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Analysts question Australia government’s IBM deal

Industry analysts and experts have called the wisdom of the A$1bn IBM IT deal into question, with one claiming that the federal government should have used a range of suppliers instead

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A five-year A$1bn deal has been signed by Australia’s federal government and IBM, despite the occasionally fractious relationship between the public sector and Big Blue.

According to Michael Keenan, minister for human services and minister assisting the prime minister on digital transformation, the arrangement is expected to deliver more than A$100m worth of savings and benefits.

With a “best possible prices” promise, the deal applies to all departments and agencies and covers software licensing and maintenance, hardware and hardware maintenance, professional services and cloud services.

It also covers the existing A$300m worth of contracts between the government and IBM.

According to Keenan, the deal, which was negotiated by the Digital Transformation Agency (DTA), has been structured to benefit small and medium-sized enterprises (SMEs) through channel partner arrangements.

However, there is no mention of that on the DTA’s website announcing the arrangement, nor in IBM’s announcement, making it less than clear how smaller firms can get a slice of the action.

What is clear is that under this deal, major agencies currently working with IBM – the departments of human services, home affairs and defence, as well as the taxation office – will be able to “change the profile of their technology over the next five years”, through access to emerging technologies such as artificial intelligence (AI), blockchain and quantum computing.

Together with the DTA, IBM said it will convene a group comprising government and industry leaders to prioritise the introduction of new technologies to citizen services. 

Besides giving Australians access to emerging technologies as they are being developed, IBM will also help the government “re-engineer its platforms to protect and encrypt citizen data against modern day cyber security threats”.

IBM has already had several cracks at redefining the digital experience for Australians, although not all have been successful.

In 2016, the system it had developed for Australia’s first online census was brought to its knees by a distributed denial-of-service attack for which IBM had to compensate the government.

IBM was already on the nose in some quarters of the public sector for the flawed roll-out of Queensland Health’s payroll system.

It won that bid with a A$98m pitch, but by the time it was finished, Queensland had thrown A$1.2bn at it, while some 76,000 people had suffered delayed or wrong payments.

IBM’s tech wrecks have not been confined to the public sector. Those with long memories would recall the Westpac CS90 debacle when IBM was contracted to help develop a new core banking system. It failed and cost the bank A$150m, along with 500 people who lost their jobs.

Opaque terms

With the latest deal between the government and IBM, everything seemed forgiven and forgotten.

Some technology and procurement analysts have questioned the wisdom of the arrangement, especially as the terms and conditions of the deal remain opaque.

Daniel Samson, professor of management at the University of Melbourne, said such long-term arrangements could make sense if buyers found a high-quality, capable supplier with a substantial track record and the ability to invest in the relationship, noting that IBM had a “somewhat mixed track record.

Samson stressed that it was important that incentives and options were built into any contract to ensure that the supplier “keeps working hard and on their toes”.

Success, he said, would require proper incentives to have been built into the contract, and also that any milestones and requirements needed to be properly tracked and managed to hold suppliers to account.

Noting that inking the deal was the easy part, Samson said: “It would be really unfortunate if the bulk of the work was done in India – the government should be taking a lead on building local capability, skills and jobs”.

Wissam Raffoul, an advisor with consulting firm IBRS, said it was wrong to give one contract to one supplier for such a long time. “No one claims leadership in all those areas. It would be safer to use a range of vendors,” he said.

Building trust

In the aftermath of the Queensland Health and census debacles, Raffoul said the government would have been wiser to give IBM something smaller to build trust.

“IBM sells very well, but there is a big difference between selling and delivery,” he added.

Independent management consultant Jonathan Dutton of JD Consultancy said he was not privy to the details of the IBM deal, but pointed out that in any long-term contracts, it was important to build communication and trust.

That, he said, flew in the face of government procurement culture which tended to view attempts to “get cosy” with suppliers with deep suspicion.

“I worry that the mindset of government procurement is that process is the saviour and that obviates the need for a relationship,” he said.

Agencies not locked in

Despite the concerns of some analysts and procurement experts, Ovum chief analyst Kevin Noonan believed the arrangement was in fact a good deal for both IBM and the government.

Noonan said it was not the first whole-of-government purchasing deal that has been negotiated, citing a similar arrangement with Microsoft.

He said such deals made better pricing available to all agencies, not just the larger departments, adding that the IBM deal also opens the door to upgrading and modernising.

“Agencies will not be locked in,” he said. “The government is not forced to buy – but given the attractive pricing you’d be silly not to consider.”

But pricing was only part of the deal. “IBM still has to deliver,” Noonan said.

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