CGI extends IT services deal with federal government

CGI Group Inc. has signed a four-year, $78-million extension of its engineering and technical services contract with the federal government, in an effort to move toward a results-based services model.

The Montreal-based IT services firm renewed the deal — which was originally signed in 2007 — with the Information Technology Services Branch of the Public Works and Government Services Canada (PWGSC) last week. CGI will continue work with this branch to maintain and manage its government-wide infrastructure domains, including enterprise server, cross-platform and network, and support services.

CGI was initially awarded a three-year, $91.8 million contract in late 2007. At the end of the three-year period, the agreement gave PWGSC the option to extend the contract for another four years, via one-year extensions.

Lorne Gorber, vice-president of global communications and investor relations at CGI, said that shifting to a managed services approach brings predictability to the PWGSC’s IT services.

“You’re paying for an outcome as opposed to paying for input,” he said. “The input would just be, ‘there’s this many bodies working on the project for this much an hour.’ The outcome-based service would say that ‘this is what we’re going to deliver based on service level agreements and based on the results you want.’”

But not everybody is happy with the contract extension.

Serge Buy, a spokesman for Ottawa-based TPG Technology Consulting Ltd., said that while the change to a managed services model looks nice on paper, it does not give any assurances to the Canadian government. He added that the government will no longer have complete control over costs or project delivery.

The CGI contract extension, Buy said, might even be linked to TPG’s ongoing $250-million lawsuit against the federal government. The action, which was launched in 2007, alleges that the government deliberately altered a technical evaluation on a $428-million bid for computer support services with the PWGSC.

“In December or January, the lawsuit will start proceeding fairly strongly and there will be a lot of discovery done at that time,” he said, referring to the pre-trial phase which allows legal parties the ability to request and disclose documents. “Some documents that right now are protected will become public and it’s possible a lot of people will be upset by what they see.”

Buy said the only rationale behind the government’s decision to renew the contract ahead of schedule was to strengthen the contract prior to further proceedings in the lawsuit.

“The government is going to have egg on its face when all of the documents become public,” he said. “Whoever’s maneuvering to improperly award this contract is probably still maneuvering to keep the contract intact.”

None of Buy’s allegations have been tested in court.

For Gorber, the contract extension is simply the next step in the working relationship and is in accordance with the terms agreed upon in the original competitive Request for Proposal process.

“Every bidder was required to make a bid toward the transition to a managed or results-based services model,” he said. “It was up to the government when and if to move to such a system.”

CGI added that more government agencies are turning toward extended managed services agreements to help them succeed.

Howard Kiewe, senior research analyst with the London, Ont.-based Info-Tech Research Group Ltd., said that in general, a managed services relationship can give a customer peace of mind, a single point of contact for IT issues, and fixed costs. But the effectiveness of a move toward a results-based model lies in how well the service level agreement is drafted.

“If they’ve negotiated a good service level agreement, that specifies the level of services that’s going to be provided, has penalties if those services are not delivered as specified and rewards for exceeding expectations,” he said.

While service providers have extensive experience with these types of contracts, many organizations lack the same expertise, Kiewe added. Companies must spend the extra time figuring out if a results-based contract will benefit them and how they are going to protect themselves through the SLA.

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