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ATO seeks outsourcing guidance
James Riley
OCTOBER 16, 2003

THE Australian Tax Office is seeking an assessment of the risks
involved in moving from its current single supplier outsourcing
strategy to a multi-vendor model.

The ATO invited consulting houses to put together a report titled
"Selective Information and Communication Technology (ICT) Sourcing
Transition Risk Assessment Consultancy" - effectively spelling an end
to the federal Government's foray into whole-of-department, single
supplier outsourcing strategies.

ATO research had indicated that the department would be subject to a
significant change in risk profile in its move from a prime contractor
for ICT services to a multi-vendor service model.

The ATO has outsourced its IT activities to US service giant EDS for
the past five years, in line with the whole-of-government outsourcing
strategy put in place under former Finance Minister John Fahey.

While the ATO opted to take up an additional two-year option on the
EDS contract earlier this year, it indicated that departmental work
would be offered to competitive tender to encourage the creation of a
multi-vendor service environment.

The request-for-tender do***ent, issued today, calls for a
"comprehensive risk ****ysis of a multi-sourcing arrangement for ICT
services".

Specifically, the department wants a review of its current
arrangements, and calls for the consulting house to identify and
detail risks associated with service level and performance management,
as well as technical, contractual and financial risks associated with
selective sourcing.

The wide-ranging tender calls for the consultant to define strategies
to mitigate the risks identified, and to detail appropriate management
models to oversee multi-vendor sourcing.

The successful tenderer will also prepare a detailed transition plan
for the move from EDS to a multi-vendor environment - including
expected costs.

Much of the consultants' work will be in design contract management
systems, and practices that are best suited to achieving the service
level agreements set out in multiple vendor relationships.

Gartner research director for sourcing Jim Longwood said contract
management was among the most critical skill-sets that Government
department will need to secure in order to successfully move from a
single supplier to a multi-vendor - or "selective sourcing" -
strategy.

The request for tender, which was published on the Commonwealth's
tender website today, closes on October 28.

The successful consultancy will be required to identify any contract
management application software that the ATO could apply to improve
the department's contract management capability.

The tender also calls for example of best practice examples globally
where multi-sourced technology service arrangements have been
successfully implemented and managed.

Mr Longwood said the move to selective sourcing within the Federal
Government reflected a strong trend in Australia away from single
source suppliers.

"It gets back to the Humphrey's Report (into IT Outsourcing), which
essentially said that one size does not fit all," Mr Longwood said.
"There is a trend here in which organisations are selecting
best-of-breed (service companies) providing for niche areas."

Gartner expects that in the initial phases of multi-vendor outsourcing
within the public sector, departments will opt for three primary IT
partners; an infrastructure services provider, an applications
management service provider, and a network service provider.

Mr Longwood said a well managed selective sourcing strategy should
provide better levels of service, as well as be cheaper and more
flexible.

The downside of moving to multiple vendors was that it required a
bigger management overhead - because the organisations were required
to manage the relationship with more vendors - and "the cost of going
to market" was increased because of the number of ongoing competitive
tenders organisations were required to undertake.

Regardless, the selective sourcing model had so far proved itself
capable of higher service levels at lower cost, Mr Longwood said -
provided the customer had invested in the required contract management
and relationship management skills.

"A common problem in government (with the introduction of single
supplier IT outsourcing in the late nineties) had been to
under-resource contract management," Mr Longwood said.

"They seem to have sorted that out now so that it's more management by
relationship, rather than management by contract," he said. "Typically
Government used to try to micro-manage things through contract
management, and what they've learned now (in the five years since IT
outsourcing was introduced) is to manage outcomes."