Today the Senate References Committee tabled the first report of its Inquiry into Contracting out of Government Services. This report addresses the contracting out of Commonwealth Government Information Technology.
http://www.aph.gov.au/senate/committee/fapa_ctte/outsourcing/index.htm
The 1997 budget saw the Liberal Government embark upon a fundamentally flawed program of outsourcing of IT services. Savings on IT expenditure through ‘economies of scale’ were cited as the primary justification for such a program. The Government has since admitted that these projected savings have now shrunk by 75%.
Concerns relating to the privacy and accountability prompted the Senate Inquiry and the IT outsourcing terms of reference were added to the original terms of reference on the 27 May 1997.
Fundamental flaw – Australian businesses excluded
Indigenous Australian IT companies are justified in their vocal criticism of the outsourcing process initiated by the Government. The process and structure relegates Australian businesses to sub-contractor status, with their only opportunity to obtain Government contracts being entirely contingent upon the terms the multinational IT corporations are prepared to offer.
The ‘cluster’ or multi-departmental approach to IT outsourcing ensures that only the multinationals have the capability to carry the risks such a large contract (by Australian standards) involves.
The multinationals are in turn resisting Government pressure to enter partnerships designed to guarantee a degree of local participation.
This will deny Australian business the ability to innovate and grow, as Government contracts previously provided the security necessary to foster research and development, as well as platform upon which they could market their exportable products and services.
Fundamental flaw – Citizen’s privacy at risk.
Back in April, Minister Fahey indicated that he would amend the Privacy Act to ensure its application to contractors holding personal information on behalf of the Government. These amendments have not yet seen the light of day. Until they do, not only are potential tenderers pricing on unknown legislative conditions, but the extent to which the privacy of such sensitive information is completely unregulated.
The Government cannot use contractual privacy provision to guarantee such matters because:
- there will be no public accountability as to what protection will exist . This Government has consistently used ‘commercial in confidence’ to keep such matters secret.
- Experiences elsewhere have shown that no matter what contractual penalties are inserted into the contract, breaches occur. Any subsequent penalties are not realistic as they are not able to be practically enforced.
For this reason alone there is justification for a moratorium to be placed upon the IT outsourcing process.
Fundamental flaw: Competitive tendering by-passed
The Government has continually championed the competitive tendering processes as being the means by which savings will be delivered. However, in the first instance, the Department of Finance (DoF) chose to bypass this process and used an obscure clause in the Interim Procurement Guidelines to ‘piggyback’ the DoF IT contract on a pre-existing IT contract which existed between IBM and the Department of Veteran’s Affairs (DVA).
This move shattered the confidence of even the multinationals who were eager to tender for the tranches of Government IT work. The Ministerial discretionary power used to initiate the piggyback was out of context and breached the spirit, if not the letter, of the procurement guidelines.
In addition, the Governments motives were exposed when they excluded in house bids. It became clear that savings were being used to justify an ideological commitment contracting out Government services.
Fundamental flaw: Savings not there.
Evidence to date shows that with respect to outsourced IT, barely 50% of contracts make any savings. Studies on outsourcing that analyse contracted out municipal services are not a valid comparison. In addition, the rate of technological change ensures that contract variations are a feature, invariably leading to cost blow-outs.
The basis of the justification for IT outsourcing was one of cost savings. In the pursuit of this outcome, the Government has compromised Australian industry, citizen’s privacy and principles of open and competitive tendering. Sadly, even the savings are not there. Latest estimates have the return to Government at less that a quarter of a million dollars.
Fundamental flaw: Public accountability
Information technology is an enabling technology. You cannot separate it from the ability of any organisation to achieve greater efficiencies or innovative advances in information handling techniques. To outsource IT under the current proposal will deny Government agencies the ability to make strategic decisions about information services and management that could compromise the development or improvement of services to the public.
For further information, please contact Robyn Blackwell or Kate Lundy on 02) 6277 3334
