CommBank going for multivendor outsourcing

The Commonwealth Bank of Australia is finalizing contract negotiations with HCL, IBM and Tata Consultancy for application services work worth AU$1 billion.
Written by Liam Tung, Contributing Writer

The Commonwealth Bank of Australia has announced that before the year is out, it will finalize contract negotiations with HCL, IBM and Tata Consultancy for application services work worth AU$1 billion (US$0.85 billion) over five years.

Like its government counterparts, CBA is following a multi-sourcing strategy for its outsourcing requirements, citing "greater contestability" as a key reason for its decision, CBA said in a statement yesterday.

Except for its telecommunications services contracts that are overseen by Gen-I, a consortium including Telstra and Optus, EDS has held the lion's share of the bank's outsourcing deals for the past decade.

EDS' stake in CBA's IT operations, including the soon to end application services contract, covers enterprise processing services, and end-user computing. The total annual value of the contracts was AU$389 million (US$334 million) in 2007.

Today's announcement means EDS will be excluded from application services, which represents almost half the value of the bank's AU$2 billion (US$1.72 billion) in outsourcing contracts to 2012.

IBM, Tata Consultancy and HCL will now compete for application services work, which includes development, maintenance, enhancements and consulting, and is worth approximately AU$200 million (US$172 million) per year.

EDS will retain 'enterprise processing services' and 'end-user computing' with CBA until 2012, worth AU$114 million (US$97.8 million) and AU$74 million (US$63.5 million) per year respectively.

In July, EDS won a contract extension for end user computing, covering desktops, service desks and ATMs, worth AU$372 million (US$321 million) over five years.

Despite CBA's decision to maintain EDS on its vendor panel, the general swing towards multi-sourcing has smashed EDS' dominance over large IT outsourcing contracts.

Australian Customs Services and the South Australian government both recently axed EDS from the majority of future outsourcing contracts.

Meanwhile, the Australian Tax Office this week opened the gates on its managed network services contract, which EDS has held for the past decade. It too has announced it will pursue a multi-sourcing strategy in the future for its contracts that are worth AU$1 billion over a five-year period.

However CBA has been the most closely aligned customer of EDS in recent years. CBA had a 35 percent stake in EDS's Australian operations until 2005 when it initiated a scheme that saw EDS buy back AU$173 million (US$148 million) in shares from the bank.

CBA expects contracts with IBM, Tata Consultancy and HCL to be finalized within the next 10 days and will commence the transition process in the new year.

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