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Outsourcing trend among smaller agencies likely to accelerate

by Sam Murphy and Pallavi Singhal •
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The emerging trend of smaller agencies outsourcing the management of their ICT environments is set to accelerate under the Coalition’s ICT Policy.

The Policy distinguishes between light and heavy users of ICT in the public sector, identifying “light users” as “a larger group of smaller scale, less intensive users of ICT, whose needs in most cases are considerably less specialised”.

“In many cases, internal expertise is limited and functions are of sub-optimal scale.”

The “two-tier” Policy suggests that light-user agencies need far less autonomy over internal ICT environments, in comparison to heavy ICT user agencies with complex environments and responsibility over legacy systems “crucial to core tasks”. In particular, the Policy highlights the need for smaller agencies to achieve greater efficiency through alternative procurement and system management models.

“Over the past decade computing and networking have matured, standardised and evolved in ways that allow many of the capabilities they provide to be offered as a service rather than a product – as tasks performed in the ‘cloud’ (somewhere else) and offered to end users as shared, metered, scalable utility over the network,” it says.

For market analysis purposes, Intermedium allocates agencies into tiers based on the total value of their ICT contracting per annum.

‘Tier 1 and tier 2’ agencies, can be classified as heavy user agencies with a total contracts value per annum in excess of $50 million. Those with a value of less than $50 million are classed by Intermedium as ‘tier 3 and tier 4’ agencies and would fall under the Coalition’s definition of a light user agency.  The scale of the outsourcing opportunity becomes apparent when looking at the contracting undertaken by these different agency groupings.

In 2012-13 there were 15 agencies in tier 1 and tier 2 and together these agencies contracted $4.6 billion, 86%, of the total market value for the year. In contrast the 97 agencies in tier 3 and tier 4 accounted for the remaining $770 million, 14%, of the market value. There is a strong case to look for savings through outsourcing and standardisation in many of these smaller agencies.

There are already a number of visible examples of smaller agencies opting to outsource the management of their ICT environments.

Both The Australian Skills Quality Authority (ASQA) and Tourism Australia approached the market for outsourcing arrangements. The Australian Skills Quality Authority (ASQA) issued an Expression of Interest (EOI) for a managed service provider in August 2013 to “transition its existing ICT services from two separate service providers”. The agency is calling the project ‘NIMBUS’, literally meaning a luminous cloud, and it involves the provision of telecommunications services, the development of a single business system and desktop standard operating environment, mobility services, hardware provision, and support services.

ASQA currently relies on managed services from the Department of Education, Employment and Workplace Relations (DEEWR) and Education Services Australia (ESA). However, NIMBUS will see the agency move to a single hosted services environment.

Tourism Australia is also looking for a managed service provider. The agency has issued a Request for Tender (RFT), also in August 2013, for a “partner organisation being responsible for new services and systems”. This includes a new system or group of systems for payroll, finance, budget and human resources functions to replace its existing seven year old, Enterprise Resource Planning (ERP) system. The successful tender is yet to be announced, however, the eventual supplier is due to commence work in November 2013.

In addition, the agency is trialling cloud based service Microsoft 365 and upgrading their document management system SharePoint.

Light user agencies will lose all autonomy over ERP systems under the Coalition’s policy with heavy user agencies encouraged to take on lead roles over a cluster of smaller agencies, in a bid to ensure “increased sharing of resources.” It’s a move that has already been seen in other jurisdictions.

NSW Trade & Investment is currently in the second stage of consolidating ERP systems from 16 agencies into a SAP cloud platform. The Government has flagged the $14.5 million project as a success saying that the finance and payroll systems have been rolled out successfully over all agencies covering a total of over 8,500 employees. Trade is taking the role of lead agency with responsibility for a cluster of agencies including the Department of Primary Industries, Arts NSW and the NSW Office of Water.

In September, the Federal Department of Finance acted upon a $1.4 million Labor budget allocation for a study into the most cost efficient and beneficial way to rationalise the number and type of ERP systems used throughout agencies.

The estimated timeline for the ERP optimisation study indicates that industry consultation and environmental research will be undertaken in 2013, with further research, analysis and development of implementation options to follow in 2014. Finance is due to report to the Government on project findings in the first half of 2015.

The Coalition’s vision for a greater “use of shared services” to find efficiencies within smaller agencies is one shared by the Australian National Audit Office (ANAO). In 2010, the ANAO expressed interest in exploring a shared services model whereby “like-agencies or portfolios establish common Human Resource and Finance system platforms” in its IT Performance Review.

While the ANAO has outsourced its IT environment for 16 years with Unisys, it is currently reviewing the arrangement. Galent has been awarded a $48,000 contract to review the current arrangement. A spokesperson from the agency said it contracted Galent to “to conduct a value for money assessment of the current Unisys contract and delivery performance against the ICT Outsourcing market to assist the ANAO determine if it should offer Unisys an extension or return to the market”.


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Coalition’s ICT Policy outlines major changes for agencies

OPINION: A long road ahead yet for new Government’s ICT Policy

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