In tight economic times, ICT is feeling the impact of a contracting market. There are still opportunities in Federal Government ICT, however new approaches are needed to meet emerging government requirements.
Intermedium’s latest Federal Government ICT offering, update IT, has confirmed what most ICT companies have been privately reporting. It’s pretty quiet out there.
In a typical year, the Government market cycle would produce a significant upswing in the next quarter. However there is very little evidence this will happen. The leading indicator of Government business – the number of tenders released – is well down on previous years. Intermedium’s contract data shows that in the first three quarters of 2008-09, 215 ICT RFTs were released, down over 26% on the corresponding period on 2007-08, when almost 300 RFTs were released. That’s 26% fewer opportunities for suppliers.
Despite this, spending for first half of the year, as represented by AusTender contracts reported, was up over $1.8 billion. That’s actually higher than for the first half of 2007-08. However, aggregate data often hides dark secrets, and in this case the dark secret is that the total half year spend is strongly supported by just three large Defence contracts, with Telstra and IBM, which together account for over $437 million in contract spend. When these are taken into account, the remaining share of business for other suppliers is very low.
Large projects are also off the boil. In the calendar year 2007, almost 80 large contracts (those valued at more than $5 million or more) were reported by AusTender; in calendar 2008, just 40 such contracts were inked.
The Federal Government market fell much earlier than the private sector, and it has remained flat since that time. The fall began with a predicted pause in sales after the election. This was followed by further contraction in the market while various reviews ran their course. Both factors took an early toll on spending, so the Government market was already down when the full impact of the Global Financial Crisis began to take hold.
But the news is not all gloom. Intermedium’s contracts data shows while the most significant reductions are in large ICT projects, there is also a steady stream of smaller projects, and ongoing work under existing contracts.
Federal Government is now a very different market with different dynamics, and suppliers must adjust their strategies accordingly.
- Efficiency and budget risk are now big considerations in deciding project priorities. When money is tight, concrete business cases with clear short term deliverables, will carry significant weight. It is much harder to justify a worthy but more expensive initiative, when the outcomes are subjective or where savings are delivered in later years.
- The wheels of government still need to keep turning, even in bad times. Indeed, some agencies are under greater pressure to deliver services when times are bad. Particular agencies are tasked with delivering support packages to citizens and industry, as well as delivering the various stimulus packages. Such agencies need to deliver more services while balancing their own tight funding situation.
- This is the time when incumbent service providers can demonstrate their real value by leveraging their understanding of agency business needs to come up with cost effective alternatives. Indeed increased ICT expenditure may deliver overall savings to the agency
- Australia is not alone in weathering the impact of the Financial Crisis. There are opportunities for enterprising vendors to provide local and overseas examples where best practice has delivered increases in agency efficiency.
The Federal Government market is clearly very depressed, but there are a number of very good opportunities for vendors. The new challenge is to anticipate emerging opportunities in a changing government market.