Fortunes changing for Commonwealth’s top suppliers


Decade-long contracts with numerous amendments may become increasingly rare due to changing procurement policy and ethos in government.

This could see the likes of 13-year IT managed services contract between the Department of Agriculture and Water Resources (DAWR) and DXC Technology, which according to Intermedium’s analysis is the most amended active contract across the Federal Government, replaced with shorter arrangements that are more frequently opened to the market.

The number of amendments to the DXC contract has now climbed to 229, 26 more than when Intermedium last canvassed the top five most amended federal contracts in October 2016. 148 of these were published during 2016, with three more amendments made in 2017 to increase the contract value and transfer the contract to the newly-formed DXC Technology, created by the merger of the Enterprise Services branch of HPE with CSC.

The contract, which was originally valued at $96 million between 27 June 2009 and 30 June 2014, is now valued at $398.6 million until June 2022, having been extended twice since 2009 – once in 2014 and again in early 2016.

The other four heavily amended and active federal contracts are all set to expire before or on 30 June 2019. With all four contracts also stretching well beyond three years, these agencies are likely to rethink their procurement practices when renewing their IT outsourcing arrangements in light of the procurement rules that capped federal ICT contracts to $100 million in value or three years’ duration. The rules came into effect in August 2017.

These altered rules may have limited effect in some instances, however. Intermedium understands that the three-year term limit applies to the initial contract term, with any contract extensions thereafter permitted as long as each extension also falls under three years. The $100 million cap applies inclusive of all extensions. This suggests that some agencies may be able to retain periodically-extended long-term contracts if they remain under the value threshold.

On the other side of the equation, suppliers active in this space, especially traditionally big-contract winners like IBM and Accenture, may need to alter their strategies to adjust to the absence of long-term lock-in opportunities worth hundreds of millions of dollars. This will mean chasing lower value and shorter duration contracts with at best a possibility of future extensions, which from an agency risk assessment perspective will be addressable by the middle tier suppliers.

ANAO-Unisys

Previously ranked fourth in Intermedium’s top five most amended active contracts list, the Australian National Audit Office’s (ANAO) IT services contract with Unisys has shot up to second place following the expiry of Department of Prime Minister and Cabinet’s IT support services contract with ASG (amended 152 times) and Agriculture’s software redevelopment and implementation of an import conditions (ICON) database contract with Fujitsu (amended 47 times).

Amended 41 times since it was first published in 2009, ANAO’s arrangement with Unisys is one of the longest-running outsourcing arrangements with a government agency. It is set to expire on 30 June 2018.

ANAO is currently in the process of refining its broader IT sourcing strategy, which includes the Unisys IT services contract. According to a request for tender published in August 2017, cloud-based options are being considered as part of the replacement. The tendering process was expected to be finalised in February 2018, according to the tender documents. The contract has not yet been awarded.

As ANAO is not a large, service-oriented agency, its future IT services arrangements are unlikely to be high-value enough to be affected by the $100 million value cap that was introduced as part of the procurement reforms. Any new arrangement will likely be affected by the three-year term limit, however. This is not unusual, with Intermedium revealing last month that around a third of contracts by value in the past five years exceeded the term limit.

ATO-DXC

Amended 37 times since it was established in December 2010, the Australian Taxation Office’s (ATO) centralised computing services contract was originally awarded to HP Enterprise Services, and then transferred to DXC Technology in 2017.

Among the five contracts examined in this article, the DXC contract has the highest value, climbing from the initial $738.8 million to $1.5 billion with the latest amendment on 2 March 2018.

The contract is part of the agency’s bundled approach to outsourcing its ICT requirements under separate centralised computing, managed network and end-user computing service agreements. Optus provides the managed network services under a $743 million contract – and is further examined below. The end-user computing component was awarded to Lockheed Martin in July 2010, and is now managed under Leidos under two contracts (End-User Technology and Support and Enterprise Service Management Centre) worth a total of approximately $530 million.

Despite the approaching expiry date for the contract in June 2019, the ATO is yet to approach the market to renew the arrangement. An ATO spokesperson indicated that ATO is consulting with the Digital Transformation Agency (DTA) to determine the best way forward.

ATO-Optus

Part of ATO’s bundle of outsourced IT services outlined above, the Optus contract has been amended 36 times since its establishment in 2009, most recently on 2 March 2018.

Worth a total of $743.5 million, it is set to expire in June 2018. No approaches to market have been made to renew the arrangement.

Optus is currently the third largest supplier to the ATO by contract value, the vast majority of which stems from this single contract, according to Intermedium’s Analyse IT tool.

CER-Fujitsu

The Clean Energy Regulator’s ICT platform hosting services contract with Fujitsu has also been amended 36 times since it was published in October 2013.

The contract, which was originally worth $10.2 million, has now increased to $33.5 million. It is set to expire in March 2019.

Related articles

The Commonwealth's top five most amended contracts

Third of ICT contracts impacted by DTA’s new rules

PM&C’s ASG contract the most amended ever

Do the top govt IT Services suppliers have what it takes for the next decade?

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