Stranger Things in PA: Xerox Loses Big Contract, but Why? (UPDATED)

In the head-scratching department, this week’s news seemed to come out of the Pennsylvania State House. According to The Sentinel, the Pennsylvania House (state legislature) broke off a five-year contract under which Xerox has been supplying The House with copier/MFPs,  a move that the The Sentinel implied will cost taxpayers $5 million to prematurely end the deal. However, we spoke with Matthew Smith, president and CEO of Copywatch Inc., and this doesn’t appear to be the case.

House Chief Clerk Dave Reddecliff, who signed off on the deal, told The Sentinel: “We’re eating $5 million.” However, this actually isn’t correct. Under a contract Copywatch’s Smith negotiated for The House with Canon, Canon will provide copier/MFPs for $96,000 per month (not the $189,000 per month The Sentinel reported), and Canon will assume the $5 million in a leveraged buyout, not a loan.

Under the Xerox contract, The House was paying Xerox more than $262,00 per month to lease 430 machines. (This works out to an average of $609 per month per machine and most likely includes service and supplies;  the purchase price of many of the machines probably exceeded five-figures). The five-year Xerox deal was worth more than $15.7 million.

Smith says The House will save a guaranteed $3.9 million for the first five years; Copy Watch will get 30 percent commission off of that. He also says that if The House had continued with the Xerox contract, it would have cost $31 million, while under Canon it will cost $25.2 million, both over 10 years.

Smith also notes: “There is no out-of-pocket expenses for the taxpayers of Pennsylvania.” Smith has been in the business for some 26 years, and CopyWatch’s clients include enterprises in the United States and United Kingdom, including The Bank of New York and the Federal Reserve Bank of New York in the United States.

Xerox did counter with a lower offer and a letter objecting to the fact that Reddecliffe never put out a Request for Proposal (RFP).

Reddecliff also said that more Xerox machines were installed than needed: “They should’ve come back to us a long time ago and said, ‘folks, based on the data, you don’t need certain machines, you don’t need these larger machines, heck, you don’t need this machine at all over here.’ They never did that.”

Smith says that overcapacity was a problem: “They (Xerox) had big iron that was doing 10 percent of capacity… Machines meant to do 3 million (copies) a month were doing 30,000 (copies per month).”

The new contract with Canon had the bipartisan support of The House.

Xerox spokesman Carl Langsenkamp countered with an email on Monday noting: “If this was about saving money an open procurement would have shown that our final proposal was $21K a month less than the Canon proposal and would have saved an additional $1.2m over the contract period. It is our belief that The House has accepted a contract with fewer machines for more money than Xerox proposed, less labor and a lower level of service. So this is taking taxpayer money to pay off a $5 million buyout over time? Do the math on how long that means they will be using taxpayer dollars to pay something off that they can never recoup.”

Our Take

While we initially speculated on the RFP process, Copy Watch says that it conducted full needs assessment. The firm says it identifies the total cost of operation of document production expenses, and says its services “are performed by experienced auditors who evaluate existing copier expenses including leases, purchase price, maintenance, supplies and meter charges.”

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