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Snapshot
of ICT Procurement

The Australian Government's ICT spend is significant. In 2014-15, total expenditure was around $5.6 billion on ICT labour costs and procurement, accounting for almost 10 per cent of total agency own-purpose spending. This is made up of about $4.3 billion of operational expenditure and $1.3 billion of capital expenditure. Procurement is the key gateway that governments use to access ICT, and in particular, to bring innovative technologies into government.

Breakdown of expenditure

Expenditure on applications and infrastructure accounts for the majority of government ICT spending. In 2014-15, expenditure on applications accounted for $2.1 billion of total expenditure (37 per cent), followed by end-user infrastructure (about $0.8 billion or 13 per cent) and ICT management services (just over $0.6 billion or 11 per cent). 4

Total Australian Government ICT spending by product or service, 2014-15 - Applications, End user infrastructure and ICT management made up 61% of the Australian Government's total ICT spend. Applications made up 37%, End user infrastructure made up 13% and ICT management made up 11%.
Applications is defined as programs and other software (including supporting documentation, media, online help facilities and tutorials) that perform user or business related information processing functions.
End user infrastructure is defined as services, hardware, software, personnel, functions, activities and responsibilities that are provided directly to end users in an agency. Examples include laptops and desktops.
ICT management services are defined as equipment, activities, personnel, functions and responsibilities providing cross-service governance. Examples include ICT architecture and ICT security.

Expenditure can also be broken down according to the type of service provider. In 2014-15, the largest category of ICT spending was for services provided by an external provider (27 per cent) followed by the costs associated with internal personnel (26 per cent) and external contractors (14 per cent). 6

The Departments of Defence, Human Services, Immigration and Border Protection, and the Australian Taxation Office spend the most on ICT. In 2014-15, expenditure by these agencies accounted for 64 per cent (around $3.6 billion) of the total $5.6 billion ICT spend. 7

Contract size

Most Government ICT contracts are small and relatively short in length. According to AusTender data on Government ICT contract commitments, between 2009-10 and 2014-15, the median contract value was about $55,000, with a median contract length of about five and a half months. Across this period, 99 per cent of all contracts reported were under $5 million, and 96 per cent of contracts were under $1 million. 8

Size and length of Australian Government ICT contracts, 2009-10 and 2014-15 9

Size and length of Australian Government ICT contracts, 2009-10 and 2014-15 - The median value of ICT contracts was $55,000.
                The median length of ICT contracts was 158 days.
                99% of ICT contracts were under $5 million and 96% of ICT contracts were under $1 million.

Despite the relatively small contract size, the Government's ICT contracting is relatively concentrated with a small number of large vendors. Between 2009-10 and 2014-15, around 50 per cent of the total value of government ICT contracts went to 20 vendors, with almost half of this going to just five large vendors (HP, IBM, Telstra, Lockheed Martin Australia and Optus Networks).

SME involvement

Small and Medium Enterprises (SMEs) provide a substantial amount of ICT products and services to the Australian Government. SMEs are defined as having less than 200 full-time equivalent staff, with ‘small enterprises’ defined as having less than 20 full-time equivalent staff. In 2014-15, contracts with SMEs accounted for almost 60 per cent of the number of ICT contracts with government, but only about 30 per cent of the total value. 11

Current level of SME involvement in Australian Government ICT procurement, 2014-15 12

Current level of SME involvement in Australian Government ICT procurement, 2014-15 - SMEs made up 58% of ICT contracts by number, with Small businesses making up 31% and Medium businesses making up 27%.
SMEs made up 31% of ICT contracts by value, with Small businesses making up 11% and Medium businesses making up 20%.

Case Study: International comparison of SME involvement in government procurement

Like other advanced economies, the Australian economy is dominated by SMEs, with over 99 per cent of all businesses employing less than 200 people. 1 However, compared to other nations, Australia's SMEs are generally smaller with lower turnover and fewer staff. 1 This is reflected in the definitions of SMEs used by different national statistics agencies: in Australia, SMEs are businesses with up to 200 employees, in the UK and EU, SMEs have up to 250 employees, and in Canada and the US SMEs have up to 500 employees.

Australia compares favourably with both the US and UK for overall level of SME involvement in procurement. The Commonwealth Procurement Rules require officials to apply procurement practices that do not unfairly discriminate against SMEs and appropriate opportunities for them to compete, and, include a commitment to sourcing at least 10 per cent of procurement by value from SMEs.

Australia's commitment of 10 per cent involvement has been consistently exceeded since its introduction in 2005. In 2014-15, 28 per cent of all Australian Government procurement contracts (direct contracts, by value) were awarded to SMEs. In addition, SMEs were involved in 31 per cent of all ICT contracts by value. In comparison, the US has a statutory goal of 23 per cent SME involvement (as prime contractor) across all government procurement. In 2015, the US achieved a SME involvement rate of 25 per cent (direct and indirect contracts). The UK has recently increased its target to 33 per cent for SME involvement in all government procurement. In 2015, the UK achieved a SME involvement rate of 27 per cent (direct and indirect contracts), against the previous target of 25 per cent.

Increasing SME involvement is one way to drive greater innovation in government service delivery. Removing barriers, lowering costs and streamlining procurement processes will allow more SMEs to compete for government work. Past reviews have suggested the following barriers to SME involvement in government ICT procurement:

  • The use of panels as the major procurement mechanism in government, and the time and cost required from SMEs to participate in panel processes
  • Expensive and duplicated market testing exercises - which can limit SME involvement because they are too expensive or time consuming for them
  • Unrealistic terms and conditions, particularly in relation to liability risk regimes and intellectual property
  • Onerous security requirements – such as system certification documentation and personnel security clearances, which can be resource-intensive and difficult for SMEs to meet. 13

Questions:

  • 3. In what areas of the Australian Government’s ICT procurement are the biggest opportunities for innovative technologies?
  • 4. What are the key barriers to getting innovative technologies, such as cloud services, into the Australian Government?
  • 5. What are the key barriers for SMEs and startups in the Australian Government's ICT procurement process?