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Re-booting the IT agenda in the Australian Public Service: inquiry into the government's IT outsourcing initiative: final report.

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PARLIAMENT HOUSE CANBERRA ACT 2600 Telephone: + 61 2 6277 3530 Facsimile: + 61 2 6277 5809

28 August 2001


Inquiry into the Government’s IT Outsourcing Initiative

Final Report

Re-booting the IT Agenda in the Australian Public Service

The Chairman of the Senate Finance and Public Administration References Committee, Senator George Campbell, today tabled in the Senate the final report of the committee’s inquiry into the Government’s IT Outsourcing initiative.

The Committee has found that the sheer size of the whole of Government IT implementation task was ambitious and that the Initiative introduced substantial risks in its own right. While the Committee agreed that the Initiative was a major and important undertaking, this wide-ranging inquiry has revealed a series of problems, incidents and shortcomings.

While the Committee has been critical of many aspects of the Initiative, it has also acknowledged the positive outcomes. The Committee has endeavoured to produce a forward-looking report with practical recommendations to improve all aspects of future IT outsourcing. The Executive Summary and recommendations are attached.

In its earlier interim reports, the Committee highlighted the apparent lack of understanding in the Australian Public Service and in the private sector about parliamentary accountability. In this final report, the Committee has highlighted failures to substantiate projected cost savings, difficulties in the transition to total outsourcing and other workforce related matters. It has also examined those issues related to documentation of processes and results.

The Committee has focused on strategic improvements to many facets of outsourcing, including probity and contract management, data security, intellectual property, planning, privacy, savings, industry development and the development of a body of expertise to assist agencies productively and successfully outsource their IT requirements in a devolved environment - where they believe it is desirable to do so.

The Australian Democrats have attached a supplementary report supporting the Committee’s findings. Government members of the Committee do not agree with some of the views expressed in the report and have attached a minority report.

This report, interim reports, submissions to the inquiry and other documents, are available on the Committee’s website at

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In April 1997, the Government announced the Whole-of-Government Information Technology Infrastructure Consolidation and Outsourcing Initiative. The project was to be completed within two years and in undertaking the task, the Commonwealth embarked upon the largest and most complex IT outsourcing project in recent history.

The Committee has followed the evolution of the Initiative to date, to monitor progress and to ensure that future IT outsourcing projects, result in an efficient, effective and ethical use of Commonwealth resources. This final report, following the Committee’s two interim reports on accountability issues relating to the Initiative, looks critically at the processes and outcomes of the Initiative and anticipates moves towards the new IT outsourcing environment.

The Committee has found that the sheer size of the implementation task was ambitious and the Initiative introduced substantial risks in its own right. While it is agreed that the Initiative was a major and important undertaking, this detailed and long-ranging inquiry has revealed a series of problems, incidents and shortcomings. The Committee has addressed these issues seriously, but takes account of the positive aspects of the Initiative. What the Committee has endeavoured to produce is a forward-looking report with practical recommendations to improve all future aspects of IT outsourcing.

Although competitive tendering and contracting out is not new, the Initiative has attracted considerable attention within Australia and internationally. The work of the Auditor-General and the independent review of the Initiative conducted by Mr Richard Humphry AO, have each contributed to the Committee’s findings. Approaching from different perspectives to assess overall financial and contractual performance, and to assess implementation risks, the Committee’s deliberations have been greatly assisted by the Auditor-General’s analyses and recommendations.

Acknowledging that the Government has taken heed of the majority of the recommendations emanating from the Humphry Review, the Committee has gone further with its own recommendations that are designed to strengthen accountability and increase transparency in contractual dealings.

Referring specifically to contract management, the Committee suggests ways to improve efficiency and effectiveness. The Initiative demanded high-level project management skills from OASITO, an administratively created agency established for the task of implementing IT outsourcing policy. The Committee finds that with adequate planning, OASITO could have achieved a simpler, shorter, less costly and more rigorous process. While all understood and supported the whole-of-government approach to achieve efficiencies and synergies, the imposition of an aggregated cluster model and centralised control of the contracting process did not receive unqualified support from a significant number of agencies.

The Committee has therefore tackled the broader policy issue of where whole-of-government outsourcing fits in a devolved environment and touches upon matters such as improving the Commonwealth Procurement Guidelines, as well as the role of a central unit to assist agencies with IT outsourcing in a truly devolved environment. It was proposed that the Initiative would build on the experiences of other government and private sector organisations, it would create substantial opportunities for small to medium-sized Australian enterprises, and would generate employment in metropolitan and regional Australia. The Committee has found that aspirations have not always matched reality and some outcomes have been less than optimal. However, the Committee has looked for better ways to achieve a ‘win-win’ situation, to achieve a more dynamic result for government agencies in service delivery, to open up processes to allow greater capacity for local industry development, in a transparent and fully accountable environment.

Among the positive outcomes anticipated was that agency cluster/contractor relationships would create productive and innovative synergies and save the Commonwealth up to $1 billion over seven

years. The Government’s commitment was to achieve the best value for the information technology dollar and support the delivery of services at the lowest cost to the taxpayer. OASITO, as a strategic agency, was tasked with assisting agencies with the tendering process and contract negotiations.

In this report, the Committee has highlighted failures in achieving projected cost savings, difficulties experienced in transition to total outsourcing, and other matters, particularly those related to documentation of results. More positively, the Committee has also found agencies that have succeeded in building genuine partnerships with their providers and have consequently set standards for what both agencies and business should be working for.

By highlighting the best examples of IT outsourced partnerships in the post-Humphry Review environment, the Committee reminds the Senate that $1.2 billion of public money has already been committed under the Initiative. In the light of evidence produced in this inquiry, the Committee has focused on strategic improvements to many facets of outsourcing, including probity and contract management, data security, intellectual property, succession planning, privacy, savings, industry development, and the development of a central body of experience and expertise that will assist agencies to productively and successfully outsource their IT requirements in a truly devolved environment.

The Committee recognises that there is a need to take active measures to restore confidence in the business world and to revitalise the Initiative within agencies. The Committee calls on the Government to engage in open and robust debate about moving IT forward in the Australian Public Service, and to assist agencies and private industry to re-boot the Initiative.


Recommendation No. 1 — Chapter 1, p. 5

Although the secretariat to the Humphry Review no longer exists, the Committee recommends that DOFA, acting as a responsible body and a department of State, immediately undertake the task of obtaining advice from the National Archives of Australia on the status of documents and material received and generated by the Humphry Review. If they are deemed to be Commonwealth records the department should ensure their proper management and disposal.

Recommendation No. 2 — Chapter 4, p. 56

The Committee recommends that as part of the strategic planning for IT outsourcing and, in particular, where the value exceeds $10 million, agencies be required to set aside ample time to prepare and release draft tender documents for industry comment. It further recommends that agencies consider releasing an invitation to register interest as part of a pre-qualification phase of the tender process with follow-up public information seminars and briefs.

Recommendation No. 3 — Chapter 4, p. 66

The Committee recommends that tender documentation made available to bidders clearly identify, at the very least, the relative importance of the separate evaluation components—technical, corporate, financial and industry development. They should also indicate the evaluation criteria given top priority within each of these components.

Recommendation No. 4 — Chapter 4, p. 69

The Committee recommends that, for any future tender process for IT outsourcing, the evaluation plan be finalised and approved before the RFT is issued.

Recommendation No. 5 — Chapter 4, p. 71

The Committee recommends that the Government re-introduce mandatory competency standards for all officers undertaking procurement functions.

Recommendation No. 6 — Chapter 4, p. 72

Consistent with the Department of Finance and Administration’s policy responsibility for Commonwealth contracting and procurement, the Committee recommends that the competency standards and training should be developed by that department. This is to be done in consultation with the Public Service and Merit Protection Commission to ensure consistency with the Australian Public Service Values.

Further to the Government’s response to Mr Humphry’s recommendation 3, the Committee recommends that the Public Service Commissioner report in the annual State of the Service report on the implementation of the Initiative together with the competency framework.

Recommendation No. 7 — Chapter 5, p. 81

The Committee recommends that all RFTs for IT outsourcing, which contain clauses allowing the Commonwealth broad discretionary rights to alter the RFT or to exclude a tenderer from the process or any similar decision, also include a clause which places a clear and definite obligation on the Commonwealth to provide in writing the reasons for the variation, amendment, cancellation or termination. RFTs should be consistent with the Commonwealth Procurement Guidelines.

Recommendation No. 8 — Chapter 5, pp. 81-2

The Committee recommends that:

• The Government review the Commonwealth Procurement Guidelines with a view to

making them more explicit and detailed for agency heads and less likely to broad and uncertain interpretation. An annual review is also recommended to ensure their continuing relevance.

• All officers performing duties in relation to the procurement of property or services be required to ‘act in accordance with’, rather than simply ‘have regard to’, the core policies and principles detailed in the Guidelines. Such officers must make written records of any actions that are not in accord with the Guidelines and their reasons for doing so.

• The outcome of the review of the accompanying Competitive Tendering and Contracting: A Guide for Managers include a document that provides greater detail about procurement practices and procedures.

Recommendation No. 9 — Chapter 5, p. 87 The Committee recommends that DOFA undertake a review of available guidance on probity issues associated with the procurement process, taking into account the new and revised probity guidelines of the Victorian, Tasmanian and South Australian State governments. The review should form the basis of a revision of the Commonwealth Procurement Guidelines.

Recommendation No. 10 — Chapter 5, p. 94

The Committee recommends that for future IT outsourcing contracts valued over $10 million agencies contract the services of both a probity auditor and a probity adviser and that their roles involve separate and distinct tasks.

Recommendation No. 11 — Chapter 5, p. 95

The Committee is strongly of the view that Commonwealth agencies should in future have confidence in being able to source truly independent probity advice. It recommends that, consistent with Victoria’s probity guidelines, the Government consider the establishment of a whole of government panel of probity auditors to assist agencies and departments avoid real or perceived conflicts of interest when establishing the probity standards that will guide their IT outsourcing tender processes.

Recommendation No. 12 — Chapter 5, p. 98

The Committee recommends that agencies include provisions in their contracts that require:

• probity auditors to keep accurate records and provide sufficient information to

allow for proper parliamentary scrutiny of the audit process; and

• probity auditors’ reports to be made public.

Recommendation No. 13 — Chapter 6, p. 133

The Committee recommends that the Government consider establishing a centre of IT outsourcing expertise in the Department of Communications, Information Technology and the Arts (DOCITA) concerned with the technological and industry development side of IT outsourcing but not necessarily the tendering and contracting process. The Committee proposes that the role of a service unit in DOCITA would be far different from the OASITO model and be more consultative and helpful than the service unit now established in DOFA. It would have broader horizons on IT and would establish and form the hub of a network between IT outsourcing units in Commonwealth agencies. Further, it would assume an education and training role in IT outsourcing with its focus on IT planning for the future.

Recommendation No. 14 — Chapter 7, p. 147

For agencies with distinctive data security needs, such as the science agencies, and agencies with high security needs, such as the Australian Federal Police, a credible argument has been put forward that IT outsourcing is far more complex. The Committee endorses recommendation 10 of the Humphry Review and recommends it be extended to apply to the evaluation of the implementation risks of all other agencies.

Recommendation No. 15 — Chapter 7, p. 152

The Committee recommends DOCITA conducts an evaluation of the outcomes of the Initiative’s intellectual property management clauses in existing contracts. The evaluation to include, but not exclusively, an examination of the generation of government royalties, the protection of government assets and the contribution to industry development.

Recommendation No. 16 — Chapter 7, p. 153

The Committee notes that an intellectual property rights register is a feature of current contracts under the Initiative. It recommends that DOCITA investigate the feasibility of publicising and marketing this information, as well as details of intellectual property held by agencies that are not outsourced, with a view to maximising returns on Commonwealth intellectual property.

Recommendation No. 17 — Chapter 8, p. 164

The Committee recommends that the Government give serious consideration to introducing legislation that will provide a greater degree of transparency in Commonwealth contracts by making

them publicly available. The Victorian legislation, which requires contracts valued at over $10 million to be placed on the Internet, provides a starting point. In this context the ANAO criteria would provide guidance on what, in such circumstances, would still be considered genuinely confidential and may be withheld from publication.

Recommendation No. 18 — Chapter 8, p. 168

The Committee recommends that budget funded agencies take immediate action to ensure that before they enter into any formal or legally binding undertaking, agreement or contract that all parties to that arrangement are made fully aware of the agency and contractor’s obligation to be accountable to Parliament.

Recommendation No. 19 — Chapter 8, p. 168

The Committee further recommends that any future Requests for Tender (RFTs) and contracts entered into by a Commonwealth agency include provisions that require contractors to keep and provide sufficient information to allow for proper parliamentary scrutiny, including before parliamentary committees, of the contract and its arrangements.

Recommendation No. 20 — Chapter 9, p. 194

The Committee recommends that DOCITA in close consultation with agencies develop and agree to an overall roadmap for ID under the IT outsourcing program. This strategic plan is to spell out the objectives and targets of ID under the IT outsourcing Initiative, to define and specify SME involvement, and establish the evaluation criteria, including the weighting to be assigned to ID in the overall evaluation of tenderers for an IT outsourcing contract. This information to be included in the RFTs.

Recommendation No. 21 — Chapter 9, p. 199

The Committee recommends that the Government act immediately to remove barriers, such as onerous requirements including financial guarantees, that hamper the participation of SMEs in the Initiative.

Recommendation No. 22 — Chapter 10, p. 220

The Committee recommends that the Commonwealth adopt an open and transparent methodology for estimating cost savings for IT outsourcing. In developing this methodology, all relevant Commonwealth agencies, including ANAO and DOFA, are to be consulted, and a common methodology adopted.