The Department of Defence (Defence) has announced Lockheed Martin as the preferred tenderer for Centralised Processing services, which will see the agency’s 280 data centres consolidated into just 14 facilities, 11 domestic and 3 international. With this win, Lockheed Martin has altered the competitive landscape for Managed Service in Canberra in a significant way.
Lockheed Martin was one of a group of three shortlisted tenderers which were announced in April 2012, the others being Hewlett-Packard and IBM. Hewlett-Packard dropped out of contention in September 2013 when Defence announced that it had ‘down selected’ to IBM and Lockheed Martin to proceed in negotiations.
Lockheed Martin in the Australian Government Market
Lockheed Martin had its first big IT outsourcing win in the Australian Government market in 2010 when it won the Australian Taxation Office’s (ATO) End User Computing (distributed computing) tranche of the ATO’s IT infrastructure outsourcing arrangements. This followed the ATO’s 2007 split of its IT infrastructure outsourcing into three tranches: Managed Network Services; End User Computing; and Centralised Computing, in a precursor of the model that was subsequently adopted at Defence.
The ATO had previously outsourced provision of its entire IT infrastructure requirement to a single supplier, EDS (which was acquired by Hewlett-Packard in 2008), under a contract which commenced in 1999 finished in 2013. That deal was eventually worth $3.3 billion over the 13 year lifetime of the contract.
Lockheed Martin’s End User Computing bundle at the ATO consists of two contracts which have a combined initial value of $283.4 million over five years:
- Enterprise Service Management Centre (ESMC) Contract - services including a single point of contact service desk for IT and end-to-end service management and integration across the ATO; and
- End User Technology & Support (EUTS) Contract - services including desktop computing, office machines (such as faxes and printers) and the supporting back-end infrastructure.
A requirement for additional services saw the value of these contracts climb by $170.8 million to a combined total of $454.2 million by the middle of 2013.
With tier 1 agency managed services wins in both distributed and centralised computing, Lockheed Martin has in effect moved from the position of unexpected challenger in the market to major contender for future managed services Approaches to the Market.
The top three IT Managed Services suppliers to the Australian Government over the past five years are now Hewlett-Packard, IBM and Lockheed Martin, according to Intermedium’s Analyse IT contracts database.
Hewlett-Packard has seen the value of its outsourcing deal with the ATO decline since the breakup of the original deal with EDS. While Hewlett-Packard Enterprise Services retained the Centralised Computing component of the ATO’s outsourcing provision, the average annual contract value for its services for the ATO declined from $253.9 million per annum under the previous deal to $133.4 million per annum under the current agreement.
Hewlett-Packard currently holds only one other outsourcing deal in Canberra, a $96 million five year deal with the Department of Agriculture which is due to expire in June 2014.
Currently IBM holds an outsourcing contract for Department of Health which it originally won in 1999. The latest renewal of this contract was worth $119.9 million over 4.5 years. However Health plans to market test this arrangement shortly and a pre-release notice published on AusTender indicates that a request for tender is due for release by the end of May 2014.
IBM also holds a major contract for the provision of mainframe services to the Department of Human Services (DHS), which has a value of $1.1 billion over 10.5 years and is due to expire in June 2016. The 2011 merger of Medicare, Centrelink and DHS into a single agency brought about the end of Medicare’s longstanding outsourcing deal with IBM. Another former IBM client, the Department of Veterans’ Affairs, exited its arrangement with IBM in 2011 in favour of a shared services arrangement with DHS.
IBM is also the outsourcing provider for the Australian Customs and Border Protection Service with $335.8 million contract over 9 years which is also due to expire in June 2016.
ICT Reform at Defence
The Centralised Processing Project is one of three tranches of IT infrastructure outsourcing planned at Defence as part of the agency’s Strategic Reform Program which aims to deliver $1.9 billion in savings through ICT reforms.
“The project includes a major transformation program of work and the ongoing sustainment of Defence’s telecommunications environment,” Defence CIO Dr Peter Lawrence said in a statement.
Procurement of the Distributed Computing bundle has been deferred as of January 2014when Defence announced in that it would not be proceeding with a planned approach to market due to its existing project load and that a decision about the future of the project would be made over the next two years.
“As the projects currently underway require a focused and sustained effort, Defence has decided not to proceed with the planned market testing of the Distributed Computing Bundle.”
According to a statement from the Department, “The new Centralised Processing capability will improve Defence’s systems availability, reliability and security.”
The announcement also appears to resolve the number of Data Centres to be maintained as a result of the ‘Data Centre Migration’ project, which regarded by Defence as necessary enabler to Centralised Processing.
In November 2011, A Defence spokesperson told Intermedium that “at the very least it [Defence] will need a primary data centre, a large secondary data centre and a disaster recovery facility, plus any further data centre facilities deemed necessary to support the Department’s 110,000 end-users. The number of additional centres, if any are needed, will be decided upon at a later stage”.
According to the May statement, “Defence will now enter into further negotiations with Lockheed Martin Australia to finalise the contract for provision of Centralised Processing services. Finalisation of this process is also subject to Government Second Pass approval later this year.”