Aus Govt laments dealing with Microsoft middleman

The Australian Government believes it could secure a simpler, cheaper deal, directly from Microsoft, than it gets by buying software through reseller Data #3.

The Federal Government has had a volume-sourcing arrangement in place with Microsoft since 2009 to cover some 250,000 users and 290,000 devices. This was expected to save the government AU$60 million over four years, but the government has already managed to save AU$82 million since it began.

In a submission to the government's IT pricing inquiry looking into why Australians pay more for technology than consumers in other countries, the Australian Government's chief information officer Ann Steward said that, while the government negotiated its discounts and contracts with Microsoft, the actual services and software was supplied through a large-account reseller, a role Queensland-based Data #3 had won in two tender processes since 2008.

While Steward said that going to tender for the reseller services had led to reduced costs for the government, she believed it would be better to deal directly with Microsoft, as other governments, including the US Government, are able to.

"Microsoft has been reluctant to amend this model," Steward said.

Data #3's performance had been "very satisfactory", Steward noted, but said that it was not clear what the benefit was to the government in dealing with a middleman.

"This procurement structure appears to provide little additional value to the Australian Government, and introduces additional complexity and some extra cost."

In addition to this, the discount in the contract was negotiated when the Australian dollar was worth 64 US cents, and with the Australian dollar now above parity with the US dollar, Steward said that the US Government was paying 50 per cent less for software than the Australian Government.

But Steward admitted that it was difficult to predict the fluctuation of exchange rates over the period of a contract, and this was a hazard of negotiating in Australian dollars.

Data #3 was contacted for comment, but had not responded at the time of writing.

In Microsoft's submission to the inquiry, the company said that its resellers determine the final price for products, and Microsoft just sets the recommended retail price. Prices in Australia were higher due to the relatively small size of the market, labour, rent, marketing, regulation and supply chain costs, Microsoft said.