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Idaho’s $182M laptop contract just for rental, not purchase

Tue., Oct. 30, 2012, 6:36 p.m.

Laptop computers that are the subject of a new $182 million contract with the state of Idaho are displayed at Hewlett-Packard's Boise plant last week (Betsy Russell)
Laptop computers that are the subject of a new $182 million contract with the state of Idaho are displayed at Hewlett-Packard's Boise plant last week (Betsy Russell)

BOISE - 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.

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.

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.

“This is a very comprehensive, full-service agreement,” Luna said last week when he announced the newly signed contract. “On an annual basis that works out to less than 2 percent of what we spend every year on our K-12 education system.”

However, the costs are considerably higher than Luna originally estimated. In 2011, when he first proposed the plan to bring the state to a “1-to-1 ratio” of computers to high school students, Luna and his staff estimated the cost at $60.8 million for five years; when costs for improving the wireless infrastructure were added in, the figure rose to $70.8 million. If that five-year figure had held on a per-year average basis, the eight-year contract would only be $113 million, nearly 40 percent less.

Leslie Fiering, research vice president for Gartner Inc., a leading information technology consulting firm based in Stamford, Conn., said a lease deal is not unusual, and Idaho’s plan “makes sense” from the standpoint of automatically providing for an update to the equipment. “That means they’re not struggling to keep old equipment going,” she said.

But, she said, “Kids are very tough on the machines.” She said she used to joke that schoolkids are second only to 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.”

Former longtime Idaho state schools superintendent Jerry Evans, who like Luna is a Republican, but who is opposing Luna’s reform plan, said, “What it amounts to is a continuous eight-year appropriation from the Legislature to Hewlett-Packard, for funds that might otherwise be better used by the school district for other purposes.” Evans said he favors allowing local school districts to decide how best to spend technology funds they receive from the state.

Under the contract, 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. 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, paying the “casualty value,” which would consist of all remaining payments on the unit plus $35.

H-P wrote 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.

Evans said, “It strikes me as very strange. … The state is on the hook. That seems totally wrong to me.”

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.

McGrath said the lease arrangement in the laptop contract was the best way to structure the deal for taxpayers.

“My understanding is the lease is going to be the most cost-effective for the state, and that’s why this is set up that way,” she said. “It’s most cost-effective for the state and taxpayers if these devices are leased, and then districts are given the option if they want to purchase them at the end of the lease.”

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.

McGrath noted that the $292.77 per unit per year is a “fully burdened” cost per unit that includes tech support, wireless system maintenance, training and more. Not included in that amount is an additional $5.5 million payment the state will make to H-P for “infrastructure and project start-up cost,” according to the contract.

McGrath said the department estimated that without the wireless infrastructure and professional development costs built into the contract, the state’s per-laptop, per-year cost is $249.77. That would mean it’s paying $999 per unit over the four-year period.

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