Qld govt contracting plan risks 700 jobs

Qld govt contracting plan risks 700 jobs

Summary: 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.

TOPICS: Government

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.

The verdict
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.

The verdict
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.

Topic: Government

Suzanne Tindal

About Suzanne Tindal

Suzanne Tindal cut her teeth at ZDNet.com.au as the site's telecommunications reporter, a role that saw her break some of the biggest stories associated with the National Broadband Network process. She then turned her attention to all matters in government and corporate ICT circles. Now she's taking on the whole gamut as news editor for the site.

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  • Good Information

    This report has some good information, but the State Gov won't change it's mind.

    They don't care about IT Jobs, the ICT industry could bring 30,000 jobs to Qld with in 3 years. The Premier was told this before the last election and she chose to ignore it.

    Great report but a waste of money by the industry, because it will be ignored.
  • State Govt in discussions with Industry

    ITCRA remains optimistic that good outcomes for Industry will be achieved.

    ITCRA with support of its Queensland members have worked closely with the Queensland Government to identify a path forward that will benefit industry, government and contractors. We continue to partner with the AIIA and the ICT Working Group to develop pathways that will enable improved service outcomes from the Queensland Government to the community by enabling access to a vibrant and skilled ICT contractor workforce.
  • Negotiations are Progressing

    Longhaus have provided a great deal of clarity around the Queensland Government's use of ICT contractors. The AIIA, in conjunction with ITCRA, have been working with the Government to develop an alternate model that will achieve the outcomes required by both Industry and Government based on the findings of the Longhaus study.

    There has been a significant shift in thinking since the publication of the study and we are confident that the new approach will not adversely impact the viability of the industry in Queensland.
  • Do away with middlemen

    Negotiate directly with contractors. Do away with panels, etc, for procurement of contractors. This would reduce costs by 20% immediately with no flow on effect for contractors. The only effect would be on the many procurement companies that tend to hinder rather than enhance these days due to staff no longer having a concept of the industry they are working in.
  • Apathy, Greed & Opportunism

    The level of apathy currently displayed by the recruitment industry is incredible. Its been left to ITCRA (who primarily represent the interests of largest ICT recruiters) to attempt to deliver an alternative. With no one taking a stand and representing the smaller, localised recruiters who stand to lose out which ever way this model goes.
    One major recruiter has already approached Government offering to buy out all current ICT contractors at reduced margins!
    The master vendor party has already been selected in the minds of the Qld Government, prior to even going out to market and tendering!
    Contractors will become fodder for a Government owned database, and a free for all once submitted on any vacancy.
    There will be no reason for a recruiter to submit great contractors to Qld Government, when you will get better returns from other employers.
    The question needs to be asked why the Qld Govt Procurement team cant save everyone time and money by going to the market with one recruitment proposal across a range of technical specialisations, rather than establishing a number of separate processes.
    My solution? A whole of government recruitment panel, limited supply, where all can tender their services and a range of providers are selected, each specialists in their field, all representing the different profiles currently servicing the Queensland Govt - small, medium and large recruiters. Held to account by service level and performance agreements focused on dollars, but also factors such as contractor quality and satisfaction.
    Lets walk the talk SMART STATE! If master vendors don't work anywhere else, why will it work here?!
    Lets put some value on intellectual capital, relationships and contractor care and deliver better outcomes for all sides - rather than a few powerful players!
  • The Queensland Government working to crush competition

    Nice work by Longhaus and ZDNet but in reality they have only really scratched the surface on this issue.

    Lets get this straight right up front - ICRA is hardly independent and barely represents the lesser of two evils.

    There are many important questions that the Government needs to answer before the year is out.

    1. Put on public record the individuals who framed this master vendor model and require them to disclose any conflict of interest

    2. Require any senior Government executive to sign a binding contract with the Government that they won't seek employment with the appointed master vendor for a period of 15 years.

    3. Put on the public record what companies have consulted to whatever department is involved in this policy, what they have been paid, and what personnel were involved in the delivery of consulting services.

    3.1 Then exclude these individuals from being involved in any form with the master vendor in any significant form.

    The Government needs to put on public record what steps they have taken to go to either the national or international market seeking submissions for this master vendor.

    The Government needs to go on public record with information as to what exactly they seek to achieve from this initiative. The key executives need to be held publicly accountable for the delivery of these alleged savings. The key executives need to be held publicly accountable for the broader economic impact of this policy.

    The Government MUST measure the number of active vendors to this model and report on the impact of this decline on the delivery of suitable candidates. Further, any existing Government project must be tracked to determine the medium and long term effects of this policy.

    Whatever the outcome these Executives must be held accountable.

    The real question that the Bligh Government needs to answer is why they are seeking to destroy competition in the ICT services market

    The ACCC defines a free market space as one that - "Favours neither consumer nor supplier, but strives to achieve a competitive market without artificial restrictions"

    What am I missing here? Are we really back to the bad old days of governance in Queensland?

    Finally, where the hell is the opposition in Queensland?

    Last time I checked we were operating as a democracy in Queensland.
  • Negotiations are progressing

    Perhaps you'd care to expand on your response?
  • Public Disclosure

    Are you making this comment as an officer of AIIA?
  • What is the right proportion

    Time was when contractors provided specialist and expert knowledge, and on that basis, it was worth paying more for them.

    Today, this is no longer really the case and with 39% of ICT staff being contract, you can see what has happened - most of the contractors are ex-government staff who have jumped out of permanent roles simply because they will get paid more. There does need to be a correction here - the government is simply paying contract rates for jobs that can and should be done by in-house staff. It needs money for hospitals, education, infrastructure, and this is a clear potential way of redirecting government spend towards the services the people want.

    I do wonder where all the suppossed job losses are going to be though - the government is not seeking to have less people working in ICT, but is seeking to control costs. If 700 jobs will be lost, they must be "overheads" of admin, recruiters, etc in the supply companies for these people. They won't be ICT jobs.

    Perhaps the real solution is an intelligent pay scale for government information professionals that can create permanent jobs with reasonable but realistic (i.e. closer to market rates) rates. Something similar has been created for allied health professionals (physios, occupational therapists and the like). Then many of these contractors can return to permanent jobs, and those who are the true experts can remain and command their expert level rates. Again, perhaps job losses in the recruitment overhead areas, but a better result for the state as a whole.
  • QLD Government Alternative Solution

    Over the past 2 years a new solution for skilled trading in Australia has been developed with the assistance of industry and Federal Government in Canberra. This product will allow all recruitment agencies, private industry companies and associations trade skilled staff on a secure online web portal across all industries. Large Government Departments are already utilising this solution and more to sign up over the coming months to achieve the following:
    * Ventor neutral solution across ALL Industries.
    * Provide ALL industry companies (Agencies and companies) access to provide staff/contractors to the Department or keep current Government Panels.
    * Provide the Department with large savings by enabling access to negotiation rates/margins.
    * No limitations on who can supply to the Department.

    Other industry benefits:
    * Allow cross industry trading to fill vacancies.
    * Trade underutilised staff to reduce redundancies.
    * Free job advertising
    * Negotiate candidate rates with recruitment agencies.

    Plus many more.

    Over the past few years the recruitment agencies have controlled the market by pushing up rates which has made Government Departments introduce reports like the Gershon Report and now the decision to look at Master Vendor solutions. Both restrict market competition and limited access to job vacancies by SME's not on in QLD but all of Australia.

    The solution is here we just need to embrace it.
  • Contractor vs Perm in QG ICT

    Coming from within QG ICT, this report has missed the key issue that faces the Government with ICT staff recruitment. QG has a serious issue with the format of the terms and conditions of employment of ICT workers. Most QG positions are still formulated under the concept that the position is a career for life and has no defined end date, most contractors are employed with the view of management & HR that they will be turned into permanent staffers after 12 months, and accept a pay cut in return for parmanency. Most ICT technical and operational areas have short skills life spans circa <5 years on particular technologies. They really need to create a recruitment model, that is not primarily focused around Permanency or 12 Month contracts. In addition to this force ICT Managers to ensure that all 1-3 year contracts are reviewed at least 2 months prior to when the contracts expire. Having been a Perm and Contractor, I'd much rather to be paid more and manage my own training and career path rather than be at the discretion of an overloaded and underskilled ICT manager.