The federal government is being urged to tear up billions of dollars’ worth of agreements with IBM, SAP and other foreign tech giants in a bid to close off what has become a procurement “fast lane” for the public service.
In a frank assessment to the parliamentary inquiry probing sovereign capability in the tech sector, local cloud and software providers Vault Cloud and TechnologyOne have both made the case to overhaul volume sourcing procurement mechanisms.
Seven whole-of-government agreements are currently in place at the federal level, with the federal government arguing that they simplify procurement for public servants and create consistency across contracts while maximising value for money.
All but one of the agreements have arrived within the last seven years, with Microsoft the only vendor with an agreement before 2017. Since then, the Digital Transformation Agency has inked deals with IBM, SAP, AWS, Oracle, Rimini Street and Concur.
At close to $1 billion over five years, IBM’s agreement is by far most costly. The agreement, which covers software, hardware and services, climbed by around $250 million last year, mirroring an earlier agreement that more than doubled in value.
But the mere existence of the agreements, according to Vault Cloud, “blocks the growth of sovereign capability”, with agencies opting to use the deals because they are perceived to be less risky and allow them to bypass lengthy procurement processes.
There is concern that while agencies are required to establish value for money before buying off the agreements, they are not always doing this.
“When I meet with government buyers, they think that the DTA is responsible for assessing value for money for whole-of-government agreements,” Vault Cloud founder and chief executive Rupert Taylor-Price told InnovationAus.com.
“I understand that the agreements do not establish value for money. If that is true, billions of dollars of taxpayers money have potentially gone offshore unchecked.”
The company is calling for the government to scrap the agreements and replace them with “whole-of-government agreements with sovereign companies”, noting that no local companies currently have such agreements.
TechnologyOne also believes that the use of whole-of-government agreements has had “intended consequences in creating a playing field tilted against Australia’s offering alternative sources of supply” and that their future should be “critically examined”.
In a separate submission, the Brisbane-based enterprise resource planning software provider said the arrangements, which sit outside of panel arrangements, “have the effect of creating a ‘fast lane’ for procurement processes under price, terms and conditions that are not transparent”.
“The very fact that these vendors have been selected to conclude [whole-of-government agreements] is seen by buying agencies as an endorsement of them as ‘safe’ choices,” TechnologyOne said.
In the past five years, the company said it has twice sought to initiate a negotiation process with the DTA for a whole-of-government agreement, but on both occasions was unsuccessful despite having 80 federal government agencies as customers.
Technology One also linked the federal government’s reliance on Big Four consultancies in recent years to the dominance of “software from the world’s largest technology businesses”, a practice it described as “troubling”.
“This creates at the least an apprehension of bias in favor of those vendors. The corollary of this is a potential bias against Australia alternatives,” the company wrote in its submission to the ongoing inquiry.
Recent initiatives to ensure suppliers are meeting tax obligations, including through the forthcoming Supplier Code of Conduct, have been welcomed by TechnologyOne, but it has asked the government to go further.
It said that there remains a need to “level the playing field” for Australian businesses competing with multinational corporations that “have in place tax arrangements that ensure they will not pay the same level of Australian tax on income from the same contract”.
“Allowing overseas businesses to… transfer their revenues and profits out of Australia for taxation purposes has the same effect as providing them with a subsidy. That this subsidy is offset in some part paid by TechnologyOne’s own tax payments makes the situation even more galling.”
“This is not a theoretical argument. The most recent tax transparency report from the Government reported that at least one of the largest competitors to TechnologyOne in providing ERP solutions to government did not pay tax on its multi-billion-dollar revenues from Australia.”
The company said this could be addressed by introducing a new weighted assessment criteria for tax domicile in tenders and adopting the Retained Economic Benefit model, which the Australian Information Industry Association and Vault Cloud have also recommended to the inquiry.
Vault Cloud has also recommended new foreign interference laws to combat the influence of multinationals and foreign governments over procurement outcomes, while also enforcing existing legislation.
Companies found to have unfairly influenced procurements, including by the National Anti-Corruption Commission (NACC), would be “prohibited from participating in the government supply chain”, it said. Lobby groups should also be forced to disclose funding sources from foreign entities.
The company has also asked that the Buy Australia Plan effectiveness to date should be “thoroughly evaluated” and that “adjustments may be necessary to ensure that it strikes the right balance between promoting domestic innovation and meeting government needs efficiently”.
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