At least $3 billion in ICT contracts was awarded by the Australian Government last financial year, an increase of 11 per cent in twelve months, according to Intermedium’s recently completed research. We issued a press release about our findings, and now provide this same information to subscribers of The Medium.
In 2004-05, 78 federal government agencies reported just over 24,000 ICT and large office machine contracts in AusTender’s Contracts Reported facility, up from the 73 agencies which reported in the previous financial year. This is due to the fact that ten agencies commenced reporting following the introduction of the Free Trade Agreement with the USA. At the same time, a number of agencies were retired (due to machinery of government changes).
Notable in the new reporting agencies, because of their expected level of contract activity, are Medicare Australia (previously the Health Insurance Commission), the Child Support Agency, Bureau of Meteorology and CSIRO. Also coming on board are APRA, AGIMO, Austrade, the Productivity Commission and the Professional Services Review.
The 78 agencies account for the vast majority of federal government ICT contracting activity. Their contracts data is a window into new business won in 2004-2005, and provides valuable market intelligence, particularly for suppliers interested in how they are performing relative to their competitors.
The value of these reported contracts was $2.99 billion. Allowing for those agencies which do not report their contracts data, and for the fact that some 2004-05 contracts may yet be published, the full size of the market for 2004-05 will exceed $3billion.
We extracted the 2004-05 contract data from AusTender on 30 September and waited 3 months from the end of the financial year to let the data stabilise, as some agencies take a while to do their reporting.
One key finding is that the market has grown 11 per cent each year for the last two years. The IT Services segment is largely responsible for this growth. Given that the IT Services segment experienced some large outsourcing contract renewals in 2004-05, it is entirely likely that 2005-06 will not see the same level of growth.
Across the other segments, hardware dropped, as did the large office machines and telecommunications equipment segments, but software and telecommunications services increased. We believe that part of the reason for the drop is that hardware and telecommunications equipment is now increasingly being supplied in managed services arrangements and so agencies are not entering into separate contracts with suppliers.
In another new trend, five agencies have now averaged more than $100m per annum in new contracts over the last three years, up from four in our previous analysis. Stayers in this top grouping (which constitute Intermedium's Tier 1) are Defence, Centrelink and the ATO. They have been joined by Customs and DIMIA. DEWR, which had been in the top group, dropped out this year.
These five agencies absolutely dominate the market, accounting for 75 per cent of contracts. The Department of Defence alone generated 28 per cent of the ICT contracts in 2004-05.
In 2004-05, 55 contracts were awarded with a value at $5m or more. The majority of these high value contracts were for outsourcing services, telecommunications, enterprise software agreements and hardware.
The top four contracts were worth almost $800 in total. Two were awarded to EDS - one outsourcing contract with the Australian Tax Office (ATO) and one with the Australian Customs Service. One went to Accenture to deliver their Tax Administration System (TAS) software to the ATO and one went to Telstra for managed telecommunications services with Centrelink.
Some categories, such as cabling, continue to be solid niches for specialist participants, while others, such as photocopiers, are being cannibalised by multifunction devices, with that market down from a high of $21m in 2002-03 to $13m last year, a drop of nearly 40 per cent.
Of the $2.99b in contracts awarded, approximately half were sole source – awarded via contract extensions or variations to incumbent suppliers. If ever there was solid evidence of the value of incumbency – this is it, in our opinion.
Intermedium will brief ICT suppliers and government purchasers on their 2004-05 findings in Canberra on 22 November 2005. More information and register.