IBM, Siemens venture lands $9.2 billion German army IT deal

Efforts to award the “Herkules” contract to modernize and manage the information and communications technology of the German Federal Armed Forces have proved to be an Herculean task.

After more than three years of negotiations with half a dozen vendors, German military officials awarded a 10-year contract, worth €7.1 billion (US$9.2 billion), to a consortium including IBM Corp. and Siemens AG shortly before the end of the year.

The two companies will own 50.1 percent in BWI Informationstechnik GmbH, a new company set up to supply the relevant IT services. The German federal government will own the rest.

The venture is currently the largest public-private partnership in Europe, according to Siemens.

IBM will be responsible for modernizing the army’s data centers and running business applications such as Lotus Notes and ERP (enterprise resourcing planning) and SCM (supply chain management) software from SAP AG. The company will also implement PKI (Public Key Infrastructure) technology, enabling electronically transmitted documents to comply with signature and encryption regulations.

SBS, the IT services subsidiary of the German engineering and electronics giant, will modernize and operate a huge fleet of IT systems, including 140,000 PCs, 7,000 servers, 300,000 fixed-line phones and 15,000 cell phones at more than 1,500 locations in Germany. The company will also be responsible for managing the army’s local and wide-area data networks, in addition to its dedicated voice networks.

It was the third attempt for IBM and Siemens to win the high-profile contract.

The companies submitted their first bid in 2002 as part of the TIS consortium with Deutsche Telekom AG, competing against Isic 21, a consortium that included CSC Ploenzke AG, Mobilcom AG and the European Aeronautic Defense and Space Co. EADS NV.

Despite winning the first round, Isic 21 ended negotiations with the Defense Ministry when it failed to agree on terms and conditions. Money was the key sticking point. Isic 21 concluded that it would not be able to supply all the equipment and services the military sought within its proposed budget.

The departure of Isic 21 reopened the door for TIS, which submitted a new bid in January 2005. But a month later, Deutsche Telekom dropped out of the consortium for undisclosed reasons, forcing the remaining partners, IBM and Siemens, to submit their third and, in the end, successful bid.