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‘Buyout’ clause in laptop contract is not just a contingency, it’s a required cost

It turns out that the “buyout” clause in the $182 million laptop contract is not what the State Department of Education originally described - a  cost that “is only paid if the contract is severed for some reason” and “may or may not be paid.” In response to my repeated inquiries, after I found no reference to such an early-cancellation buyout fee in the contract, SDE spokeswoman Melissa McGrath told me this afternoon, “That would be my error.” Instead, the “buyout” clause is the amount the state would have to pay at the end of the contract term - after it's run its full eight years - to buy out the remaining years in the four-year leases on the laptops, for those with years remaining. That means it's definitely a cost that will remain part of the total.

I'm still awaiting answers as to why the amount estimated by the department, $14.2 million, doesn't match up to the amount of remaining lease payments times the number of units, which comes to $21.9 million. If that's the required buyout at the end of the term, the total contract cost is nearly $190 million - $189,687,228 - not the $181,935,125 the department estimates.

McGrath said the difference in amount comes because the state is scheduled to pay the laptop leases in two semi-annual installments each year, with the two payments together totaling $292.77 per unit per year. “The $14.2 million figure was an estimate HP provided for us,” McGrath said in an email. “The $21 million calculation would have been based on the full cost of the buyout, yet since the state is doing semi-annual payments with HP, it will only pay half of these costs at the end of 8 years.”

Here's my problem with that logic: Whether you pay in two installments or a single piece, you still pay the same amount. The state's estimates show no additional payment in Year 8 for the first half of the buyouts; costs for Year 8 are estimated at $26,459,382, the exact same amount as for years 4, 5, 6 and 7 of the contract, an amount that's exactly equal to the estimated 90,376 laptops times $292.77.

McGrath, who is checking back once again with the SDE's accounting department and will get back to me, said, “I believe either it's already factored in or it's not getting paid. This is the full amount of the contract.”

Incidentally, the contract also allows for up to a 4 percent increase in the $292.77 rate after the first four years, if HP can provide “full justification as to why the adjustment is necessary.” If that full 4 percent increase were approved at that point, it would add another $4.2 million to cost of the eight-year contract.


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Betsy Z. Russell covers Idaho news from The Spokesman-Review's bureau in Boise.

Named best state-based political blog in Idaho for 2013 by The Fix

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