Startups and SMEs to receive bigger chunk of government IT spend

The Australian government will be extending the amount of IT spend set aside for smaller players from 30 percent to 40 percent over the next year, with the increase currently worth around AU$650 million.
Written by Asha Barbaschow, Contributor on

Startups and smaller Australian companies are set for a larger portion of Canberra's technology spend under changes to the way federal government contracts are issued.

From Wednesday, the government will cap IT contracts at a maximum value of AU$100 million or for a length of three years in a bid to allow small and medium-sized enterprises (SMEs) the chance to bid for smaller parts of big projects, Assistant Minister for Digital Transformation Angus Taylor has announced.

The government forked out AU$6.5 billion on IT last financial year, with about 30 percent going to SMEs.

Taylor wants to increase that share to 40 percent over the next 12 months -- which would have amounted to an extra AU$650 million in FY17, for a new total that would have been worth AU$2.6 billion for smaller players in the last year.

The median contract value in 2014-15 was AU$55,000 over a period of 158 days.

"These are exciting changes that will throw open the door for SMEs and allow government agencies to bring in new and innovative services," he said.

The changes follow recommendations made by a procurement taskforce, which found that a culture of risk aversion had undermined the freedom to innovate and experiment.

"If we are to reward the entrepreneurial spirit, a new procurement culture is necessary," Taylor added.

Taylor, who earlier this year called the Australian government a "big bureaucratic beast", believes that in order for the government to make good on its promise to undergo a digital transformation, it needs to change the way it procures products and services.

To increase access to government contracts for startups and SMEs, the assistant minister said previously he wanted to get rid of "innovation-stifling" service provider panels.

"Panels are a really good example of well-intentioned policy leading to less-than-ideal outcomes," he said in March.

Panels are often used by the government for projects that lie within the AU$80,000 to AU$5 million bracket, as they have previously not been large enough to require a customised solution, or large enough that provider selection warrants intervention from government.

Taylor said this spend bracket is also the sweet spot for SMEs, as generally the projects can be turned around quickly, and allow for a single technology solution to a problem that is reasonably digestible.

"We know that by increasing our spend on SMEs, we can create a whole industry in this country. An allocation of 10 percentage points more of our IT spend -- of AU$9 billion -- to SMEs will be one of the biggest investments in innovation in this country's history," Taylor said.

"We've got to get our act together. We've got to create smaller, more modular projects, and we've got to reduce the barriers to entry through the current panel process."

In 2014-15, government expenditure on applications accounted for AU$2.1 billion -- 37 percent -- of total expenditure, followed by end-user infrastructure at about AU$8 million or 13 percent, while IT management services totalled just over AU$6 million, or 11 percent.

The departments of Defence, Human Services, Immigration and Border Protection, and the Australian Taxation Office spent the most on IT in 2014-15.

Expenditure by these agencies accounted for 64 percent -- around AU$3.6 billion -- of the total AU$5.6 billion IT spend for the period.

With AAP

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