$170m: Defence extends Fujitsu contract again


news The Department of Defence has again renewed an extremely long-running IT services contract with Japanese technology giant Fujitsu which has been in place since 2005, when it was originally won by KAZ, as the pace of change within the department appears to be slowing down.

As part of its broader IT sourcing reform program, Defence had originally been planning to bundle two major end user computing contracts — the one currently held by Fujitsu and a separate one by Unisys into one larger contract and take it to market under the banned of “distributed computing”.

The Fujitsu contract — which Defence renewed in May 2013 — has been in place since 2005, when it was originally won by KAZ, since bought by Fujitsu. It covers desktop support of Defence’s far-flung operations around Australia as well as some support of some central resources. The Unisys contract, which has been around for around five years, covers IT support services including network security and infrastructure support, as well as server and desktop support.

However, in mid-January, Defence noted that it was currently undertaking a “significant” Information and Communications Technology (ICT) transformation program.

“As the projects currently underway require a focused and sustained effort, Defence has decided not to proceed with the planned market testing of the Distributed Computing Bundle,” Defence wrote. “Defence has exercised a contract extension under the existing Unisys Regional ICT Services Agreement for on-site support services until October 2016. A decision on the longer-term delivery of ICT services through a Distributed Computing Bundle will be made over the next 24 months.” Unisys said its contract was worth about $52 million.

In a new statement issued by Fujitsu this week, the Japanese company said Defence had also renewed its contract, which would now be worth an additional $170 million over three years.

“Fujitsu announces the Australian Department of Defence has extended its Distributed Computing Centralised Services (DCCS) Contract with Fujitsu Australia and New Zealand for an additional three years,” the company said.

“The Department of Defence is investing heavily in driving significant performance improvements and efficiencies across its network, desktop and data centre environments. It is expecting a peak of ICT activity during 2014-15 due to a number of significant projects planned for this period.”

“The DCCS contract extension with Fujitsu, which is worth approximately $170 million over a 3-year period, includes provision of Service Desk, Service Catalogue, Information Technology Service Management (ITSM) tools support, processes, and resource based tasking for server and desktop, email and groupware.”

Mike Foster, Fujitsu Australia chief executive said: “We have engaged in a major transformation program that is helping Defence better manage and optimise change within its ICT environments. Service Management is a core focus for us across the region and this engagement highlights the strength of Fujitsu across this domain. We view the contract extension as confirmation of the excellence of our service delivery to Defence – one of our most significant customers in this region. In the 16 years of engagement with Defence we have invested in the development of a dedicated workforce for the Department that currently numbers over 500 people.”

Defence has exercised the contract extension under the existing Fujitsu Distributed Computing Centralised Services contract.

I wrote quite an extended analysis on this issue when the Unisys contract was renewed. At the time, I wrote:

“Hmmm. It’s quite hard to know what to make of this. If this contract renewal was being conducted by a less competent department within the Federal Government when it came to IT, I would suspect that such a department wanted to avoid going through a formal tendering process despite the legal necessary of such a situation and the commercial need. We’ve seen this sort of behaviour before with long-running IT services contract renewals — most notably with the Department of Health.

However, Defence is another kettle of fish. Its CIO Group team is sophisticated and very intelligent, and I rarely see it make moves that aren’t completely warranted. It’s very difficult to achieve substantive IT change within an organisation as large and complex as Defence, but the CIO Group is slowly moving the bar — day by day, inch by inch.

In this sense, I think what the CIO Group has discovered is that they’re already getting very decent value from the Fujitsu and Unisys relationships, and that disrupting those relationships too much by centralising already huge contracts is not going to be worthwhile. I suspect that disrupting those contracts too much would result in other Defence IT projects potentially suffering. In terms of other upgrades going on, it’s a critical time for Defence, and I suspect the CIO Group has discovered that it’s not worth upsetting the boat.

A key indicator of this is the December 2011 report, Oversight and Management of Defence’s Information and Communication Technology. This report, produced by the Federal Government’s chief auditor, warned that the Department of Defence’s ICT operation was teetering on the brink of a dangerous precipice.

The report stated, with reference to Defence’s broad reform agenda: “At the time of its March 2010 progress report to the Government, Defence considered the Strategic Reform Program to be as complex an organisational reform agenda as had ever been undertaken in either the private or public sectors in Australia,” the report states. “Delivering ICT reform in Defence is a challenge of a very high order, entailing the simultaneous remediation of existing systems, the development of ICT systems critical to the SRP reform streams, and the achievement of savings at the upper bounds of feasibility.”

“More than two years into the reform process, ICT continues to represent a material risk to the timely achievement of the SRP investment and savings targets set in support of the longer-term objectives of the [2009] white paper.”

Defence’s ICT environment, the report further stated, suffers from relatively immature governance processes, the lack of a department-wide view of ICT interdependencies and competing priorities, complex and “sometimes confused” accountability structures and a high level of demand on its ICT staffing resources — “currently some 350 staff short of projected requirements”.

With respect to the eight major SRP reform streams which depend for their success on associated ICT projects, “schedule slippage is already evident”, and project failure could have a domino effect on other projects. “In this challenging environment, strong leadership focus will be required to deliver the benefits envisaged for the Defence organisation from the ICT transformation program over the next ten years,” the report stated.

In this context, it’s not hard to see why Defence has taken a conservative approach with these two contracts. I would expect to see them both notionally put out to tender in some lightly reworked form and probably re-won by Fujitsu and Unisys, or perhaps even Defence get the required ministerial approval to avoid tendering the deals at all.

Again, if we were seeing this behaviour from most other departments, I would say this would not be a good outcome. But given the delicate balancing act going on at Defence right now, I think it’s probably the right choice. Unlike most other IT departments, Defence’s CIO Group usually very much knows what it’s doing.”


  1. There’s been a lot of changes in provisioning/procurement of IT services within Defence in the last 12 to 18 months. A number of different areas within Defence used to have authority to go out to market directly, but everything has been dragged in under CIOG. It’s a different landscape, and more complicated. The work covered by the Fujitsu contract would be difficult to move to someone else – (due to the body of IP that has built up) – so this sort of thing is quite common, given the changes that happened with CIOG.

    Just playing the safe bat here.

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