ATO tender a major setback for HP and Fujitsu

The HP-owned services business EDS and Fujistu-owned Kaz are the latest casualties in a Federal Government effort to rationalise IT spend, but analysts expect the two companies to bounce back with more deals.

Earlier this week the Australian Taxation Office (ATO) has dropped EDS (now HP Enterprise Services) and KAZ (acquired by Fujitsu earlier in the year)  from its the $60 million per year end-user computing bundle, as part of its $1 billion outsourcing tender process.

CSC, Lockheed Martin Australia and Unisys remain in the running for the deal. The project includes the management of an integrated IT service management centre and the provision and support of the office computing environment and its infrastructure for the ATO's 25,000 users.

Ovum analysts Steve Hodgkinson and Jens Butler said the two companies have taken "substantial casualties" over the ATO deal.

Butler told CRN the the decision process by the ATO would' have been focused on the ability of any vendor to service the scope and volume of the environment and match it with the value criteria that it had put in place.

EDS has been the ATO's outsourced ICT provider for the past decade and has earned an estimated $3 billion in income from the relationship.

"Not bad for a deal with an original estimated value of $500 million," said Butler.

He said the company won an extension to an extension of its existing contract up to 2012 to enable the ATO to complete its rather long-winded tendering process, which was commenced in 2007.

Butler said execs at HP Enterprise Services will be disappointed not to have made the cut for the current bundle of work.

"They are currently in the midst of rolling out 25,000 new desktops to all ATO offices," he said, "of which the more lucrative component will now be managed by either CSC, Lockheed Martin or Unisys.

"Doubly so, [they will be disappointed] after also missing out on participation in the earlier managed network services bundle."

Hodgkinson said part of the reason for Fujitsu's acquisition of KAZ from Telstra was to gain access to the Federal Government market.

If the ATO tender was to be viewed as a first test of the acquisition, it would rank as a less than positive result, he said.

However, the ATO was only one of a number of agencies that KAZ has a stake in and may have been seen as a 'nice to have' in the whole scheme of things.

"It will certainly put additional pressure for a positive outcome on the next major tender response," he said.

The shortlisted companies will now participate in due diligence, defining and negotiation discussions with the ATO - which aims to select a single provider in June 2010, with an extended transition period there after.

The other two bundles of the outsourcing tender are the managed network services (awarded to Optus in June 2009 in a deal worth around A$217 million over four years) and the centralised computing services (expected to be worth A$69 million per year - with CSC, EDS, IBM and Lockheed Martin Australia shortlisted).

This may appear to be a major blow for both HP and Fujitsu, partly for the major investments made by both to make gains in Canberra, but also in terms of the smaller amount of larger deals now available as agencies move to a more selective outsourcing and managed services model.

However, Butler said there will be a number of post-Gershon opportunities available and it will allow the two organisations to reassess and focus their energies on opportunities that better fit their existing capabilities.

"[Government agencies] are looking at whether providers can deliver to their specific requirements," said Butler.

"If a local provider has the capability, either as a stand-alone or through a partnership model, then they will be considered."