We are fumbling Australia’s digital sovereignty

David Elliot

Our government isn’t delivering the digital capabilities that Australia needs to meet the challenges and opportunities of the digital age.

In August 2023, the ATO’s troubled Modernising Business Registers (MBR) program was axed after taxpayers were asked for an additional $2.3 billion in funding. That kind of budget for a national business database isn’t normal, and yet these tech wrecks increasingly seem to be.

To put it mildly, our government’s ability to wield digital technologies for the benefit of Australia is slipping.

The MBR program was needed for good reasons, including to limit the ‘company phoenixing’ behind much of the fraud the NDIA is suffering. Now the money has been spent, and Australia still lacks for a national business registry.

Our country’s digital capability gap grows wider with each of these failures. As this gap widens, so should concerns for our nation’s future prosperity and security.

Why is the government suffering these runaway digital disasters, and what is to be done about it? This capability gap won’t be bridged by tinkering at the margins. These aren’t system failures, these are systemic failures.

To close this capability gap the Australian government must take the lead in establishing our digital sovereignty.

The necessity of digital sovereignty

Digital technologies have permeated not just our daily lives via the smartphones glued to our hands, but the essential infrastructure of society itself. As these technologies make life easier and our organisations more efficient, they also expose us to peril.

Australia’s digital infrastructure is now critical national infrastructure. It will only become more so in the era of artificial intelligence.

Digital sovereignty refers to a nation’s capability to understand and control the software and data it relies on.

Establishing Australia’s agency over our digital infrastructure can be gauged in several ways. It can be assessed by the transparency we have over our software and data supply chains, to what degree our laws apply to the systems we rely on, and by how much relevant intellectual property we create in this country.

The most critical yardstick of all, however, is whether our government can reliably deliver the IT projects needed to build our nation’s digital infrastructure.

The capacity to understand and control our digital systems is a national necessity. This means our government can no longer blindly acquire offshore and off-the-shelf systems and try to shoehorn them for Australia’s mission.

As Government Services minister Bill Shorten has sagely put it, “mission tech beats commodity tech when it comes to government services”.

The state of the digital nation

In July 2023, Mr Shorten took to the podium at the AFR’s Digital Government Summit in Canberra. He issued a call to arms for the federal government’s digital agenda.

This call was in the context of some dire news. The long running ‘Entitlements Calculator’ project at Services Australia had failed to shoehorn its offshore commodity tech into place.

This entitlements calculator had been a Centrelink project to compute welfare entitlements. Sadly, the only notable calculation this project yielded was that it had cost taxpayers $191 million dollars with nought to show for it.

This debacle joined the sad cohort of government IT projects to have stumbled grandly and publicly in recent times. This abysmal alumnus includes the modernised business register, the digital passenger boarding card, parliamentary expense calculator, and the COVIDSafe app to name a few.

We are witnessing a procession of publicly disclosed IT tech wrecks costing taxpayers billions of dollars without delivering an outcome.

The state of our government’s digital capability is dire.

A very profitable quagmire

Our civilian federal government spends over $8 billion on IT procurement each year. This has created a lucrative marketplace, if not a well-functioning one.

Indeed, we have a profitable marketplace for failed and zombie government IT projects (being neither quite dead nor alive).

Given such a lucrative enterprise, this market is well guarded by its major beneficiaries.

Behind the veil, one sees the same participants in something of a game of musical chairs. Each time the music stops, it’s the Australian taxpayer left with a multimillion-dollar bill and no chair in sight.

Those outside the Canberra bubble may not realise that beyond the taxpayer paying the bills, there is scant accountability for large-scale failure.

Profiting from a digital debacle has no bearing on the opportunity to take part in the next titanic IT endeavour to cast-off to sea.

For many market participants these aren’t failures, they’re business. To paraphrase Major General Smedley D. Butler’s treatise on the military-industrial complex, “Government IT projects are a racket… and business is good”.

The incentives at play in Australian government IT procurement are entirely wrong.

Why the Commonwealth Procurement Rules aren’t helping

The purchase of goods and services by Australian Government organisations is governed by the Commonwealth Procurement Rules (CPRs). These rules aim to ensure probity, risk management, and value for money for the taxpayer.

Yet they aren’t steering Australia’s most important IT projects away from the icebergs. This is because they leave the door open to perverse incentives that work against creating and retaining benefits for Australia.

“Show me the incentive and I will show you the outcome,” is a wisdom attributed to Charlie Munger, business partner of investment oracle Warren Buffett.

To put it bluntly, the incentive behind a large portion of government IT projects is to consume the budget with bodies. This incentive drives the snowballing IT disasters that serve primarily to keep large numbers of people busy.

More specifically, there are two insidious incentives at play in Commonwealth IT procurement. There is ‘land and expand’ for the big consultancies, and ‘land and extend’ for the hordes of IT contractors.

Land and expand (that is, “if you can’t be part of the solution, there’s good money to be made being part of the problem”) is a commercial model of the big consultancies.

This sees large suppliers of skilled personnel incentivised to engage with a government agency, and then expand headcount to drive up the value of the engagement.

The second incentive, ‘land and extend’, is the similarly expansive incentive of the workforce of IT labour hire contractors.

These are individual arrangements that collectively dwarf the government’s spend on big consultancies. They are, by their commercial nature, outcome-free. The rational incentive isn’t for contract completion, it’s for contract extension.

In each case it’s generally timesheets, not outcomes, that the government pays for. These expansionary incentives are why rational market participants aren’t so focussed on narrowing to an outcome.

The CPRs do little to curb this perverse ‘bodies for budget’ incentive. This wastes our human capital whilst acting directly counter to getting things done.

Lessons from the past

For well over a half a century smart people have been studying the reasons why IT projects fail. Fred Brooks was one such smart person who analysed the wildly overblown IBM OS/360 system development of the 1960s.

Brooks concluded in his 1975 classic “The Mythical Man-Month” that “Adding [people] to a late software project makes it later”. A conclusion so important to the field of software engineering that it has henceforth been known as “Brooks’ Law”.

Delivering digital solutions is not a force of numbers challenge – when it comes to headcount, less is more. By incentivising expansionary ‘bodies for budget’ procurement and delivery models – the Australian Government has repeatedly found itself losing control of overweight projects that fall afoul of Brooks’ Law over and over again.

By way of example, the ill-fated MBR program had some 500 people toiling away toward the end. In diagnosing its failure, one commentator pointed to a programming language used on the project (it was Groovy). Hot tip from an old software engineer: the problem wasn’t the programming language.

The WhatsApp app on your phone? That was programmed in an esoteric language called Erlang. A far more valuable observation is that the WhatsApp company was just 55 people when that global communications platform became so successful that it was purchased for billions by Facebook.

Our industry learned a long time ago that throwing bodies at an IT project only amplifies its inefficiencies.

How Australian Government IT procurement became a marketplace for lemons

In 1970 George Akerlof wrote a seminal paper in the field of economics: “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”.

Akerlof, using the slang ‘lemon’ in reference to a car found to be defective after purchase, explored the impact of asymmetric information in the market for used cars.

The paper concluded that if the buyers in a market are ill-informed as compared to the sellers, then it is the sellers of ‘lemons’ that will proliferate in the market.

As the lemon sellers saturate the market, the peaches (those merchants of quality) are driven out by market economics. The utility of the marketplace for the buyer then collapses.

This has been a pernicious outcome of the Australian Public Service (APS) Average Staffing Level (ASL) caps. It degraded the APS to be a disempowered buyer in the IT marketplace. As the internal digital capabilities of the APS were hollowed out, it lost the ability to manage digital projects for outcomes.

As Akerlof predicted, we now have a lemon marketplace where the government increasingly faces ‘bodies for budgets’ delivery models from the vendors best geared to profit in an outcome-free incentive model.

This is how we get to a nearly $3 billion quote for a national business registry. This is also the reason why the merry-go-round of colossal IT failures seems to feature the same participants.

Government IT procurement has become a late-stage lemon marketplace and we’re very short of peaches.

The smaller, more nimble organisations that can be managed for an outcome (or, at the very least, to fail fast) have been displaced by market participants that thrive in the malodorous fertiliser of ‘land and expand’ and ‘land and extend’ incentives.

We must bring the peaches back to work with our government via smaller outcome-led procurements.

Where to from here

A post-mortem for why any individual IT initiative fails is complex. To cut through the pile of dismal Australian National Audit Office report cards, we are best to return to first principles.

We must rebalance Commonwealth IT procurement away from encouraging large-scale suppliers of personnel to deliver IT projects. This approach hasn’t been working and it isn’t ever going to. Let’s begin treating our skills shortage by not wasting people’s talents on projects that are setup to fail.

To achieve this rebalancing, we must:

1.  Fix the lemon marketplace: a key focus of rebuilding internal APS capability must be to unwind the lemon marketplace. This requires a strong internal government IT capability that is able to ‘chunk down’ and manage smaller parcels of work. This means projects where vendors and outcomes can be reliably managed by a capable government-as-partner.

2.  Fix the accountability gap: we need to recalibrate the CPRs to do away with the nebulous term ‘value for money’. These rules must account for something more tangible, like ‘retained benefits for Australia’. In doing so the government must make benefits-based procurement the norm – and start paying for outcomes over timesheets.

These envision an APS with the capability to define and manage outcome-led parcels of work with specialist suppliers that can be held accountable to outcome. Both strategies are necessary to fix the tech wrecks and establish Australia’s digital sovereignty.

How can an organisation with the breadth and complexity of the Australian Government execute such a corrective strategy? Fortunately, the government already has the tip of the spear with which to lead this reform – the long-anticipated Future Made in Australia Office (FMiAO).

This new office is Australia’s answer to the USA’s equally sensible ‘Made in America Office’. It sits within the Department of Finance – the department that also happens to define the CPRs.

Why the Future Made in Australia Office is a big part of the answer

As counter to national interest as it sounds, there is something of a cultural cringe within the Australian Government when considering Australian technology businesses.

Indeed, the Buy Australia Plan has been viewed as a welfare support program for Australian sovereign businesses. Clearly sovereign businesses would benefit (That is, grow in number and size) with more public sector contracts.

However, our government would be well served to understand that these businesses are the peaches needed to fix the government’s lemon marketplace. Sovereign procurement is a necessary part of the solution to our bitter tech wrecks.

A sovereign Australian business is often usefully smaller in scale than a multinational. This means it can be incentivised as a partner to focus on outcomes. It also pays tax in Australia, retains intellectual property in Australia, and is bound by Australian law.

There are green shoots in terms of a positive view towards sovereign suppliers. In July 2023, the Australian Government began asking its suppliers if they intended to pay any tax in Australia. Baby steps.

The FMiAO is the key to unlocking Australia’s digital sovereignty. It offers the best chance to repair the broken incentive system behind many of our largest tech wrecks.

If it is applied to reform the CPRs to encourage engaging with Australian sovereign businesses on delivering outcomes, then it will pay huge dividends for Australia’s future.

Australia must take agency over its digital destiny. The days of ceding Canberra as a passive branch office for multinational technology vendors need to be put well behind us. This demands a strong APS working with Australian sovereign businesses to deliver on the digital infrastructure our nation sorely needs.

David Elliot is an entrepreneur who has been at the forefront of enterprise software development since graduating from the Australian National University in 1995. In 2004, he founded Agile Digital, a specialist software engineering firm. Under his leadership, the company has grown into a multidisciplinary team, earning accolades for its expertise in large-scale platform and product development. He is passionate about Australia’s potential as a well-educated nation to be a technology leader in the digital era.

Do you know more? Contact James Riley via Email.

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