Gershon fallout: Contractor cuts realistic?

Gershon fallout: Contractor cuts realistic?

Summary: Local ICT companies have raised concerns around Sir Peter Gershon's recommendation, released last week, that federal government agencies should cut IT contractor levels by 50 per cent over the next two years.


Two local ICT companies have raised concerns around Sir Peter Gershon's recommendation, released last week, that federal government agencies should cut IT contractor levels by 50 per cent over the next two years.

Razor: Gershon and Tanner

Sir Peter Gershon and Lindsay Tanner.
(Credit: Brian Hartigan)

"The consequences of adopting Gershon's recommendations as a firm target is likely to include further increases in [government ICT] skills shortage," said chief operating officer of ICT recruitment firm Peoplebank, Peter Acheson.

Acheson said there was currently a shortage in government agencies of around 1,000 people, representing a quarter of its total ICT labour force. "Imposing permanency targets that effectively mean lower salaries for those currently on contractor rates would only serve to further increase the shortage, with the further consequence that departments would find it near-impossible to achieve key IT deliverables," he said.

One such agency that has become highly dependent on contractors to meet its deadlines is the Department of Immigration and Citizenship. Thanks largely to the Systems for People IT refresh which began in 2006, its annual intake of contractors has gone from 800 in 2003 to 2,500 a year every year after. DIAC currently employs 7,000 full-time staff

"It's basically contractors coming in to work on a short-term project and going out," Mark Handley, director of protective security at DIAC, has said about the situation.

The short-term nature of the work required for this type of project justified the continued use of contractors, said Peoplebank's Acheson.

"Much of the Federal Government's immediate need is for short-term project work with specific skills requirements. This doesn't warrant the engagement of permanent staff, which is why contracting is a preferred method of engagement — it provides workforce flexibility, reduced overall risk and the ability to quickly restructure as needs change."

However, the dependence on short-term contractors has also left DIAC exposed to short-term fluctuations in the price for skilled IT labour, which in turn had threatened the project's viability. Midway through the IT refresh DIAC realised it faced a possible 22 per cent increase in labour costs. The projected shortfall in funds resulted in a $25 million bailout package awarded to it in order for the project to keep going.

On the other hand, some government agencies have begun to change the discourse used for projects once positioned as "short-term".

Australian Taxation Office chief information officer Bill Gibson recently said the five-year $724 million Change Program would be called a Change Agenda going forward in order to suggest its ongoing nature.

"I don't really want to refer to it as a Change Program," he said. "Only in that it really is an ongoing change, a much broader thing, an agenda; we're branding it as a Change Agenda. This is trying to help people understand that change doesn't stop."

A recommendation by Gershon that has found industry support around the use of contractors is that the government needs to better develop long-term careers for ICT staff within government.

"We support the view that the government should focus on ICT career, training and development within government ranks," said Martin Aungle, Dimension Data's corporate communications manager. "We believe that this will have a positive effect for the sector as a whole by encouraging more young people to consider an ICT career," he said.

But before the government committed to an actual reduction figure, Aungle said it should investigate further what skills are actually required in-house.

"The government really needs to investigate what skills are needed in-house, what skills they need to develop internally and what skills they need to source from third parties," he said. "Also, there don't seem to be any recommendations made around a more effective skills transfer and education process as part of the process of service delivery."

Topics: IT Employment, Government AU, Outsourcing

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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  • Crazy talk

    That would be a recipe for disaster. The reason contractors are bought in is to supply skills that are lacking in-house. Get rid of the contractors and the whole thing falls over.

    It's just that simple.
  • Contractors v permanent

    So a top level PS gets about $90k (non executive level)

    A contractor gets about $150k.

    The PS gets the skills up and leaves for a contracting job.

    Its a great way to increase churn and not much else.

    Pay the PS more and maybe it will work, but the savings will diminish significantly.
  • Missed the mark

    I used to be in IT in the public service, I got out mainly because I get nearly $30,000 more in the private sector where my skills are appreciated.
    How does Gershon expect to recruit more internal IT staff within the APS when there are such huge pay discrepancies between public and private? Also, why would I want to be in IT in the APS when there is a good chance that I will be part of an outsourcing excercise?. Some of his ideas are good, most are fancilful and it will take a large broom to sweep away the recalcitrant SES who dont exchange information in order to protect their jobs.
    Nice try Pete.
  • It's About Time

    For years now the IT people in Govt Depts have been saying what Gershon has recommended.
    I agree that the PS are not paid accordingly but the those who skill up and leave is minimal, there is no churn.
    There is a lot of wastage and duplication in the PS, fix it and all is good.
    Contractors for short term projects is normal.
    I empathise with the contracting companies but in the end it has to be best value for the taxpayer dollar.
    It's just that simple.
  • Recruiters are the problem

    Gershon is half right, but it's not contracting as such that cause the problem. It's the dependence on recruiting firms and outsourcers, who add huge margins to the rates they pay the actual contractors.

    The solution is to develop more professional confidence within the public service, so that contractors can be engaged and managed directly.

    Gershon also should have addressed the low standard of professional organisation in Australia. I notice he refrained from endorsing long-standing ACS proposals on this topic.
  • Market forces

    I thought this thread was looking reasonably fresh until the 'recruiters are the probelm' post. Not this again... Most recruiters working for govt. (federal and state) work to prescribed terms which do not allow for these 'huge margins'. Market forces dictate average contract rates, not recruiters.

    ps - what about a thread about the quality of school dinners?
  • Gershon Report

    I agree there may be problems in public sector projects but is Gershon seriously saying that by cutting contractors... the problem is going to be fixed? Maybe if they fix the PUBLIC SECTOR PAY RATES TO MEET MARKET NEEDS they may get more permanent staff interested in working in the environment and it would save them a fortune in fees. If the current pay rates are an example of what they expect to pay IT specialists, they are dreaming...
  • recruiters are the problem ??

    Not in my world baby !! Huge margins are a thing of the past. However many people within public sector see the difference between what the contractor gets and what the client charges as margin..... what they dont think about is the legislative oncosts....Payroll Tax, Superannuation, Insurance etc etc - trust me... big margins are a thing of the past... look at the whole picture before making judgements is my suggestion. Recruiters arent the problem, Public Sector Pay rates are.
  • Management Quality is the Key

    Most IT in Australia relies upon lots of contractors, so why should it be different for government?

    However, I think what has a much bigger effect upon the costs and success of IT projects is the quality of management, both in the organisation and the projects themselves.

    I have seen many IT projects just plain waste effort by poor project planning and oversight.

    Million dollar contracts on a handshake and poor deliverable specification - spend the money on getting decent managers and the rest may well take care of itself.
  • Contactors?

    My understanding is that the majority of contractors are sourced form large organisations such as IBM, CSC, EDS, CapGemini etc. In my experience, these mulitnationals will charge out at $1200 - 2500 per day but pay their workers $200 - 300 per day.
    Is there a breakdown of where contractors are sourced for the PS?
  • Nobody wants to work in Canberra

    Just look at how many RFQ came out of just the ATO last year for contractors. The fact is that when you talk to these guys they have a shortage of skilled staff and have to apply outside the ACT to find them in most cases. most Sydney siders after 12 months in Canberra want to come back to Sydney. This is the reason why now days they just use contractors as any permannet staff rarely stay in the ACT for too long. It does take a special breed.
  • Market Forces

    I think rates for contractors will move down significantly due to supply and demand. In Canberra, an the market has been 'bid up' by Govt. The Govt looks like it is going to place restriction on agencies to continue this practice. Some will move to other markets. Many will not because they live in Canberra. There is a lot of self-interest when IT contractors talk up shortages.
  • Market forces

    Assuming there was a transition of contractors toward PS positions as a result of downward pressure on the market (as there would be no other reason), of the bigger private ICT firms it will be those less skilled and experienced staff that will make the move (involuntarily). In a market of downard pressure, firms will firstly lay off the underprforming employees before the others. So, if you (as an individual working in the contract market) have a good reputation and track record, then why would you make the switch? I question what might be the longer term results of the Gershon report recommendation to cut contractors? Perhaps a growth of PS ICT staff that are not adequately skilled and experienced and placed in charge of complex ICT projects. So where might this likely lead? There must be a smarter way, I've seen this all before.
  • Re: top level PS ($90k non EL)???

    Which top level PS are you talking about?

    APS 6 across most Departments will no get you close to that figure. Medicare recently advertised a 'Snr BA'. With the going rate at $61k base salary, I doubt there would be many serious punters.
  • It happened to us...

    It happened to us.

    I worked at a large branch of one of Australias biggest agencies a few years ago. We were an inhouse team of about 80 IT guys servicing a business line of approx 1200 people, who generally were non-directing executive levels (believe it or not - rare).

    Alot of who I call the brick layers, being the business analysts were APS 6 level. After some time of not seeing any promotion opportunities or any sniff of better money, we all started looking.

    Where it really hurts a team like that is where young or old experts who have a tonne of business knowledge, both systems and process (not too mention government paid degree programs ontop of ones own tertiary qualifications) leave huge gaps in sensitive projects with no one to replace. It is impossible.

    Where did these people go?

    To the businesses that this agency spends its resources keeping honest. And it figures. Why struggle in one of Australias most expensive cities for $65k tops at the time when the Banks will double that immediately - no questions asked.

    When 20 BA's left - I found later on from those that hung around - nothing got done and the place was impotent.

    Who should be responsible? Leadership. Fix that up first - not the easy scapegoat for all the problems a department experiences.
  • recruiters are

    you recruiters ARE the PROBLEM. before you AGENCIES came into the market, the market was all good, now you see you agencies like VULTURES 10 of you to a contract.
    and your contracts take ages to get if you get it at all and then you have a clause of 1 day notice?? get REAL

    Recruitment firms are scum. I have not met a contractor that likes dealing with you vermin. It is true that government imposes terms that are then made more stringent so that the contracts remove any rights for contractors. recruitment firms should be abolished and fair contracts with fair terms put in place with the client directly. The internet makes it possible to easily engage but public servants are too lazy and disinterested to go through job applications. What ever happened to a free market with fair and open competition? As for your high margins - my heart bleeds - go back to selling cars.....................
  • Useless APS management

    Your point is very good. If I had a dollar for every ex Defence person that hold an APS management position I would retire. You spend 10-20 years in Defence, leave and take up a role in IT (after a few night courses or rejigging your CV to make it look more IT) and voila - IT management. These bozos know nothing about real IT (they might use the right words but that is about it) and they think they have the leadership and management skills as well. As an IT contractor I can say that without doubt the single biggest problem is the substandard level of management in IT in the APS. The attitude is like all management in the APS i.e now that I have a management position I can sit in my office and tell everyone else to work - easy !!!