Australian gov’t exploits outsourcing competition

Australia’s Northern Territory government recently announced A$150 million desktop services contract with Fujitsu over incumbent CSC is an example of how competition can drive value, according to the department’s project director for corporate and information services, Brad Irvine.

Following in the steps of federal and state government counterparts, the NT government announced its move to a selective sourcing model ousting CSC from a A$200 million five-year contract.

“We have five main ICT contracts that I would classify as selective sourcing,” Irvine said.

The desktop is the largest at A$150 million, then telecommunications at A$30 million a year, and messaging at an annual A$5 million. Two other contracts involving mainframe and non-mainframe application development are being reviewed.

“Competition always drives value – that’s a natural dividend of the tendering process,” Irvine said, adding the desktop contract “benchmarks well”.

Irvine did not reveal the amount saved by switching providers before the contract is finalized, but did say it is in the order of “a 15 per cent reduction”.

“In fairness to the incumbent that’s not to say their pricing was abhorrent, it’s just separate circumstances,” he said. “CSC brought about a lot of standardization and we had 34 departments reduced to 18 in 2002. It was a huge change and [CSC] had to standardize the file and print environment, which was a mix of Novell and Windows NT, and upgraded it to Windows 2003 and got rid of Novell.” Irvine said CSC also implemented Active Directory “all within the price”, which was originally A$200 million for the five-year term.

Irvine said the cost projection for the next four months of the CSC contract indicates a A$5 million dollar “shortfall”.

“We conducted a thorough tendering process with more than 900 criteria and a comprehensive team of 40 people were involved in the evaluation,” he said. “At the end of the day Fujitsu put forward a very good deal [and] the proof will be in the pudding.”

The other three tenders from HP, Unisys, and CSC are in reserve should the negotiations fail, but Irvine is confident that won’t happen.

When asked about driving competition further by breaking up the desktop contract, Ivine said that was previously considered but would introduce too much complexity. “We reviewed that in 2005, but by having multiple players at multiple levels it was logistically challenging and it is hard to get organizations working in unison,” he said.

“And if there were multiple vendors in that space all we could see is mutual finger pointing.”

Regarding the obligation of outsourcers to sub-contract to local, mid-tier providers, Irvine said that was a “significant” consideration.

“We codify that in the final agreement and provide sanctions,” he said. “It would be irresponsible for us to have a contract without provisions to give work to [local] SMEs.”

Irvine said CSC had done a good job in meeting subcontractor objectives set out in 2001.