Australia caps government IT contracts at $100m in procurement shake up

Profile picture for user ddpreez By Derek du Preez August 24, 2017
The Australian government is following the UK’s example and is introducing new ‘red lines’ for IT procurement contracts - to encourage more competition.

Australia’s federal government has announced that it will no longer be signing IT contracts with suppliers that are worth more than $100 million, in the hope that it will boost competition amongst its supplier base and that more work will go to SMEs.

The move replicates the UK’s decision, over three years ago now, to introduce a number of procurement ‘red lines’ to change the relationship that government has with large technology providers, which were seen to be abusing their position of power.

Australia has also followed the UK’s example of setting up its own ‘digital agency’ internally to drive change and set standards, in the form of the Digital Transformation Office (DTO).

However, things haven’t been going particularly well in recent years, with a number of high profile disputes and technology failures - which has resulted in the Senate recently voting to agree to launch a public inquiry into the digital delivery of government services.

But today’s announcement indicates that the government is persisting with its change programme, with assistant minister for digital transformation, Angus Taylor, this week stating that contracts would no longer be worth more than $100 million, or last longer than three years.

He added that the government was aiming to inject an additional $650 million into small and medium Australian businesses, annually.

Taylor said:

These are exciting changes that will throw open the door for SMEs and allow government agencies to bring in new and innovative services.

A cap is now in place to limit the term and value of government IT contracts. We are reducing the number of IT panels to make it easier for small players to supply services. We are actively encouraging small innovators to sell us their ideas.

The decision to introduce the cap follows recommendations made in the recent ICT Procurement Taskforce report, which found that a culture of risk aversion in government procurement had undermined the freedom to innovate and experiment.

The 10 recommendations from the Taskforce cover issues as diverse as developing ICT-specific procurement principles, building strategic partnerships, data-driven reporting, enhancing the Australian Public Service’s procurement skills, and new procurement methods.

The Australian government has said that work will continue over the next 12 months to deliver more pathways to improve coordination and reduce duplication of ICT procurement across government.

Industry reaction

The Australian Information Industry Association (AIIA), the country’s largest ICT trade body and advocacy group, has welcomed the government’s decision to cap the price of contracts.

Rob Fitzpatrick, chief executive officer of AIIA, said:

We welcome the government’s commitment to build improved procurement capabilities and introduce new ICT procurement options aimed to streamline and speed up processes for both government and vendors.

Today’s changes are an important step forward to make it easier and less expensive for smaller Australian ICT companies to bid for components of larger projects and have the opportunity to do business with the Government. These changes are in line with recommendations made by AIIA to provide a more level playing field.

We are particularly pleased to hear the Minister’s strong commitment to cloud services across government and to reforming existing panel arrangements. AIIA has expressed concern for some time that current approaches are out of synch with new business and operating models.

All these changes open the door for government agencies to embrace innovation and new ideas and puts us a step closer to breaking down Canberra’s risk-averse culture. The government has also sent an important message about the importance of delivering on its digital transformation agenda.

To succeed, it will be important to implement the spirit of these changes effectively, and industry looks forward to working with the government to ensure an effective rollout.

My take

It’s unsurprising that Australia has made this announcement, given that it has followed the UK’s example so closely to date. And if the UK is anything to go by, Australia will see some success from introducing the changes. It was necessary this side of the world to drive change through using more stick, than carrot, to begin with. And it’s likely that Australia is going through that process too - to get the suppliers to change.

However, I’m not convinced that here in the UK that the ‘red lines’ have been religiously followed, and I’m fairly certain that a lot of leeway has been given to departments that are tied into lengthy, complicated outsourcing contracts. It’s not an easy rule to stick to for governments that have historically built IT by spending billions on multi-year projects, that are by and large ineffective. These red lines need to be coupled with a reskilling of the government workforce itself, and introduced with a change in the way that technology is designed and built.