OUTSOURCING CLINIC: Partnering with government

OUTSOURCING CLINIC: Partnering with government


Current contractual relationships and service-level agreements between government and industry are no longer relevant as the government attempts to operate in an e-business environment.

As the largest entity in Australian business and consumer lives, the government generates a high number of transactions and provides an astounding array of services. It is responsible for gathering and disseminating vast amounts of information and caters to a broad and diverse audience.

As the government attempts to move its business online, providing its services and solutions becomes more challenging. The Internet changes the way the government conducts business, and the technical and cost-savings focus of outsourcing and systems integration arrangements become irrelevant. A new business benefit model based on mutual trust will need to be established.

Current contracting models place the responsibility for a contract's success with the vendor. Traditionally, a specification is issued by the government inviting vendors to respond to a tender. The chosen contractor is then required to deliver on the set project specifications.

This type of partnering arrangement originated when the government was simply buying computers. The specifications were hardware-oriented, simple and easy to measure, like speed and storage capacity. Outsourcing and e-business has changed all this and pure product solutions are no longer relevant to the government arena. As a result, projects have become more challenging to manage and measure.

Yet the difficulties are avoidable. Too often contracts are built around technology criteria, such as building a particular system or providing a certain service or technology. Business requirements are not clearly set out as part of the project. Once vendors and contractors begin, they often discover specifications don't meet the government's business needs or multiple-user demands. It is very difficult to change the specifications or the course of the project without incurring significant costs or allocating extra resources, which will very quickly lead to contractual difficulties.

Tender documents need to state what the business issues and expected outcomes are and ask contractors to provide appropriate solutions and business benefits. Reduced costs, the availability of more information, getting more for the same, or the same for less are all valid business goals, but only part of the value equation. The vendor should provide a business solution that, when partnered with the procuring government agency, allows the agency to better meet its mission, whether it be faster processing of tax returns, quicker response to an emergency call, better care for a needy person, or shorter queues.

Measuring the success of the project in meeting these needs obviously means changing the way contractors engage with the government. If the vendor is dedicated to meeting the client's business goals the means can vary, so payment needs to be based on outcome, not implementation.

Shared risk and reward schemes are being trialled in the US, though very little of this is done in Australia. In this structure, the vendor and government share in the savings or profits if the implementation meets business requirements. The vendor has a vested interest in ensuring systems and processes produce savings and meet expected outcomes. Rather than persevere with agreements that are not working, shared risk and reward partnerships encourage decisions that make business sense, as opposed to business decisions based purely on what is stipulated in the original tender specifications. This allows vendors to meet constantly changing government requirements without continuing contractual and service-level issues.

For this partnership methodology to be practiced in Australia, vendors need to highlight the benefits of the proposed model and point out the disadvantages to both the State and Federal Government. This needs to be policy driven by organisations such as NOIE (National Office of Information Economy) and through technology players in the government.

Yet the idea of new partnering methods is not being seriously debated in Australia. Contractors shy away from arrangements they don't understand and struggle to implement, and the government is cautious about adopting new methods that rely on increased trust. Many of the organisations servicing the government are unable to take on too much risk and do not have the necessary resources to wait for an ROI under this methodology.

The government has to trust that the contractor knows what it is doing and is able to make the changes necessary to bring about business benefit. The contractor has to trust that the government will implement its recommendations, otherwise they do not get paid.

This type of partnering arrangement will facilitate government access to global benefits and expertise, and provide a different perspective on achieving government goals. Compared with the old style of contract specifications, government departments will see a much higher level of relevant service for the same cost.

Allen Koehn is public sector director of Unisys South Pacific. Contact him at

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