Outsourced tech contracts ‘defy common sense’

Denham Sadler
National Affairs Editor

Handing lucrative IT contracts to multinational tech delivery firms “defies common sense” and undermines the capacity of the public sector to build technical capability, leading tax experts have told a senate inquiry.

Representatives from the Centre for International Corporate Tax Accountability and Research (CICTAR) fronted a public hearing on Monday morning as part of the Senate inquiry into the current capability of the Australian Public Service.

They raised concerns that these multinational tech giants are regularly underbidding local companies for government work, despite a history of “aggressive tax avoidance” and failing to deliver in the past.

CICTAR principal analyst Jason Ward pointed to the current contract around the federal government’s permissions capability, which appears to have been watered down around the tax complaints for contractors from a previous effort to outsource visa processing.

Money, money, money

This permissions capability will initially handle visa processing before being used across the government, with three US tech giants vying for the work. The Coalition’s previous attempt to outsource visa processing never made it past the tender stage.

“When the government first proposed this, the draft tender documents had strong language on requirements for a record of tax compliance that would have excluded both of the competing two consortiums,” Mr Ward said.

“Since then they’ve come back with visa privatisation 2.0. Oracle is involved in one consortium and is subject to a landmark $300 million transfer pricing dispute with the ATO. They appear to have shifted $1 billion in profits out of Australia. Oracle also faces current disputes with tax authorities in New Zealand and elsewhere around the world.”

It was reported last week that Accenture had been successful and awarded a $60 million contract to develop this permissions capability.

Accenture is incorporated in Ireland and its Australian business is owned through a series of shell companies in the Netherlands before returning to Ireland, Mr Ward said.

“With the new visa privatisation 2.0 the government will maintain overall control but the processing itself is being outsourced. Expanding contracts with Accenture and other multinational tax avoiders defies common sense. It sets them up with a long stream of profits from Australian government spending, while the APS loses internal capability,” Mr Ward said.

Accenture enjoyed a bumper 2020, winning a number of significant government contracts around the COVID-19 pandemic response and other services.

Earlier this month it was awarded a further $57 million for its continued work on My Health Record, with that contract now worth a total of just under $630 million over the last decade.

It will also be paid about $20 million for COVID-19 vaccine data solutions, and won two ATO contracts both worth $40 million late last year.

In 2020, the total value of contracts Accenture won with the government was nearly $800 million, a 15 per cent increase from the previous year.

Awarding significant work on core government services like this to a global tech giant risks damaging the APS and its tech capability, Mr Ward said.

“Large providers get contracts despite failing to deliver on promises. Obviously some services need to be brought in externally because of technical expertise, but relying on these companies undermines the capacity of the APS to develop its own technical skills and knowledge.”

Large tech companies are also able to underbid their smaller Australian rivals and complete work at a loss in order to lock in future work with the Commonwealth, he said.

“I’ve heard this from Australian businesses, they say that they used to have contracts to provide software or IT services to governments but they can’t compete because an Oracle will come in and they can afford to underbid and lose money in order to secure that contract and future revenue,” Mr Ward said.

“A small domestic firm can’t afford to do that, they have a genuine need to turn a profit now and into the future rather than subsidise a profit in the future.”

He pointed to the government contracting US giant AWS to deliver cloud services for its controversial contact tracing app COVIDSafe last year as an example of this.

“There were a number of domestic companies that had the security clearance, capacity and capability to win that contract but for some reason the government went with AWS,” he said.

“AWS has a company incorporated in Australia and that’s the entity that lobbies the government for contracts, but when the government signs a contract it signs with AWS incorporated in Delaware, and presumably the money flows directly to Delaware, which is an internal tax haven in the US.

“AWS does pay some tax in Australia but it’s a fraction of what it would if the contract was signed with the company incorporated in Australia.”

There is also a key issue around a lack of performance metrics or ability to assess whether these tech giants have actually delivered on their contract, he said.

“There’s no public information to assess whether or not these contracts have performed as originally contracted. The information from a public standpoint doesn’t exist,” Mr Ward said.

Do you know more? Contact James Riley via Email.

  1. MK 3 years ago

    I share the frustration and concern of the author over the loss of capability in the Australian Public Services, especially at the Commonwealth level, having been involved (as a supplier) in the outsourcing and subcontracting of services before. What appears to be lacking is any transparency in the public tender process for such pieces of work, combined with clear requirements and criteria that any supplier will have to meet in ensuring that the APS retains critical process know-how and ultimate ownership (accountability). I frankly do not understand why APS does not simply require to contract through on-shore entities, for tax purposes but also legal reasons.

    On a side-note, I don’t share Digital Koolaid’s view that “commercial brains” is the missing capability of APS. I rather believe that it has more to do with political interference in the APS and lacking accountability on that. (The F/X point isn’t a given risk; contracts could still be in AUD.)

  2. Digital Koolaid 3 years ago

    The missing APS capability is commercial brains. In this era of Chequebook Bureaucracy the APS could learn how to swim with the crocodiles. But it doesn’t need to, and doesn’t. There’s more money next year when they fail. There’s endless contract extensions. There’s a new project name if needed to protect yourself from Senators. The other APS capability could be more than zero feeling of responsibility to Australians. By the way, what’s the bet that AWS Delaware contract is in USD and Australians carry all the Foreign Exchange risk and the costs to convert AUD to USD. Any takers ?

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