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Outsourcing saves SA govt big bucks: report

Outsourcing saves SA govt big bucks: report

Unlike recent Senate hearing claims that Australian Tax Office's IT services contract with EDS blew out by $400 million in its first four years due to mismanagement, a new study points to EDS as an example of how cost savings were gained in an outsourcing deal.

Assessing the economic impact of the South Australian government's $565 million IT outsourcing agreement with EDS, a survey by the South Australian Centre for Economic Studies reports the outsourcing deal has produced $64 million in savings in the first six years of the nine-year agreement. The Centre, of which EDS is listed on its Web site as a corporate member, is a joint research organisation of Adelaide and Flinders Universities in South Australia, and conducts research on economic and public policy issues relevant to government and commercial bodies.

Under a nine-year contract with the South Australian government, EDS in 1996 began developing a "piecemeal IT system with an integrated, standardised government-wide network".

According to the Centre's research, circulated in a press release by EDS, the government was unlikely to have consolidated its IT infrastructure in-house to the extent achieved by EDS.

The study found that cost savings have significantly exceeded those originally projected by the South Australian government.

EDS South Australian government account executive director, Bruce Linn, said the report showed that actual costs incurred by the government until September 2003 were at least $64 million less than at the beginning of the agreement in April 1996.

"Between $13 million and $20 million of these savings can directly be attributable to EDS once contract management costs and other external factors have been removed," Linn said.

The savings were significant because they only related to two parts of the contract – mainframe and wide area network (WAN), the centre said.

Because new technology was introduced and new service requests increased by the thousands, the centre said it was difficult to quantify the extent of savings for the other IT segments - local area network (LAN), mid-range and workstations. However, it found that performance in the mainframe segment had charges 57 per cent lower than at the outset of the contract, despite a 78 per cent increase in the volume of work conducted in the same period.

The government's "standardised infrastructure model [also] enabled EDS to manage complex whole-of-government IT issues such as Y2K compliance, security and virus protection," the report said.

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