The Department of Agriculture, Fisheries and Forestry (DAFF)'s decision to break away from the Group 8 IT outsourcing arrangement and put its IT services up for tender is just one of the many challenges facing Commander's managed services business this year.
The DAFF tender is the first spun out of the Group 8 outsourcing arrangement and is expected to be hotly contested. Sources close to the tender claim at least four outsourcers have already started working on proposals.
The second largest department within the Group 8 is the Department of Environment and Heritage, which is also expected to go to tender in the next couple of months, according to industry sources.
The Group 8 arrangement, which has been in place since 2000, is one of Commander's most lucrative and important managed services contracts. Its other significant corporate business includes a multimillion-dollar managed services contract with Foster's that is also up for renewal, a contract with Telstra, and one of three spots on the SA Government's Distributed Computing Support Services panel. Commander also signed a multimillion-dollar three-year managed services deal with Mitsubishi Motors last year.
BBY telecoms analyst, Mark McDonald, said Commander managing director and CEO, Amanda Lacaze, had consistently heralded managed services as its major focus and area of long-term growth since her appointment. While competition for the DAFF deal would be tough, he thought Commander had an advantage as the incumbent and would fight determinedly. But he conceded the breaking up of the Group 8 contract would make it harder to keep a hold of.
"Amanda made decisions very quickly on what business they wanted to retain and what business to get out of - a lot of people and services were terminated. My impressions is they are working hard to retain business they consider of key value going into the future," McDonald said. "No doubt their ability to retain this type of business is the real test for them."
While losing the Group 8 contract could be a major public relations blow to Commander, McDonald said the bigger question was how much of the company's earnings were wrapped up in its top tier accounts. Commander's Lacaze was unavailable for comment on this story at time of press.
"How much key account risk does Commander have? They have a very large customer base around the SME segment, so the reliance on individual accounts could well be small - I'd be surprised if it was more than 3 or 4 per cent," he said. "Commander is a very resourceful company ...they may lose accounts and add new accounts. How the new ones offset the old deals will be the important thing."
The Group 8 contract was won by Australian PC assembler, Ipex, in 1999 and kicked off in 2000. The initial Group 8 contract was valued at about $130 million over five years and covered 7500 desktops across seven government agencies. Ipex was acquired by Volante Group in 2004.
The Group 8 arrangement was renewed in 2004 with Volante for another four years. At that time, Volante valued the combined contract at $40 million per year. Volante was acquired by Commander in a hostile takeover in April 2006 and is now its enterprise business unit. Federal Government agencies accessing IT services under the Group 8 arrangement are the DAFF, the Department of Environment and Heritage, the Australian Broadcasting Authority, the Australian Communications Authority, the Australian Public Service Commission and the Civil Aviation Safety Authority.
DAFF's new request for tender covers the provision of managed desktop and mobile computers, desktop LAN, midrange, storage area networks, helpdesk services, Macs and project services throughout DAFF's Australian offices. Submissions close on August 29, with the new contract due to begin in June next year. The contract is for five years with possible annual extensions for a further decade.