Published in the Australian, Tuesday 17 August 1999

Outsourcing savings vanish

Twelve months after the first clustered contract began the cracks in the Federal Government's IT outsourcing program have become more visible.  The Coalition's projection of $1 billion in savings has already been revised down by 75 per cent and now it appears that even these savings will not materialise.

The evidence is stacking up in Australia and overseas that outsourcing information technology is not delivering savings outcomes. International research conducted by Lacity and Wilcox shows that only around half the IT outsourcing contracts deliver the promised 20-30% savings.  Minister Fahey, responsible for the Federal Government IT outsourcing program, was able to announce cost savings only because the Department of Finance reduced the budget allocation from the agencies involved up-front.

Technically he was not lying, because the bottom line showed the savings for this financial year and the out-years. However a closer investigation through the Senate budget estimates hearings reveals just how farcical Mr Fahey's claims are.

For example, the Department of Immigration and Multicultural Affairs (DIMA) gave evidence that the outsourcing vendor was costing the department more, not less. DIMA is the largest department in the Cluster 3 IT outsourcing contract, awarded to CSC just over twelve months ago.

However, it is not the Finance Department that has to take responsibility for this cost blow-out, they just negotiated the contract with CSC with the help of highly paid New York legal firm, Shaw Pittman Potts, Trowbridge. Any increase in costs must be found within the recurrent budget of the department.

Unfortunately for DIMA, around 10% of contracted service outcomes (called SLA's) were not delivered, allegedly resulting in significant financial penalties against the vendor, thus demonstrating that there was no improved quality trade-off arising from the loss of savings.

The Australian Tax Office, having just signed a five year contract with EDS, find themselves in a similar position. The ATO has foregone $20 million up-front for five years, providing the substance of Minister Fahey's public statement claiming '$100 million to be saved by outsourcing Tax Office IT over five years'.

Interestingly it is not just the issue of savings that has drawn attention to the IT outsourcing program to date. Australian IT companies have been losing opportunities to multinational IT corporations like IBM, CSC and EDS.

The Government has not being immune to criticism and both Ministers Fahey and Alston have gone on the offensive to try and deflect building criticism that the IT outsourcing program is pushing many innovative Aussie companies out of business.

To this end the AIIA and the Department of Communications, Information Technology and the Arts (DoCITA) funded a report titled 'The IT Engine Room'.

This report chronicles the serious impact the outsourcing program is having on small to medium IT firms, particularly those who have previously had export and growth opportunities arise from government contracts and who now find themselves being squeezed by multinationals.

Unfortunately the report fails to tackle the concerns of Australian I  companies, preferring to use the opportunity to defend the role of multinationals in the Australian market place. In what has to be the IT industry policy faux pas of the year to date, the lead recommendation focuses on attracting "multinational centres of excellence". In a report that is obviously being presented as a serious issues paper by the

Government and theoretically leading industry association, the AIIA, this is a grave indictment.

The outsourcing program itself is skated over despite attracting some of the strongest criticism and presenting the most significant opportunity for government to support industry growth in a practical and meaningful way. With the Government failing to deliver promised savings and industry development outcomes for existing Australian IT companies, it is time that this program, with its structure designed to hand work to multinational corporations at the expense of local business, was reviewed. 

Senator Kate Lundy

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