When Anthony Lean took on the job of General Counsel at the NSW Department of Services, Technology and Administration (DSTA) in August of 2009, he expected to spend his days occupied with the public works construction business that makes up the bulk of state expenditure.
Instead, he told attendees at Monday’s briefing for the State’s revised Procure IT contracting framework, construction took up no more than 10% of his time, nowhere near as much as ICT procurement, which generated the most protracted and time consuming negotiations, owing to a procurement framework that was unwieldy and contentious.
In an attempt to turn this situation around and attract ICT investment into NSW, the State Contracts Control Board (SCCG) has approved recommendations made by a joint Australian Information Industry Association (AIIA) and government steering committee to dramatically revise Procure IT, the standard set of terms and conditions which contractually binds government ICT procurement.
The new contracting framework makes several key concessions to suppliers, including a proscribed cap on liability, vendor retention of intellectual property rights and the removal of a much despised ‘best price’ clause.
Intermedium’s Managing Director Judy Hurditch was at the briefing, said that the policy shift is good news for the NSW ICT industry, and that both the senior government representatives and the AIIA were complementary of each other’s efforts and the spirit of cooperation which was the ongoing hallmark of the changes.
“The achievement of this outcome in terms of the cooperation between industry and government at this level is unparalleled in the 7 years I have been watching and commenting on the NSW government ICT market”, she said. `
“Unfavourable IP conditions, unlimited liability and the best price obligation were the three biggest thorns in the side of the ICT industry in this state, so I agree completely with the AIIA and the SCCB that these three changes will have a significant impact on ICT suppliers to government,” she said.
Under the terms and conditions contained in the Version 3 of Procure IT, the default level of liability faced by vendors will be capped at $100,000 or twice the value of the project, whichever is the greater value. The default cap replaces a system where a complex risk assessment process meant that liability remained uncapped in most cases, to the disadvantage of large and small vendors alike.
Under the new conditions, it is expected that 95% of purchases made through SCCB will feature capped liability, while provisions remain for risk assessments to calculate the cap for the largest 5% of contracts.
Dr Kerry Schott, Chairperson for the SCCB, expects this clause to open the market to SMEs who may have found past liability conditions intimidating.
“Changes to insurance requirements will make it easier for small to medium businesses to participate and this will result in greater competition and better pricing,” she said in a statement.
Judy Hurditch adds that the revised liability conditions are a win for big business as well.
“Multinational companies will not agree to put themselves in a position where the total assets of their company might be exposed due to a contract that has uncapped liability, so this is a monumental breakthrough from their perspective,” she said.
The revision of Procure IT brings NSW procurement into line with that of the Commonwealth and Victoria when it comes in intellectual property, reversing the default provision to allow IP rights to remain with the supplier.
In exchange for this concession, the state government will retain a licence to use the IP across other agencies at no extra cost.
This default position will apply to all contracts except for those which relate to law enforcement, security, privacy, critical government systems or cases where it is deemed to be in the public interest for rights to remain with the government.
The senior bureaucrats behind this move hope it will mean more innovation in the State and less work for their lawyers.
Best Price Clause
The new version of Procure IT also reflects an acknowledgement by government that the best price clause contained in previous editions was a policy that worked against them.
The clause obliged vendors to offer government a contract price equivalent to the cheapest price that they had offered to any other client in elsewhere.
Hurditch said that that this requirement was not only unenforceable at a practical level, but it also prevented vendors from offering discounts on large purchases.
“If a vendor offered a very large agency a discount based on volume then it would be expected to offer the same price to a small agency where the vendor’s cost structures might be completely different. This often meant that the supplier was extremely reluctant to offer a discounted price because it would have a detrimental impact on the prices they need to charge elsewhere to remain profitable,” she said.
Speaking at the briefing, DSTA Director General Peter Duncan said that the new Procure IT framework represents “a new best practice benchmark for Australia”.
He said he hoped it would make NSW a destination where ICT vendors wanted to do business, by creating a “dynamic and flexible environment to let technology and innovation thrive on its own merits”.
The Procure IT revision was first announced by Premier Kristina Keneally at an AIIA conference in December. While polls suggest that Keneally’s Labor Government is facing a crushing defeat in the March state election, Hurditch says that the reforms are apolitical and likely to be welcomed by any future government.
“We have seen the Liberal Party come out with a policy focus on innovation and making NSW competitive in terms of ICT. The Procure IT reforms will certainly provide the right foundation to foster such outcomes” she said.
“I came away from the briefing with the impression that this could genuinely be a new dawn for the ICT market in NSW,” she added.
The changes come into effect on 1 June 2011. The new version of Procure IT will become available online on 1 March.