Westpac has finally announced the winner of its highly sought after IT and telecommunications outsourcing agreement, siding with IBM GSA and Telstra over the CSC and Optus bid, ending months of speculation.
IBM GSA and Telstra stand to pick up $4.3 billion between them, with IBM GSA securing the IT outsourcing deal for the next 10 years and Telstra providing telecommunication services over five years as IBM GSA's primary subcontractor.
IBM GSA pipped CSC/Optus at the post, as competition for the tender came down to a two-horse race in August when Commonwealth Bank of Australia outsourcer EDS withdrew its tender.
IBM GSA will finalise negotiations with Westpac by the end of November for the outsourcing of mainframe and mid-range computing and desktop services. As expected, Westpac's IT systems development, strategy and architecture will remain in-house, according to a statement released by Westpac.
The bank is hoping to derive a 15 to 20 per cent cost reduction through its outsourcing agreement and intends to reinvest some of this into delivering "e-initiatives".
It appears Westpac has opted for the conservative choice by aligning itself with Big Blue, however, IBM GSA's chief executive officer, Colleen Arnold, claims the win "further demonstrates" IBM GSA's ability to service large accounts. Incidentally, Telstra is reportedly Westpac's largest corporate customer.
IBM GSA's reputation was an influencing factor in the decision, Arnold added. Although she refused to reveal how Australia's largest ever outsourcing agreement will be split between IBM GSA and Telstra, she was able to confirm the outsourcer will use a number of channel companies as further subcontractors to fulfil the contract.
IBM GSA came under fire recently when a number of its staff who are members of the CPSU Communications Union stopped work, citing a dispute with the outsourcer for refusing to negotiate collectively with staff other than ex-Telstra employees (ARN October 11, page 1). As such, all eyes have turned to Westpac's 1200 affected local IT staff.
According to a report issued by the bank to the ASX last week, all affected Westpac IT employees will be offered positions within IBM GSA/Telstra "on terms equal or better overall than current terms and conditions".
However, while Arnold is aware that a number of Westpac staff are union members, IBM GSA will maintain its hard-line approach against collective agreements. Arnold told ARN that, despite IBM GSA continuing its "open policy" on individual bargaining, the company would endeavour to provide strong performance-based incentives.
The announcement comes at a time when international outsourcing companies in Australia have received a lot of negative press following a damning Federal Government report into its own outsourcing initiative that has seen budget blow-outs in the order of millions of dollars.
Arnold is confident IBM GSA will meet Westpac targets and claims the agreement validates the outsourcing model as the way forward for managing significant IT infrastructures.
CSC loses another fight
Losing this tender comes as another blow to CSC, as the services company battles to maintain its status alongside EDS, IBM GSA and the Big Five consulting firms.
In the mid-market space, CSC recently let its outsourcing agreement with insurance company Tower Life slip through its fingers when Queensland-based Data#3 stepped in and took over the contract (ARN, September 13, page 1).
Furthermore, CSC was the main recipient of the spray given by the aforementioned Government report into IT outsourcing.
It remains to be seen whether CSC can consolidate a win with AMP in June this year and absorb the acquisition of BHP's 1700-strong IT division to maintain its position as a major international player.
It is also unknown at this stage how much CSC invested in the failed bid and a CSC spokesperson was unwilling to return ARN's numerous enquiries.