Government must reform procurement guidelines

Australia could learn from the US, Canada and the UK and use government procurement processes to support its ICT industries as fundamental pillars of national self-reliance and economic growth.

Australia must recognise the nation’s ICT sector as a critical engine of growth

Government procurement guidelines must be urgently reformed to offer Australian taxpayers greater benefits from public spending on procurement, according to landmark research backed by an alliance of leading local technology companies.

The research, conducted by independent economic analysts Insight Economics, has made a range of recommendations to assess the often-overlooked economic, social, and environmental impacts of ICT procurement.

It found that while substantial improvements had been made in recent years in valuing these benefits in ICT procurement, more could be done to prevent them being undervalued in public-sector processes. Australia’s ICT sector is a critical engine for economic growth, contributing nearly 10 per cent of GDP and generating over 830,000 high-skilled jobs.

“Australian tech is world-best and has shown it can compete and win in every market in the world, but continually finds itself fighting for recognition and respect with Governments at home,” TechnologyOne chief executive Ed Chung siad.

“ All we are asking for is that our contribution is properly valued before taxpayers’ money is spent supporting the pension funds of people in other countries.”

TechnologyOne, the nation’s leading SaaS ERP provider, led the alliance of local technology companies backing the research. They include government and critical infrastructure cloud vendor Vault Cloud, cyber security, data centre and ICT business Macquarie Technology Group, custom software development firm Agile Group, counter-drone defence solutions DroneShield, space technology company Gilmour Space, software and data company Psithur and the Australian Computer Society.

The report’s author, Insight Economics director Melanie Kelly, said Australia could learn from the recognition by the US, Canada and the UK of their ICT industries as fundamental pillars of their national self-reliance and economic growth and how they used procurement processes to support them.

“We looked at the approach of the US, for example, which has just completely shifted its focus over the last two administrations, using trade agreement carve outs to be very aggressive in its procurement practices,” Kelly said.

“The US is approaching the technology sector as a strategic capability, and using all of the levers available to increase its capability and domestic sourcing.

“The United Kingdom also has mission-led procurement, while Canada has established a Centre of Excellence in ICT procurement to support departments to better and more consistently value economic and social impacts.

“At the same time, we’re also seeing broader industry trends around market consolidation leading to asymmetric competition in the sector,” she said.

“Australia is doing a great job of trying to stick to the rules, but it is not equipping procurement officers to fully value the impacts under the current policy settings.”

Her comments were backed by Vault Cloud CEO, Rupert Taylor-Price, who said Australia’s allied national security partners were being very clear on what control and economic benefit they required when deploying taxpayer’s funds. “They see it as part of their patriotic duty. This paper provides a rational and evidence-based path forward for Australia to join our allied partners in building a secure and resilient country,” he said.

The Insight Economics report highlighted the need for more rigorous economic impact assessments in ICT, akin to those routinely required in other sectors.

No major private sector mining project or a government transport or health infrastructure investment is approved without robust economic impact analysis, yet major ICT investment decisions are consistently made in the absence of economic impact analysis.

“Definitely there is no reason that we can’t be applying these cost benefit analysis tool kits used in other industries to ICT,” Kelly said.

“There are methods for doing this in ICT, but they are reasonably technical. It is not really fair to assume that a procurement officer that is not supported and skilled would be able to do that.”

In this context the report argued that procurement officers should be better trained to evaluate the broader impacts of ICT investments to improve procurement practices.

“I think that what we’ve seen in the past is that you can tell people ‘This is what they should value’, but if you haven’t empowered them through any kind of training or support, it just doesn’t happen in practice,” Kelly said.

The report recommended the creation of a Centre of Excellence for ICT Procurement, a dedicated body that would support and guide government departments in evaluating economic and social impacts.

“The updated guidelines for the valuation of economic, social and environmental impacts in government procurement, released in July 2024, were welcome and important. But these are technical and challenging issues that require further support,” Kelly said.

“Taking the lead from Canada, and going beyond just what are the questions you might ask for very significant procurements supporting government departments, to better value these impacts through the establishment of a National Centre of Excellence, could be a really important next step.”

Importantly, the report found that current procurement processes did not prioritise long-term value over short-term cost savings, and had failed to evolve in response to changing market dynamics and technological advancements.

“There wasn’t a person who we surveyed who said this is a question that is asked routinely,” Kelly said.

“There is no consideration of long-term dynamic impacts and what they could mean. We’ve recommended that when you are thinking about competitive pricing, you are thinking not just about the best use of a dollar today, but how that translates through into the future.

“The full valuation of that comes as you start to think about export potential and the impact of leveraged infrastructure and the spillover benefits to your technology clusters,” she said.

The Insight Economics paper also discussed the types of economic benefits that governments should consider in procurement processes, including contributing to skills development, high value job creation, IP development and ICT clusters development.

“There is a long history of research and evidence showing that these clusters matter. They help you attract and retain skills, and you see innovation happen at the firm level, which leads to improvements in market value and profitability, which then leads to increased wages and taxes,” Kelly said.

“But also through those technology clusters you have spillovers to the wider industry and other sectors. So the clusters lead to higher R&D productivity and economic impacts than would otherwise have been the case.”

Psithur co-founder Felix Barbalet said Australian ICT companies were producing world-class innovation.

“By adopting smarter procurement practices, the government could leverage local expertise to deliver better services and value to all Australians while contributing to economic growth and high-skilled jobs,” he said.

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This content was produced in association with TechnologyOne. Read our policy on commercial content here.

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