Third of ICT contracts impacted by DTA’s new rules


The capping of federal IT contracts to less than $100 million or three years duration is likely to have a significant impact on the federal ICT market, with around a third of contracts by value in the past five years exceeding the term limit.

A direct response to recommendations made in the August 2017 ICT Procurement Taskforce report, the term and value caps for federal ICT contracts were introduced to help break up what would have previously been large ICT projects into smaller components. The purpose is to help avoid expensive and subsequently high-profile ICT project failures that sometimes eventuate from locking in suppliers long-term.

Also, disaggregating ICT contracts leads to more opportunities for Small to Medium Enterprises (SMEs), because they are more likely to be able to deliver smaller components of a large project.

“The Taskforce found a culture of risk aversion in government procurement had undermined the freedom to innovate and experiment. If we are to reward the entrepreneurial spirit, a new procurement culture is necessary”, said Assistant Minister for Digital Transformation Angus Taylor in a press release. 

Intermedium’s research suggests that although the $100 million value cap by itself is unlikely to cause substantial change in the market, the three-year term limit for each contract may have a more significant effect on both buyers and suppliers.

A breakdown of federal ICT contracts from 2012-13 to 2016-17 shows that only a handful of contracts exceed $100 million in value each year. In contrast, the number of contracts that extend beyond three years in duration is a lot higher.

Number of contracts over $100 million or longer than three years in duration: 2012-13 to 2016-17

Financial Year

Total no. of ICT contracts

No. of contracts over $100m

No. of contracts > 3 years in duration 

% of contracts affected by cap

2012-13

14,494

4

498

3.4%

2013-14

15,874

7

687

4.3%

2014-15

16,443

6

734

4.5%

2015-16

17,187

7

588

3.4%

2016-17

15,444

5

592

3.8%

On average, around 4 per cent of the total number of federal ICT contracts in a given year would be affected by the new term and value caps. Most contracts that are over $100 million in value often tend to be longer than three years in duration, meaning there is often overlap.

The impact of the three-year term limit on the ICT market becomes even clearer when considered as a percentage of total contract value rather than contract number.

Value of contracts longer than three years in duration: 2012-13 to 2016-17

Financial Year

Total value of ICT contracts signed in FY

Value of contracts > 3 years in duration

% of contract value > 3 years in duration

2012-13

$5,694,662,796

$2,391,754,253

42.0%

2013-14

$6,723,598,697

$2,307,910,121

34.3%

2014-15

$7,384,568,924

$2,170,725,653

29.4%

2015-16

$9,301,998,456

$3,419,057,760

36.8%

2016-17

$7,622,743,575

$2,059,520,212

27.0%

Total

$36,727,572,448

$12,348,967,999

33.6%

As the table above shows, around a third of the total value of federal ICT contracts in the past five years exceeded three years in duration – meaning, they would have been disallowed under the new rules, unless exemptions to the rule had been sought and approved by the Assistant Minister for Cities and Digital Transformation and the Minister for Finance.

Even in its lowest year, the value of contracts that would have been affected by the term limit was over a quarter of the total value of ICT contracts for that year.

Effects still unclear so far in 2017-18

The effect of the new rules is still uncertain from the first two quarters of 2017-18 financial year, which showed typical contracting patterns when compared to first two quarters of previous years.

Number of contracts over $100 million or longer than 3 years in duration: 2012-13 to 2017-18, Q1 and Q2 only

Financial Year

Total no. of contracts

(Q1 & Q2)

No. of contracts over $100m

No. of contracts > 3 years in duration 

% of contracts affected by cap

2012-13

7,205

1

171 

2.4%

2013-14

7,574

4

278 

3.8%

2014-15

7,747

2

284 

3.7%

2015-16

8,155

2

256 

3.1%

2016-17

7,887

4

215 

2.7%

2017-18

7,413

5

241

3.3%

Intermedium’s data reveals that 241 contracts exceeding three years in duration were signed in quarter one and quarter two this year, including five Defence contracts that are valued at over $100 million.

Among those, 178 contracts and four $100 million-plus contracts were signed after the new procurement rules went into effect on 23 August 2017 – a possible influx of contracts that had been negotiated and signed before the new limitations were imposed on the agencies. The Digital Transformation Agency has been contacted to provide further explanation.

As the number of pre-negotiated contracts taper off, more marked changes to federal contracting patterns can be expected. Contract data suggests that a number of top hardware suppliers might be the most affected. For instance, in 2015-16 Dell had 54 contracts that exceeded three years in duration, followed by Ethan Group with 32 contracts, Dimension Data with 30 contracts and Data#3 with 27 contracts. Out of these 143 contracts, 98 were for hardware.

In 2016-17, Dell had once again the highest number of contracts that exceeded three years in duration, numbering 104 in total. Ethan Group had 25 contracts, Fujitsu and Acer 24 contracts each, and Dimension Data 23 contracts. Among these 200 contracts, 170 were in Hardware category.

Related articles

New $100m 'red line' for federal contracts

Feds forge SME-friendly procurement pathway

The rise of SME-friendly procurement channels

Govt encouraged to pull strategic procurement lever

Jurisdiction: 

<< Back to Latest Articles

For more information, please contact the Editor (02) 9955 9896.

Copyright: The intellectual property in this article is owned by Intermedium. Purchaser or authorised user may not distribute, promote, or otherwise use any Intermedium information or material for any external use without express written permission from the Managing Director, Intermedium.

Our Pick

  • Topics: ICT Strategy; Digital Transformation; Qld, NSW, WA, SA, Vic, Fed, Tas, NT, ACT.

    Announcing the upcoming launch of the Queensland Government’s refreshed ICT strategy in January 2017, Minister for Innovation, Science and the Digital Economy Leeanne Enoch said the government is looking “beyond [their] traditional approach to information communication technology (ICT)” to keep pace with citizen expectations in the digital age....Read more