EDS get $300M tax gig

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The Australian Taxation Office has extended its outsourcing contract with beleaguered IT services firm Electronic Data Systems.

The two year contract, worth $300 million, extends an existing outsourcing relationship with ATO. In mid 1999, EDS was contracted for what it claims was one of the biggest outsourcing agreements with an Australian federal government agency: a five year contract worth $500 million that saw the services firm take responsibility for the delivery of IT&T infrastructure services.

Yet in March this year, ATO announced it would drop EDS's telecom service and was looking for a new provider for its internal voice communications requirements.

The extended contract with EDS covers the management and provision of mainframe services, data warehousing, desktop systems, midrange servers, laptops and printers as well as help desk and associated services. The contract omits the telecoms' component.

Corporate communications manager for EDS Australia, Brian Finn said the firm was told ATO would put up the telecoms contract for tender later this year. Finn said EDS intends to bid for this contract at that time.

EDS' stock price tumbled to around one quarter of its September high after the firm released a profit warning last year, cutting its third quarter earnings forecast by 80 per cent. The stock price dropped dramatically from around US$40 to a low of US$10.09. It is currently trading at US$17.04.

The company also expects to post profit declines this quarter as corporate spending on information technology remains on a tight leash. The IT services company is still trying to bounce back from a series of pitfalls experienced in the past six months including; problematic customer contracts, dwindling cash flow and a pending accounting investigation by the Securities and Exchange Commission into its third quarter 2002 profit warning. On top of this, last month the company named a new chairman and chief executive, Michael H. Jordan, to replace Richard Brown.

Finn said EDS is in line with the general trend for outsourcers at the moment, adding “there is no major positive correction in the short term”.

“We don't expect a major turn around. It's still relatively conservative spending. Some sectors including Business Process Optimisation are set to grow more rapidly than others,” he said.

ATO first assistant commissioner of technology, Peter Wilson said in a statement, “The ATO and EDS have established an excellent working relationship in support of the delivery of ATO business outcomes. I look forward to a further two years of quality service delivery."

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