What software program is worth close to a billion dollars?
The Australian Taxation Office (ATO) is well on track to find out. For the last five years, the ATO has been working on the "Change Program", a transition from legacy and paper-based systems to a single 'easier, cheaper, more personalised' system handling revenue management, content and document management, CRM, case and work management.
The original plan was to complete the program, at an expected cost of $350-$450 million, by the close of 2008.
But the introduction of numerous new tax initiatives and various other roadblocks has delayed the project - which is now expected to be completed by December 2010 at a cost of $725 million.
Some $435 million has been paid to the ATO's implementation partner, Accenture, since the project began.
The program, heavily scrutinised by the Federal Government's Joint Committee of Public Accounts and Audit (JCPAA) and the media, was kicked off by former ATO CIO Greg Farr (now at Defence) and has since been the responsibility of CIO Bill Gibson.
In September 2008, the ATO attracted David Butler, a 25-year veteran of the agency, to rejoin the organisation after eight years working as New Zealand Tax Commissioner and for the Tax Faculty at the OECD in Paris.
iTnews caught up with Butler and Gibson in the aftermath of a grilling by the JCPAA.
iTnews: Many of the delays in the Change Program are attributed to the distraction of new technology challenges arising from new tax-related legislation. What technology challenges are associated with Prime Minister Rudd's Stimulus Package? There was mention of creating a new database of 11.8 million eligible taxpayers - what does that involve in terms of systems?
David Butler: It is a challenge. Typically, tax administration systems capture information about an individual's income and tax collected. They are not usually used to capture information about eligibility for a bonus payment paid by the Government.
The criteria that applies to the Stimulus Package is that [recipients] are an Australian tax resident, with an income under $100,000, that paid tax in the 07/08 financial year. It took a fair amount of work to extract that data from legacy systems and place it elsewhere.
Bill Gibson: We sent out to 100,000 residents [last] weekend, and will send it out to 7.6 million taxpayers over the next five to six weeks. The internal anecdote is, even if we could do it all in one week, the Reserve Bank and Australia Post wouldn't cope with the volume.
iTnews: What has this cost you in terms of systems and people?
Bill Gibson: Our national taxpayer system, at the heart of this eligibility run, runs off older style mainframes running Tix and DB2. We have done a lot of data mining against the data on those systems to determine eligible taxpayers. We have had about a dozen people involved on this since the Government announced the initiative.
iTnews: Will the systems you have in place post the Change Program make this kind of job easier in future?
David Butler: Once it is finished, the Change program will see us in a better position to do things like this.There are already some results. The Siebel Case Management System, deployed across the ATO, was used during the recent bushfires to quickly identify people in the disaster zone, to ensure we could put a stop to their mail. The last thing they would have wanted is a friendly reminder from the ATO when they have just lost so much.
iTnews: What other legislative changes are creating challenges for the ATO?
David Butler: Aside from the Tax Bonus as part of the Stimulus Package, there is also the introduction of standard business reporting which comes into play as of July 1, 2010. From that day on, businesses will report through one automated tool whether they be reporting to State or Federal organisations. It fundamentally changes the way business deals are done with Government. This means that from one entry point, a business can deal with the revenue authorities in every state, ASIC, the ATO and more.That's obviously a build challenge - both in terms of the system and the linkages to other systems.
iTnews: It was tabled at the audit committee hearing that the Change Program is expected to cost $725 million. I have been told that this figure does not account for some of the new challenges nor the internal resources also applied to the program - some estimates suggest the end cost may be closer to $1 billion. What is the total cost today?
David Butler: We have projected the Change Program to cost $725 million by the end of December 2010. It will probably go up a bit because of changes with the law. But I can assure you that this figure does include the ATO's resources - fifty per cent of the staff in the program is from Accenture, the remainder from the ATO. We include everything in that cost - the Siebel licensing costs, the hardware costs, staff costs - because we have been and will continue to be scrutinised to record these costs by the JCPAA.
iTnews: What factors will make that cost go up before the program finishes?
David Butler: In June/July of this year, we deploy a new system for Income Tax, which is everything for individuals and company tax returns. Then in 2010 at a high level there will be technology deployed to do the same for Business Activity Statements.
The 2004 Accenture deal was a fixed price contract. But the law has changed as it applies to Business Activity Statements. If Accenture has to build more functionality they will rightfully go through a change order request process. We are thinking it will be a marginal rather than significant cost increase. There also might be other new ideas too - other things we want to do.
The Change Program is outcomes based. We are working well with Accenture and we are confident we will deliver by the end of the next calendar year. This is a significant undertaking. Most tax administrations wouldn't have the patience to try something like this, most would try and live with their legacy systems longer and longer. But we were brave enough to take on the upgrade.
iTnews: Is the ATO's internal IT department, your operations people, expected to cut costs to contribute to the Change Program's completion? Has it been tasked with any savings goals?
Bill Gibson: Because we are outsourced, I don't know what cuts we could make. The entire infrastructure is managed through outsourced service contracts. We don't have operational staff monitoring the health of our equipment and facilities, that capability is outsourced. So I am not sure what you mean.
iTnews: Tax Commissioner Michael D'Ascenzo mentioned to the JCPAA that the ATO would have to offset Change Program losses by, for example, "making some tough decisions about the early termination of some non-ongoing staff." What I am asking is, have you had to lose anybody in IT operations?
David Butler: 'Operations' is a different group under my watch. They are not IT staff. The Commissioner was referring to several hundred non-ongoing staff doing processing and debt collection work. Under the terms of the contract we were able to terminate 170 six months early in December last year.
iTnews: Are you saying you have no in-house IT operations staff?
Bill Gibson: We are a pretty complex organisation. We retain the capacity to develop and maintain applications. We have a large workforce working on the Change Program. When the program finishes, these staff become the core of the support team. But the actual maintenance, monitoring and support is all done by outsourcers - at this point, EDS.
iTnews: I recall Bill saying in the past that the Change Program isn't static - it's not a one-off project - that the ATO should be expecting to continue spending this kind of money to continually upgrade systems. I think the phrase was that it needed to be considered a "change agenda" rather than a "change program". David - is the ATO going to continue to pay for the resources required to make this an ongoing program?
David Butler: Bill certainly gave that message to the media. But we got some push back on that. We haven't overtly been talking about finishing it. But it would be good to say we crossed the finish line and put this to bed at some point. That said, in tax administration, you always find governments changing the law. Almost every law they change has an IT consequence for us, so we must keep investing in systems.
iTnews: Can you tell iTnews readers a little more about the three major IT outsourcing deals you are working on?
Bill Gibson: There are three bundles timed for when current outsourcing agreements [with EDS, valued at $1.8 billion] come to an end [in June 2010]. There is Managed Network Services, for telephony and internal networks, which has gone to tender and is down to two finalists [Dimension Data and Optus]. There is end-user computing, for all of our desktops and laptops etc, for which an RFT has been released and we are in discussions with five finalists [CSC Australia, EDS, Kaz Group, Lockheed Martin and Unisys]. Then there is the centralised computing - mainframes, mid-range servers and data centres, which goes out to tender in the third quarter.
iTnews: If reports I've read are correct, we are looking again at deals stretching out to ten-year periods. Is there not some pretty incredible risks associated with such long contracts should the deal not be working in the ATO's interests? Does it need to be ten just to get a good price?
Bill Gibson: Typically, we offer four to seven year initial periods with options to extend. We don't do these deals for one and two years. It is a huge investment on our part and the part of our suppliers, for them to understand our needs. We also have to be mindful of other whole-of-government initiatives driving a more coordinated procurement approach, such as the recent centralised negotiations for Microsoft licenses, which gives every agency the economies of [scale of] having large Commonwealth departments grouped together.
iTnews: Who at the ATO will be in charge of ensuring the winners of the new outsourcing deals will deliver what they promise?
Bill Gibson: It will be me. It is an IT services contract, established through a procurement exercise, so ongoing management and performance management will be with me. The procurement group will be asked to form opinions, or I might ask them to help negotiate variations, but at the end of the day the responsibility lies with me.
iTnews: Finance Minister Lindsay Tanner would like to see less money spent on contractors within Government. Does that affect your plans to outsource?
Bill Gibson: The focus of Sir Peter Gershon's review was to release our reliance on contractors employed as individuals in lieu of developing the competency of our workforce. Outsourced agreements are not part of that. When we outsource, it is not prescriptive of people providing the service. We are just outsourcing infrastructure according to service contracts, so it is not subject to that review.
iTnews: But surely a contractor is better than an outsourced worker if the aim is to keep intellectual property closer to the agency?
David Butler: We have been consultative with the Department of Finance all the way through. We give them updates and consistently ask whether we are within the law or even just the spirit of the law. I must commend Bill - he had already done a good job of reducing our reliance on contractors before the review even happened.
iTnews: Do you ever experience any difficulties should you want to implement a new project that is out of scope for your outsourcer - and also not in their best interests to provide?
Bill Gibson: We focus on getting the best business outcomes for the ATO. Usually you work on the premise that what is good for us is good for [the outsourced partner]. Take Voice over IP, for example. We barely knew that even existed when we signed the EDS contract. But we have it in our environment today. There are benefits to us and the service provider - it may be easier for them to maintain, for example. We really have quite a good working relationship with EDS. They can come to us with initiatives they have in mind, we can suggest initiatives they would take up for us. We don't have the difficulties you talk of.