Australian government exploits outsourcing competition

Australia’s Northern Territory government recently announced A$150million (US$110.6 million) desktop services contract with Fujitsuover incumbent CSC is an example of how competition can drivevalue, according to the department’s project director for corporateand information services, Brad Irvine.

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

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

The desktop is the largest at A$150 million, thentelecommunications at A$30 million a year, and messaging at anannual A$5 million. Two other contracts involving mainframe andnon-mainframe application development are being reviewed.

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

Irvine did not reveal the amount saved by switching providersbefore the contract is finalized, but did say it is in the order of”a 15 percent reduction”.

“In fairness to the incumbent that’s not to say their pricing wasabhorrent, it’s just separate circumstances,” he said. “CSC broughtabout a lot of standardization and we had 34 departments reduced to18 in 2002. It was a huge change and [CSC] had to standardize thefile and print environment, which was a mix of Novell and WindowsNT, and upgraded it to Windows 2003 and got rid of Novell.” Irvinesaid 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 CSCcontract indicates a A$5 million dollar “shortfall”.

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

The other three tenders from HP, Unisys, and CSC are in reserveshould the negotiations fail, but Irvine is confident that won’thappen.

When asked about driving competition further by breaking up thedesktop contract, Ivine said that was previously considered butwould introduce too much complexity.

“We reviewed that in 2005, but by having multiple players atmultiple levels it was logistically challenging and it is hard toget organizations working in unison,” he said. “And if there weremultiple vendors in that space all we could see is mutual fingerpointing.”

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,” hesaid. “It would be irresponsible for us to have a contract withoutprovisions to give work to [local] SMEs.”

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

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