EDS: going to pieces down under
Australian government breaking up its IT contracts
IT services giant EDS is reaping far more revenue from its contract with the Australian Tax Office than expected, according to government documents. However, the Australian government sector is increasingly breaking up its IT services contracts into smaller pieces, which will leave EDS in a less dominant position in just a few years time.
In 1999, Texas-based EDS won a five-year AUD500 million ($360 million) contract to supply IT services to the ATO, and earlier this year the contract was extended by two years for a further AUD300 million. However, the Australian government now estimates that it will have spent over AUD1.33 billion on services from EDS by mid-2006.
The ATO's CIO Peter Wilson claimed earlier this year that the growing cost of the contract was down to increased usage, higher staffing levels and new projects to support eGovernment initiatives.
The ATO extended the contract so that it would have the time to put in place a strategy where it could break up the services it currently outsources to EDS, and spread the pieces among several outsourcing providers.
EDS looks certain to lose its dominance in the Australian government sector, as the trend for carving up large IT services projects has spread to another of its prominent clients, the South Australian government.
EDS currently provides about one third of the South Australian government's IT services, as part of a nine-year, AUD600 million contract that expires in July 2005, but that deal will also be broken up when it comes up for renewal.
Australian government bodies are now reluctant to engage in large, long-term IT services contracts, but this is not a criticism of EDS's service. For example, a recent study by the South Australia Center for Economic Studies claims that EDS had saved the South Australian government AUD64 million under the contract - AUD53 million more than originally expected.
Nevertheless, the Australian public sector is becoming increasingly aware of the risks associated with large, single-source contracts, which are perceived to be less flexible, particularly in an industry where products and expectations are evolving.