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Outsourcing report reveals the value of incumbency in Federal Government ICT market

by Kristen Hammond •
Free resource

The full extent of the value of incumbency in the Federal Government ICT market has been revealed in Intermedium’s Infrastructure Management Outsourcing Report, which reveals that the average length of a Federal Government outsourcing arrangement is 7.2 years, with numerous agreements continuing for over 15 years.

The long-standing nature of the agreements in the government outsourcing market can be partially explained by the complex nature of the agencies’ ICT environments. This places a greater deal of importance on the provider’s familiarity with the agency’s information technology environment which, often, the supplier themselves introduced. For example, the Department of Defence’s contract with Fujitsu includes extension options up to 20 years.

Four supplier-agency outsourcing arrangements extend beyond 15 years, including:

  • Australian National Audit Office (ANAO) and Unisys at 17 years;
  • Australian Electoral Commission (AEC) and CSC Australia at 16 years;
  • Department of Health and Ageing (DoHA) and IBM at 16 years; and
  • Department of Immigration and Citizenship (DIAC) and CSC Australia at 15 years.

In some of these arrangements, the original contract has been extended without a market approach, as occurred with Centrelink and IBM, and DoHA and IBM.

As Intermedium previously reported, Centrelink extended its ‘computer software, hardware and services’ agreement with IBM in early-2011.  In an amendment posted on AusTender, the contract end date was extended 18 months to 2016 and the value revised to over $1 billion.

The enterprise licensing arrangement between the agency and IBM extends back to 1997, and has been continually extended since that year.

IBM and DoHA also renewed their relationship in early-2011, executing a $109 million extension of its IT Infrastructure Services contract without a market test.

A spokesperson for DoHA said at the time that “a detailed analysis revealed that the direct source option would significantly reduce the risk to the department at a time of major IT change as a result of the Government’s Health Reform Program, and would be less expensive than an approach to the market”.

The extended nature of agreements of this type also means their value is high, with the average value of the top 25 outsourcing contracts over their full duration standing at $344 million.

The Federal Government ICT outsourcing market is characterised by multi-year, multi-million dollar deals between agencies and suppliers. Despite the well-publicised nature of these agreements, little analysis is done on the shape of the market as a whole. Which agencies are outsourcing? Which suppliers have the largest presence in Canberra? What are the identifiable trends in the market?

Intermedium’s Infrastructure Management Outsourcing Report answers these questions, providing a comprehensive analysis of the Federal Government’s ICT infrastructure outsourcing market. From this research, Intermedium has identified the longstanding nature of outsourcing agreements and the value of incumbency to be key features of this market.

Intermedium’s Infrastructure Management Outsourcing Report is now available. For more information, contact Intermedium on (02) 9955 9896.

 

Related Articles:

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IBM Contract with Centrelink Passes $1 Billion Mark Following Further Extension

Outsourcing unlikely to be implemented in NSW this year

Jurisdiction
  • Federal
Sector
  • Policy
Tags
  • aec
  • ANAO
  • Centrelink
  • Deaprtment of Defence
  • DIAC
  • doha
  • Fujitsu
  • IBM
  • ICT Outsourcing
  • Infrastructure Management Outsourcing Report