The federal government is preparing to renegotiate its software licensing arrangement with German tech giant SAP, after one contract connected with the deal ballooned almost eight times its original value.
As a review into the share of government business by SMEs gets underway, the Digital Transformation Agency (DTA) has confirmed that “pre-negotiation activities” have begun for the next iteration of the $782.5 million arrangement.
The deal, which has been in place since October 2017, covers SAP software and support services, cloud services and digital business services, with all agencies required to use the arrangement for their SAP needs.
It operates in a similar manner to the federal government’s volume sourcing arrangement with Microsoft. That arrangement also forms the basis for other whole-of-government deals with IBM Australia and Oracle.
But with the SAP arrangement more than five years old, the DTA late last year began preparing for lengthy negotiations with SAP and in November extended its existing arrangement by nine months. It will now expire at the end of June.
The DTA’s general manager of the Investment – Advice, Contestability and Assurance Division, Wayne Poels, told InnovationAus.com the agency is in the process of arranging how the parties will negotiate.
“Pre-negotiation activities have commenced. As such, the DTA cannot comment further on any discussions currently in progress,” he said, adding that the agency was “not in formal negotiations last year”.
According to documents released under Freedom of Information laws in January, the total value of contracts under the SAP arrangement was $782.5 million at the end of September 2022, making it the third largest current whole-of-government deal, behind those with IBM and Microsoft.
However, the exact value of the arrangement is hazy, with the total value of SAP contracts since September 2017 recorded as $893.4 million on the DTA’s analytics platform and $924.3 million on AusTender.
According to AusTender, the largest of the whole-of-government SAP contracts has grown from $42 million to $334.6 million – almost eight times larger than when it was first signed by the DTA in September 2017. The recent extension is valued at $18.8 million.
Other contracts include a five-year deal with the Department of Defence valued at $117.3 million, and a $65.9 million “Defence cloud subscription” with the DTA.
SAP software underpins critical systems like Services Australia’s Payment Utility platform, which is used to deliver Centrelink payments to welfare recipients, as well as GovERP, and the Parliamentary Expenses Management System.
Mr Poels said that any future arrangement with SAP would likely adopt a “similar scope” to the existing arrangement and cover SAP licensing for the GovERP and the Defence Enterprise Resource Planning system.
Pre-negotiation activities between the DTA and SAP come six months after similar negotiations with IBM on its whole-of-government arrangement, which more than doubled to $2 billion over its five-year lifespan.
In January, the government inked a fresh $750 million deal with IBM covering IBM software, hardware, services and cloud offerings.
Ahead of the contract, procurement expert and Digital Transformation Office alumnus Catherine Thompson said that the lack of a formalised procurement pathway in government made it difficult for agencies to approach negotiations with the private sector on the same level.
“Ninety per cent of a negotiation is won or lost before you actually sit at the negotiation table. It’s about your command of the fact base and your strategy,” Ms Thompson told the parliamentary inquiry into Commonwealth procurement practices in December.
Ms Thompson has called for an overhaul of technology buying to shift the paradigm from acquiring goods to using ICT procurement as an “instrument of social and economic policy”.
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