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Market flatlines as cuts loom

by Michael Read •
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The Federal Government ICT market is flatlining in the face of the looming Commission of Audit Report and the May Budget - except for the Defence Materiel Organisation (DMO).

ICT goods and services with a total value of $2.29 billion were contracted in the first half of 2013-14 by Federal Government Departments excluding DMO. At the same time in the previous financial year, for the non-DMO segment of market this figure was $2.25 billion, representing a small increase of 1.9 percent.

Some categories in the non-DMO market fared better than others. IT Services remain the largest procurement category in the non-DMO market and recovered significantly from its position relative to the previous year. In the first half of 2013-14, $819.4 million worth of IT Services were contracted by non-DMO agencies, representing an increase of 37.8 percent in terms of Total Contract Value (TCV) compared to the same time last financial year.

However, the benefits of this recovery were unequally distributed. Almost one-third (32.9 percent) of the total value of the non-DMO IT Services spend in the first half of 2013-14 came from just four contracts shared by just two suppliers:

  • A $128.7 million managed services agreement between IBM and the Australian Customs and Border Protection Service;
  • A $58.5 million deal between the Department of Defence (Defence) and Accenture for a Departmental payroll system;
  • A $42.3 million agreement between the Australian Taxation Office (ATO) and IBM for the eCommerce Platform Delivery Project; and
  • A $40.2 million agreement between the ATO and Accenture for the design, building, testing and implementation services for the ongoing MR4 Client Register Project.

Software was the only other category in the non-DMO that experienced growth in the first half of 2013-14, when compared to the same period last year. Software TCV increased by 60.8% to $429.5 million in the first half of 2013-14, largely driven by the periodically recurring spend on Microsoft licences.

Just three high value contracts accounted for approximately one-third (31.0 percent) of the TCV of the non-DMO Software spend in the first half of 2013-14:

  • A $60.1 million agreement between ATO and IBM for IBM Licenses and support services;
  • A $48.3 million agreement between Finance and Data#3 Group as part of the Microsoft Volume Sourcing Arrangement; and
  • A $24.9 million agreement between the ATO and Data#3 Group as part of the Microsoft Volume Sourcing Arrangement.

The Microsoft Volume Sourcing Arrangement is expected to achieve savings of over $100 million during its three-year term from July 2013 to July 2016.

The largest hardware agreement in the first half of 2013-14 amongst agencies excluding DMO was a $7.3 million agreement between the Department of Immigration and Border Protection and Fuji Xerox for multi-function device maintenance whilst the largest Telecommunications deal was a $29.0 million agreement struck between the Department of Agriculture and Optus for the provision of telecommunications services.

At a sub-category level, $485.8 million, or 23.6 percent, of TCV in the first half of 2013-14 was for ICT Labour Hire. SI Services represented 19.1 percent of the market, whilst IT Services Managed Services accounted for 16.7 percent.

The first half of 2013-14 witnessed a 2.6 percent decrease in the non-DMO Total Contract Number (TCN) to 7,163.


DMO Leading the Market

Year-to-date, the Defence Materiel Organisation (DMO) leads Federal ICT procurement with a market share of 34.4%, as recently reported byIntermedium.

One large contract drives the DMO result – a $221.4 million agreement between DMO and Raytheon for Australian Defence Air System Support services.

DMO’s year-to-date TCV, according to Intermedium’s analysis of ICT contracts published via AusTender, is over $488 million, a 920 percent increase on the 2012-13 result. The DMO’s spike in procurement activity follows a three year lull in which no year had a TCV more than $60 million.


Glass half empty or half full?

Both the release of the Commission of Audit Report and the May Budget are likely to keep the brakes firmly on future ICT spending by Federal agencies, but the quest for smarter and cheaper ways of working is likely to spawn procurement of a different kind.

IT service and asset management solutions are being procured at both the Federal and State level, with the Federal Department of Health now in the market, and The Shared Services Centre likely to be in the market, to name just two. Applications to support mobile computing, and the uptake of ‘Bring Your Own Device’ as well as ‘Choose your own Device’ are also firmly on the uptake.

According to The Australian, it is expected that the Commission of Audit’s final report will be released three weeks before the May Budget. For the Abbott Government to achieve its surplus target, $60 billion year needs to be saved by 2023-24, according to the final report seen by The Australian.

To achieve the surplus target, a tight budgetary environment will need to be maintained well beyond the term of the current Coalition government.

“The size of Mr Hockey’s savings task is equivalent to total federal spending on education or defence and will demand the axing of complete government functions and reductions in spending on pensions and allowances”, states The Australian.

Consistent with the 2013 Queensland Commission of Audit, and the 2012 NSW Commission of Audit Report, the final report is may well recommend the Federal Government further outsource IT functions to the private sector despite the Coalition Government’s commitment to implement in-house shared services in “light-user agencies”.

The 2014-15 Budget will be handed down by Treasurer Joe Hockey on May 13. If The Australian is correct, the Commission of Audit Report will be released around Tuesday 22 April 2014 – a slow news week nesting between Easter and Anzac day and in the midst of school holidays.

Related Articles:

DMO unassailable market leader in 2013-14 Federal government ICT spend

ICT solutions likely replacement for outgoing staff

Customs to replace manual processes with ICT solutions

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