Old Mutual downscales IT contract

Johannesburg, 19 Jul 2007

One of the biggest ICT outsourcing contracts in the history of the local financial sector has been downscaled - in the process throwing the embattled incumbent provider a potential lifeline.

This also means the awarding of the much-anticipated Old Mutual Group IT infrastructure outsourcing project, known as Project ROSA Plus, will be pushed back by about two to three months.

According to Old Mutual Group, the IT infrastructure outsourcing project will "identify and exploit synergy made possible by consolidating and rationalising IT infrastructure, data centres and supporting functions across the group".

The downscaling of the project stems from a decision by the Old Mutual Group - comprising Old Mutual, Mutual and Federal, and Nedbank - not to pursue a group-wide solution. In terms of the new scope, Nedbank will provide its own IT infrastructure and maintenance in-house.

"[The Old Mutual Group] has recently completed the full evaluation process, utilising a number of key criteria to analyse supplier responses. Following the completion of the business case analysis, it has been decided by the group not to pursue a group solution," the company says.

The initial contract value, said to be about $450 million to $500 million (or upwards of R3 billion) over a five-year period, is likely to shrink by 40% to 50%, say sources close to the process.

After the initial issuing of requests for proposals (RFPs), IBM and T-Systems were short-listed for the contract, with incumbent Computer Sciences Corporation (CSC) being excluded.

No new players

Market observers noted that losing the Old Mutual contract could have been potentially fatal for US-based CSC's local operations. The company is understood to source 90% of its local revenue from the Old Mutual deal.

However, the revision of the new contract's scope means CSC is potentially again in the running for the time being.

"Based on their current position, Old Mutual SA and Mutual and Federal... are required to investigate alternative options and, to this end, will be pursuing discussions with CSC, IBM and T-Systems," an Old Mutual Group statement explains.

But a source close to the deal says the inclusion of CSC in the new process is a result of following good governance practices by Old Mutual Group and not necessarily an indication that it has a better chance against the other two bidders.

Cape Town-based CSC SA employs 600 staff and is headed by MD Martin Vergunst. The company recently sold a 30% equity stake to an empowerment consortium led by Lechabile and Digital IQ Corporation.

"Old Mutual Group is still using the same information initially submitted by the companies and is not looking for new players. It can be expected that the new process will be quick - the awarding of the contract is expected in about two to three months. This is quick considering that the bidders have been working on this deal for about two years now," the source states.

He says the new deal, even though smaller in value, will still be "significant" - probably still the biggest deal of the year in the financial sector and likely the biggest in the sector's history.