IBM’s government-wide sourcing deal has ballooned to more than $2 billion, double what it was slated to cost over five years in 2018, as negotiations begin on the next iteration of the arrangement.
The Digital Transformation Agency commenced talks with Big Blue last month, with a view to replacing the umbrella arrangement – which still has 10 months to run – by December.
The 2018 deal covering IBM hardware, software, and cloud-based solutions emerged following the government’s SME-focused ICT procurement taskforce in 2017.
At the time, IBM said it would “deliver significant savings” for all agencies, while resulting in “joint innovation programs in quantum, cyber security and research”.
But four years on, the $1 billion deal – then touted as the “highest value contract negotiated by the Australian government” – has now passed the $2 billion mark, with 10 months still left to run.
DTA digital investment, advice and sourcing general manager Wayne Poels told InnovationAus.com the “value of the contracts under the arrangement is just over $2 billion”.
He said that the agency “actively works with agencies to facilitate access to the IBM arrangement, including on governance, performance and reporting”.
“All participating agencies benefit from the best possible terms and conditions available to the Australian government for IBM products and services,” he said.
“The arrangement also offers commercial flexibility to the agencies, which were able to leverage the arrangement to support the uplift required to deliver for Australians during the recent pandemic and disaster events.”
Analysis of contracts reported on the AusTender website show Services Australia, the Department of Defence and the Department of Home Affairs as the main buyers through the arrangement since 2018.
Services Australia’s $480.7 million “ICT hardware lease” from June 2018 remains the largest contract to be signed through the arrangement, followed by a $265.9 million Defence contract.
But with agencies able to buy from IBM across several other panel arrangements, the total value of contracts with IBM is likely far greater than the $2 billion connected with the government-wide deal.
Contracts between IBM and Defence on its enterprise resource planning (ERP) program alone have totalled almost $250 million since July 2019.
With the government-wide deal set to expire at the end of June 2023, the DTA is looking to have agreed on the next iteration of the deal with IBM by December 2022.
It plans to conduct working groups for interested agencies over the next four months, but Poels said the government has until July 2023 to arrive on the “best possible deal with IBM”.
Former Digital Marketplace lead and procurement expert Catherine Thompson believes there is significant scope to improve agreements with big vendors, which currently receive little scrutiny.
“[The DTA] basically strike the price point or the deal, and people just buy off it on an all-you-can-eat-basis. There actually is no strategic relationship management there at all,” Ms Thompson told InnovationAus.com.
“They haven’t really done a strategic piece of procurement as far as I can tell. We don’t know because they don’t make those kinds of things public.”
Ms Thompson said that to optimise the relationship there is a need to “really understanding the spend”, get a stakeholder coalition together and have a strong negotiations team.
“There is a way of doing strategic relationships, but you actually do need to be managing these relationships holistically and extremely actively,” she said.
“But that does require you as a commercial professional to know your technology, know your market, understand your vendor, put together a really strong negotiation strategy, and get your stakeholders on side such that they are willing to support it.”
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