relative to the nature of the property use. The billing system will need to hold more data, such as the fee per stop, cart identification, number of the property, combinations of cart sizes (and types) and number of carts (and types) per property, number of dwelling units, and minimums for defined types of properties. Due to the complexity of the fee structure, there will be a significant amount of effort maintaining the data. The system will also need to be capable of multiple methods of billing, for example approximately 10% of properties are constrained by lane or set back configurations and will only be able to be serviced on a manual or semi-automated collection basis.

The billing system will also have to communicate more information on the bill to define for customers the basis of the billing charges (ie. fee per stop, number off dwelling units, cart size(s) & types, number of carts, rate per cart, etc.). This cannot currently be accomplished in the current mainframe system.

Billing on a user pay basis is to start in 2006 and is expected to be fully completed in 2007. As it is anticipated that the distribution of carts will begin mid 2005 work to build a database for the distribution of carts must begin in the fall of 2004. If a new system will not be in place in time to bill the new fees in 2006, programming modifications will have to be made to the existing legacy systems. Due to the complexity of re-programming the legacy system, this work would have to commence immediately. This will be costly and create additional risk of system failure.

CONCLUSION

Replacement of the City's primary revenue billing systems has been an important priority since the mid 1990's. The existing systems are proprietary systems that have been operating on the mainframe computer system since the 1970's and no longer provide the functionality and public service capabilities expected for the City.

Considerable effort has been applied to this initiative through analysis of vendor proposals in conjunction with detailed internal reviews of interface and workplace requirements to validate an estimated project cost.

After careful consideration of numerous factors including functionality, integration, cost and risk, it is recommended that the best value for the City is the Tempest Development Group Inc./Fairfax Imaging, Inc. proposal.

* * * *

Comments or questions? Send us e-mail at info@city.vancouver.bc.ca
© 2002 City of Vancouver