The Department of Health has released a Request for Tender (RFT) for a new IT outsourcing arrangement to supersede the agreement it has had in place with IBM since 1999.
As pre-empted by Health’s CIO Paul Madden in an interview with Intermedium in April 2014, the Department is looking to move towards a new ‘technology-blind’ outcomes-based approach to outsourcing.
“Health is looking for a new approach for the provision of its ICT infrastructure and support services, and associated management and governance services, which focuses on the delivery of the required Services to Health by an external ICT Service Provider in order to meet specific Outcomes”, states the tender documents.
“The Services Agreement will give the Service Provider maximum flexibility to determine how to best perform or provide the necessary Services in order to meet the Outcomes, using the Service Provider's experience, resources and expertise. This represents a significant change from a traditional ICT outsourcing model, which has involved a high level of prescription about the tasks to be performed, and the manner in which those tasks are to be undertaken.”
Health is seeking five core outcomes from the new service arrangement:
- Services are reliable and available;
- End users are satisfied with Services;
- The Services are secure;
- There is demonstrated improvement in the value of the Services; and
- The relationship is strategic and based on trust.
Health will, on a monthly basis, assess whether the Service Provider has delivered the Services to an acceptable standard based on achievement of the Outcomes.
Under the new approach, the successful supplier will be paid on the basis of whether they achieve the desired outcomes outlined in the agreement, rather than a traditional outsourcing arrangement where pricing is based on the cost of inputs.
The Department intends to give potential suppliers flexibility to achieve the stated outcomes.
"We won’t care how, where or on what equipment this service runs, provided it meets our service levels, key performance indicators and enables us to achieve our business outcomes”, Madden told Intermedium.
Health has also indicated its intent to develop a strategic relationship with the chosen supplier to advise the Department on its ICT service requirements, potential risks and solutions, the implementation of its ICT strategy, and the Department’s ICT governance arrangements.
The RFT will close on 8 August 2014. Health will be consulting with prospective suppliers over the next ten months and intends to award the contract in late March 2015, three months before its current arrangement with IBM is set to expire.
The Services Agreement provides for an initial 5 year term, with options for Health to extend the initial term by a further period or periods of up to 5 years.
End of an era
IBM has been the incumbent supplier of infrastructure services since 1999 when the then Department of Health and Ageing co-signed the Group 2 IBM outsourcing contract with Medicare Australia (then HIC). The agreement was worth an estimated $351 million and included mainframe, midrange, desktop, data communications and cross platform services management.
Following that initial contract, (and the separation of Medicare from the arrangement), Health has periodically extended its contract with IBM:
- In 2003 for five years at value of $126 million;
- In December 2008 for three years at a value of $126 million; and
- In December 2010 for four years at a value of $109 million
Since 2003, IBM has inked $475.0 million worth of ICT contracts with Health, with the majority of the value directly deriving from the outsourcing agreement.
The current arrangement, which now extends to 30 June 2015, encompasses ‘mainframe, midrange, network, storage and desktop support, and end-user computing services, including the roll out of a desktop virtualisation solution, new security compliance initiatives, and mainframe and storage updates’, according to a 2010 IBM press release.