City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: IT Department
Meeting Date: December 8, 2025
Report #:2511-5394
TITLE
Approval of Contract Amendment Number 5 to Contract Number C14151181 with SAP Public Services in the Amount of $334,355 for SAP Maintenance and Support for One Year, ending December 2026; CEQA Status – Not a Project.
RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager or designee to execute Amendment Number 5 to Contract C14151181 with SAP Public Services (Attachment A) for SAP Maintenance and Support for 2026 in an amount not to exceed $334,355. This amendment results in a revised total contract not-to-exceed amount of $1,920,867.
BACKGROUND
Over the past two decades, the City Council has approved multiple renewals and amendments to ensure continued maintenance, compliance, and modernization of the City’s Enterprise Resource Planning (ERP) environment. In July 2002, the City selected SAP Public Services through a competitive Request for Proposals (RFP) process as the enterprise-wide ERP platform. The SAP ERP system was implemented across all major departments to support Citywide financial, human resources, and utility operations in 2003. Since then, contracts have been approved in 2007, 2013, 20151, 20182, 20193, and 20214 for continued licensing and maintenance services for the ERP system.
1 November 2, 2015 City Council Staff Report # 5955: https://www.paloalto.gov/files/assets/public/v/1/agendas- minutes-reports/reports/city-manager-reports-cmrs/year-archive/2015/cmr-5955.pdf 2 December 17, 2018 City Council Staff Report # 9827: https://www.paloalto.gov/files/assets/public/v/1/agendas- minutes-reports/reports/city-manager-reports-cmrs/year-archive/2018/id-9827.pdf?t=53847.98 3 October 7, 2019 City Council Staff Report # 10033: https://www.paloalto.gov/files/assets/public/v/1/agendas- minutes-reports/reports/city-manager-reports-cmrs/year-archive/2019/id-10033.pdf 4 March 8, 2021 City Council Staff Report # 11810:
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2021/id-11810.pdf
SAP has announced that support for the current SAP ERP platform will end on January 1, 2028.
Running the system beyond this date would introduce increased risk, including the loss of vendor support, potential security vulnerabilities, and limited access to future enhancements.
The Finance Committee heard staff’s recommendation at its meeting on September 16, 2025, and unanimously recommended City Council approval of the recommendation to migrate to SAP S/4HANA – SAP’s latest cloud-based ERP platform. City Council approved the upgraded licensing costs for five years of $6.6 million unanimously on September 29, 20259 and are scheduled to consider the implementation costs on December 1, 202510. The Committee review and Council approval acknowledged the total cost of $13.3 million once implementation, transition costs, and additional temporary staffing costs were included.
ANALYSIS
The City’s SAP Enterprise Resource Planning (ERP) system serves as the backbone for citywide financial management, human resources, payroll, procurement, and utilities operations. It supports daily business transactions, employee payroll processing, utilities billing for over 30,000 accounts, and financial reporting for the City’s annual budget exceeding half a billion dollars. SAP’s maintenance and enterprise support services are essential to ensure the system remains secure, compliant, and fully functional.
The proposed amendment will continue to provide SAP’s annual Enterprise Support and Maintenance Services, which include:
Delivery of legally mandated updates (e.g., payroll tax table and compliance changes); Security patches and critical system corrections;
Ongoing functionality enhancements; and
Access to SAP’s technical assistance center for issue resolution.
The City’s current ERP environment was upgraded to SAP HANA and migrated to a cloud-hosted environment in 2021 (CMR #11810). Since that upgrade, SAP’s maintenance has ensured stable system performance, improved processing speed, and enhanced data security. This annual renewal preserves access to these ongoing vendor-provided updates and ensures continued compatibility with dependent systems such as financial interfaces, banking partners, and the My Utilities Account customer portal. This amendment continues the maintenance and support for the existing environment for one year while the City migrates to the new S/4 HANA platform.
9 September 29, 2025 City Council Report:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16240 10 December 1, 2025 City Council Report:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16332
FISCAL/RESOURCE IMPACT
Funding for this contract amendment was budgeted in the Technology Fund as part of the Fiscal Year 2026 Adopted Budget. The Information Technology Department (ITD) is supported through an internal service fund model. Approximately 49% of ITD’s costs are funded by the General Fund, with the remaining 51% supported by enterprise and internal service funds.
STAKEHOLDER ENGAGEMENT
The services were coordinated with internal stakeholders and the service provider. ITD is working with all City departments on training, functionality, better reporting capabilities, and further enhancements.
ENVIRONMENTAL REVIEW
The approval of this contract is exempt from review under the California Environmental Quality Act (CEQA) under CEQA Guidelines section 15061(c)(3).
ATTACHMENTS
Attachment A: SAP Contract C14151181 Amendment Dec 2025 APPROVED BY:
Darren Numoto, Chief Information Officer