A ticket to the dance: Is the government-endorsed supplier scheme worth the price of admission?

A ticket to the dance: Is the government-endorsed supplier scheme worth the price of admission?

Since May 1995, it has not been possible to sell computer hardware or software to the federal government unless you are certified as an 'endorsed supplier'. The endorsed supplier arrangement (ESA) scheme was one of the Keating government's responses to criticisms that government purchasing was squandering opportunities for industry development.

Although in theory resellers cannot sell to the Government unless they are endorsed suppliers, in practice they can. For example, they could be authorised as an agent to an endorsed supplier under Purchasing Australia's (the Government's supply agency) common use contracts such as PE 60 (small systems) or PE 64 (software). In fact, Purchasing Australia officials have indicated they prefer to buy from manufacturers or original local suppliers, rather than the reseller channel.

Roger Webb, Purchasing Australia assistant general manager, IT contracts and standards, told Australian Reseller News that an endorsed supplier should be in a position to take prime responsibility for the warranty, performance and support of the products it supplies. "It's appropriate for the manufacturer to nominate on PE 60 its authorised agents," Webb said. "But it's not appropriate that resellers are on the contract where the manufacturer is already on the panel."

According to Purchasing Australia officials, the underlying aim of the ESA scheme is to raise the overall capability of the IT industry in Australia and to promote IT exports, especially to South-East Asia. However, it was not Purchasing Australia's intention to exclude resellers.

Fitting the bill

In several cases, resellers, such as Ferntree, have become endorsed suppliers through their value-added services, or because they are also the manufacturer of a product, such as TodayTech's Moebius PC systems. Having said that, it can be difficult to qualify as an endorsed supplier. A six-component test must be met. Suppliers must:

Of these requirements, demonstrating local industry-development potential and financial soundness are probably the most important. Companies that have signed partnerships for development or fixed term arrangement schemes are counted as having met the sixth criterion of long-term activity.

ESA guidelines plug the policy vacuum of IT purchases that are below $10 million and that cannot be sourced appropriately from a common-use contract. However, being on the panel has been eagerly sought since the Federal Government tightened its purchasing policies requiring defence budget-funded agencies to source their small systems through the PE 60. For example, there are currently about 60 companies under PE 60 contracts. This compares with just under 100 companies that were on the former PE 50 contract.

Webb said there have been real pay-offs in terms of lower prices and estimates. Some agencies are sourcing software under PE 64 at about half the figure they were paying in the past. He said there have also been similar - though less profound - cuts from hardware suppliers. The price drop has been confirmed with the overall drop in government expenditure on IT, according to Technology Transactions and Christopher Company, the organisations that monitor government sales.

The reseller angle

Australian Reseller News investigated the ESA experiences of a number of resellers and distributors since the ESA scheme's inception last year. Eugene King, Com Tech technical marketing manager, said an ESA was useful - but not vital - to his company's efforts. Com Tech's practice of distributing best of breed products such as Novell, Bay Networks and Netscape made it easier to qualify, he said. In practice, Com Tech's portion of revenue from federal government sales was about 15 per cent. "The ESA paperwork was a bit more thorough than in previous years," King said.

King said Com Tech's ESA application was prepared by two people in the company's administration department. "Purchasing Australia is trying to encourage as many of their suppliers as possible to go though the quality procedures and cut down on the shonks that many have had in the past.''Although he admits their financials caused heartaches for the privately-held company, King says Com Tech was guaranteed its position would be kept confidential. However, having scored an ESA, King remains unsure about its precise contribution to Com Tech's bottom line. "It's hard to tell whether it has helped our sales or to factor in what the uplift might be," he said.

King said Com Tech received its accreditation because of its strong local service and support, and because of its export program to the Pacific Rim. However, he wondered how far industry development requirements could be pushed. "They're [Purchasing Australia staff] quite realistic about how industry development opportunities could be applied to certain market segments. No way can a company like, say, Cisco realistically be a huge exporter, for example,'' he said.

Moira Edwards, corporate marketing manager at Ferntree, says it took her company about seven days to get its ESA application ready. However, Ferntree didn't get the nod until it formatted its financials correctly. "Our financials needed some clarification. They wanted figures according to the products we supplied rather than services, for example,'' she said.

The other hitch was that Ferntree was in the middle of renewing its insurance arrangements, but was required to give an assurance and details of its liability cover. "They asked for a lot of other material such as our business, export development and R & D plans," she said. Edwards said these were easy to satisfy as Ferntree had developed a track record with several products it's created such as SIM in conjunction with CITRI.

Like King, Edwards speaks highly of the ESA and its application procedures. "It was well organised and we could complete the forms electronically. There was flexibility to expand on our responses if necessary," she said.

Ferntree's ACT manager, Kate Aldridge, estimates a third of its revenue comes from government deals but plays down its revenue benefits. Overall, ESA status has not affected Ferntree's share of government business. "It only gives you a ticket to the dance," she said. However, Aldridge says it has made it easier and cheaper to manage sales because issues of financial soundness and quality of products have been settled already.

Aldridge has detected a trend towards authorised agents also having to be ESAs, she said. For example, Under PE 64 (software) Microsoft decided only to appoint ESA-accredited solution providers as its authorised agents. Aldridge suspected this tightening up of reseller agents was driven by Purchasing Australia and it was a move she favours. "If we are to be serious about this endorsed supplier business, I would like to see all PE players including agents required to be ESAs," she said.

Purchasing Australia's Roger Webb agrees with Aldridge - up to a point. He says it is true Microsoft required its solution providers to government to be ESAs. But this was at Microsoft's urging, not Purchasing Australia's. Industry insiders say Microsoft is reviewing its position and may relax its requirement that government solution providers be ESAs.

Aldridge says the ESA was an important wake-up call to resellers everywhere. "We firmly believe we are a reseller because we add value. If there are resellers around that don't add value then what is their role? That's a fundamental point raised by the ESA and I can appreciate where Purchasing Australia is coming from.''In contrast to Ferntree and Com Tech, Alex Zemkus, TodayTech's Canberra sales director, said his company enjoyed clear revenue gains. Begun in 1990, TodayTech has grown to a chain of retail shops spanning Sydney, Brisbane, Perth, Melbourne, Canberra and offices in China. Its annual turnover is approximately $50 million, 30 per cent above the previous year, Zemkus said.

TodayTech sought to supply government markets from the outset with its locally-assembled Moebius systems. "Prior to PE 60, governments were buying some of our components from us. The decision was made to focus on the Federal Government. We have a quality accreditation, so we were geared right," he said.

TodayTech's ESA application took a few months to complete, but it went through first time, Zemkus said. Since becoming a PE 60 supplier in 1995, TodayTech has sold a much larger quantity of its systems. "We're no longer being seen as just a retail outlet now,'' he said.

Post-election realities

One question is whether the ESA will change after the election. The recent move by the Office of Government Information and Technology to separate the number of government suppliers of financial and personnel systems has already upset many ESA companies, who fear they may miss out. Furthermore the Government's agency on industry assistance, the Industry Commission, wanted the endorsed supplier scheme scrapped.

It has been suggested that government agencies should be free to purchase from firms which do not have endorsed supplier status, and such suppliers should be free to compete for common use contracts. While the Keating Government is opposed to this recommendation, it is unclear what a Liberal-National Party Coalition might decide about ESAs, should it win the coming election.

What is known is that a Howard Government intends slashing IT budgets by just under a $1 billion over the next three years. There may be much less music to dance to after that.

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