The total value of Federal ICT contracts fell for the second year in a row after spending decreased significantly across most categories of ICT supply.
Intermedium’s AnalyseIT database shows the market is in decline with a total contract value (TCV) of $5.3 billion for 2012-13*, down $1.29 billion on the previous financial year and $1.5 billion less than the five year peak seen in 2010-11.
This decline occurred across the market with falls in four of five ICT categories. Only Telecommunications recorded TCV growth on the previous year due almost completely to the Defence Terrestrial Communications contract with Telstra. The Software, Labour Hire, IT Services and Hardware categories experienced declines of between 12 and 52 per cent.
In addition, there were significantly less high value contracts. In 2012-13 there were nine contracts with a value of $50 million or above, as compared to 15 in 2011-12 and 14 in 2009-10.
Influences on the market
A number of factors contributed to this subdued market in 2012-13.
The Government has been in a form of quasi caretaker mode since then Prime Minister Julia Gillard originally called the election in January 2013, with many participants in the market indicating that agencies were disinclined to make procurement decisions. Lower levels of contracting in the second half of the financial year were particularly noticeable.
Also impacting the 2012-13 market, the public service laboured under the burden of a 4 per cent efficiency dividend, designed to find savings of $1.5 billion over four years to contribute to the Government’s (now abandoned) goal of reaching budget surplus. While agencies had autonomy over where the dividend was to impact, their clear preference is generally to reduce expenditure with suppliers rather than through staff cuts or reducing service delivery.
Further tightening of Government spending is also on the horizon with the announcement in the August Economic Statement that the efficiency dividend will return to 2.25 per cent for three years from 2014-15.
Historically the efficiency dividend has generally been set at 1 per cent. It has been argued that over time, it becomes increasingly difficult for agencies to find further efficiencies and may find themselves facing tough decisions about how and where to cut back on service delivery and staff numbers.
Hardware fell substantially down by nearly half to $431 million after reaching a five year peak of $765 million in 2011-12. The Printer, Storage and Large Computing Systems segments were the hardest hit.
IT Services posted its lowest TCV of the past five years at $1.6 billion, reflecting the absence of major managed services and systems integration deals during 2012-13. The last time the market saw values of this level was in 2007-08 when IT Services TCV was $1.2 billion.
Labour Hire recorded a TCV of $776 million last financial year, $100 million less than the year before. The 4 per cent efficiency dividend in 2012-13 goes some way to explaining why both the number and value of Labour Hire contracts declined so substantially from 2011-12 to 2012-13.
With the Government planning to once again increase the efficiency dividend from 1.25 per cent in 2013-14 to 2.25 per cent for the years 2014-15 to 2016-17, the Labour Hire market is likely to again feel the brunt of the cutbacks.
Software contracts totalled $687 million last financial year, down by more than half on the $1.4 billion recorded in 2011-12. Particularly large decreases were evident in ERP and Business Systems spending. Despite these decreases in TCV, the total number of contracts has remained relatively similar to previous years, meaning that the average value of contracts in 2012-13 dropped significantly.
Telecommunications was the only category to record an increase in spending over the past two financial years, owing largely to the major managed services deals done by the Department of Human Services (DHS) in 2011-12 and by the Department of Defence (Defence) in 2012-13.
Telecommunications reached a five year peak of $1.8 billion in 2012-13 with the $1 billion Terrestrial Communications deal at Defence making up more than half of this TCV. However with the two largest buyers of telecommunications services now locked into long term deals, the telecommunications market is likely to see a lower TCV in the coming years.
For more information on the Federal Government ICT Market look out for Intermedium’s Annual ICT Market Report Suite for 2012-13, which provides an in-depth look at the market overall and for each category of ICT supply. The series is due in November 2013.
* Contract reporting for the 2012-13 financial year is yet to be finalised. However while late contracts reporting may mean the final TVC for 2012-13 is slightly higher than the $5.3 billion currently reported, the market will not reach the highs seen in previous years.
For more information, please contact the Editor (02) 9955 9896.