The deal includes upgrading the department`s wide area networks services, voice over internet protocol, mobile phones and contact centre services.

The second phase will involve the telco managing these operations for the next three years.

The deal also allows the department to move to a virtual call-centre model using Nortel equipment, which will help it manage resources across its operations in Sydney and Melbourne.

This involves about 7000 seats.

"Instead of having two discrete centres, one in Sydney, one in Melbourne, we`ll have them able to operate as one virtual centre," department chief information officer Bob Correll said.

"Whether the information is coming in through email, fax or phone it is all being displayed in a similar way on the desktop of the operators of the contact centre.This is quite a big step forward in our technology."

The new call centre arrangement will also tap into fresh web functions enabled by the department`s System for People project - a major core overhaul.

The Systems for People project has attracted criticism recently for budget blowouts and missed deadlines, but Mr Correll said it was on track.

Optus and the department have kept the deal under wraps since it was signed in March this year, not long before the federal Government announced it had appointed British efficiency expert Peter Gershon to review public sector spending on technology.

However, Mr Correll said, the deal had not been affected by the Gershon review.

"There was no such thing as a freeze on expenditure, to my knowledge," Mr Correll said.

"Obviously people had to carefully watch the nature of the particular contracts they might be entering into to make sure they weren`t heading in a direction that wouldn`t necessarily be consistent with Gershon`s recommendations."

Mr Correll said his department was already starting to act on the findings of the review, which were handed down last month.

The department is focused on driving down costs by reducing contractor numbers, increasing virtualisation, and trimming storage and data centre costs.

It is also looking to renegotiate some contracts. Mr Correll pointed to the department`s success in extracting $16 million worth of costs over four years in a renewed deal with outsourcer CSC.

"When you`re an organisation like ours doing much of the business-as-usual work through outsourced arrangements, some of the main opportunities to reduce costs are in the operation of those contracts."