Recently, changing federal government policy was a factor in the Australian Taxation Office's decision to extend its end user and centralised computing contracts with incumbent supplier EDS, the agency's CIO Bill Gibson has revealed.
ATO CIO Bill Gibson
Last week the Australian Taxation Office unexpectedly flagged a $604 million extension with supplier EDS so that it would have enough time to transition its desktop and datacentre services to a new provider. The original plan had been to break up the $1 billion EDS outsourcing contract into three pieces which would be tendered and transitioned by June 2010.
In the middle of last year, the agency was ready to refresh its desktops under the EDS contract, ATO CIO Bill Gibson told ZDNet.com.au yesterday. In some cases its computers were six years old. The agency was making do with scavenged spare parts, but the failure rates were picking up.
Yet that refresh had to be put on the back burner because of "circumstances", according to Gibson. "There are some government policies which have emerged over the last few months," he said. "There was a range of other initiatives that we needed to take into our planning."
The fact that the office hadn't refreshed last year put renewing desktops high on the priority list now. EDS will be carrying out that refresh during the extension time, to be finished by June 2011.
Gibson wouldn't mention which government policies and initiatives had caused the delay of the desktop refresh. However, analysts speaking last week about the EDS extension mentioned that the Gershon review likely had a hand in the agency setting its plans back. The ATO also had to brace itself for extra work with the government's stimulus payments.
There was a range of other initiatives that we needed to take into our planning.
"I'd imagine the Gershon report has raised a few questions they probably have to sort out," Jim Longwood, research VP in Gartner's IT outsourcing team, told ZDNet.com.au.
Longhaus research director Sam Higgins agreed. "From a risk mitigation perspective, putting something to market that he's going to need to unwind in the post-Gershon world is probably the reason," he said. Higgins also pointed out the impact of changing governments in general on agencies: "There has to have been some impact for Bill and others."
Three months ago, the ATO called in Boston Consulting Group to review its sourcing plan. "They reviewed the current strategy in light of business pressures," Gibson said. The result was the extension. "We will be signing on contractors a little later than we had originally planned," the CIO said.
The original idea was to have started the transition for the desktop part of the contract by April next year. Now it was expected to be initiated by the start of July, to be completed by the same time next year, he said.
Even if the incumbent were to win we have high expectations that whoever wins will be moving our systems into the most up-to-date technology available.
Gibson had decided earlier that the centralised computing contract would come after the end user computing contract instead of the original plan to transition the contracts in parallel. "Once we started into the program we realised that wasn't sensible," he said.
Gibson now expected to release a draft tender on 31 July for the centralised computing portion, followed by an updated final tender on 1 October. He said the vendors would have a generous amount of time to respond before the contract was signed, likely to be sometime late 2010.
He had received feedback from the vendors that it would take six months to plan the datacentre support transition and 18 months to implement it, longer than he'd originally thought. He hoped to have the planning time integrated in the negotiation time before the contract was signed, which puts the transition finishing around a year and a half after the contract is signed late next year.
Despite saying the transition would take longer than planned for centralised computing, Gibson denied that the agency would be spending more on paying two vendors during the transition than it had originally budgeted. "We won't have two firms on the books for longer," he said. "It's not going to impact the costs significantly."
Gartner's Longwood said that Gibson's assessment of the transition time was fair, adding that from his experience talking to outsourcers, 18 to 24 months was considered to be the minimum lead time. Without the extension, the ATO would have been borderline whether it would have got that through, he said.
Ovum analyst Jens Butler said that Gibson's experience showed just how deeply embedded first generation outsourcers were. "It actually makes them quite difficult to extract them out of those contracts," he said.
If we contemplated extending this, what's in it for us?
Yet Gibson believed that the non-incumbent vendors would have equal opportunity to win the new contracts despite costs incurred to transition. "Even if the incumbent were to win we have high expectations that whoever wins will be moving our systems into the most up-to-date technology available," he said.
The ATO's end-user computing deal, worth around $60 million a year, has CSC, HP/EDS, Fujitsu-owned Kaz Group, Lockheed Martin Australia and Unisys still in the race. The mainframe contract, worth around $160 million per year, has been whittled down to Lockheed Martin, CSC, IBM and incumbent EDS. Optus has already picked up the managed network services contract.
The ATO had got a good deal out of EDS on the extension, according to Gibson. Apart from negotiating a refresh, which would deliver running cost savings to the office, the agency had also bargained for more extensive use of virtualisation — all at a lower cost.
"We've got more for less," Gibson said. "As to who pushed who down, it was a negotiation. If we contemplated extending this, what's in it for us?"
Gartner's Longwood said that has been a typical result of CIO bargaining recently. "We typically see 5 to 8 per cent reduction in deal costs in these tough times," he said. "Most CIOs at the moment are focusing on short-term savings and not rocking the boat."