The Department of Human Services has signed a $407 million managed services deal with Telstra to consolidate more than 20 communications contracts and three large government agencies under one banner.
In one of the Federal Government's largest IT deals of the year, the five-year contract will see Telstra pick up managed telephony services – including use of VoIP services – for 40,000 users and a consolidated contact centre for all three agencies with 12,500 seats.
The telco will manage all mobile voice, broadband and support services for nearly 7400 staff and provide managed data services for 855 sites across Australia.
It is understood the telco will also supply video conferencing services for the department and deploy software components designed to simplify workflow arrangements across 20,000 staff.
Telstra beat out rivals Optus, Dimension Data and NEC to the deal, which was more than 18 months in the making, to consolidate communications between Medicare, Centrelink and Child Support for the first time after the agencies were restructured last year.
The two organisations signed the deal late on Friday afternoon, after last-minute negotiations were held in an attempt to have the deal approved before the end of the financial year.
A Telstra spokesman did not return request for comment on Friday, and a spokeswoman for Human Services said it was "not appropriate" to comment on the deal at the time of signing.
The contract builds in a five-year term with two one-year extensions.
It is one of the largest technology deals to be signed in the past year, though is shadowed by HP's $768 million, seven-year deal with the Australian Tax Office last year.
The deal is also core to Telstra's enterprise and government division, which renewed communications contracts with NAB and Qantas earlier this year.
The contract is believed to be a major spoke of the $580 million ICT services revamp Human Services scored in last year's budget to consolidate three major agencies into one under the Federal Government's Services Delivery Reform program.
The reform has also seen Human Services consolidate email and ERP systems, implement a new standard operating environment, and begin moves to whittle down the number of data centres it leases.
The department's scale has also seen it pick up infrastructure hosting work for smaller agencies, including Department of Veterans' Affairs.
Contract troubles
However, the contract value has diminished significantly from the $500 million figure forecast by the department when tender documents were first issued in November 2010, despite Telstra picking up more work than initially intended.
A spokesman for Centrelink told Delimiter at the time that the contract value would be in excess of $500 million, replacing the largest component – a $345 million, seven-year managed voice contract with Telstra and Centrelink which ended in December last year – and forming the base for future consolidation work.
It was envisaged to replace more than 20 disparate contracts currently provided by Telstra, Optus, NEC, EDS, Dimension Data, UECOMM, NextGen and SPT, all of which the department aimed to streamline by early 2013.
Several sources close to the deal told CRN sister iTnews that negotiations had been suspended multiple times, most notably when chief information officer Gary Sterrenberg replaced John Wadeson, who retired from Human Services last year.
Though initially posed as four separate service bundles to be negotiated with separate carriers, Sterrenberg suspended negotiations shortly after becoming CIO in order to pull the tender into one, streamlined contract.
One source indicated Sterrenberg thought the data bundle "wasn't getting value for money".
"He was trying to create leverage and put a stick and the hard work back on Telstra," a source said.
It is believed the department would not budge on a figure of more than $407 million citing budget constraints.
At one point, sources confirmed the department asked for an additional quote for services from Optus – led by former Telstra executive John Paitaridis – as late as April this year in an effort to drive down Telstra's negotiated price.
Though Optus is believed to have undercut Telstra's offer by up to $14 million, Human Services ultimately signed with Telstra.
Integration delays
The lengthy negotiation process and late signing has meant an initial goal to transition to the new contract by January next year is unlikely to be met.
Instead, one source said the parties would work toward a transition by the end of June 2013.
In an in-depth interview earlier this year, Sterrenberg said that some projects at the department could face delays while Human Services looked to consolidate as much as possible within the budget it has been given.
"Like any commercial place, you've got to make decisions and set priorities," Sterrenberg said in January.
"[The projects will] all be done; it just may be done a year [later]. We move very carefully.
"We've got really detailed plans that support all the execution; they are really tightly governed because obviously the impact can be quite significant if we get it wrong."
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