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Datacom replaces IBM, Accenture in $242 million Health outsourcing agreement

by Pallavi Singhal •
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Datacom has taken over the provision of ICT outsourcing services to the Department of Health from long-term supplier IBM and enterprise data warehouses from Accenture, with the Department citing a change of direction as the reason for the change. 

The Department’s five-year contract with Datacom has an approximate value of $242 million, and includes end-to-end management of Health’s hardware and software assets. The new agreement will replace Health’s long-standing IBM infrastructure management services agreement and Accenture Enterprise Data Warehouse support agreement, both of which are due to expire in June 2015.

“The department approached the market on 30 May 2014 seeking a departure from traditional IT Services outsourcing models,” according to a Health media release.

“This new agreement is structured to provide an outcomes-based fully managed service, with consumption-based pricing, and a strong focus on service delivery.”

The new model will place the bulk of responsibility with the supplier, according to the media release, with “Datacom to determine the best way to deliver the services” in order to achieve agreed-upon outcomes.

The estimated total value of the agreement signals an annual contract value of around $48.4 million. This is significantly below the combined value of the Department’s outgoing contracts with IBM, worth approximately $723 million over 15 years or $48.2 million annually, and Accenture, worth $111.4 million over four years or $27.9 million annually. This adds to a combined cost of approximately $76.1 million per annum to the Department.

The reduction in value may be attributed to the exclusion of mainframe services from the scope of the Datacom agreement, as well as changes to the portfolio following the change of government in 2013 that saw Health’s aged care and a number of client-facing functions moved to the Department of Social Services.

Health approached the market in May 2014 with a Request for Tender for the provision of fully-managed ICT infrastructure and support services for itself and some of its portfolio agencies.

Former Health Chief Information Officer Paul Madden, who is currently Special Adviser in the eHealth Division, toldIntermedium ahead of the release of the RFT that the Department was looking to move away from “multiple contracts with multiple players and multiple arrangements” in favour of a “more integrated approach over the full life cycle of the contract – start to finish” through the appointment of a single supplier.

The contract with Datacom was signed on 31 March 2015, although Intermedium reported on strong rumours that Datacom was selected as the preferred supplier in late-2014, with the delay in contract finalisation relating to ongoing evaluation and negotiation processes.

“We’re delighted to have been awarded this work after going through a fiercely competitive process and an extensive follow up to ensure a support model that met the needs of the Department of Health,” said Datacom Group CEO Jonathan Ladd.

The new deal adds to Datacom’s growing portfolio of ICT outsourcing contracts with public sector agencies, including the Department of the EnvironmentCrimTrac, the Australian Taxation Office and the Australian Competition and ConsumerCommission.  

IBM has managed Health’s ICT services for over 15 years since 1999, when it signed a $351 million three-year deal covering desktop, mainframe, midrange, communications and cross platform managed services. Since then, IBM has won a series of contract extensions that have taken the total value of the deal to approximately $723 million over the 15-year period. The final contract extension is due to expire on 30 June 2015.

Accenture has provided managed enterprise data warehouse services to Health under its National Health Reform program since December 2011, under a four-year $111.4 million contract, also due to expire on 30 June 2015.

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