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The biggest year on record: Tax Office spends $2.1 billion on ICT

by Paris Cowan •
Free resource

In 2010-11, the Australian Tax Office (ATO) commenced nearly $2.1 billion worth of ICT contracts and contract extensions.

This figure exceeds the annual gross domestic product of Greenland.

It is the largest ICT contracting total for a single agency since Intermedium began its ICT contracts database in 2004.

This points to it being the highest annual ICT contracting total ever recorded by a government agency in Canberra.

Intermedium’s figure is an aggregate of all ATO ICT contracts and contract amendments with a start date falling between 1 July 2010 and 30 June 2011 – Click here for more details.

Approximately $1.9 billion of the $2.1 billion total relates to the commencement or extension of components of the ATO’s three-pronged infrastructure outsourcing framework.

The ATO has had an ICT infrastructure outsourcing model in place since 1999.

“The ICT outsourcing model currently demonstrates the best value in regards to resources and efficiency for the ATO needs at present,” said a spokesperson for the agency.

The largest contract signed by the agency in 2010-11 was a $739 million agreement with HP Enterprise Services to manage its centralised computing requirements. The contract runs for seven years to June 2017.

HP Enterprise Services won another $834 million through two extensions to its twelve year-old outsourcing agreement, initially signed between the ATO and EDS in 1999 and then transferred to HP Enterprise Services upon its acquisition of the outsourcer in 2009.

The latest extensions, worth $604 million and $230 million, have been signed to cover the ATO’s transition to its new multi-sourcing model.

In 2007 the Boston Consulting Group was commissioned to review the ATO’s ICT procurement and advised the agency that it could achieve better value for money if it split its monolithic outsourcing agreement into three. The ATO subsequently approached the market to procure:

  1. Managed Network Services
  2. End-User Computing Services
  3. Centralised Computing Services

HP Enterprise Services successfully recontested the centralised computing services component.

In September 2010, US Defence supplier Lockheed Martin was named as the new provider of end-user computing services for the ATO’s 22,000 staff. The contract covers:

  1. Enterprise Service Management - covering IT service desk provision and end-to-end service management.  The contract is valued at $155 million; and
  2. End User Technology & Support – covering covers hardware and the supporting back-end infrastructure. The contract is valued at $145 million.

Altogether, the five-year contract represents a $300 million win for Lockheed Martin.

The Managed Network Services tranche of the ATO’s requirements was outsourced to Optus in June 2009 for $217 million over four years. This value is not included in the 2010-11 total.

The Optus contract will be the first of these major supply agreements to face a renewal or an extension.  The contract expires in June 2013, and if the ATO were to decide to recontest it, precedent would suggest it would have to commence the procurement process around July 2012.

The Centralised Computing and the End-User Computing contracts expire in 2017 and 2015 respectively.

The ATO has the option to extend its Centralised Computing agreement for up to six years, potentially taking it through to 2023.

These outsourcing arrangements remove a large component of the ATO’s ICT needs from the market for the foreseeable future and may explain the slim entry in the agency’s 2011-12 procurement plans.

Only two ICT projects are included in the procurement plans.

One is for the establishment of a wholly independent IT environment for the Tax Practitioner’s Board and the 160 staff under its direction. The Tax Practitioner’s Board is responsible for the regulation and accreditation of tax agents. An approach to market is scheduled for quarter two.

The other is for the establishment of an identity and access management system. An approach to market is scheduled for quarter four.

More ICT funding way well be on its way however, according to Intermedium’s budget IT tool.

In 2011-12 the ATO received $14.6 million for the development of a business case and initial investments for the SuperStream system, which would allow taxpayers to view all of the superannuation accounts established in their name.

If the business plan is approved, larger allocations are likely to turn up in subsequent budgets for the implementation of the plan.

The ATO has also just announced the membership of its Applications Development panel.

Notes on methodology

Intermedium’s method for calculating the financial year’s data (value and number of contracts) includes all contracts with a start date falling within the financial year, in this case 1 July 2010 to 30 June 2011. This generates discrepancies with some forms of internal government reporting, which are based on the contract publication date, rather than the contract start date.

Intermediumbelieves that the contract start date provides a more accurate view of ICT activity in a year than the publication date, as the term between contract commencement and publication can vary significantly between agencies.

According to the ATO, the total value of ICT contracts gazetted during 2010-11 was $1.25 billion. This made up the great majority of the total of all gazetted ATO contracts, which it records at $1.49 billion for the year.


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