Boston Consulting Group (BCG) has been appointed as adviser to the Australian Tax Office (ATO) for its procurement to replace the long-standing IT Outsourcing Contact with EDS. The $708,400 contract for "ICT Sourcing Consultancy Services" was awarded to BCG after a selective tender process. It will run from 7 July 2007 to 30 June 2008, when the ATO's contractual arrangement with EDS is due to finish (unless the ATO exercises its rights to extend its arrangement with EDS).
The revised Services Agreement with EDS, which went into effect on 1 July 2005, gives the ATO an option to extend for two years from 1 July 2008 to 30 June 2010.
It is understood that BCG is to provide the ATO with an initial report - likely to canvas the broad options the ATO has available to either fully or selectively outsource - on 6 August 2007. The agency will then consider its options, and either go to the market to meet all or part of its IT requirements in 2008, or as it has done in the past, it may decide to exercise the option to June 2010, which is likely to be worth $170m per year to EDS.
The outsourcing arrangements with EDS commenced in June 1999, with a 5-year contract which ended in June 2004. The ATO has since taken up extensions covering 2004-05/2005-06 and 2006-07/2007-08 with AusTender reported contracts (to date) for these years totalling $416m. EDS' total contact value from June 1999 to June 2008 has been reported as $1.815 billion.
Greg Farr, ATO Second Commissioner, has indicated that the ATO may extend some aspects of the EDS arrangement while it completes the market testing and tendering process. This seems highly likely, given that when the Australian Customs Service's Information Services Agreement with EDS expired on 30 June 2007, Customs not only took some time to create an IT Sourcing Strategy to determine which services were to be 'market tested', but it also released the RFTs for the services that it wished to procure almost one full year before the contract with EDS was due to expire.
The ATO will be on an exceedingly tight timeline if it hopes to determine its sourcing strategy, as well as market test its services prior to the expiration of its current Services Agreement in 2008.
Open Season on Outsourcing Deals
In the first of a series of upcoming outsourcing contests, last month Customs signed a 5-year, $160m contract with IBM for the management of its main processing environment, the first following the break-up of a 5-year, single supplier ICT outsourcing deal with EDS. EDS had been Custom's outsourcing supplier since 1997, with a total contract value worth more than $550m.
A number of other major outsourcing arrangements are due for renewal during the next 12 months. Whether the agencies involved exercise contract extensions, or decide to market test within the time frames they have left is not yet clear. But, with an average 2-year time horizon for suppliers entering competitive bid situations, its time to prepare! Suppliers should be taking a strategic look at the market, and preparing their strategies to tackle these major opportunities.
Companies that specialise in particular areas should be looking for new selective sourcing arrangements that are likely to replace the large sole outsourcer arrangements. Smaller companies should also be looking for sub-contracting and other strategic partnering opportunities.