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Address to AEEMA breakfast, 25 June 1998 [IT & T Outsourcing Initiative; Small Agency Program]

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25 JUNE 1998




I am pleased to have this opportunity to talk to you about the IT & T Outsourcing Initiative, and in particular "the Small Agency Progr am". Before I introduce the Small Agency Program I would like to say a few words about the industry development context of the IT Initiative.


The Initiative has come a long way since we announced the Government’s Decision in May 1997. Importantly, we have by action demonstrated that the Government has a commitment to a number of things:


• Achieving significant savings, that is the principle which I operate as the Minister for Finance, to see if we can find those savings for the taxpayers in a sensible way ;

• Improving the quality of IT service delivery for Commonwealth agencies; and

• A commitment for developing the Australian IT & T industry, in particular in terms of maximising opportunities for small and medium enterprises and the use of Australian value added products and services.


The Australian IT & T industries are important to Australia’s economic development because of their growth potential. It is an area of growth - we all know that - I’ve always seen that Government has a role to stimulate a nd facilitate that growth. And of course the industry itself has a potential to contribute to the competitiveness of businesses in all other areas of the economy.


Reflecting this importance, the Industry Development framework developed for the Whole of Government IT & T Initiative is a critical part of the process.


It would be irresponsible for the Government to be releasing such a large volume of business into the market place to adopt a "hands off" approach and we didn’t look at the potential impact on the industry. And through this our requirement for Industry Development proposals are very much there and the Government’s objectives include:


• Supporting growth in the Australian IT & T industries

• Promoting the international competitiveness of the industry and

• Supporting employment growth and development in Regional Australia


The industry development commitments that we have achieved to date and those commitments that we are seeking for future Groups are contractually binding. They have signifi cant financial penalties built into them for non-performance, and we will continue to closely monitor those industry development plans and we will always, of course, be publicly accountable for what has been achieved and what those contracts ultimately do deliver.


I understand that there are still some parts of the Industry who baulk at the requirements of our industry development framework. But as I stated at the outset of this Initiative, we believe it is imperative that the Australian IT industry and, as a consequence, Australians, benefit from what is arguably the largest IT procurement program the Government has ever embarked upon.


We are always listening to industry and refining our processes, but having said that, I will not resile from my commitment to ensure that Australian small and medium enterprises are given the opportunity to actively participate in this program.


We recognise that many small and medium sized Australian IT companies lack the capability to tender as prime contractors for the larger group agency tenders that are being released and will be released under the IT initiative.


To address this, the Government is actively encouraging large IT companies with existing capability to combine with SMEs through subcontracting arrangements and broader alliances.


We want to build the skill base of SMEs - we want them to have the opportunity to build an exportable skill set. We want to give them the opportunity to build a sustainable local business as a platform for further expansion.


But that is not to suggest that there are not opportunities for SMEs in prime contractor roles - either in their own right or as part of consortia. The Government has ensured for example in Group 5, that there are no barriers to an SME that can meet the savings and risk thresholds from taking the role as the prime contractor.


In relation to Group 5, there has been some suggestion that SMEs are concerned about the risk associated with Government IT outsourcing contracts, particularly in the areas of liability and the performance guarantees.


It is up to agencies, the governmen t agencies, to determine the level of risk that they are prepared to accept, and the level of risk they must pass to the private sector provider, after conducting a risk assessment that also considers the tenderer’s solution.


Tenderers are not prevented from proposing appropriate risk allocation arrangements in their tenders for further consideration by the agencies in light of the risks specifically associated with each tendered solution.


I also want to stress that we are looking for real substance in industry development. We are not looking for "cheque book" industry development, or "make up schemes" that on the surface appear to meet the Government’s objectives but which lack real commercial substance.


OASITO’s rigorous evaluation process is designed to cut through the "smoke and mirrors" and focus on the commercial credibility and the sustainability of proposals.


The process has been designed to focus on offerings and outcomes that are consistent with the spirit of the Government’s industry development objectives. I urge industry to focus on the spirit of those objectives.


If it becomes necessary to refine the tendering rules to ensure compliance with the objectives, then we will do so. This is consistent with the Government’s focus on substance and not on form.


Finally, before moving on to the Small Agency Program, I would like to stress that the Government is determined to give SMEs a fair opportunity to compete for agency business. It is not an entitlement. SMEs must satisfy the same threshold criteria, in terms of technical quality, risk and cost savings, as are applied to all tenderers.


Against this background, I am today announcing the release of a Project Guide and Resource Kit to assist small agencies in conducting competitive tendering processes for their IT infrastructure requirements.


The Project Guide has been developed by OASITO specifically to provide a streamlined, efficient process for small agency tendering. Every effort has been made and taken to simplify the processes, and documentation for these tenders, while ensuring that agency requirements are properly addressed and whole of Government interests are protected. In addition, we have recognised the need to develop cost effective and efficient processes which assist SMEs to do business with Government.


The development of this kit could not and would not have been possible without a high degree of inter-agency co-operation and to all those involved in producing this outcome: I express my appreciation.


We are very aware that tendering processes for full outsourcing services can be complex and time consuming, even where the total volume of services is relatively low.


In recognition of the need to ensure that the IT Initiative is implemented on a cost effective basis, that we have drawn a distinction between "small agencies", which have between 100 and 300 desktops, and "very small agencies" which have fewer than 100 desktops.


It is always very difficult to try these definitions and I know that we had a debate between what is a ‘small’ and ‘medium’ enterprise in the IT Industry terms, and felt when we were developing that criteria earlier in the piece of the Outsourcing Initiative that we did have to distinguish between ‘small’ and ‘medium’ in some definitional terms, and of course, definitions are varied whether it is the ABS or whoever it might be. We are very conscious of creating a whole new definition. In this initiative today, we felt the need again to distinguish between ‘small’ and ‘very small’ and I’m sure that you will appreciate the reasons for that.


Small agencies are expected to issue competitive tenders for all of their IT infrastructure requirements using the Project Guide and Resource Kit.


Full outsourcing may not be feasible for very small agencies, particularly after taking account of tender and contract management costs. Very small agencies are therefore not required to conduct full-scope competitive tender processes for all their IT infrastructure requirements.


Instead, these agencies may satisfy the Government’s direction by testing the market for IT maintenance and support requirements using existing Commonwealth procurement and contracting out guidelines.


This will allow very small agencies to achieve some immediate savings in IT maintenance and support costs and, as the outsourcing market matures, move towards a full outsourcing strategy on a cost effective basis.


There are over a dozen agencies that fall within the "small agency" category and approximately thirty five agencies that fall within the "very small" category, and your Project Kit will provide you with a list of those Agencies, and as you go through that Kit.


The Small Agency Program presents opportunities for SMEs to tender as prime contractors. The Government encourages SMEs to pursue opportunities in the small agency program so as to expand their IT service capabilities.


Agencies are also likely to benefit from SMEs playing a key role by enjoying more personal and tailored service from smaller local suppliers.


I would like to take this opportunity to respond to some erranous assertions about the progress of the IT Initative that have appeared in the press recently. First I want to say that I am satisfied that the Initative is running according to plan. Since I announced the broad timetable for the release of tenders last December, a lot of work has been done to firm up grouping arrangement and individual tender timetables. OASITO has commenced the consultation process with industry to obtain feedback on the current working timetable, and a formal announcement on this subject will be made within the next few weeks.


It is of course essential that the specific timing of tenders meets agency program requirements while also allowing an orderly r elease of RFTs to the market place. OASITO will continue to review the precise timing of tender releases throughout the life of the Initiative to ensure that the tender processes produce optimal results without overwhelming the industry.


In the recent DEETYA tender we demonstrated that the Government is committed to ensuring that a project must deliver an acceptable technical solution, substantial savings and industry development before a contract will be awarded.


This is evidence of the strength of our processes, and our confidence that we can achieve the best outcomes for the Australian IT industry and for Agencies.


Finally, it was particularly disappointing to see one journalist claiming that the OASITO evaluation processes do not produce a fair comparison of tenders against internal agency operations.


Nothing could be further from the truth - extensive cross checking and independent assessments of agency cost baselines and service levels are designed to ensure that the evaluation is scrupulously fair and even handed. Probity considerations are paramount at all stages of the evaluation process.


I want to stress the need for commitment and support from Agencies in pursuing the Initiative. Not only does this Initiative deliver savings to Government, of course that is important, but it also allows Agencies to focus on their core business of delivering services without the distraction of running an internal Information Technology service.


The Small Agency Program will enable those Agencies to participate in the Outsourcing Initiative and benefit from the experience of OASITO in a streamlined manner that suits the scale of their business requirements.


I believe that this is an opportunity for you all to play a key role in developing an industry that is essential to Australia’s future. The progress to date has been very very significant and very satisfying to me personally. We have a long way to go, this is just another step, but this particular step.


This initiative, this morning, in my view gives the opportunity to the small and medium enterprises perhaps like never before. We are seeing, of course, partnerships developing with larger organisations in the tendering that is coming forward. Here is an opportunity to do it alone, an opportunity for you to grow your business by providing that service so essential for Government and developing that industry so essential for Australia’s future.


Thank you once again, and I believe that there is the opportunity to answer questions if you have any.