The Australian Taxation Office has joined the growing chorus of large enterprises fed up with big bang outsourcing contracts of yesteryear by announcing it will selectively source providers for three core infrastructure services.

An existing $1.8 billion big bang outsourcing contract with EDS will be broken up into three areas across networks and telephony, desktop and mobile devices, and servers to the tune of $1 billion collectively.

ATO second commissioner Greg Farr said it is "fair" to see the move as a change in the way large enterprises procure IT services, but likes to think of it as "a balanced step in that direction".

"I don't see us going back to many years ago where it was best of breed for everything but we have to decide the benefit of many vendors with the integration risks of having too many," he said. "Each of the three bundles will be separately tendered and contracted and we have structured the service bundles to maximize the way vendors in the industry are positioned to respond."

By breaking up the services contract, Carr expects the large second tier suppliers to "be in a position to respond", whereas if only one monolithic deal was on offer "there are probably only two or three that are able to respond".

"By breaking it up we expect to get three to six [tenders] for each," he said. "But if you are going to be successful we would expect you to be able to meet the criteria. We welcome competition but don't want to waste time."

With some 26,000 desktops at numerous locations around the country, service providers still have to be large enough to meet the ATO's requirements, and Carr even expects the contracts to be seen as large enough to attract overseas companies to set up shop here.

"It's difficult to get it right to maximize competition in the industry and we are keen to make that happen," he said, adding the ATO has already dabbled with smaller providers.

Carr would not speculate on the potential for cost savings by heading down the multi-source path, but it "certainly will be a significant issue".

"We need to reduce our costs, but just as importantly we need to position IT in such a way that we have people who specialize in those type of services and assist us in adopting new technologies," he said. "We're looking not just to contract with strategic partners on cost but get them to align outcomes with incentives for business outcomes."

"If we go to multiple vendor relationship how do we make sure we have the end to end service delivery maintained? The service management will be a critical component across multiple vendors."

The transition to the new contract for managed network services is expected to begin in November 2008, with end-user computing and server computing (including mainframe and midrange) expected to begin in November 2009.

"This is a really aggressive time frame to get the requirements and evaluate tenders to make sure we maximize competition," Carr said.

Outsourcing may be on the move at tax but Carr is committed to retaining its strategy, architecture, and development skills in house.

"We have a significant applications development group which will be largely kept in-house as there is a real advantage in having people that understand the business," he said. "There will be some different skills required but I don't see an enormous staff disruption."