A plan to penalise members of the Department of Human Services’ (DHS) ICT Contractor Panel if their personnel leave contracts early has produced mixed responses from Canberra’s labour hire industry, with at least one executive planning to selectively boycott work while others forecast little change.
Earlier in the year the DHS revealed that agencies sourcing contractors through a refreshed version of the panel would be given the option of applying a ‘liquidated damages’ clause to contracts, allowing them to reclaim up to 20 per cent of a contract’s value as compensation for project delays and re-recruitment costs. The Department says that is does not expect all requests for quotation put to the panel to enable the clause.
One labour hire executive, who asked to remain anonymous, has told Intermedium that his company could not afford the extra risk involved in responding to requests for quotation containing the penalty clause, and indicated that several of his competitors were in the same position.
He forecast that the DHS and other agencies using the panel would be forced to pay a premium for those contracts where penalty clause was applied, because only systems integrators with the option of deploying permanent staff who would be in a position to respond, and that their overheads would boost daily costs.
“They will be paying a much greater percentage on top of the contractor cost in order to avoid a very small number of cases where contractors leave early,” he said.
However, when Intermedium put this scenario to the Department it said it was not a concern.
“We expect there would be minimal impact [on price],” a spokesperson said.
General Manager at Talent International, Baldev Bedi, also expressed scant concern about the penalty’s potential to seriously impact the market.
“I think that this will work as long as it is applied in a sensible manner,” he said.
“We would not reconsider submitting a bid because of the penalty clause. Rather we will try and make our screening process better to ensure we are taking people who are committed to their work.”
CEO of the Information Technology Contract and Recruitment Association (ITCRA) Julie Mills predicts that the early performance of the liquidated damages clause will determine its future and that of similar arrangements across rest of the Federal contractor market.
“If in 12-18 months it has made no difference then they will have to consider whether it is worth all of the argy bargy.
“The time it has taken to negotiate needs to be weighed against the benefit,” she said.
As the DHS progressively releases the names of suppliers selected for inclusion on the refreshed panel, it has also become apparent that the new list will be far longer than ever before. So far 124 suppliers have been named, making this version of the panel 42 suppliers larger than its predecessor, with new names added on a near daily basis.
Big players like Paxus and Peoplebank are still yet to be identified as signatories to the agreement.
Even those in the thick of the Canberra ICT labour hire community, like ITCRA CEO Julie Mills, say that some of the new additions are totally unfamiliar.
“There are companies I have never heard of on that panel,” Mills told Intermedium. “Who are they? How reliable are they? What are their credentials?”
She thinks that panel’s expansion is the result of a risk adverse public sector wanting to hold onto the specialist suppliers with whom they have already formed relationships.
“There is a real nervousness around a skills mismatch in Canberra and I think this is a protection mechanism against that,” she said.
However the Department itself has said that the panel’s growth merely reflects the expansion of the user-base.
“The original panel, notwithstanding that it has a piggy back arrangement, was set up for Centrelink. This new panel now covers DHS requirements including Medicare and Child Support as well as providing for other agencies who may piggy back,” said a spokesperson.
Since the original ICT Contractor Services panel was established in November 2007 by the then independent Centrelink (which has since been integrated into the DHS) more than $1.12 billion worth of ICT Labour Hire contracts have been signed through it. This makes it the largest public sector ICT procurement panel operating in Australia.