On top of the gloom and doom surrounding Wall Street, AusTender contract data now seems likely to confirm we’re in the midst of a significant downturn in the Federal Government ICT market.
Intermedium’s preliminary data analysis shows Federal Government spending on ICT could have been cut by almost $1 billion in the year to June, compared with 2006-07.
While there may be no “official” spending freeze in place, the cumulative effects of the Rudd Government’s decision to apply an additional 2% efficiency dividend, together with major policy and program reviews appear to have effectively slashed ICT activity in the Federal market by almost a quarter.
This artificially induced cutback may have serious consequences for both the Australian ICT industry and the wider economy, if the impact of the current US credit crisis widens. Equally importantly, delivery of government services might be compromised if the cuts have affected essential ICT investment programs or the availability of skilled resources.
Throughout the last 12 months, Intermedium has received anecdotal evidence from clients that there has been a decline in the amount of ICT business in the Federal Government market. Intermedium’s preliminary contracts data seems to support this.
Government markets are often unaffected by general economic conditions. At times they continue almost unchanged while other sectors slow. Government markets may even be counter-cyclical, growing during periods of market downturn as governments attempt to “pump prime” the broader economy.
The current slowdown in the Federal ICT market is not due to the wider economic downturn; it is simply a co-incidence that Government policies have impacted at the same time as the downturn. Even before the economy slowed, Government ICT spending slowed as agencies took a conservative approach to procurement in the lead-up to the Federal election. As the Australian economy began to slow earlier this year, the impact of a number of Government measures began to bite in the ICT market.
Since the election of the Rudd Government, a series of measures have contributed to a slowdown in activity continuing.
- Increase in the productivity dividend meant agencies had less money to spend
- Cuts to spending were made in the May budget
- Agencies deferred some purchases awaiting the outcome of several reviews (Gershon, Mortimer)
- A moratorium was imposed on major contracts for certain “commodity” items, such as desktops and office machines.
While final figures are not yet available, evidence suggests the total value of ICT contracts has fallen, and the number of contracts is also down.