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ATO Off-shoring - How Big A Deal Is It?

by Staff Writers •
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If you read Tuesday’s IT section of The Australian, you could be forgiven for thinking that the Australian Government is poised to send millions of dollars worth of programming work offshore and that this is just the “thin end of the wedge” for the local ICT industry in Australia.

The Australian Tax Office (ATO) is expected to confirm this week whether technology partner Accenture will be allowed to send some code-cutting work in its $450 million Change Program to offshore facilities. If the ATO approves the move, it will be the first time a federal government agency has had application development work done in cheaper labour markets.

However, Intermedium’s view is that we will not see the ATO or other federal government agencies now embrace off-shoring as an ongoing facet to their applications development work.

A number of factors would have to align for such off-shoring to occur again. Firstly, an agency would need to have a major application redevelopment program underway, which was at risk of delivery because of a lack of resources, or was at risk of cost overruns due to the cost of the resources.

Even if such risks were manifest in a project, it is highly unlikely that federal government agencies would as yet see themselves as having the capability to manage an off-shoring contract directly with the off-shore supplier. Therefore an agency contemplating such a move would probably need to have a systems integrator with the capacity and willingness to sub-contract that work off shore, and bear the contractual risk as the prime. To be comfortable about bearing the contractual risk, the integrator is likely to also need to have an established relationship with the off shore entity. Many of the large integrators already have such relationships in place, or have subsidiary companies in countries such as India who can perform the work on their behalf to the level of assurance that is required.

It is understood that responsibility for managing the ATO’s offshore development work will rest entirely with Accenture, as they have identified skills shortages in their Australian workforce.

According to Kim James, Intermedium’s Principal Research & Product Development, “It’s clear that if Accenture could employ the right people in Australia, they would. However, the timelines are tight, and ICT skill shortages are endemic in Canberra at the moment, so of course the ATO is going to listen to reasonable alternatives to get the project back on track.”

The proposal would see Accenture using offshore facilities for 16 per cent of the Change Program code work, and 25 per cent of the coding for the superannuation system redevelopment.

When complete, the ATO’s Change Program will streamline the costs and processes associated with tax compliance. It includes the replacement of both front-end systems and back-end processing systems.

In January, the ATO announced its plan to extend the program from three to four years, due to an excessive risk profile and lack of resources. Independent project advisor Capgemini had described the original three-year timeframe as “very aggressive” and “very high-risk”.

Now, in a reverse decision, the ATO and Accenture believe that sending the work offshore will shift the project delivery date forward to December 2007, rather than July 2008.

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