What the govt’s IT outsourcing trend means for Aussie partners

What the govt’s IT outsourcing trend means for Aussie partners

Does outsourcing expose IT partners when things go wrong?

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The Federal Government released its IT trends report for 2015-16 on 14 December, revealing a substantial shift among government entities towards outsourced IT services.

While outsourced IT services remain in the minority in terms of percentage of total IT spend among government organisations, the Australian Government ICT Trends Report 2016-16 revealed a marked rise in such spend.

Of total ICT spend, outsourcing to external providers has increased from 20 per cent to 28 per cent since 2011-12.

Overall, the government’s spend on IT increased from $5.7 billion in 2014-15 to $6.2 billion for the year ending 2016.

Of that $6.2 billion, government entities spent $1.73 billion on outsourced IT services from external providers in 2015-16, a marked increase from the $1.48 billion it spent such services in 2014-15.

Given the rise in spend on outsourced IT services, it comes as no surprise that the overall number of IT full-time employees doing work for public entities declined from 17,758 to 15,808 in 2016, to 10.4 per cent of total full-time employee entities.

Meanwhile, the proportion of external IT full-time employee grew from 23 per cent to 30 per cent. At the same time, the proportion of internal full-time employees decreased from 77 per cent in 2015 to 70 per cent for the year ending 2016.

By contrast, IT spend on internal personnel dropped from 25 per cent last year to 22 per cent for the year ending 2016. Likewise, IT spend on software and hardware also declined slightly year-on-year.

Cloud and cloud-based services have absorbed much of the increased outsourced IT spend by government organisations, with the average value of cloud-related contracts has ballooning from $266,000 in 2014-15 to $475,000 for the year ending 2016.

The number of cloud contracts increased from seven in 2011-12 to 133 contracts in 2015-16, however contracts started in 2015-16 account for just under 1 per cent of total ICT spend in that year.

In 2015-16, Software-as-a-Service (SaaS) made up 47 per cent of public cloud services contracts and 48 per cent of total cloud spend among federal public sector entities, followed closely by Infrastructure-as-a-Service (IaaS).

Overall, Australian government non-corporate entities spent 10.4 per cent of total departmental spend on IT services, up from 9.3 per cent in the previous year, while operating spend grew from 72 per cent to 77 per cent, and capex fell to 23 per cent from 28 per cent, where it stood the year prior.

While operating spend increased, ongoing IT spend declined from 67 per cent to 64 per cent, and spend on IT projects went up to 36 per cent from 33 per cent the previous year.

These figures and the trends driving them clearly illustrate a growing dependence among government entities on IT partners for outsourced services.

The move by the government to spend more on outsourced IT services could mean an easing of the reliance on big, one-time contracts among external IT providers, and a greater potential to tap into ongoing or repeat business for partners from government customers.

This could be good news in terms of helping partners build a lucrative, secure, and predictable sales pipeline, continuing revenue streams, and a dependable margin, but it may also come with certain drawbacks.

Recent history has shown that the greater the responsibility taken on by a technology partner, the more exposed a provider may be when things go wrong.

The fallout of the 2016 Census outage clearly highlights just how exposed a contracted IT provider can be when problems arise. While the 2016 Census project was not entirely outsourced to IBM, the company was contracted as its lead, taking on an enormous amount of responsibility for the ultimate success or failure of the project.

Ultimately, the 2016 Census debacle saw IBM bear the brunt of a full-blown Parliamentary inquiry, despite the Australian Bureau of Statistics – under whose remit the project was undertaken – also receiving some blame for the system’s outage in August.

As previously suggested by Deloitte Australia national consulting public sector lead, Ellen Derrick, the public scrutiny arising from the increased responsibility that often comes when a partner takes on an outsourced service contract can be problematic – especially in today’s fast-moving technology landscape.

Yet the scrutiny that Hewlett Packard Enterprise (HPE) has found itself under following the failure of storage hardware at the Australian Taxation Office (ATO) in early December illustrates how technology partners can become exposed even if they’re not taken on by public entities in an ongoing outsourced capacity.

HPE is currently helping the ATO get to the bottom of what the Australian Commissioner of Taxation, Chris Jordan, is calling the “worst unplanned system outage in recent memory”.

It is understood that the core of the problem lies with hardware that had been upgraded by HPE in November 2015.

The incident shows that, regardless of whether an IT provider is taken on by a government entity in relation to an ongoing IT outsourcing deal, or as part of a once-off project, the stakes can be high, and everyone is exposed.

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