Plagued by claims of budget blowouts and unmet contractual arrangements, the federal government was forced to defend its IT outsourcing program last week.

Detailing a long list of outsourcing blunders, opposition IT spokesperson Senator Kate Lundy said the program has failed to deliver on all fronts since it was announced amid plenty of fanfare in the 1997 Budget.

Senator Lundy said local IT companies and taxpayers are the biggest losers because current outsourcing arrangements are of benefit only to multinational vendors.

However, according to figures released by the federal government, outsourcing has generated more than $400 million in work for Australian small- to medium-sized IT enterprises (SMEs) since its inception.

Detailing a long list of examples to support her claims, Lundy said outsourcing is actually costing individual departments millions of extra dollars and service level agreements are not being met.

The Senator cited the following:

* Senate estimates point to a $6 million shortfall for the Department of Health as a result of outsourcing. The department must save $3 million a year over the next five years just to maintain previous IT cost levels under its contract with IBM GSA, Lundy said. The contract provides for the delivery of mainframe, server, desktop, network and related infrastructure services with a combined value of more than $350 million.

* Even though outsourcing is costing the Department of Immigration and Multicultural Affairs more since its contract with Computer Sciences Corp (CSC) came into force in March 1998, CSC has failed to fulfil about 10 per cent of service-level agreements. There have also been network problems involving more than 5000 desktop computers. This has allegedly resulted in significant financial penalties against the vendor, according to Lundy.

* Reports of server crashes and loss of data in the Department of Transport and Regional Services. The $130 million contract with Ipex ITG covers an estimated 7500 desktops across seven commonwealth agencies.

* The Australian Customs Service' s new GST system, which was outsourced to EDS, will not be ready to process some 8000 GST claims until after July 1.

* The Australian Tax Office (ATO) outsourcing program is being subjected to an audit with findings due in June this year. The audit, which will examine the ATO's five-year contract with EDS, will examine both financial and performance aspects of the agreement.

Senator Lundy cites these examples as proof IT outsourcing contracts are not achieving savings or quality of service.

"It is the government's internal processes that need changing," she said.

"The structure and implementation of IT outsourcing contracts are seriously flawed because the Department of Finance negotiates contracts on behalf of commonwealth agencies but is not responsible for outcomes.

"There is always a place for outsourcing, but it is very hard for SMEs to bid for a cluster of contracts which favour the larger multinational companies."

Responding to the claims, a spokesman for the Minister for Finance and Administration, John Fahey, said the senator's examples are based on outdated estimates when outsourcing was in its infancy.

"There has been a period of adjustment but arrangements are now proceeding smoothly and are now exceeding expectations; this is particularly true of CSC," the spokesman said.

"Companies faced difficulties because prior to IT outsourcing, commonwealth agencies did not define what their service levels were. It's only since outsourcing that benchmarking has taken place.

"A systems crash back then was just another day in the office; some departments had no idea," he said. "We finally have measurable parameters and departments have the capacity to impose sanctions on the vendor."

IBM GSA, EDS, CSC and Ipex ITG were unavailable for comment at the time of going to press.