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Attorney General’s portfolio could pave the way to shared services

by David Shi and Paris Cowan •
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Eyes will be on the Attorney General’s portfolio as it explores the possibility of implementing some measure of shared services provisioning, following the recommendations of a review into the operational efficiency of this cluster of agencies.

A successful implementation of shared services within the portfolio would boost the model’s appeal to other small Federal agencies which lack the staff numbers required to provide corporate services functions as cost efficiently as their larger Departmental counterparts. 

For example, Intermedium’s 2010-11 Annual Market Overview report shows that the lowest two tiers of the Federal Government market (those agencies procuring less than $50 million in ICT contracts per annum) are facing higher procurement overheads per contract than the bigger agencies.

In 2010-11 procurement across these agencies accounted for just nine per cent of the Federal ICT market by contract value, but represented  29 per cent of the total number (5,400) of contracts commenced in that financial year.

The average value of an ICT contract signed by a Tier 4 agency (defined by Intermedium as procuring less than $10 million in ICT per annum) was approximately $92,000.  In contrast, the average contract value for a Tier 1 agency (procuring more than $200 million per annum) was $531,000.

At the Federal level, the move to shared services for ICT service provision is still limited, with a number of agencies providing specific ICT infrastructure management services such as Secure Internet Gateways to other agencies both between and within portfolios.  Thus far, the implementation of a comprehensive ICT shared services arrangement has been limited to the agencies which now comprise the Department of Human Services (DHS), with DHS also now providing infrastructure management services to the Department of Veteran’s Affairs.

However, this could all change.

A review into the operational efficiency of the Attorney General’s portfolio, led by the former Secretary of the Attorney-General’s Department Stephen Skehill, has made a number of cost-saving recommendations for various agencies falling within the portfolio.

One of the review’s key recommendations, which has since been adopted by the Attorney-General Nicola Roxon, is that each of the agencies within the portfolio develop a business case into the respective benefits and risks presented by a transition to a shared services arrangement led by the Attorney General’s Department.

The Attorney General’s Department or another nominated agency will be asked to compile a list of corporate services that the Department is prepared to offer other agencies within the Attorney General’s portfolio. Service specifications and costs will also be provided in the list.

The benefits of shared services, however, are not necessarily limited to the Attorney General’s agencies, said the report, which has also recommended that other Federal portfolios comprising significant numbers of agencies develop a list of potential shared services offerings for submission to their Minister and the Department of Finance and Deregulation.

“There appears to be no reason why this process would not potentially be equally pertinent to other portfolios,” according to Skehill.

This is at least the second time the use of shared services has been formally suggested to the Federal Government. The 2008 Gershon Review into the Federal Government’s use of ICT made the qualified recommendation that agencies “consider shared services carefully”.  To begin with, it said, they should “quantify both the back office service levels and the associated costs of their current provision arrangements, and that they use this as the basis for determining what improvements can be realised through their own efforts.”

However, both the Gershon and Skehill recommendations have come with the caveat that shared services should only be implemented when the benefits outweigh the risk that such a transition entails.

“To now mandate the general implementation of shared services across all or part of the Attorney-General’s (or any other) portfolio on the current levels of information would therefore present a significant risk.

“While the prospect of gaining efficiency through shared services is intuitively attractive, a careful and sound analysis is required before making significant financial decisions to adopt a shared services approach,” warned Skehill.

The note of caution in Skehill’s report may be owed to an awareness that shared services implementation has had a chequered history in Australia’s public sector across.

In July 2011, the WA Government’s decided to decommission its shared services centre following an inquiry which found that the centre had delivered a net deficit of $345 million over its five year period of operation, whilst dragging down the operational efficiency of all rolled-in agencies. 

The failure of the Queensland Health Department’s payroll systems upgrade took place while it was under the management of the now defunct ICT shared services agency CorpTech.

In NSW, the Government’s Corporate and Shared Services Reform Program has been placed under review by Finance Minister Greg Pearce and in Victoria, the shared infrastructure service provider CenITex has also had its share of woes.

All of these State-based models, however, have been based on a more centralised and monolithic approach than that which is being proposed at the Federal level.

There are 82 Tier 3 and 4 agencies by Intermedium’s definition for ICT procurement thresholds. These are the ones who are most likely to monitor the success or failure of the Attorney General’s shared services approach most keenly.

The imposition of the 4% efficiency dividend in 2012-13, plus the significant curtailment of ICT capital expenditure is providing genuine and ongoing difficulties for these agencies.  The longer they experience such pain, the more attractive they are likely to see the idea of moving to a shared services model.

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