Getting into Government

There are three huge and hugely influential organisations that vie for top spot on the IT procurement scale every year. No, they don't dig up coal, or manage funds, produce widgets or ship wheat. Their contribution to the Australian economy is vast, but difficult to measure, and with over 600,000 screens and 14,000 servers spread across the eastern half of the country, they are far and away Australia's most important buyers of ICT.

Any ideas? Australia's largest single consumer of ICT is the Queensland Department of Education Training and the Arts, followed a close second by the NSW Department of Education and Training, with the Victorian Department of Education and Training coming in third.

In fact, of the top 10 ICT consumers in Australia, five are government departments, with the Federal Department of Defence coming in fourth and the WA Department of Education and Training sneaking into 10th place.

While government departments are often looked on as the poor cousins of the corporate world, their purchasing power packs significant punch.

Federal Government's ICT spend comes to about $16 billion, and is roughly matched by combined state government spend, while annual local government comes in at somewhere between $1 billion and $2 billion.

Taken together, government contracts represented around 40 per cent of the $85 billion Australian ICT sector in 2007.

Naturally risk-averse, and regularly scrutinised by a raft of governing bodies including the voting public, government can be a challenging customer for all levels of ICT suppliers. From a reseller perspective, this level of scrutiny often translates into a complex and expensive procurement process, which often works against smaller companies.

And if the latest Australian Computer Society report into the ICT Industry is anything to go by, it's companies of 20 employees or less that dominate the sector in Australia. Such outfits represent 95 per cent of individual companies in the sector and employ 30 per cent of the ICT workforce.

At the other end of the scale are the mid-size ICT companies with 20-100 employees and large companies with more than 100 employees. Combined, these represent five per cent of companies in the sector, employ 70 per cent of ICT workers, and tend to feature prominently on government ICT procurement panels around the country.

The road to procurement

As it turns out, government procurement is a bit of a rail-gauge issue in the Australian political landscape. Not only have states adopted different approaches to appointing ICT supplier panels, and managing tenders, but each process has been subject to the political whims of different governments. The result is a poorly coordinated mixture of approaches, which sacrifices overall efficiency, to the specific demands of different departments, agencies and governments.

Nonetheless, navigating the different approaches is possible so long as you have the resources to manage what can often be protracted tendering and bidding processes.

Hardware and peripheral vendor, Acer, is a case in point. According to general manager for education, corporate and government sales, Michael Cefai, Acer is successful in the Australian government market due to its willingness to operate within the confines of different procurement processes.

"We're happy with the way procurement is carried out throughout the country and we'll work with whatever systems are in place," he said. "In most cases it's a long and expensive process, and there's always a very high level of scrutiny of the technology and your capacity to supply, but that's what I would expect given they are spending taxpayers' money."

However, the ebbs and flows of politically driven procurement practices have left others jaded regarding the process of procurement and the level of professionalism within government ranks.

Having been involved in supplying ICT to government since 1982, managing director of Canberra-based reseller Datafl ex, Brian Evans, was one of the few survivors of the previous Federal Government's outsourcing experiment, which saw dozens of local suppliers lose work to large multinational contractors.

"What we had initially was a level playing field where a panel of government endorsed suppliers was selected and renewed every couple of years," Evans said. "Then when the Howard Government came in, and implemented outsourcing for purely ideological reasons, a lot of the local companies simply went out of business."

Evans' key concern is that government agencies lack the internal skills to identify value in the procurement of ICT goods and services, and often default to a large multinational following the mistaken logic that buying from vendors or large companies is the safer, better value for money option. According to Evans, agencies left to procure goods and services direct from the market in the past were sometimes hoodwinked by low set-up costs, and ended up with machines that had no warranty, and sometimes no monitors.

"The best approach would be a centralised purchasing model that used a rigorous process to identify a number of vendors, and enabled delivery through their channel partners," Evans said. "This would ensure that the market remains competitive, and that the work is spread across the food chain so more jobs are created and skills are shared throughout the economy."

He's not alone. Through the Australian Information Industry Association (AIIA), the ICT industry has been working with government to restructure and standardise governmental approaches to ICT procurement at both state and federal level.

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Early progress

Although it's early days, progress has been made on a number of issues. According to managing director of Queensland-based integrator Data #3, John Grant, who is also chairman of the AIIA, the industry is focusing on a number of key issues in an attempt to make the process of supplying to government less costly, more streamlined and more accessible to smaller operators.

Working in conjunction with the Australian Procurement and Construction Council (APCC), and a series of state and federal government procurement representatives, the AIIA has just completed the framework for what will become a standard government procurement contract designed to operate across state and federal boundaries. "The first item on the agenda is the way contracts are drafted, and the way they deal with intellectual property and liability, because these have been serious roadblocks, especially for smaller contractors who in some cases face losing their company if a contract fails to go according to plan," Grant said. "It's a long way off but we now have agreement on the framework of a single government procurement contract which, if it were adopted by all state and federal governments, would significantly streamline the whole process of working with government across different jurisdictions."

Following this, the AIIA is also tackling issues around the actual procurement process, and the extent to which it includes or excludes different companies. While the third area focuses on education and the technical capabilities of government procurement officials.

"We want to ensure that all the individuals involved are sure of their own capabilities and working toward common goals, rather than coming to the negotiation table with a combative attitude," Grant said.

Federal waiting game

Having worked on both sides of the fence, director of government procurement research agency Intermedium, Judy Hurditch, suggested resellers also need to understand the level of review which government officials are subjected to, and the gravity of spending taxpayers' money.

"Companies, especially those not used to tendering to government, see the process as bureaucratic, time-consuming and costly, because they do not fully appreciate the level of accountability that bureaucrats must have for their procurement decision making," she said.

While a single, standardised approach to government procurement and the selection of government supply panels remains a long way off, the actual approach to procurement is quite different in each state and at federal level.

Following the Howard Government's disastrous flirtation with whole of government outsourcing at the turn of the century, federal procurement has largely been left to the whims of individual agencies, for better and for worse. The challenge of the Federal Government's procurement system is that it needs to cover vastly different departments and agencies. Individual departments such as Defence, Centrelink and Australia Post represent some of the largest consumers of ICT in Australia, while the requirements of smaller agencies are more in line with local government contracts.

However, according to Intelligent Business Research Services analyst, Guy Cranswick, much of Federal Government's departmental procurement is currently in a holding pattern, awaiting the outcome of Sir Peter Gershon's Review of government ICT procurement, which is expected to recommend efficiency gains by adopting a more centralised and streamlined approach.

"Given what it has achieved in Britain, the Gershon approach is a good working template for government ICT in Australia as well," Cranswick said. "Fundamentally, it is designed to deliver cost savings, while improving frontline capabilities, by rationalising procurement and consolidating back office functions."

Critics of the current federal system charge that, by devolving ICT procurement back to individual departments and agencies, the government has failed to take advantage of its overall buying power to win better prices from vendors, and lost the opportunity to take advantage of economies of scale, especially on standard back-office functions.

"It all changed when the previous government decided to get rid of centralised purchasing, and as soon as it was taken down all those efficiencies disappeared," Dataflex's Evans said. "I believe the Gershon Review will bring them all back again and we'll see a more centralised approach, simply because it makes sense."

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Under southern skies

Having recently turned a year old, South Australia's eProjects Panel is one example of a centralised approach designed to reduce the cost and complexity of working with government, while delivering greater value for money on government projects.

SA's CIO, Andrew Mills, said the eProjects Panel was designed to cover lower value contracts. It provides government departments and agencies with a list of more than 120 pre-approved members categorised according to the goods and services they are able to provide. However, it also offers a series of features directly out of the AIIA's procurement wish-list.

"There are three characteristics that distinguish the eProjects Panel from other similar South Australian Government panels," Mills said. "It allows vendors, in certain circumstances and consistent with Government policy, to commercialise intellectual property developed during the course of projects for government; it adopts a risk-based approach to determining the extent of required insurances and potential liabilities of vendors; and it incorporates vendor performance reviews that will reflect how well each vendor has met the expectations of a purchasing agency."

Applications to participate in the panel are open and its membership is regularly reviewed. Resellers can participate by agreeing to supply services using a standard contract and are vetted through the selection process to determine whether or not they have sufficient capability and capacity to provide services to government agencies.

Having been launched in April 2007 with 73 panellists, the panel now features 123 members who compete for government work in the state, with the bulk of transactions and tenders lodged through the eProjects Panel portal.

"The panel is still in its infancy and there's insufficient data to fully assess whether it's achieving its goals," Mills said. "However, there's significant agency enthusiasm and support due to the benefits and efficiencies being realised."

Westerly change

Like SA, WA uses a mixture of what it calls common use arrangements (CUAs) and direct calls for tender depending on the size of the individual contracts.

"We establish whole of government contracts through common use arrangements if there's something which is commonly purchased, so we can leverage efficiencies by consolidating the purchase," director of ICT sourcing for the Western Australian Department of Treasury and Finance, Trudy Grimshaw, said. "Both resellers and vendors appear on the contracts, so the government agency can select to go direct or to buy through a reseller."

According to Grimshaw, this approach secures a better price for government contracts, while providing government departments and agencies with access to better support through the channel partner arrangements.

"Our model allows for a degree of competition across the market, as well as the convenience of a distributed network," she said. "It's designed to secure the best value for money outcome, which isn't necessarily the best price."

The WA procurement office also supports individual agencies to draft tenders and contracts when purchasing outside the common use arrangements, many of which also focus on securing goods via the reseller network rather than direct from vendors.

"It's a balance, we encourage the agencies to build a relationship with the vendors, and at the same time we encourage them to make user of the reseller network so they continue to be competitive," Grimshaw said.

Back in 2002, WA also replaced its consortium contract arrangements held then by IT services giant, CSC, with the panel-based Spirit framework, enabling a plethora of smaller service providers to bid for government work. Still in operation, the approach was designed to stimulate the local IT industry by providing access to government contracts, while providing agencies with greater flexibility in terms of their ICT service procurement.

"Industry either loves it or hates it," Grimshaw said. "But it tends to work best for companies that are willing to go out and seek opportunities, when there are a number of suppliers competing for a single contract it is almost like an open market."

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Victory in Victoria?

Like WA, Victoria also runs an eServices Panel consisting of 130 vendors and resellers, who compete for all state-based contracts in excess of $100,000. Initially formed as a three-year panel in 2005, it has just been extended for 12 months before full review is carried out.

Procurement specialist for information and technology services within the Victorian Department of Treasury and Finance, Ted Skahill, said resellers need to demonstrate capabilities in a specified range of areas in order to get a place on the panel, and then compete with other panelists for specific contracts.

"Our job is to make sure the best of breed suppliers and resellers are on the panel; it is then up to the agency to make a selection based on their requirements," Skahill said. "Prior to this system, each department and agency would go to market with a separate tender, and in consultation with the Victorian Purchasing Board they could turn it into a whole of government agreement."

In an attempt to cut back on red tape, and create a system which responded better to the needs of individual departments, the Victorian Government introduced a State Purchasing Contract, which also enabled various departments to 'piggy back' contracts drafted by the State Purchasing Board and a departmental lead.

Although such contracts often identified a panel of ICT suppliers, they remained cumbersome and failed to capture a level of competition within the tender process. Once on a panel, resellers and vendors would face limited competition, and have access to growing markets as different departments and agencies picked up on the contract.

In an attempt to overcome these challenges, the Victorian Government launched the Government Services Group (GSG) last year, to take control of government services delivery, and find savings of up to $50 million by achieving efficiencies in terms of government purchasing.

According to Skahill, the GSG is moving to consolidate much of the government's ICT purchasing under a single shared services group referred to as Cenitex. However, the actual purchasing mechanisms have yet to be determined. "I believe we're talking to South Australia, Queensland and even Western Australia about their methods," Skahill said.

People first, but transparency lacking

In July 2006, the NSW Minister for Commerce, John Della Bosca, launched the so-called People First plan, which set out a framework for a more coordinated whole of government approach to ICT procurement.

Designed to consolidate all government ICT expenditure into a single figure, the plan was supposed to deliver efficiencies through back-office consolidation, saving the state $125 million per year in capital savings and $80 million in recurrent savings.

So far, the approach appears to be well on the way to achieving such savings. According to a spokesperson for the NSW Department of Commerce, Government Telecommunications Agreements, where agencies purchase as a combined entity, have generated more than $50 million per annum in savings, while a recently released personal computers standard contract is expected to bring about $30 million in savings across the state.

"The new contracts for Enterprise Resource Planning software consolidate the Government's systems onto two standard platforms with SAP and Oracle. This generates savings and supports the Government's strategy for encouraging shared corporate services," the spokesperson said.

On the ground, however, NSW continues to be criticised for a lack of transparency and a failure to integrate market mechanisms into the procurement process.

According to Intermedium's Hurditch, about two thirds of ICT contracts are whole of government Period Contracts managed through the State Contracts Control Board (SCCB) established for periods of three years, with two optional 12-month extensions.

As a result, although very large contracts must go to a competitive open tender, the bulk of the state's purchasing is caught up in longer term contracts, which rarely come up for review.

"It's difficult to become a member of a supply panel due to the length of time the panels are in place," Hurditch said. "Conversely, any company actually on a panel is in a good position so long as it's prepared to still go out there and market its product. A place on the panel is really just 'a ticket to the dance'."

A big part of the challenge, according to Hurditch, is a lack of skilled procurement professionals working within state government, although she said the government is attempting to deal with the shortage.

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Perfect one day, Queensland the next

In August 2007, Queensland adopted the clumsily named but popular QP-707 arrangement, effectively consolidating the expenditure of nine previously separate agency purchasing arrangements. The panel included Data#3 delivering HP and Toshiba hardware, Fujitsu offering Lenovo, Acer and IBM solutions, and Dell supplying its own hardware.

"The arrangement was designed to achieve better value for money, a more consistent desktop platform, transparency across the sector, minimum standards for sustainability, and standardisation of service requirements across the sector," Queensland Minister for Public Works, Robert Schwarten, said. "All offerors had to compete on the selection criteria but, in particular, the tender required successful offerors to have a network of local service agents."

With an emphasis on channel partnerships, and a series of comprehensive energy and sustainability requirements such as appropriate disposal of used equipment, Minister Schwarten said feedback received from the relevant agencies has been largely positive.

"I am informed that the new approach is progressing well and is meeting the initial goals with a high degree of client agency satisfaction," he said. "It should be noted that there is significant voluntary use of QP-707 by Queensland local governments, government-owned enterprises and non-government organisations. This is a further endorsement of the arrangement's success."

The arrangement replaced a series of direct agency contracts with a single panel-based approach, which, like NSW, has appointed panellists for a period of three years with two 12-month options to extend. And although the length of the contract has come under fi re for reducing competition in the sector, Data#3's Grant said the time period forces participants to plan and invest for the long term.

"We have to look at it in terms of a five-year investment, and make sure we have the facilities to respond over that period," he said. "It would be difficult for a smaller reseller to successfully bid, not just because of the cost of the bidding process, but because of the logistics required to fulfil the contract."

Strategies for success

Given this mixture, it is little wonder ICT companies with five employees or less find themselves largely precluded from working with government in most states, let alone at federal level. But these micro enterprises make up 78 per cent of businesses operating in the sector, and despite the odds, some are finding a way through to secure a piece of the $34 billion annual government IT spend.

While it is potentially lucrative, the journey into government procurement is a challenging one across all states, and at federal level. Nonetheless, those that are willing to start with local government and work their way through contacts and word of mouth recommendations are off to a good start.

Zynet managing director, Paul Turner, is just beginning to get some insight into the complexities and rewards of dealing with government tenders. Having built up a successful ICT business servicing the private sector, he's currently attempting a leap into the more convoluted environment of pitching for government work.

"They're a difficult beast because you have to make contact with key stakeholders to understand their requirements, which means you're pushing through road blocks," he said. "We're evaluating whether it's worth our while to deal with the added demands of working with government, because at this stage it is out of our core business area."

As it turns out actually getting onto a panel, or being awarded a tender is but the first step in a long road, according to general manager of commercial sales at Dell A/NZ, Simon Johnson. The challenge, he said, lies in keeping up with ongoing reviews that most states demand of their ICT panellists.

"We think it's a good thing, but tendering is a lot of hard work. We've got dedicated tender teams that invest a lot of hours, resources and marketing resources just to produce the bids. The process is always ongoing," he said. "An organisation should be very clear about tracking to service level agreements, and meeting ongoing requirements."

According to Johnson, most state and federal government tenders require panellists to prepare for monthly face-to-face reviews, or quarterly scorecards to measure how you're tracking to the original service level agreements. Moreover, as Hurditch suggested, actually getting onto the panel is just the first step, especially in those states where panels are more open, and designed to create a competitive community of service providers.

"The sales cycle begins two or three years out and it continues once you're actually on the panel," Acer's Cefai said.

A successful panel bid required ongoing marketing prior to and beyond the actual bidding process, he said.

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Rewarding challenge

While he's keen to see the government adopt robust procurement processes, Data#3's Grant would like to see governments at all levels tackle other structural challenges, especially when it comes to the level of experience the government employees in different departments and agencies.

"There are two elements that need to combine to create a successful and effective government tender," Grant said. "The first is a procurement process which is inclusive and competitive, and the second is that it is conducted and managed by capable people, so that it becomes a partnership and not a confrontation."

So while the rewards can be great, tackling government procurement at a state and federal level requires a commitment not just to the initial bidding process, but ongoing marketing, reviews, and negotiation resources. In some states there's always room for resellers, in others there's temporary gaps in the market for new government suppliers, and many times there's little chance for smaller bidders to even participate.

And as with all new business opportunities, the best way to win government work is to start out by looking at how the local market is structured, and finding out where your options lie.