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ATO proves it is serious about contractor procurement reform

by Judy Hurditch •
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With a Request for Information (RFI) for its IT Contractor Procurement Reform Program currently in the market, the Australian Taxation Office (ATO) has reduced its IT Contractor Panel by almost half.  The ATO has advised 21 of the previous 48 suppliers that they will not be offered an extension when the initial term of the panel expires in July.  

The ATO is seeking to make working with it simpler and more cost effective for industry and in return is looking to achieve greater efficiency and cost savings, according to the RFI notice published on AusTender.  It states that “given changes in the ICT industry and recruitment practices over this time, the current process may not be an effective long-term solution”. 

The rationalisation of suppliers on the current panel is an indicator of just how serious the ATO is about reforming its IT Contractor arrangements in the face of strong budget cut-backs, including a requirement to shed 3,000 staff. 

According to an ATO spokesperson, the organisation is yet to determine how many suppliers will be on the new panel because it has not yet finalised how the solution will work.  It is aware that the IT industry is using best practice models not currently available to the ATO under current procurement arrangements, which have been utilised by Federal Government for a number of years, the spokesperson added.

ATO Chief Information Officer Bill Gibson said the ATO wants to work closely with industry on the review. “Industry involvement in this review is critical because we want the new model to be effective for both the ATO and stakeholders,” Mr Gibson said.

Savings of up to $4million annually are expected through a combination of improved procurement processes and reduced supplier costs, according Gibson. The bulk of the savings will come from being more efficient in the procurement process and dealing with fewer suppliers, but other objectives of the new panel will be to:

•             Create greater transparency in the costs of engaging and retaining a contractor;

•             Facilitate the speed with which the ATO can go to the market; and

•             Increase overall the quality of the candidates offered and selected.

A key change will be that the ATO expects that contracts under the model will reflect project requirements and timeframes, rather than the annual government funding cycle. The funding cycle generates huge seasonality in the market, with the majority of contracts let for the 12 months 1 July to 30 June. 

While the ATO is still to determine the nature of the model it will adopt, a spokesperson said it has ruled out a recruitment process outsourcing solution so the decision-making process can remain in-house.

A fixed term panel, rather than a multi-use list is the ATO’s preference for the panel. However, it intends to ensure there is the flexibility in the arrangement –it is likely new entrants will be allowed onto the panel periodically to avoid a situation where new technology skillsets emerge which are not offered by existing panel members. 

“We want to ensure we can meet demand for new technologies as they arise in future,” an ATO spokesperson said.

There is strong interest from other federal government agencies in the ATO’s IT contractor reform process, with a number of agencies within and outside the Treasury portfolio signalling they wish to participate in the tender process, and other agencies expected to utilise the piggy-backing provisions once the panel is established. 

The review is receiving attention at the highest levels within the ATO, with Bill Gibson the sponsor of the project.  A steering committee is in place, with a range of internal and external stakeholders represented. 

Depending upon the degree of take-up by other agencies, there is the potential for this panel to be one of the two largest IT contractor panels in Canberra, alongside the massive Department of Human Services IT Contractor Panel, which saw 768 contracts with a total value of $88.5M signed in 2012-13, and 2383 contracts with a total value of $370.2M signed year-to-date (YTD) in 2013-14.  The reason for the lower figure in 2012-13 was that the panel was in the process of ramping up after replacing the previous IT Contractor panel (see chart).

All up, the ATO’s current IT Contractor panel (SON 41432) has seen 818 in contracts let over its life, with $60.6M in total contract value (TCV) for 2013-14, YTD, as illustrated in the following chart. 

The DHS IT Contractor panels are also represented in this chart.  The expired panel SON50822 is ramping down at the same time as its replacement (SON 867801) is ramping up.

COMPARISON OF ATO AND DHS LABOUR HIRE PANELS (TOTAL CONTRACT VALUE)

The current ATO IT Contractor Panel (SON 414320) is due to expire in July 2014 and will be extended for twelve months to allow for the procurement process that will follow the consideration of the RFI responses, the ATO spokesperson said.

Following the assessment of the RFI responses, a Request for Tender (RFT) to the open market is expected to issue by October 2014, with the new panel expected to commence in early 2015, creating a ‘transition in period’ where, as occurred with the DHS panels, it will ramp up in activity at the same time as activity under the old panel ramps down prior to its expiry.

The curious amongst us will have to wait until July to find out which suppliers have been removed from the current ATO panel, when a new Standing Offer Notice will be published on AusTender reflecting the changes. However, if it was based on lack of contract success with the ATO to date, Intermedium’s data suggests that any supplier which had less than $400,000 in TCV is likely to have been removed.

The top ten labour hire suppliers to the ATO in 2013-14(YTD), based on TCV are:

1.            COMPAS

2.            PAXUS

3.            AJILON

4.            ENCORE IT SERVICES

5.            SOUTHERN CROSS COMPUTING

6.            FINITE GROUP

7.            PEOPLEBANK

8.            CLARIUS GROUP

9.            TALENT INTERNATIONAL

10.          EKONSULTING

Related Articles:

ATO to introduce new procurement model alongside panel overhaul

The ATO to deliver 2020 vision with improved systems but smaller workforce

Majority of ATO complaints stem from IT problems

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