Building a better ICT procurement process: the impact on Australian Government Agencies

Alexandra Wedutenko, Natasha Smith

14 Sep 2017

The reforms are intended to progress cultural change and upskilling in the Australian Public Service, and deliver and support more agile ICT projects.

The "Report of the ICT Procurement Taskforce" has been released by the Digital Transformation Agency's ICT Procurement Taskforce, and with it the announcement of a number of reforms to the Australian Government's ICT procurement processes.

So what are the details of the proposed reforms, and what will they mean as a matter of practicality to Agencies undertaking ICT procurement processes?

Both questions are a bit hard to answer at the moment. We do know a few of the reforms, and how they will immediately impact Agencies (see below for more detail), but more will be announced in the future. The full impact of the Taskforce's recommendations and the reforms (immediately and any subsequently announced) however are yet to be seen. What we can say is that these measures will almost certainly mean that Agencies will need to make fundamental changes in the way in which their tendering processes are run, and that the change process has to start now.

What is the current shape of Government ICT procurement?

As part of its Report, the Taskforce analysed the 2015-16 Australian Government's ICT spend as reported on AusTender.

The results are fascinating.

  • The Australian Government entered around 16,000 ICT contracts with a value around $9 billion.
  • 10 Australian Government agencies accounted for more than 86% of the Australian Government's ICT expenditure.
  • Fewer than 200 ICT procurements (around 1%) were very high value, being worth over $5 million and with an average value of $25 million.
  • 99% of the Australian Government 2015-16 ICT procurements had an average value of $250,000.
  • Small-to medium business received 60% of the ICT spend (by volume), 30% by value.

It is against these statistics that the Taskforce has set out its 10 recommendations on the future of the procurement of the Australian Government's ICT needs.

The 10 recommendations for ICT procurement

  1. Australian Government to adopt a framework for ICT procurement that includes ICT procurement policy principles to guide decision-making (encourage competition; be innovative; enable SMEs to compete; outcomes focused; open standards and cloud first; minimise cyber security risk; not duplicate platforms that have been built by other agencies).
  2. Annual targets for ICT procurement activity and spending, including annual WOG cap on internal and external ICT spending with reduction targets. Maximum contract amounts and lengths for all ICT procurement.
  3. Establishment of a comprehensive dataset of government ICT spend.
  4. Development of a public dashboard of significant ICT projects and spending.
  5. Development of a comprehensive and contemporary ICT strategy to guide procurement approaches.
  6. Development of a medium-term strategy for building the APS's ICT procurement capability and culture. ICT procurement to be coordinated across government. Urgent major reform. WOG approach to establish strategic business partnerships with ICT suppliers.
  7. Implementation of a mandatory co-ordination process for significant ICT procurements and significant ICT vendor relationships. ICT procurement to encourage innovation and SME participation.
  8. An immediate simplification of ICT procurement practices, including panel arrangements.
  9. Implementation of a new ICT procurement pathways for catalogue-based e-procurements, innovative and small-scale experimentation procurements.
  10. Implementation of a regular review and renewal process of the ICT procurement framework and ICT policies.

Reforms with immediate impact on Agencies

Contract caps - value and duration

Effective from 23 August 2017, ICT contracts with the Australian Government will be capped at a maximum value of $100 million, or a three-year duration (whichever is arrived at first).

This cap will apply to all new ICT contracts from 23 August 2017, but will not apply retrospectively to contracts already in place.

This cap on value/duration is expected to provide opportunities for small and medium sized businesses to bid for smaller components of larger projects, which if successful may lead to repeat work, and also diversify the number and types of providers contracting with the Government.

Reducing the number of ICT panels

Concurrently, the Australian Government is reducing the number of ICT panels currently in place within Agencies. The reduction of the number of panels is also hoped to reduce barriers for small and medium businesses accessing Australian Government ICT work, as well as to reduce duplication of arrangements across Agencies.

Practical effects on Agencies

Quicker, sleeker procurement processes

With a three-year cap on the term of contract (noting that it is not clear whether the three-year cap includes options to extend), the number of procurement processes to be run will likely increase, and Agencies will need to become better equipped to run quicker, more targeted processes. The processes will need to be focused and time-efficient.

The effect of breaking projects into components will mean that agencies will need to plan the projects so that they know what components will be tendered for separately, and when those procurement processes will need to be run. In this sense, Agencies are going to need to become familiar with, and adapt to working with agile ICT environments - that is, the idea that as a project progresses, so too does the way in which outcomes are achieved.

Appropriately resourced procurement teams

To keep pace with the agile method of engaging with the ICT market, Agencies are going to need to be willing to, and have the ability to, engage with new technology and new ideas. It will be necessary to ensure that Agencies' ICT procurement teams include ICT subject matter experts who can understand and advise on such matters. It will be important therefore for Agencies to ensure that in putting together such procurement teams that appropriate ICT resourcing of its personnel is provided for. In addition, prompt, agile and detailed security advice on new solutions will need to be available.

Engaging with risk

The Report notes that there is a risk adverse culture in government ICT procurement practices. To counter this, and to properly implement the reforms, Agencies are going to need to revise the way in which they view and engage with risk in their ICT environments. As part of this engagement with risk, and to truly engage with the "agility" concept, Agencies (and Government) are going to need to embrace failure, and to see failure as an opportunity rather than a road block.

An important risk to consider will be integration with existing systems.

The relationship between parties

As a consequence of the more dynamic nature of the proposed methods of engaging with the ICT industry, the contracting methods employed by Agencies to govern their relationships with ICT service providers may also need to be re-thought.

One of the main aims of the reforms is to encourage innovation. Thus, the contracting roadmap of the future will need to look towards outcomes focused arrangements, which employ appropriate governance and performance management models but do not unnecessarily restrict the fluid and innovative nature of the way in which goods and services are intended to be delivered. Further, the nature of the relationship between the parties will also need to be examined to ensure it best suits the outcomes required. To ensure these contracts work, good governance will need to be implemented and resourced.

Economic benefits

Another aim of the reforms is that of economic reform. The reduction of panels and the reduction of duplication of work aims to reduce costs to the government. The value cap, the requirement of shorter term contracts, and the likelihood that Agencies will need to run more procurements (and thus have less time to run them in) will mean that Agencies are likely going to need leverage off one another's arrangements more than they currently do now. This is a move away from the more independent, 'silo' nature of current practice between Agencies. Agencies will therefore need to be familiar with what arrangements others have that they can utilise.

Contract management

Finally, Agencies are also going to need to closely monitor and manage the costs of their ICT arrangements to ensure that they do not exceed the $100 million cap (through extensions, additional services requests or amendments to scope). As stated above, arrangements are limited by the $100 million cap or a three-year term, whichever comes first. Agencies will need to avoid reaching the monetary cap before they planned to, to avoid the potential unintentional consequence of having to re-tender earlier than expected.

On the flip side, Agencies are going to need to manage their ICT contracts and procurement process timetables to ensure continuity of services, particularly for the procurement of those goods/services as components of larger projects.

Embracing agility, risk and innovation in ICT procurement

It is not yet clear how all of the Taskforce's recommendations and the newly announced reforms will affect ICT procurement practices within the Australian Government.

However, what is apparent is that the objectives of the recommendations and the reforms include progressing cultural change and upskilling in the Australian Public Service, to deliver and support more agile ICT projects.

These reforms appear to be good news for small to medium businesses trying to get their foot in the door of Agencies for potentially lucrative and stable contracts with the Australian Government. And if they meet the objectives of delivering and supporting more agile ICT projects, the reforms will mean Australia is being run by a modern, efficient and technologically advanced government from which all Australians will benefit.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.