New ATO mainframe pushes IBM deal to $900m in nine months

Justin Hendry

IBM has secured almost $900 million in federal work through its renewed whole-of-government sourcing agreement in less than nine months, with a new mainframe at the Tax Office pushing the deal well outside the limits of its initial valuation.

The Australia Taxation Office (ATO) awarded the American tech giant an $87.7 million contract at the end of July to replace its end-of-life z14 mainframe with a new z16-based platform.

As its latest Z series mainframe, IBM claims the z16 is capable of scaling to process up to 300 billion inference requests per day with just one millisecond of latency, making it ideal for the surges in demand that face the ATO.

An ATO spokesperson confirmed the purchase of hardware, with the agency now undertaking a “progressive and carefully controlled mainframe transition” that is expected to be complete in time for tax time next year.

The purchase follows last year’s tender for a new mainframe as part of its IT Strategic Sourcing Program, which is replacing three of the agency’s biggest technology contracts with nine smaller, more modular bundles.

The contract replaces part of DXC’s centralised computing services long-running contract with the ATO. DXC has provided the ATO with centralised computing services since December 2010 under a contract now worth $2.51 billion.

Despite contemplating an as-a-service delivery model to “meet fluctuating demand without the need for capital investment” at the time of the tender, the spokesperson said the decision to buy hardware was “based on a consideration of value for money”.

The new mainframe at the ATO brings the value of IBM contracts through the second iteration of its whole-of-government deal to $896 million since mid-December last year, according to an analysis of AusTender contract data.

The agreement, estimated at $725 million over five years in January, replaced IBM’s former arrangement with the federal government that was initially signed for $1 billion but ultimately ballooned to more than $2 billion over the course of its life.

More than $350 million in contracts were signed under the agreement just days after deal was inked last year, as reported by, followed by another $402.5 million contract later disclosed by Services Australia.

The contracts with Services Australia, Defence, the Tax Office and Home Affairs alone were valued at $775.8 million in January. With the recent mainframe contract, the four agencies have since added another $106.5 million to the total bill.

Another four agencies – the Digital Transformation Agency, Australian Federal Police, Geoscience Australia, and the Department of Employment and Workplace Relations – have together inked contracts worth $13.8 million.

Contracts through both version of the IBM whole-of-government agreements have surpassed $3 billion since 2018, though the total value of contracts is likely to be far greater as agencies are able to buy from IBM on other panel arrangements.

The latest low-ball estimate of IBM contracts comes just weeks after DTA boss Chris Fechner talked up the government’s negotiating skills on an agreement that was around 25 per cent less than the 2018 iteration when it was signed.

Speaking at IBM’s Think summit in July, Mr Fechner remarked that the government had “negotiated very hard with IBM” for the new arrangement and that the company colloquially known as Big Blue “came to the party a lot”.

Last month, a government-led parliamentary committee called for the creation of a procurement profession within the Australian Public Service to address what it described as a “significant capability deficit” among public officials.

The Department of Finance has begun exploring what a professional stream for procurement might look like, following a similar model for professions that have already been created for HR, data and digital.

Do you know more? Contact James Riley via Email.

Leave a Comment