NSW Govt agencies paying too much for telco services

Summary:The New South Wales Auditor-General has released a report revealing that several of the state’s government agencies are paying too much for their telecommunications services due to a lack of procurement expertise.

A new audit report by the NSW Auditor-General has suggested that several government agencies had consistently failed to negotiate the best price for their telecommunication contracts and were not getting value for money because of inadequate contract and expense management processes.

The audit was undertaken to determine whether the state telecommunications procurement framework assists agencies to achieve value for money, and whether the six agencies reviewed could demonstrate that they had achieved value for money in the telecommunications arrangements.

It examined the procurement processes, contract management, and expense management practices of six state government agencies: the Department of Education and Communities, the Forestry Corporation of NSW, Fire and Rescue NSW, NSW Businesslink, Essential Energy, and Sydney Trains.

In the financial year 2012-13, these agencies spent over AU$115 million on telecommunications services and equipment — almost a third of NSW government expenditure on telecommunications.

The audit found that, while centralised procurement arrangements had the potential to deliver savings through aggregating demand and sharing knowledge to secure discounts, a number of the agencies reviewed did not make use of the working group established to assist agencies drive better deals when negotiating with suppliers.

Since 2007, NSW government agencies had been able to buy standard telecommunications services and equipment from the Government Telecommunications Agreement (GTA) arrangements, which expired on 31 March this year. They were replaced by the new state telecommunications procurement framework, which kicked in at the beginning of April.

As of March, the working group had seen total savings of AU$3.66 million over the past year, across 13 telecommunications proposals worth AU$11.46 million, according to the Auditor-General.

"Agencies should use the government working group and access the necessary expertise on telecommunications to maximise value," said NSW Auditor-General, Grant Hehir. "This is particularly important for all new telecommunications contracts, as the Government Telecommunications Agreement was replaced in April 2014 with new arrangements that require agencies to engage in more direct negotiations with suppliers."

According to the new audit report, the main factor contributing to whether an agency achieved value for money was they managed their procurement processes, regardless of the state procurement model.

Of the six agencies reviewed, only one — Essential Energy — was able to demonstrate that it had managed its procurement well enough to demonstrate that it was getting value for money in its telecommunications arrangements.

"Few agencies market tested prices or negotiated with suppliers for better prices," said Hehir. "Most just took the ceiling price in the Government Telecommunications Agreement.

"Only one agency clearly took responsibility for achieving value for money. Central agency support was available if agencies were uncertain on how best to proceed and use of this could have generated significant further savings," he said.

The report concluded that most of the agencies reviewed did not have the level of expertise in procurement, contract management and expense management that was needed to achieve value for money in the telecommunications arena.

The root cuase of this lack of expertise, accordig to the report, was a lack of appropriately skilled employees within the reviewed agencies. 

"We have previously highlighted weaknesses with workforce capability in relation to contract management," said Hehir. "A 2012 Auditor-General's report found weaknesses in contract management and emphasised the importance of skilled staff in achieving continued value for money over the life of long-term IT services contracts."

Meanwhile, only three of the six agencies reviewed demonstrated that they had proper processes to manage their usage and spend on telecommunications, according to the report.

The NSW government spends around AU$370 million each year on telecommunications technology and services.

Topics: Telcos, Government : AU

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Leon covers enterprise technology and start-ups from ZDNet's Sydney newsroom.

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