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NSW not achieving best price in telco deals

by Sam Murphy •
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The NSW Auditor-General, Grant Hehir, has found that NSW agencies have “consistently” failed to negotiate the best price for telecommunications services with suppliers.

A report, “Making the most of government purchasing power – telecommunications”, handed down by Hehir found that most agencies “do not have the level of expertise in procurement, contract management and expense management that is needed in this fast-changing telecommunications area to achieve value for money.”

The Audit reviewed the following six agencies:

  • The Department of Education and Communities (DEC);
  • Forestry Corporation of NSW;
  • Fire and Rescue NSW;
  • NSW Businesslink;
  • Essential Energy; and
  • Sydney Trains.

Many of the issues identified in the audit stem from the recently expired Government Technology Agreements (GTAs) and while the Audit recognises that NSW has introduced a number of initiatives to better manage telecommunications expenditure, they are not mandatory and their results are yet to be seen.

NSW has an average telecommunications expenditure of $370 million which the Audit states could be significantly reduced.

The NSW Government’s new initiatives include a new framework for telecommunications procurement that was introduced in April 2014. Under this, its telecommunication panels were replaced with a prequalification scheme, “to promote competition as new entrants can register at any time,” a spokesperson told Intermedium.

In addition, Housley Consulting was contracted to assist agencies in choosing a supplier from the service list based on their telecommunications needs. The spokesperson confirmed to Intermedium that using Housley Consulting will not be “mandatory”.

On the initiative, the Audit comments “whether these arrangements will deliver value for money in practice will depend on whether the agencies take up the support and advice available; and how good that advice is.”

The prequalification scheme replaced the GTAs which were introduced in 2007 and expired in March 2014. The GTAs were heavily criticised by Hehir in the report.

NSW agencies were able to buy standard telecommunication services and equipment from the GTAs, however, the Audit notes the GTAs “did not use the government’s purchasing power to deliver the full potential for savings in telecommunications to all agencies.”

The major issue identified is that “It set ceiling prices that were better than market rates, but not as good as could be achieved through negotiation by experienced purchasers.”

Only one agency in the review was found to have negotiated lower rates through the GTA. That agency secured a discount of 24 per cent on GTA rates.

Furthermore, once the contracts were signed only one agency actively managed the contract. An example of failure to actively manage the contract occurred after a discount equivalent to the management fee of 2.5% became a condition in 2013 for  any new contracts. According to the Audit, the Department of Education and Communities failed to take up this discount and as a result paid $318,000 extra on its telecommunications contracts.

While the GTAs have now expired, contracts signed before the expiry dates can carry forward for up to another two years.

Another initiative in place is the Procurement and Technical Standards Working Group on telecommunications, established in March 2013 by the NSW ICT Board. According to the Audit, as of March 2014, 13 telecommunications proposals worth $11.46 million had been assessed, with savings of $3.66 million recognised. The Audit states that this “confirms that these agencies were not getting the best price possible on their own”. It also notes that not all agencies are using this service.

The Auditor-General recommends that by June 2015 OFS should:

  • Ensure that agencies submit their telecommunications proposals to the Procurement and Technical Standards Working Group for assessment;
  • Publish the outcomes and lessons learned from the Procurement and Technical Standards Working Group assessment of telecommunications contracts; and
  • Establish and report on key performance indicators for the government’s telecommunications broker.

A spokesperson from the Office of Finance and Services told Intermedium that NSW “is positioning itself to get the best value for money from spending on telecommunications in several ways:

  • Implementation of the Statement on the Promotion of Competition:  Issued by the NSW Procurement Board in 2013, it requires agencies to apply procurement practices in a manner which promotes competition including assessing the market before rolling over contracts and encourages new entrants to apply for government work.
  • Increase competition for NSW government contracts: Since April, small and large suppliers of telecommunications hardware and services can compete for NSW government contracts by registering with the ICT Services Scheme. The Scheme is always open to new applicants, who agree to standard terms and conditions. Agencies can benefit from comparing these offerings and competitive prices available through the Scheme, as well as from information shared through the ICT Procurement and Technical Standards Working Group on telecommunications.
  • Achieve greater value for money across agencies: The Working Group plays an important role in reviewing contract proposals to assist agencies achieve value for money and interoperability. The cross-agency approach provided by Group can identify benefits for government and a consistent engagement with the market.”



Related Articles:

NSW overhauls procurement of telecommunication services

NSW eliminates additional State Contracts; ICT Services Scheme now even larger

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