$600 million of govt tenders up for grabs

23 outsourcing deals to expire by mid-2009

Some 23 federal government contracts will be up for grabs when they expire by mid-2009, with eight suppliers mopping up about $500 million when the outsourcing deals were created in 2005.

The outsourcing contracts, worth more than $600 million per annum, were signed in the late 1990s and will expire over the next two years, according to a government market research firm.

Seven contracts will expire this year with a further nine set for tender in 2009.

Research firm Intermedium director Judy Hurditch said the close expiry time is due to the persuasion of federal agencies to outsource IT infrastructure problems by the then Office of Asset Sales and Information Technology Outsourcing.

"The office strongly encouraged a number of agencies into outsourcing arrangements despite many protests from agencies," Hurditch said.

"A review by [Australian Stock Exchange CEO] Richard Humphry in 2000 halted this push literally overnight [and] no new agencies have since taken up the single sourcing outsourcing option, but some like the Department of Defence have initiated some selective outsourcing.

"The threshold question for these agencies now is whether to retain infrastructure outsourcing as a strategy or take a decision to revert to in-house arrangements."

While Hurditch said some of the contracts may be pulled in-house or opened to competitive bidding, the Australian Tax Office has already re-signed a long-standing deal worth $170 million a year with outsourcer EDS, despite it being due to expire in June 2008.

Intermedium claims the tenders are a cash-cow for specialist suppliers which have sub-contracting agreements and strategic partnerships with large players, because the federal government is moving away from large single supplier outsourced contracts to smaller strategic deals.

According to the company's Federal Government IT Infrastructure Outsourcing Report 2006-07, infrastructure outsourcing is a large chunk of the federal government's IT procurement pie, as outsourcing represents 48 percent of tenders worth more than $1 million per annum.

AusTender data shows that managed services increased by 11 percent in the 2005-06 financial year following a whopping 31.7 percent average growth over the previous five years.

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