Industry has welcomed NSW Finance Minister, Greg Pearce’s announcement that he will abolish the much loathed fee levied on companies supplying to the NSW Government through State Contracts.
At present, the Government charges suppliers up to 2.5 per cent of the value of each procurement made through a State Contract (or whole-of-government panel), to cover the cost of tender development, client support and contract maintenance conducted by NSW Procurement and the State Contracts Control Board (SCCB).
The average fee paid by suppliers is 1.5 per cent, and it applies to all IT, Telecommunications and Imaging Devices State Contracts currently in place, says the Department of Finance and Services (DFS).
The fee will be progressively removed from State Contracts expiring after 1 July 2012.
The announcement will no doubt please suppliers who are currently signatories to one or more State Contracts in NSW, and has already attracted the praise of IT industry group the Australian Information Industry Association (AIIA).
“This is an issue very close to the heart of the AIIA, we have been advocating for the removal of the fee for some time,” said AIIA CEO, Suzanne Campbell.
“It will be of particular benefit to SMEs who previously experienced the management fee as a cost impediment to doing business with the NSW Government,” she said.
In the past, the NSW Government has considered the fee a fair trade-off for companies who have been given direct access to high-value markets and streamlined tendering processes as a result of their panel appointment.
However, Pearce told members of a procurement forum held on Monday (5 March) that independent economic analysis, done by the Centre for International Economics, found that the fee offered the Government little to no benefit.
“The analysis found it effectively acted as a tax on suppliers, who responded by passing the fee on in the form of higher prices for the goods and services purchased by government agencies.
“The fee has also been a big burden on industry, which has had the task of recording, collecting and paying the fee - imposing unnecessary red tape costs,” he said in a statement.
The Minister added that the scrapping of the fee is set to save the NSW economy $15 million. This figure refers to removal of administration costs associated with the management fee and leakage of GST incurred by the fee to the Federal jurisdiction.
In 2010-11, $3.7 billion of the $12.7 billion the NSW public sector spent on goods and services was transacted through State Contracts.
Using the average fee of 1.5 per cent, provided by DFS, this equates to an annual revenue stream of $55 million that will no longer be captured by the State’s procurement authorities. DFS advised Intermedium that these authorities will now be funded from the State Budget in order to continue operations.
It is estimated that the NSW Government spends $2 billion each year on ICT goods and services
This is the latest move in the Government’s campaign to support the ICT industry in NSW, by making the public sector market more appealing and easier to navigate.
It comes in the midst of a comprehensive review of the State’s procurement practices, aimed at implementing wide-ranging reforms to the way the public sector does business.