Early Savings
DVA exists to serve members of Australia's veteran and defence force communities, war widows, widowers and their dependants through programs of care, compensation, commemoration and defence support services. The agency has some 500,000 veteran and dependent clients, and around 60,000 clients through the Military Compensation and Rehabilitation Service. And its obligations just keep growing. For 2001-02, the parliament appropriated $8.75 billion for budget measures for veterans' affairs, compared to $6.4 billion for the year in which the agency first outsourced its IT services. DVA is heavily dependent on high quality and responsive computing infrastructure to deliver that support.
In 1992 the agency contracted out its mainframe computing services to Ferntree, and was able to claim savings of some $10 million by the time of a 1996 Australian National Audit Office (ANAO) report into that original deal. The same report credited the arrangement with having achieved communication and service delivery efficiencies, a 24-hour operation with an uninterrupted hardware supply and generally a more professional attitude among staff.
Five years later DVA was even able to confound some of outsourcing's critics by successfully retendering the mainframe operations, throwing in networking and desktop support, and - to Ferntree's disappointment - giving the whole lot to IBM Global Services Australia (IBM GSA). DVA retained application development for itself.
But the same ANAO report into the original sourcing deal also found the contract between DVA and the supplier deficient in a number of areas, and the agency has been working to address these deficiencies ever since. Happily, some contracts expire as agency needs evolve so now this veteran of federal government IT outsourcing is moving into a new era of sourcing arrangements - and this time, the key words are "unbundling" and "selective".
In February 1997, with the original contract expired, DVA became the first federal government department to outsource its desktop-to-mainframe computing infrastructure. The contract was granted to IBM company Integrated Systems Solutions Corporation (ISSC) Australia Ltd, at an announced contract value of $65 million. The deal was to extend five years from its signing in February 1997, with potential for two extensions each of two years duration. Prices were to be reviewed twice during the contract while other terms and conditions, including service levels, were expected to remain unchanged. The contract provided that it should operate in accordance with the concept of "partnering" as agreed by the parties.
Under the contract, DVA sold its IT assets to ISSC for $5.5 million, with the understanding that in future it would buy its IT and telecommunications goods from IBM.
In September 1997 that contract was replaced by an expanded contract which - amidst a storm of controversy over dubious tendering processes - drew the Department of Finance and Administration (Finance) and ComSuper into the deal with the idea of achieving economies of scale.
Again, the contract has delivered some good value over the years, but an ANAO report prepared in the lead-up to the contract's initial expiration last November found significant room for improvement. As well as cost blowouts, which ANAO found had pushed total DVA IT expenditure over the period to $140 million, the report criticized DVA's failure to adequately manage the performance of outsourcer IBM GSA.
"There was insufficient alignment between DVA's IT strategic plan and the contract, particularly given that the department had expanded its use of client/server technology [including implementation of new systems and attendant network upgrades] after the contract was signed," the report's authors concluded. "This made it difficult for the department to obtain assurance that it was achieving best value from the contract in the context of its strategic direction . . . There was limited information by which to assess whether the department received value for money from its IT services . . . and limited application of risk management."
In short, DVA had taken for granted that outsourcing would deliver it real value, and had failed to establish the hard metrics needed to truly test that proposition. Now DVA has determined that all that will change.
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