IBM deal exposes real cost of legacy

At the heart of the Commonwealth’s $1 billion government-wide deal with major vendor IBM is a push to find new ways to save, but also new ways to spend.

It is the latest in a series of deals with the federal government’s biggest IT dollar value vendors brokered by the Digital Transformation Agency to try and synchronise how essential IT needs are sourced.

Similar deals have already been inked with software giant SAP in recent months, although the only major contract to emerge from that is nowhere near as dear as the figure being touted with IBM.

The DTA has spent the last six months negotiating the five-year deal with Big Blue to give agencies, big or small, the “bulk-buying power” to ensure universal pricing structures across government.

Part of that is a straight through volumetric discount and commodity price standardisation exercise to control gouging and margin padding.

However the real driving factor behind the mega-deal this is the promise of additional savings for taxpayers from a vendor which continues to support the backbone of the APS, while its digital transformation efforts are ongoing.

It can be hard for governments to live with IBM, but even harder to live without.

All agencies will have their existing contract moved under the new arrangement to benefit from the arrangement, accounting for the “more than $300 million” that makes up the new deal.

It is not clear whether the new deal includes the last significant deal snagged by IBM back in 2016, which pushed its mainframe support arrangement with the Department of Human services passed the $1 billion mark.

The government is said to have saved in excess of $1.2 billion since 2008 through the introduction of mandatory whole-of-government arrangements such as Microsoft licensing arrangement that has just been replaced.

This is only expected to become even more pronounced with the buying reforms heralded by last year’s ICT procurement taskforce.

The government hopes to reduce the total annual ICT spend by 10 percent over the next four years using a number of mechanisms, most notably capping IT contracts at $100 million.

It will also free up a further $650 million for Australian small to medium enterprises each year, possibly by redirecting the savings from the major vendors.

But at a time when government IT spend is said to be nearing $10 billion a year, the annual $100 million figure the government hopes will come through coordinated procurement looks more like a drop in the ocean than a glass half full.

IBM is, after all, responsible for a significant portion of the government’s IT spend each year, chewing through more than $4.2 billion across 2175 contracts over the last ten years, according to iTnews analysis of AusTender contracts.

While there is scant detail on just which projects IBM will support, Medicare's 30-year-old payments system seems an obvious beneficiary.

That system is increasing nearing end of life, and has been given emergency funding for remediation while the Department of Health continues to search for a replacement.

The federal government recently funneled another $106.8 million into its replacement, bringing the total cost of the project to more than $170 million.

That move came after a push to outsource payments processing to the same people that provide services to the likes of banks and billers was abandoned amid the 'Mediscare' campaign.

If anything, this latest IBM deal tells us what the cost of an ultimately political decision will be in five years.

It's a smaller cheque than Big Blue would have liked, but one it will happily bank nonetheless