TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Miguel Guardado, Information Technology Director
Tatyana Roujenova-Peltekova, Senior Management Analyst
SUBJECT:Title
Consideration of a Resolution Approving a Three-Year Agreement with Dell for Microsoft Enterprise Software Licensing in the Amount of $768,126 and Authorizing the City Manager to Approve Additional Payments for Contingency Services for a Total Not-to-Exceed Amount of $1,322,818 (Budgeted) (Information Technology Director Guardado).
A) WAIVE FORMAL BIDDING DUE TO COOPERATIVE PURCHASING
B) ADOPT RESOLUTION NO. 26-0102
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RECOMMENDATION:
Staff recommends that the City Council:
a) Waive formal bidding pursuant to Manhattan Beach Municipal Code Section 2.36.150 (cooperative purchasing);
b) Adopt Resolution No. 26-0102 approving a three-year contract with Dell for Microsoft Enterprise software licensing for the amount of $768,126;
c) Authorize the City Manager or her designee to execute the agreement with Dell; and
d) Authorize the City Manager to approve a $554,692 contingency for any additional subscription, licensing, and/or related services, if needed; if the City Manager exercises this option, the total agreement amount is not to exceed $1,322,818.
FISCAL IMPLICATIONS:
The overall cost of $1,322,818 includes the three-year Enterprise License Agreement cost of $768,126 and a potential additional contingency of $554,692 for the three-year contract term. Sufficient funds are included in the Fiscal Year 2026-2027 Information Technology budget for the first year of the contract and the contingency if some additional licensing and/or services are utilized during Year 1 of the enterprise agreement. Future years will be budgeted accordingly.
BACKGROUND:
The City relies daily on Microsoft (MS) products to deliver services, manage data, communicate, and run reports. Some of the utilized tools include Windows and SQL Server, the office suite (Excel, Word, PowerPoint), collaboration apps (Teams, Planner, etc.), and email. The City has been receiving MS licenses and updates under a fixed three-year Enterprise License Agreement (ELA), a contract allowing large organizations to access volume-licensing pricing for MS licenses and software upgrades at a discounted rate. However, Microsoft does not sell directly and provides licensing only through authorized licensing solution providers (resellers) such as Dell, the City's present ELA reseller. Since the current licensing agreement with Dell expires on August 31, 2026, a new three-year contract is required to continue using Microsoft software and tools.
DISCUSSION:
After carefully reviewing the City’s needs, staff established a list of required licenses, subscriptions, and services. The proposed contract cost is $256,042 annually ($768,126 for all three years), which is higher than the current agreement's annual cost of $216,442 ($649,326 for all three years) by about $39,600 annually ($118,800 for three years). The difference is primarily due to Microsoft's 5-12 percent increase in subscription prices for cloud products (price climbed last July), including Microsoft 365 (M365) G3 and G5 licenses (the largest increase). M365 is a cloud-based subscription service with tiered licensing and a specialized government delivery option, including productivity apps (Outlook, Word, Excel, PowerPoint), cloud storage, collaboration tools like Teams, and security services. A minor part of the increase is due to a slight change in server licensing to reflect current City requirements.
Additionally, the total cost of $1,322,818 includes a $554,692 contingency to cover future/additional licensing and subscriptions on an as-needed basis for the duration of the three-year agreement. Most of this reserve funding - approximately $382,675 - is allocated for upgrading the current Microsoft 365 three-year subscription from G3 to G5 licenses. As noted above, G5 licensing saw the largest price increase among all Microsoft subscription increases starting this July, resulting in a substantial reserve of funds for the potential license change. The M365 G3 to G5 licensing uplift accounts for the following: the possible use of Microsoft phone features to replace the outdated City phone system (part of the current IT budget) and the addition of Microsoft security tools to improve the City’s cybersecurity defense layers (budgeted cybersecurity solutions upgrades/replacements). The G5 licensing also includes other features, such as comprehensive analytics and reporting (Power BI Pro), that may better serve the City's future needs. Another $40,927 of the overall three-year contingency amount is for estimated planned growth in user licensing and collaboration tools subscriptions, such as M365, Teams, Planner, Visio, and Copilot.
Effective January 1, 2027, pursuant to the newly enacted California Senate Bill 122 (SB 122), digital software purchases and software-as-a-service (SaaS) (remote access software) will be subject to applicable sales and use taxes. Consequently, the remaining reserve amount of $131,090 represents the projected three-year tax liability - approximately 11% - for remote-access software/SaaS (cloud subscription) services and digital software acquisitions under the SB 122 legislative measure. Information Technology, together with the Finance Department, is currently evaluating the financial implications of this mandate and developing a comprehensive strategy to best address the change.
Whenever practical and in the City's best interest, the City utilizes cooperative purchasing, also known as “piggybacking,” by contracting on agreements that are economically advantageous. Piggybacking is the extension of pricing, terms, and conditions of one agency's contract to other governmental agencies with the mutual consent of all parties. This is permissible under the City's Municipal Code, Section 2.36.150 (Cooperative Purchasing). The ELA proposed pricing is based on the competitively awarded Master Enterprise Agreement negotiated by the County of Riverside. Riverside County Microsoft (Master) Enterprise Agreement (EA) leverages California state and local government licensing volumes to achieve the best prices. Based on that master contract, Microsoft offers a customized EA to government agencies within the state to streamline the acquisition process by applying the most cost-effective pricing.
To ensure the best cost, staff reached out to all seven licensing solution providers (resellers) included in the Riverside cooperative purchasing contract: SHI International, Insight Public Sector, Crayon Software Experts (Software One), Zones, CDW Government, Dell, and Softchoice. The City received ELA pricing responses from the following four resellers:
• Dell - $255,947 annual / $767,841 three-year ELA term (this initial cost was slightly updated to align with the City’s immediate and long-term strategic objectives)
• Insight - $257,485 annual / $772,455 three-year ELA term
• SHI - $260,153 annual / $780,459 three-year ELA term
• Zones - $754,763 annual / $2,264,289 three-year ELA term
Based on the pricing, staff selected Dell for the new agreement as the lowest contract cost for the new Microsoft term. Furthermore, Dell was the selected ELA reseller for the last two contracts and has provided the City with fast support and excellent guidance on licensing and cost optimization.
Therefore, staff recommends that the City Council: a) waive formal bidding pursuant to Manhattan Beach Municipal Code Section 2.36.150 (cooperative purchasing); b) adopt Resolution No. 26-0102 approving a three-year contract with Dell for Microsoft Enterprise software licensing for $768,126; c) authorize the City Manager or her designee to execute the agreement with Dell; and d) authorize the City Manager to approve a $554,692 contingency for any additional subscription, licensing, and/or related services; If the City Manager exercises this option, the total agreement amount is not to exceed $1,322,818.
PUBLIC OUTREACH:
After analysis, staff determined that public outreach was not required for this issue.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has approved the agreement as to form.
ATTACHMENTS:
1. Resolution No. 26-0102