City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: IT Department
Meeting Date: January 12, 2026
Report #:2510-5289
TITLE
Approve the City Manager or Designee to Execute Purchase Order C26196045 with Insight Public Sector, Utilizing a County of Riverside Cooperative Contract ITARC-00930, to Procure Microsoft Enterprise Software Licensing, Cloud Services, and Server/Data Center Licensing for a 3-Year Term with a maximum Total Not-To-Exceed Amount of $2,506,936, inclusive of a Contingency in the Amount of $50,000 Annually.
RECOMMENDATION
Staff recommends that City Council approve and authorize the City Manager or designee to execute Purchase Order C26196045 with Insight Public Sector, utilizing the County of Riverside Cooperative Contract ITARC-00930, to procure Microsoft 365 enterprise licensing, Azure cloud services, Microsoft security and collaboration tools, server and SQL licensing, and related support services for a 3-year term (February 1, 2026 to January 31, 2029) with a base contract amount of $2,356,936 and an additional $50,000 annual contingency to accommodate potential increases in Microsoft licensing or cloud usage needs (Attachment A).
BACKGROUND
On February 24, 2020, City Council approved a 3-year contract with Insight Public Sector, leveraging the County of Riverside Enterprise Agreement for Microsoft products and services1.
The County of Riverside’s master agreement allowed the City to secure significant discounts through cooperative purchasing, exempt from Palo Alto’s competitive solicitation requirements under PAMC 2.30.360(j).
1 February 24, 2020 City Council Staff Report no. 10946, Item no. 7:
https://www.paloalto.gov/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2020/id-10946.pdf?t=53319.98s
On January 30, 2023, Council approved Amendment No. 1 to Contract C20177991, extending the term for another three years for $1.7 million through January 20263. This extension continued Microsoft G3/G5 enterprise licensing, Azure cloud commitments, and security add- ons such as Defender and Power BI. During this period, the City implemented expanded cybersecurity protections, deployed cloud-based backups, and utilized Microsoft scheduling and data services to support emergency response and business continuity.
ANALYSIS
City of Palo Alto relies on Microsoft products and cloud services to deliver core business functions, maintain cybersecurity, and provide essential collaboration tools to staff. The proposed 3-year contract with Insight Public Sector will continue Citywide access to Microsoft 365 enterprise licensing (M365 G3, G5, and F1), Copilot AI enhancements, Exchange Online, Teams collaboration and conferencing, Power BI, Project, Visio, and Power Automate. These services are critical for email, productivity applications, cloud-based collaboration, analytics, and workflow automation. The agreement also covers Azure cloud services and GitHub Enterprise, allowing the City to host applications, store data, and expand compute resources as needed.
In addition to collaboration and productivity platforms, the contract provides licensing for SQL Server, Windows Server Datacenter and Standard, System Center management tools, CIS security suite, and Remote Desktop Services. These technologies underpin the City’s data centers, financial and enterprise applications, and cybersecurity controls. Without a Microsoft Enterprise Agreement, the City would be required to purchase these licenses individually at significantly higher cost, while also losing key entitlements such as version upgrades, enterprise mobility and security protections, and disaster recovery capabilities.
Table 1: Three-Year Cost Breakdown
Contract Year Term Period Amount
Year 1 02/01/2026 – 01/31/2027 $785,645
Year 2 02/01/2027 – 01/31/2028 $785,645
Year 3 02/01/2028 – 01/31/2029 $785,645
Total $2,356,936
Note: Amounts shown above represent the base contract costs only and do not include the additional $50,000 annual contingency. Totals have been rounded to the nearest whole dollar and may not equal the sum of the individual line items due to the rounding of individual cents.
Solicitation Process
Insight Public Sector, as the awarded Licensing Solution Provider (LSP) under the County of Riverside cooperative contract, provides access to competitively negotiated Microsoft government pricing among the best available to local agencies. This three-year extension of 3 January 30, 2023 City Council Staff Report, Item no. 2: https://www.paloalto.gov/files/assets/public/v/1/agendas- minutes-reports/reports/city-manager-reports-cmrs/year-archive/2020/id-10946.pdf?t=53319.98 $2.36 million is 39.7% higher than the prior three years of $1.7 million. This price increase reflects growth and true-ups in the City’s license counts and security add-ons implemented during the prior term (e.g., expanded M365 licensing, security tools such as Microsoft Defender and related protections), and higher subscription-based consumption costs, including Azure cloud services and associated storage/backup usage that scale with operational demand. The proposed amount reflects current licensing requirements and the City’s projected cloud and security needs over the next three-year term to avoid service disruption and maintain compliance with Microsoft licensing requirements. By leveraging the Riverside agreement, the City secures competitive discounts on software licensing, cloud subscriptions, and security add- ons, while streamlining contract management and ensuring compliance with Microsoft licensing requirements.
FISCAL/RESOURCE IMPACT
Funding for Year 1 in the amount of $785,645 has already been appropriated through the City’s annual budget process. During the City’s annual budget development process, staff incorporated the projected licensing price increase into the budget. Funding for years 2 and 3 of the contract will be reviewed and considered as part of future budget development cycles.
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 special revenue funds.
STAKEHOLDER ENGAGEMENT
The services were coordinated with internal stakeholders and the service provider.
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: Insight Microsoft Licensing 3-Yr Quote
APPROVED BY:
Darren Numoto, Chief Information Officer
Staff Lead: Lisa Bolger, Assistant Director Information Technology/CTO