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SME participation in Australian government ICT contracts over $20 million 2002–03 and 2003–04
In June 2002, the Australian Government implemented a policy that requires Australian Government information and communications technology (ICT) contracts over $20 million to have minimum small and medium enterprise (SME) levels of 10 per cent for hardware and 20 per cent for software and services.
Consistent with devolved Australian Government procurement arrangements, individual agencies are responsible for complying with this policy. Given the core principle of value for money in Government procurement, the policy provides for an agency to adjust the level downwards, for example, where the minimum SME levels would unfairly exclude potential suppliers or if the minimum levels are impacting on the efficient supply of ICT goods and services.
In its April 2003 audit of industry development commitments, the Australian National Audit Office recommended that the Department of Communications, Information Technology and the Arts (DCITA) should collect data from agencies on SME participation rates for ICT contracts over $20 million.
The outcomes for 2002–03 and 2003–04 appear in detail below. During this time there were five contracts over $20 million reported by Financial Management and Accountability (FMA) Act agencies .
- Two contracts ($150 million and $90 million) were being negotiated as the new policy was announced. Applying the new SME levels would have involved extra time and cost. Nevertheless, SME levels of around 10 per cent were still obtained.
- One contract ($35 million) specified, and has achieved, an SME level of 20 per cent.
- Two contracts ($122 million software and services and $24 million supercomputer) had no SME participation. The agencies advised that the special nature of the contracts afforded little or no opportunity for SME participation.
SME participation rates in 2002–03 and 2003–04 (five contracts over $20m)
- Cluster 3—Department of Immigration and Multicultural and Indigenous Affairs (DIMIA), Australian Electoral Commission and IP Australia. Cluster 3 signed a contract in August 2002 for a four year, $150 million extension to an existing contract with Computer Sciences Corporation (CSC). The June 2002 announcement of the new policy occurred during the finalisation of contract negotiations with CSC. Cluster 3 advised the Department that re–opening negotiations with CSC to include the new SME levels required under the policy would have involved delays and a higher contract price. The applicable level of SME participation for this contract under the policy is 17.6 per cent. This is based on the weighted average of hardware and software to be supplied. The contract provides for an SME level of 11.8 per cent, which was met by CSC in 2003–04.
- Department of Veterans Affairs (DVA). A five year $90 million contract renewal was signed by DVA in August 2002 for the supply of ICT services by IBM Australia. The new policy was announced during the contract negotiation phase, after DVA had already decided to exercise its option to negotiate a new contract with IBM. The agency advised that no minimum SME participation levels were specified and that new conditions of this type would have caused delays and extra expense. The applicable level of SME participation for this contract, under the policy, is 20 per cent, as the contract is for the provision of software and services only. While the contract does not specify minimum SME participation levels, IBM achieved an SME participation level of 7.9 per cent in 2002–03 and 8.3 per cent in 2003–04.
- Australian Taxation Office (ATO). A three year $35 million contract was signed with Microsoft in October 2002 for the provision of software to the ATO. The applicable SME participation level for this contract under the policy is 20 per cent as the contract is for the provision of software and services only. The agency advised that the contract included two local SMEs as service and support partners and the specified SME participation level for this contract under the policy is 20 per cent—which Microsoft achieved in 2003–04.
- Department of Defence. During 2002–03, an existing Defence contract with IBM (originally signed in 1999) was on two occasions modified and extended through to 2008. The value of the contract was increased by about $111 million, making an expected total contract value of $122 million. The agency advised that it considered that the nature of the software and services to be provided under this contract afforded little or no opportunity for local SME involvement. The applicable level of SME participation for this contract, under the policy, is 20 per cent as the contract is for the provision of software and services only. The contract provides no SME participation levels and no SME participation has occurred to date in this specialised contract.
- Bureau of Meteorology. A four year $24 million supercomputer acquisition contract was signed with NEC Computers Australia in December 2003. The agency advised that, as the market for the provision of supercomputers is extremely specialised, and as it was determined that no local SMEs had the required expertise, it did not include an SME component. The applicable level of SME participation for this contract, under the policy, is 11.per cent. This is based on the weighted average of hardware (which is 90 per cent) and software to be supplied. No SME participation has occurred to date in this specialised contract.
ICT Industry Branch
Department of Communications, Information Technology and the Arts
February 2005