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Posts tagged: Hewlett-Packard

Hewlett-Packard CEO says firm’s Boise operation will grow, not shrink

Mitt Romney might have been the biggest name Wednesday at the inaugural Governor's Trade and Business Conference at the Boise Centre, reporter Zach Kyle writes in today’s Idaho Statesman, but Hewlett-Packard CEO Meg Whitman broke the biggest news: That H-P’s Boise campus will grow, not shrink, when the company splits.

“As we separate H-P into two companies, we will be consolidating sites,” Whitman said. “Boise is a site we want to build on. We want to bring people from other parts of the United States to Boise.” Kyle reports that the company recently announced that it will split into HP Inc., which will focus on personal computers and printers, and Hewlett-Packard Enterprise, which will focus on software and services. His full report is online here. Click below for a report from AP reporter Kimberlee Kruesi on a campaign stop with Gov. Butch Otter and Sen. Jim Risch that Romney made during his trip to Boise; Kyle’s report also includes Romney’s comments at the business conference critical of the policies of President Barack Obama, who beat Romney in the 2012 presidential election.

Contract: No cost to state now that Prop 3 voted down

I've had several inquiries from readers concerned that now that voters have rejected Proposition 3, that the state would face costs related to the now-canceled $182 million laptop contract with Hewlett-Packard. I can verify that according to H-P's Business and Scope of Work Proposal, which is included in the contract as Exhibit D, the state is not required to make any payments.

Bidders were asked to outline early termination costs if Prop 3 didn't pass. H-P said the cost would be zero, as its period of performance for the contract wouldn't begin until the day after the election. It's in Exhibit D on page 102-3; you can read those two pages here. It says, “With a projected start date after November 6, HP anticipates that there will be no lease funding necessary as no notebook units would have shipped or have been accepted prior to the Proposition 3 ballot in November 2012. Hewlett-Packard will not fund any Lease Schedule under the Master Agreement until and unless Proposition 3 has been approved by Idaho voters in November, 2012.”

‘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.

Former state official would play key role under laptop contract

The state's $182 million, eight-year contract for laptop computers for high school students includes information about key staffers for the companies that partnered in the successful bid, including Hewlett-Packard, Education Networks of America and Xtreme Consulting. Among them is a familiar name: Garry Lough, Idaho director of customer services for ENA. Until March 2 of this year, Lough was a state of Idaho employee, working for the state Department of Education and the Department of Administration as communications director for the Idaho Education Network.

The IEN is a state project that provides a broadband connection to every Idaho high school; despite a lawsuit from other bidders, ENA and partner Qwest, now CenturyLink, won the multimillion-dollar statewide contract in 2009. Now, it has a continuing $8 million annual contract to operate the network for the state.

Lough is a former Idaho Republican Party executive director who went to work for the state in 2007 as  a legislative liaison for the State Department of Education after a stint with the state controller's office. According to state records, during his five years with the state, his pay rose from about $65,000 a year to about $72,800 a year.

Now, Lough is in a key position as ENA is a subcontractor with Hewlett-Packard in the laptop computer contract, with ENA in charge of setting up and operating wireless networks in every Idaho high school, using that same broadband connection the firm already helped bring to the schools with the IEN. “I think it'll be a great asset to the state,” Lough said. “We have great relationships to a lot of the schools, we've demonstrated success.” He said the IEN project came in below budget and a year ahead of schedule. “And I think that same effort and deliverable is going to be executed (in the new project), if everything can proceed as we'd like it to.”

As for his move from the state to ENA, “It was just a good timing and there were some synergies there,” said Lough, who holds a degree in international studies from Idaho State University. “Basically they had a national guy that was here a lot, and it was just becoming too costly.” In addition to working on the Idaho project, Lough is working on an ENA bid for a major school network project in Wyoming. “My job as director of customer services is to ensure that all the end users, the customers of the IEN, are being served optimally,” he said, “and also to pursue other opportunities in other states.” You can read my full story here at spokesman.com.
  

Expert on laptop contract: ‘A really complex deal’

I spoke last night with Leslie Fiering, research vice president for Gartner Inc., a leading market research and advisory firm focusing on the information technology industry and a recognized expert in major IT acquisitions, about Idaho's $182 million laptop contract. She said lease deals are not uncommon, and said she couldn't say if it's a good deal or not for the state. “It's a really complex deal,” she said. But she pointed to a plus for the state: “They have a built-in refresh,” meaning the deal automatically calls for the laptops to be replaced every four years. “So that means that they're not struggling to keep old equipment going. It means that they're not scrambling to pull up capital budget every year, which could then get cut. Assuming they could keep this funded, it gives them a secure basis for operations.”

She added, “I work with school districts on a regular basis who are tying themselves into knots trying to figure out how they're going to get these devices into the hands of kids.”

On the down side for the state, she said, “There is liability on the accidental breakage,” which Fiering said could prove “contentious.” She said, “Kids are very tough on the machines. … I used to joke that the kids were second only to the soldiers in Iraq and Afghanistan in how rough they are on their computers, and I was corrected by the hardware manufacturers, the maintenance organizations and the school districts that I work with that I was wrong, the kids are worse than the soldiers. So I can understand why H-P did that to protect themselves.”

$182M laptop contract is just for rental, not purchase

Idaho's newly inked $182 million, eight-year contract with Hewlett-Packard Co. for laptop computers for its high school students contains a surprising feature - the state won't actually own the computers, and if they're lost, damaged or stolen, it'll have to pay H-P for them. You can read my full story here at spokesman.com. The contract price is $292.77 per year per laptop, with each unit on a four-year replacement schedule. That means over the four years, the state will pay $1,171 per unit, including wireless networks and training as well as the laptops themselves.

H-P, in the contract, agrees to provide a full manufacturer's warranty on the laptops for four years. An example: If the hard drive went out in the third year, they'd replace it. But they wouldn't cover accidental loss, damage or theft. State Department of Education spokeswoman Melissa McGrath said the state doesn't expect much in the way of such losses. “In speaking with other schools and the state of Maine that have fully implemented one-to-one programs, they estimate just about 1 percent of devices a year, if even that, must be replaced or repaired outside the warranty,” she said. “We do not believe Idaho will be any different.”
 


Supplying every Idaho high school student with a laptop computer is a centerpiece of Idaho state schools Superintendent Tom Luna's “Students Come First” school reform plan, which goes before voters next week in three ballot measures. If voters reject Proposition 3, the laptop contract would be canceled. Luna has touted the contract as a bargain for the state; a copy was obtained by The Spokesman-Review on Tuesday under the Idaho Public Records Law.

Contract: State must pay if laptops are damaged, lost or stolen

Here's a surprising feature of the state's new $182 million, eight-year contract with Hewlett-Packard for laptop computers for high school students: The company will retain title to the computers, and the state, which will just be renting them, will be liable for all risk of loss, including damage or theft. The contract, in Attachment 1 on Page 5, says, “Lessee,” which in this case is the state, “shall bear the entire risk of loss with respect to any asset damage, destruction, loss, theft, or governmental taking, whether partial or complete.” If a laptop is damaged, the state must have it repaired at state expense - within 60 days. If one is lost or stolen, the state would have to pay H-P for it.

The amount the state would have to pay would be the “casualty value,” which would be, “All amounts due to date of payment plus the remaining payments for the balance of the Schedule term plus $35.” The schedule term? Four years. The state has contracted to pay $292.77 per unit per year, with each unit on a four-year replacement schedule; that means over the four years, the state will pay $1,171 per unit.

State Department of Education spokeswoman Melissa McGrath said the state doesn't expect much in the way of such losses. “In speaking with other schools and the state of Maine that have fully implemented one-to-one programs, they estimate just about 1 percent of devices a year, if even that, must be replaced or repaired outside the warranty,” she said. “We do not believe Idaho will be any different.”

H-P, in the contract, agrees to provide a full manufacturer's warranty on the laptops for four years. An example: If the hard drive went out in the third year, they'd replace it. But they wouldn't cover accidental loss, damage or theft. In fact, H-P writes in its proposal that it “strongly recommends” an optional one-year accidental damage protection service that it provides for new laptops at a cost of $17 apiece. That's not covered by the contract, however. Neither is an optional service that would cover “No-Fault Replacement Service” for the computers. Schools or districts could purchase that additional service at a price of $4,750 for 10 incidents, according to the contract.

The contract includes a provision that H-P will provide extra units - 3 percent beyond those ordered - for “hot-spare replacement units.” That would allow a student whose computer stops working to get an immediate replacement, while the non-working one goes in for repair. But that's only for items covered by the manufacturer's warranty. “Those not covered under the four-year warranty would be in addition to the contract,” McGrath said.
  

What the contract says…

I'm still awaiting answers from the State Department of Education to a series of questions I had after reviewing the $182 million, eight-year contract between the state of Idaho and Hewlett-Packard Co. for laptop computers. But one thing is clear: The state's not getting the laptops for $249 apiece.

A fact sheet the department distributed on the day the contract was signed said, “Idaho is paying $249.77 per student/teacher for the managed service of providing the device, maintenance, security and technology support. If you include wireless infrastructure and professional development, the state is paying $292.77 per student/teacher.”

According to the contract, the state will pay $292.77 per laptop per year under a lease, and they're on a four-year replacement schedule. That means over the four years, the state will pay $1,171 per unit. At the end of the four years, the state is obligated to wipe the data from the laptops and let H-P pick them up, unless it wants to buy the units for $35 apiece. It also would have the option of buying them before the four years are up at various discounts: $147.56 after three years; $260.12 after two years; or $372.68 after one year.

Melissa McGrath, spokeswoman for the state Department of Education, disputes the $1,171-per-unit figure, because the $292.77 is a “fully burdened” cost per unit that includes tech support, wireless system maintenance, training and more. (However, in addition to the $292.77 per unit per year, the contract calls for the state to pay H-P $5.5 million for “infrastructure and project startup cost.”)

“It's not just one device and you're paying for it every single year to get that device - you're paying for a lot more than that,” McGrath said. If you use the department's $249.77 figure instead, the state's cost per laptop would be $999 over the four-year period.

The $180 million-plus laptop contract…

Here it is - the $181,935,125 eight-year contract that the state of Idaho has signed with Hewlett-Packard Co. to supply laptop computers to every Idaho high school student and teacher. It may take a bit to load, but you can see the full contract here; it's 362 pages, making a rather large pdf. Some portions have been redacted “relating to HP trade secrets.” In response to my public records request, the State Department of Education provided the contract on paper only, saying, “the file was far too large to send electronically.” I took it straight to Kinko's, where my newspaper paid to have it scanned it so I could post it here for you to see.

Lawmakers spar over laptop contract costs

Here's a news item from the Associated Press: BOISE, Idaho (AP) ― The eight-year, $180 million pact with Hewlett-Packard Co. for laptops required under public schools chief Tom Luna's education overhaul is dividing Idaho's Republican lawmakers. Rep. Lynn Luker of Boise said Friday during a meeting inside the Capitol the price was “double pretty much what we anticipated.” Sen. John Goedde of Coeur d'Alene countered it's only 10 percent above estimates. Who's right? In 2011, Luna estimated the five-year cost at $70.8 million, or $14.6 million annually. For the first five years of the actual H-P contract, the cost is $82 million, about 16 percent higher, conceded Luna spokeswoman Melissa McGrath. And over eight years, the average annual cost runs $22.5 million, well over Luna's estimate when calculated yearly. Voters weigh in on the computers and Luna's additional education changes Nov. 6.

Lawmakers suffering some ‘sticker shock’ over $180M laptop contract

The AP reports that with the $180 million contract now signed for laptop computers for Idaho's high schools, lawmakers are suffering from sticker shock. In 2011, when lawmakers were considering the laptop plan, chief proponent and state schools Supt. Tom Luna and his staff estimated the cost for five years at $60.8 million. When costs for improving the wireless infrastructure are added to the equation, staff pegged the total five-year price tag at $70.8 million. Now, it's $180 million over eight years. Click below for a full report from AP reporter Todd Dvorak.

SDE: ‘Buyout’ clause in laptops contract wouldn’t kick in ‘til after the election

Here's the answer from state Department of Education spokeswoman Melissa McGrath as to how soon the $14.2 million “buyout” clause kicks in in the state's $180 million laptop contract, requiring the state to pay the contractor if it cancels the contract: “The buyout would not kick in until the state begins incurring costs. The state does not plan to do so until after Nov. 6. Right now, the state is in the process of working with HP and HP’s partners to develop a project plan based on the contract that was signed Tuesday. This will be done between 30-60 days from now, per the contract.”

Also, it sounds like I'm not going to get the contract today. The SDE says their lawyers are still reviewing it before releasing it under the Idaho Public Records Law. “I would hope that you're going to get it tomorrow,” McGrath said.

State releases a few more details about $180 million laptop contract

I still have not received a copy of the $180 million contract the state of Idaho signed yesterday with Hewlett-Packard Corp. and partners for laptop computers for Idaho high schools, but the State Department of Education just sent me this cost breakdown. It shows that the total amount of the contract is $181,935,125. Their figure for the total number of laptops matches the one from the RFP, at 90,376. But with the phase-in over the eight years, the total number of laptop-years in the contract comes to 554,251, because smaller numbers are included for the first, second and third years. The contract includes $292.77 for each of the 554,251 laptop-years, which adds up to $162,268,065.

Then, it adds on top of that $5.5 million for “incremental cost,” defined as “upfront costs paid in the first few years of deployment for infrastructure” - even though the cost of setting up and maintaining the wireless networks is included in the $292.77 per-unit figure - and another $14,167,060 for “Buyout.” The explanation for that: “This cost is only paid if the contract is severed for some reason. It is a built-in cost and may or may not be paid, but we chose to include it in the total cost. Cost without buyout is total $167,768,065.”

This raises the question: If the voters, less than two weeks from now, turn thumbs-down on Proposition 3, does this contract require the state of Idaho to pay the contractors $14.2 million? Here's the answer from SDE spokeswoman Melissa McGrath: “We will not pay the buyout if Proposition 3 is overturned. There is specific language in the contract to address this.”

Not yet answered: When does the buyout clause kick in?

Arithmetic and the $180 million contract…

I've heard a lot of questions today about the numbers behind the $180 million contract Idaho signed yesterday with Hewlett-Packard and partners to supply laptops to every Idaho high school student and teacher for the next eight years, under the “Students Come First” reform laws - the ones that are up for a possible repeal in the Nov. 6 election. Specifically, the state Department of Education said the contract equates to $249.77 per student or teacher per year for just the laptops, maintenance, security and tech support, or $292.77 if the costs of wireless infrastructure and professional development are added in.

According to the state's RFP for this project, the state estimated that 6,551 teachers and administrators would get laptops the first year, and it estimated the number of students, after a three-year phase-in, at 83,825. That's a total of 90,376 laptops. If you divide $180 million by 90,376, it comes out to $1,992 per laptop, not $250. However, the department specifically said it was paying that amount per laptop PER YEAR of the eight-year contract. So, multiply 90,372 laptops by eight years, and you get 723,008. Divide that number into $180 million, and the result is $249.

These may not be the exact numbers in the contract, as they're from the RFP as issued last spring; I have requested a copy of the contract under the Idaho Public Records Law. When I receive it, I will post it here.

HP official: ‘We’re proud to open this new chapter in our relationship with the state’

Von Hansen, vice president and general manager at HP Boise, hailed selection of his firm to supply laptop computers for Idaho high school students through a contract with the state of Idaho. He noted that HP has had thousands of employees at its Boise campus and has had a presence here for decades; “the most successful product line of H-P came from here,” he said. “Our ties to the community are deep. … Our kids attend schools here in this state.”

Hansen said, “We're proud to open this new chapter in our relationship with the state. … This is a great honor for H-P.” He noted that the contract includes other partners as well: Education Networks of America, the Idaho Digital Learning Academy, Xtreme, and more. “We've got a very capable team,” he said. “We're very excited to be part of this whole rollout.”

In addition to supplying and maintaining the laptop computers, the contract covers setting up and maintaining a wireless network in every Idaho high school, using broadband connections already supplied by the Idaho Education Network.

How a nice golf course, teen driving helped spur Boise’s high-tech sector

It wasn’t what you might think that made Ray Smelek decide to bring Hewlett-Packard’s printer division to Boise in 1973, launching a high-tech industry in the Idaho capital city that transformed the city’s economy. “From a personal point of view … it seemed like a nice move for our family,” Smelek writes in his new memoir, “Ray Smelek, Making My Own Luck.” There was an attractive golf course. Ski passes were cheap. And the state’s teen driving age of 14, at the time, was highly appealing to Smelek’s kids, who were then aged 7, 10, 12 and 14. (Idaho’s teen driving age is now 15-1/2, still lower than Washington, Oregon and California.) You can read my full story here at spokesman.com.

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About this blog

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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