IT deal with IBM to save Amtrak $85 million

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By Linda Rosencrance

(IDG) -- Amtrak has signed a $229 million IT outsourcing deal with IBM that will save the passenger railroad $85 million over the course of the seven-year deal.

The contract, which is an extension of a 10-year agreement between the two companies, calls for IBM Global Services in Armonk, New York, to manage Amtrak's entire computing infrastructure from a data center in Manassas, Virginia. Because Amtrak still owes IBM $101 million from the previous contract, the total of the renegotiated deal is $330 million, according to an IBM spokeswoman.

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Amtrak CIO Bob Galey said the renegotiated agreement will not only save money for his company by cutting the costs of the contract, but will also give Amtrak more bang for the buck by improving IT services for its 24,000 employees. As a result of the deal, Amtrak's passengers will also benefit from improved service, the company said.

Dwayne Ingram, vice president of travel and transportation at IBM Global Services, said the contract is different from most outsourcing deals because it calls for IBM to help Amtrak align IT with its business strategy.

"We're going to sit down with Amtrak business leaders to map out how IT services should work with business," Ingram said. "We'll be working on several additional projects that will take out costs and increase revenue."

Under the agreement, IBM will also provide Amtrak's desktop and help desk support for 7,500 workstations and manage its voice and data networks, including the systems at its reservation call centers in Philadelphia, Chicago and Riverside, California.

IBM will also manage Amtrak's Arrow reservation system, which processes as many 3,300 transactions per minute via the Web, telephone and ticket counter channels. In addition, IBM and Amtrak will work together to increase the railroad's revenue by marketing the Arrow reservation system to other transportation companies in Europe and the Asia-Pacific region.

Amtrak, a privately held company subsidized by the government, has asked Congress for $1.2 billion in funding for its next fiscal year, which begins October 1. However, the Bush administration has proposed a $521 million subsidy for the railroad in its annual budget. Amtrak posted a $1.1 billion loss in 2001.

Analysts differed on the importance of Amtrak's $85 million savings

Ronald Utt, a transportation analyst at The Heritage Foundation, a Washington-based think tank, said $85 million may allow Amtrak to operate for an additional two weeks.

But Tony Hatch, a New York-based transportation analyst, said $85 million is "nothing to sneeze at.

"Amtrak has to watch every penny, just like public companies which are responsible to shareholders," Hatch said.