The project involves compiling water data from more than 240 organisations into a single national repository for water information.
The initial contract is for a 12 month period with an option to extend it for a further 24 months, SMS said.
Up to 15 SMS consultants are set to be involved in phase one, working alongside - and fully integrated with - the Bureau of Meteorology's Water Division team.
When completed, the system will be "invaluable" for water corporations, government agencies, irrigators and the wider community, and will inform much better decision-making about storing, allocating and using our water resources, according to the Minister for climate change and water, Penny Wong.
"[Our] Water for the Future [strategy] has four priorities: taking action on climate change, using water wisely, securing our water supplies and supporting healthy rivers," Senator Wong said.
"To deliver on these priorities, we need robust, consistent and easily-accessible information - like that to be provided by the Australian Water Resources Information System.
"The Bureau of Meteorology is working closely with State and Territory agencies to ensure that all water data that is fed into the system is as accurate, comprehensive, consistent and up-to-date as possible."
Almost $30 million in Commonwealth funding has been allocated by the Bureau to help States and Territories to improve their data management capabilities, with $20 million available in 2009-10 to support further work, the Bureau said in a statement.
Separate to the deal, SMS also said it was recruiting IT professionals in Melbourne, Sydney and Brisbane.
"In particular we are experiencing demand for business and technology project managers, specifically those with experience in deploying or managing technology projects," said SMS CEO Tom Stianos.
".NET and Java developers are also in demand, as are professionals with PMO expertise".