Both of the two proposed models to simplify the Queensland Government's system for hiring IT contractors could lead to the loss of hundreds of jobs and a number of small business closures, according to a new report by analyst firm Longhaus.
Concerned at how much it was spending on IT contractors, the Queensland Government had proposed a new model for procuring the ad-hoc workforce it used, hoping to reduce its spend by 5 to 10 per cent. The IT recruitment industry has proposed an alternative model.
According to Longhaus, the Queensland Government sources 2419 of its total 6158-strong IT workforce from the IT labour hire industry — around 39 per cent. This put the value of the Queensland Government ICT contracting market at around $268 million, meaning savings of around $25 million would be achieved if 10 per cent of the government's costs could be trimmed.
The government model
The Queensland Government's new model involves having one master
recruitment vendor for those employees it sources to fill its ad-hoc IT needs.
The IT labour hire industry has previously expressed its horror at the model, concerned it would damage the IT contracting industry irreparably. Meanwhile, others in the general IT industry thought it would be a good idea, allowing the contractors more scope to negotiate for their own work and stopping the recruitment companies from discouraging workers from taking on permanent work with the government via contract clauses which trigger hefty payments.
Longhaus (commissioned to do an impact study by the IT Contractor and Recruitment Association) said that the Queensland Government had been paying 5 to 20 per cent more than its state government counterparts for IT contractors, but it wasn't convinced that the government's model was the correct way to cut costs.
The model, according to Longhaus, would cause over $200 million in revenue loss for the industry, up to hundreds of companies going out of business and the loss of around 700 jobs.
The industry could likely still have a role in first-time placements, according to Longhaus, but wouldn't receive any revenue for contract renewals, which would all be carried out by the master vendor. Since 82 per cent of the government's labour force is on contract renewal, this meant $220 million in revenue would be funnelled through the master vendor and not the industry, leading to a minimum of 327 companies going broke, Longhaus said, while 644 would be at risk of failure.
$75 million — which would have been spent on IT software and hardware by those companies &mdash would not be spent, and assuming 82 per cent of the IT workers were hired via the master vendor, 699 people would lose their jobs.
Longhaus also raised concerns that the model might be considered anti-competitive and end in the government incurring extra costs because the master vendor passed on extra payroll tax costs, and wouldn't address the loose nature of the accreditation scheme to become a labour hire firm to the government, which Longhaus considered to be a large part of the problem.
On top of these concerns, Longhaus said that the government sourced much of its temporary workforce via consulting or IT services firms, which it has indicated won't be included in the first version of its new model. In fact, the number of contractors the new model would affect could be as little as 604. This could mean savings from implementing the model would sink much lower than the $25 million mentioned, possibly not even covering the costs of implementation.
The industry model
The IT recruitment industry
got together to formulate a model it didn't think
was so destructive but that would still realise savings for the government.
Instead of having one master vendor, the industry suggested that the agencies source their needs from a limited pool of accredited suppliers. Those suppliers had to strike the contracts via a centralised invoicing station for better transparency. The government's procurement office would also formulate policy guidelines, setting contractual terms and conditions such as rates, on-costs and contracted margins.
This system would supposedly allow governance of prices and conduct via self-regulation with guidelines and agreed codes of conduct.
According to Longhaus, this model wouldn't affect the industry as much, since the money for recurring contracts would still go into the industry. Yet it would still have an impact, with small businesses to take the biggest hit: the model would see revenue transferred from unaccredited firms to those "limited" number of upper firms.
"Under the alternative model, it is likely that many SMEs would not meet agreed regulated eligibility or performance requirements for entry into the limited supplier pool," Longhaus said.
Companies with less than 25 people to their name made up for 50 per cent of the supply of contractors delivered to government, Longhaus said, although their services were generally more expensive because they lacked economies of scale.
The industry model would see 700 SMEs forced to leave the market or get themselves accredited, the research house said, with the same downstream spend lost as for the government model.
Yet the model could save the government more than its planned 5 to 10 per cent, Longhaus believed, coming out at 12 per cent — or savings of $30 million. Another major benefit would be that the government wouldn't need to spend as much to implement this model.