Defra farms out £850m IT contract to IBM

IBM has beaten off competition from Capgemini to land a 10-year IT outsourcing contract worth about £850m from the Department for the Environment, Food and Rural Affairs (Defra).

Approximately 330 Defra IT staff will transfer to IBM when the contract begins and Defra said a detailed consultation process will take place with the trade unions during the coming few weeks. The Public and Commercial Services Union, which represents the department's IT staff, has previously expressed concern that outsourcing Defra's IT will not be cost-effective. MPs have also criticised the deal after seeing the cost of the contract already rise by £500m compared to original estimates in 2002.

The contract is initially for seven to 10 years, with an option to extend for a further seven years, ramping the potential value up to £1.5bn.

Defra said it plans to switch to the new service arrangements later this year, with IBM managing support and improvement of Defra's desktop IT infrastructure and business systems, and developing a range of new business systems.

The overhaul and e-enablement of Defra's IT infrastructure is a key component of the 'Developing Defra' programme, which aims to improve interaction with customers, other agencies and commercial organisations.

Alun Michael, Minister of State for Rural Affairs, said that the decision had been made following a "rigorous evaluation process".

He said in a statement: "The agreement will create capacity to accelerate our pace of change, while reducing costs and increasing the quality of service delivered to staff."

Anthony Miller, analyst at Ovum Holway, said the deal is "hugely significant" for IBM, which has finally landed a big government contract.

"This is the watershed IBM has been waiting for. It is the old chicken and egg situation – it is very hard to win a public sector megadeal unless you have experience but the cycle has been broken."