Channel still not convinced of govt outsourcing framework

Channel still not convinced of govt outsourcing framework

After a continual barrage of critisicsm from local industry, and damning reports from the Auditor General and ASX managing director Richard Humphry, the Federal Government has finally announced changes to its whole of Government IT outsourcing policies.

According to the Richard Alston, Federal Minister for Communications, IT and Arts, ther will be a more streamlined IT contracting system with simpler contracts and lower bidding costs, without sacrificing industry development objectives such as regional and small-to-medium sized enterprises (SME) development.

"The devolved environment is likely to result in increased opportunities for SMEs as agencies outsource through smaller contracts. The Government expects to see more SMEs being lead contractors on Government contracts," said Alston.

The new framework has a two-tiered approach to tender content with deals less than $10 million requiring only that contractors and subcontractors be endorsed under the Endorsed Supplier Arrangement issued by the Department of Communications, Information and the Arts (DOCITA).

Contracts over $10 million will carry the same requirements but parties must also prove SME involvement in the deal, Australian Value Added (AVA) content and the AVA content provided by SMEs. This process will identify the long-term industry development inherent in each bid rather than contract-by-contract outcomes as it was previously measured.

Other changes will see responsibility for IT outsourcing handled by individual portfolios rather than from the central OASITO body. Government departments have also specified that industry development (ID), while important, should not be the dominant criteria of bids ahead of service, pricing and technical considerations.

Many outsourcers are eagerly awaiting the details of the changes, reserving their judgement until the government reveals how the policy shift will be implemented. Joel Schwalb managing director of Australian outsourcer Ipex is concerned over some of the practical implications of the announced change in policy.

"The major issue will be the next stage of setting up the rules of engagement, the way the contract is designed and if the tender accurately reflects the facts and figures as well as the expectations of the agencies," Schwalb said.

The policy changes however, have failed to convince many industry players who believe it will do little to create opportunities for local IT companies.

"There's nothing in the changes to the tendering process that would give much comfort to SMEs," said Nick Cuthbertson, managing director of Australian outsourcing firm, Protech Australia.

"The best thing the government can do for SMEs in the software and services business is to buy from them. The key thing government needs to recognise is that if SMEs are to become a success they need internal support in their local market."

Adrian Di Marco, general manager of Technology One agrees, saying it is the Government's responsibility to give local businesses an unfair advantage over multinationals. "Incentives and research and development grants should not be going to multinationals," he said.

The reality of these issues are manifested in Australia's $13 billion trade deficit in information technology and communication products. It is a rapidly increasing figure which Cuthbertson believes can be stemmed by growing some of our own small companies into international entities.

"That will occur through the development of SMEs, so that one or two or more can become like a Nokia," he said. "This is not about protectionism, it is about getting the mix right. As a company we (Protech) have excellent relationships with multinationals, they have been fantastic for our business but that's only one side of the equation. The other side of the equation is that we need the opportunity to grow some multinationals ourselves."

Meanwhile, Rob Durie, Executive Director of the Australian Information Industry Association (AIIA) - a body comprising large, small, local and foreign IT businesses - said the AIIA will be monitoring the implementation of the new framework closely to ensure the new Request for Tender (RFT) framework for projects over $10 million does not become the old contract-by-contract approach through a back door.

Durie also expressed dissatisfaction at the Government's choice to shunt the responsibility for developin SMEs onto the industry rather than leading from the front.

"Whilst smaller contracts will make it easier for SMEs to tender, the major barriers for SMEs have nothing to do with industry development arrangements. Issues such as the cost of bidding, risk sharing, financial guarantees, and contractual terms and conditions, are major impediments which must be addressed," he said.

While the Federal government claims to have carried out extensive consultation with industry groups at all levels, Cuthbertson believes there is a very real problem with local SMEs being underrepresented.

"One of the problems is SMEs are fragmented and are not good communicators. Their message is not well understood or sold," he said. "There is discussion among AIIA members to form a special interest group specifically focussed on local issues."

Durie said the AIIA has every intention of ensuring the government finalises the details of the new policy by June 30, this year. It appears this process will be the real proof of the pudding.Photograph: Adrian Di Marco, Technology One's general manager

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