The recent federal budget had a healthy headline digital spend of $800 million, but the government must think carefully about how this money is spent, and with whom.
The bulk of the money is divided between two large government projects. More than $250 million is going into digital identity systems and another $420 million into modernising business registers.
These initiatives dwarf the other measures in the budget’s digital spending package which will arguably provide greater job creation benefits – things like $2.5 million for digital skills training for SMEs and $10 million in support for Australian FinTechs exporting IP.
Given the size of these projects, the track record of the incumbent (and mostly overseas based) cohort of vendors, and the need for the budget to power job creation across the economy, there is a strong case for taking a new approach to procurement.
Traditionally, governments have engaged large multinational corporations with deep pockets and offshore headquarters to deliver public IT projects. There is a view in the public service that these large vendors are lower risk than locally based technology companies.
That view is not supported by the results these global systems integrators have delivered in recent years.
You need only examine expensive failures like Queensland Health’s IBM-built payroll system for evidence. That ill-fated project farmed out to Big Blue saw $1.2 billion spent on a solution that was late, over-budget and either paid staff the wrong amounts or nothing at all.
This is not an isolated incident. A 2018 federal Senate Inquiry – admittedly dominated by opposition members – found that the federal government had failed to deliver a single digital project that replaced aging IT infrastructure without a major mishap. Projects frequently ran over schedule and budget, and rarely represented value for money for Australian taxpayers.
In the context of a stimulatory budget that aims to create jobs for the post-COVID recovery, ‘value for money’ is not simply a matter of smooth project implementation. Public servants and politicians must change their view of procurement for digital projects.
The current flawed approach seems to assume that the larger the contractor the lower the risk. This has seen billions in Australian taxpayers money expatriated by multinational companies in return for what can be very kindly described as mixed results.
Policymakers have created onerous, complex and opaque engagement frameworks in their attempt to manage procurement risk. This has tipped the playing field to favour the same global vendors and systems integrators who have delivered one bungled project after another.
It is only these enterprises that have the resources and expertise available to confidently navigate the current procurement system. This has clearly not reduced the rate of project failure, and it has prevented government IT contracts from creating jobs, investment and economic growth locally.
Conversely, engagement with Australian SMEs, startups and scaleups can lead to a de-risking of projects.
Multinational vendors and systems integrators devise and implement solutions “off the shelf” from existing product ranges – often with high ongoing SaaS subscription costs for the public sector customer. This leads to the provision of inappropriate solutions and increases the prospect of project failure.
A tailored approach to procurement where a partnership with an SME or startup is sought because of the precise applicability of their product and expertise to the problem can yield far better results.
Public sector organisations can ‘get in on the ground floor’ with a local vendor, shape their developing product to their exact needs and become that business’s most important customer, rather than being just another project in the pipeline of a global systems integrator.
It is encouraging that some public sector organisations are refreshing their approach. This year the Federal Treasury chose to form a relationship with Link4, an Adelaide-based Stone & Chalk resident, for their e-invoicing needs, in a competitive tender against some of the world’s largest technology vendors.
With the Federal Budget having provided funds for e-invoicing across all government departments, there is hope that other departments will follow their lead.
When procurement is conducted in a way that allows Australian SMEs to engage fairly and compete on the basis of quality and product fit, rather than be disadvantaged by the complexity of a process tailored to multinationals, the economic benefits that are harnessed for Australia are considerable.
It is not simply an investment in local labour – that, after all, could be obtained by requiring multinational vendors to subcontract locally.
It is the development of a sovereign industrial capability and intellectual property that is most important.
Creating and maintaining IP in Australia is the first step to growing a job-creating, globally significant technology export sector that is necessary for our economy to recover quickly from COVID and for our nation to emerge more resourceful and resilient.
Alex Scandurra is the CEO of emerging technology Impact Network Stone & Chalk
Do you know more? Contact James Riley via Email.