Even before the dust settles, it looks like 2020-21 is going to be IBM’s most successful systems integration year of the past 11 by a significant margin. The year’s total contract value (across all Federal agencies) is over double its second-best SI year, in 2015-16, the year before the ill-fated 2016 eCensus.
IBM has been reinventing itself by shedding its legacy mainframe business to focus its efforts on platform and artificial intelligence (AI).
IBM acquired Red Hat for US$34 billion in 2019 to support its new hybrid cloud-first strategy. Since then, IBM’s take on strategic systems integration work in Canberra appears to be taking off. How much of this is based on Red Hat solutions cannot be ascertained, with Red Hat continuing to sell its solutions directly into the Canberra market.
IBM recently signed a $19m agreement with Services Australia to deliver a containerised platform to host the Australian Immunisation Register (AIR).
A 110-year old company, IBM has shown remarkable adaptability and willingness to go with the times and is no stranger to cutting loose products that it perceives are no longer core to its business. Its mainframe business is now a new company called Kyndryl, with the launch of its Australian arm impending.
Its printers went to Lexmark in 1991, personals computers and servers to Lenovo in 2005 and 2014, and several software applications went to HCL Technologies in 2018. Of these companies, only Lenovo is active in the Federal market, primarily supplying personal computing devices such as laptops.
The mainframe business has been a massive cash cow for IBM in the Federal government market over the last 40 years. Its current highest value mainframe contract is with Service Australia, where it delivers maintenance services. The contract was valued at $480m over five years commencing in 2018.
This deal was signed under the Digital Transformation Agency’s (DTA’s) whole-of-government (WofG) purchasing agreement with IBM, which commenced at the same time.
The DTA agreement is mandatory for Federal agencies seeking to procure IBM products and services. Similar agreements to leverage purchasing power are in place with SAP, Oracle, AWS and Microsoft.
Not only has it acquired Red Hat, but IBM has acquired a range of other companies in 2020-21 that align with its new direction. Capabilities in consulting, application performance management, automation, AI and SAP and Salesforce integration and implementation have characterised these acquisitions.
Recent IBM contracts (beyond the AIR) project span several key agencies – primarily Services Australia, Home Affairs and the ATO.
With almost $300 million in reported contract spending in this category of work over 2020-21 (YTD), it appears IBM is increasingly trusted to help drive digital transformation in the Federal space.
*2020-21 current to 31 May 2021
A contract contributing to this spike is the $119 million, three-year ATO Standard Business Reporting, signed in 2020. This contract continues the government’s efforts to fully digitise government transactions with the Single Touch Payroll.
These commitments also signal that IBM has overcome potential trepidation from Federal agencies following historical project failures in the Australian public sector.
Notwithstanding its contracts with other Tier 1 agencies, it is Defence that has emerged as IBM’s most important client by far.
IBM is an integral mainframe supplier for Defence, and IBM is also making a name for itself in the Department with its Watson AI platform. Watson continues to be procured by Defence, most recently with a $480,000 contract for a “Conversational Assistant” in April 2021.
The largest contract contributing to IBM’s 2020-21 System Integration Services result is the $128 million two-year package of work commencing on 1 April 2021 under the six-year ‘Defence ERP System Integrator Standing Offer’, of which IBM is the only member. In December 2021, IBM also signed a $16 million ‘Case Management’ contract through this standing offer.
A $95.4 million ‘Systems Integrator’ contract, accounting for the vast bulk of Federal IBM spending in 2019-20, which ends in July 2021, is now worth $111 million.
IBM continues to be one of the top suppliers to Defence across the whole market (including Hardware, Software and Telecommunications), ranking at fourth place for all reported contracts in three and a half years from 1 July 2017 until 31 December 2020. According to Intermedium's database of Federal ICT contracts, the total contract value (TCV) for the Defence ICT market for this period was $14 billion.
Department of Defence TCV Top 5 Leaderboard, 2017-18 – 2020-21 (YTD)
Cyber security is also receiving attention from IBM, which has several services that integrate with its cloud platform and AI capabilities. The company signed a $4.5 million contract for Network Remediation with Defence in May 2021. IBM operates X-Force Red Vulnerability Management Services and has acquired cyber security capabilities in recent years.
Red Hat also contracts to the Federal market, although reporting a lower value than before the IBM acquisition. Previously it had seen most contracting through Defence, with its single largest contract, a three-year, $12.5 million ‘Software, maintenance, support and services agreement signed in April 2019, a few months before the IBM acquisition.
Red Hat has recently seen year-on-year growth for contracts signed with the Australian Signals Directorate (ASD) within the Defence portfolio. The agency has seen increased spending as part of the 2020 Federal Cyber Security Strategy and associated Cyber Enhanced Situational Awareness and Response (CESAR) package. From 1 July 2020 to 31 December 2020, ASD contracted $10.4 million from Red Hat, almost double the TCV of the 2019-20 financial year ($5.7 million).