Review of independent review of Australian Government's use of ICT

The Rudd Government has released Sir Peter Gershon’s report (the Gershon Report) detailing his independent review of the Australian Government's use of information and communication technology (ICT).

Sir Peter Gershon was engaged by the Minister for Finance and Deregulation, the Hon. Lindsay Tanner, to review and report on both the efficiency and effectiveness of the Australian Government’s current use of ICT, to determine whether the Australian Government is realising the greatest return from its investments in ICT, and to examine whether the right institutional arrangements are in place to maximise such return.

Download a copy of the Gershon Report.

Key findings

According to the Gershon Report, the Australian Government’s current approach to the use of ICT has lead to sub-optimal outcomes. The main driver of this negative result is the high level of autonomy exercised by individual Australian Government agencies in regards to ICT.

Sir Peter noted that Australian Government agencies have been acting in a manner akin to independent private sector entities, rather than coordinated agencies of the Australian Government.

In a rather stark illustration of the point, the Gershon Report cites the fact that prices paid by various Australian Government agencies for desktop computers ranged from $1000 to $3500 and that there are 1.6 desktop computers for every Australian Government agency employee.

In this context, the Gershon Report has made seven key findings:

1. there is weak governance of pan-government issues related to ICT;
2. Australian Government agency governance mechanisms are weak in respect of their focus on ICT efficiency and an understanding of organisational capability to commission, manage and realise benefits from ICT-enabled projects;
3. the business as usual (BAU) ICT funding in Australian Government agencies is not subject to sufficient challenge and scrutiny;
4. there is a disconnect between the stated importance of ICT and actions in relation to ICT skills;
5. there is no whole-of-government strategic plan for data centres;
6. the Australian Government ICT marketplace is neither efficient nor effective; and
7. there is a significant disconnect between the Australian Government’s overall sustainability agenda and its ability to understand and manage energy costs and the carbon footprint of its ICT estate.

(Source: Gershon Report)

Key recommendations

In order to address the key findings, Sir Peter has recommended a rebalancing between the autonomy of Australian Government agencies and coordination across all Australian Government agencies in regards to ICT. Sir Peter believes that such rebalancing would deliver savings of $140 million in the first year and $400 million a year in subsequent years.

In order to achieve this rebalancing, the Gershon Report has made seven key recommendations:

1. Strengthen pan-Government governance in regards to ICT, including:

(a) establishing a Ministerial Committee on ICT to be responsible for the key whole-of-government ICT policies and the overall strategic vision for how ICT should support the achievement of the Australian Government’s outcomes and policy agenda;

(b) creating a Secretaries’ ICT Governance Board (SIGB) to drive recommendations arising from the review and focus on addressing the key business issues to improve the efficiency and effectiveness of the Australian Government’s use of ICT; and

(c) allowing Australian Government agencies to obtain opt-outs from agreed whole-of-government activities, based on genuine business need and subject to approval by the Ministerial Committee informed by the SIGB.

2. Strengthen governance by Australian Government agencies, including:

(a) implementing a common methodology for assessing each Australian Government agency’s capability;

(b) requiring each Australian Government agency chief executive officer to propose a target level of capability and for this to be independently validated; and

(c) requiring Australian Government agencies to develop capability improvement plans with commitment to address gaps.

3. Tighten the management of ICT BAU funding, including:

(a) moving ICT spend from an average 77:23% split between ICT BAU activities and creation of new capability in 2007–08 to an average 70:30% in 2011–12;

(b) reducing the ICT BAU budgets of the largest 28 Australian Government agencies (not including Defence) with ICT spending in excess of $20 million per annum by 15% from 2007–08 levels, with a phased introduction over two years;

(c) targeting Australian Government agencies with total annual ICT spending between $2 million and $20 million to achieve a 7.5% reduction on average of their BAU from 2007–08 levels, with a phased introduction over two years;

(d) creating ICT Review Teams to help these Australian Government agencies achieve or exceed the target reductions without impairing service delivery to citizens and business; and

(e) reinvesting 50% of the savings generated by these recommendations in a central fund for reinvestment in projects to improve efficiency and effectiveness of ICT BAU activities;

4. Enhance the management of the Australian Public Service ICT skills base, including:

(a) creating a whole-of-government Australian Public Service ICT career structure, including training and development programs for ICT professionals in key skills areas;

(b) developing and maintaining a whole-of-government strategic ICT workforce plan; and

(c) reducing the total number of ICT contractors in use across Australian Government agencies by 50% over a 2-year period and increasing the number of Australian Public Service ICT staff.

5. Develop a whole-of-government approach for future data centre requirements over the next 10–15 years.

6. Improve the efficiency and effectiveness of the ICT marketplace, including making better use of the Australian Government’s collective buying power by:

(a) optimising the number of ICT panel arrangements established by agencies across government, including improving procurement arrangements for commodity products and services and volume sourcing arrangements for key items of software;

(b) developing and implementing e-auctions; and

(c) implementing strategic management of key ICT suppliers.

7. Develop a whole-of-government ICT sustainability plan to manage the energy costs and carbon footprint of the Australian Government’s ICT activities.

(Source: Gershon Report)

Next steps

The Gershon Report has been released ahead of formal consideration by Cabinet. The Rudd Government is examining the Gershon Report and, according to Mr Tanner, will respond in the “near future”.

Mr Tanner has commented that “[w]ithout pre-empting Cabinet’s consideration, the report forms an excellent basis for implementing a series of changes for improving the effectiveness and efficiency of government ICT”.

The release of the Gershon Report and news as to the possible implementation of the whole or part of its recommendations has been keenly awaited by Australian Government agencies and ICT industry participants alike. The media has reported that a number of Australian Government agency ITC projects have been on hold in recent months awaiting certainty as to outcomes, with some Australian Government agencies being forced into various temporary and bridging arrangements to cover the gap, and that a fast response from the Rudd Government would certainly assist Australian Government agencies planning upcoming ITC projects for the purposes of the development and release of the next federal budget.

If the Rudd Government proceeds to implement the recommendations of the Gershon Report, Sir Peter has recommended that such implementation be reviewed in the first quarter of 2010 (assuming a start date of November 2008).

All stakeholders now keenly await the Rudd Government’s response.

Andrew Walsh

Government contracting and procurement

Overview
Much of the Cutler Report is devoted to exploring the structure and order of internal Government frameworks within a national innovation system. This includes recommendations as to the extension of business innovation and knowledge sharing programs, additional support for the growth of human capital and the establishment of a National Innovation Council, supported by a consistent National Information Strategy, to co-ordinate innovation priorities and measure performance.

These are wide-ranging and are consistent with the Report’s emphasis on how Government can assist in improving not only traditional scientific and research innovation, but also non-technical business and service innovation.

However, the Report also makes interesting observations and recommendations regarding how a more innovation-conscious Government should itself behave as a customer and consumer of services in the context of its own procurement practices. Potentially, these recommendations would affect purchasing agencies of Government entities and a range of businesses that supply products or services to them.

While known for contracting in a notoriously rigid and risk averse manner, the Report recommends that going forward, Government should recognise its role as an active participant in facilitating innovation by:

• as a major and significant customer, demanding and prioritising the importance of innovation in products and services purchased by it;
• becoming open to risk-sharing arrangements in relation to the innovation components of significant procurements;
• creatively exploring and fostering more innovative approaches to Government procurement, including through the use of forward purchase commitments; and
• working with state and territory governments to implement a pilot small business innovation contracting program, similar to that implemented in the United States, designed to strengthen the growth of highly innovative firms and businesses.

Innovative procurement
The Report acknowledges that public sector procurements are typically highly specific and driven by an identified need to obtain a particular service or product at the lowest possible cost. This is a perfectly understandable and normal commercial imperative. However, because of the possible size and scale of its procurements relative to the overall market, Government enjoys a unique position and opportunity to stimulate innovation through its procurement attitude and processes.

It is recommended that Government should not simply assess its procurements like any other commercial corporation, but also have regard to the innovation components offered by various suppliers when evaluating competing tender offers. This might even justify Government paying a premium to secure an innovation component as part of its contracted products and services, notwithstanding that the benefit of that component may derive generally to the broader economy rather than immediately to the relevant Government entity. The Report’s reasoning is that if a supplier is offering innovation as part of its product or service components, it is likely that the innovation will be of benefit to local industry. Due to its unique position, Government should therefore be prepared to “internalise the local spillover when evaluating competing tender offers”, notwithstanding that this might have an immediate cost impact.

Government is also in a unique position to provoke suppliers into thinking of innovation as a critical part of its proposals - to a degree which might not otherwise occur to suppliers - by emphasising the importance of new and novel solutions in its selection process. As such, suppliers will come to accept that demonstrating innovation is an important part of obtaining government outsourcing business.

Risk sharing and procurement models
Contracting with Government is often difficult due to a generally limited risk appetite and a rigorous and stringent approach to accepting legal, commercial and technology exposure. In its capacity as a customer, Government often faces large suppliers with polar opposite preferences and views as to risk allocation. Equally, suppliers are often frustrated by the apparent unwillingness of Government entities to concede what they see as normal and commercially acceptable positions and an extreme public sector attitude towards the allocation of risk.

Increasingly, Government recommendations appear to be recommending a more moderate approach in relation to supplier capping and liability (for example, in the Guide to limiting supplier liability in ICT contracts with Australian Government agencies released by the Minister for Communications, Information Technology and the Arts in 2006). However, the experience of contracting with Government generally remains a difficult one. The Report acknowledges that numerous submissions have remarked on “a prescriptive government response on procurement with little scope for innovation”, which “appears to be driven by an extreme aversion to bearing risk”. One submission to the Report authors reported research into Government client attitudes as being that “innovation increases risk and should be avoided at all costs unless it cannot be avoided because of otherwise unachievable timing or cost objectives”.

The Report also suggests other reasons for the current attitude of Government, including:

• senior procurement officers being improperly equipped with technical and commercial knowledge required to buy and use engineering services, resulting instead in a heavy dependence on legalistic tendering and contractual frameworks; and
• a reluctance of public sector decision-makers to risk their reputation on unknown or less significant suppliers and a natural bias toward ‘safe’ choices such as large multinational corporations.

The recommendation is that Government change not only its attitude to procurement but also its tendering processes, to permit a degree of experimentation and innovation. This includes incorporating sufficient flexibility into Government purchasing arrangements to permit novel approaches to be pursued where the result might be a better outcome or lower costs. One example given in the Report is the use in the United Kingdom of advance purchase commitments to afford suppliers greater scope, incentive and flexibility to develop and offer innovative solutions.

While not explored in the Report in any detail (apart from the comment that Governments should become more open to the sharing of risk), creative and contingent pricing mechanisms can also afford Government an invaluable opportunity to drive supplier innovation. A typical procurement model demands a particular scope of work from a supplier in exchange for agreed payments. As difficult as innovation may sometimes be to quantify and prospectively commit to, suppliers may be willing to accept more non-traditional items within their scope of work if the consequence of failing to achieve those items manifests as a price flex, or a reduced incentive payment, as opposed to resulting in a contractual breach.

Supporting programs
There are, of course, more structured ways in which Government can mandate that its agencies tangibly support innovation in procurement. The Report cites the US Small Business Innovation Research (SBIR) scheme which requires US Government research agencies with research and development budgets in excess of US $100m to dedicate 2.5% of that budget to assisting research and development by small business where the potential for commercialisation and public benefit exists. Eleven US federal departments participate in the SBIR scheme, which is administered by the US Small Business Administration Office of Technology.

Though not specifically mentioned in the Report, the Office of Technology also administers the Small Business Technology Transfer (STTR) Program. Five US federal departments participate in the STTR program, awarding US $2 billion to small high-technology businesses. This is a research and development-focused program aimed at expanding public-private sector partnership through joint venture opportunities between small business and premier non-profit research institutions.
The Report notes that the SBIR scheme is well regarded by many as best practice and notes its implementation in many jurisdictions beyond the United States. It recommends that Australia would benefit from implementing a similar scheme.

The scheme has three phases:

• an initial phase of assistance to determine the technical merit and feasibility of commercialisation of the proposed R&D effort and the quality of performance of the relevant small business;
• a second phase of R&D assistance based on initial phase success and a further assessment of scientific and technical merit and commercial potential; and
• a third phase, in which the small business pursues the commercialisation objectives of the prior phases with non-scheme funds.

Notably, such a scheme already exists in Australia in relation to Defence procurement. While more limited in scope than the SBIR scheme, the Report notes it as generally well regarded. The scheme aims to award 20% of annual Defence procurement budget to small-to-medium Australian businesses.

The Report recommends that a broad program similar to the SBIR scheme would enhance Australia’s national innovation system and promote a more problem-solving and learning culture within the public sector. Of course, the success of such scheme on a global scale would ultimately depend on the extent to which such scheme initiatives can be aligned across all states and territories and the degree to which Government is prepared to embrace more creative and innovative procurement models.