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SME participation in Australian government ICT contracts over $20 million 2004–05

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 (anao) 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 2004–05 appear in detail below. During this period there were 11 new or ongoing contracts over $20 million reported by Financial Management and Accountability (FMA) Act agencies.

  • Two contracts ($150 million and $90 million, see contracts 1 and 2 below) were being negotiated when the new policy was announced in 2002. Applying the new SME minimums would have extended negotiations and increased costs to the agencies.
  • Six contracts (from $24 million to $196 million, see contracts 3–5, 7–8 and 10 below) were exempt from having any SME participation and reported no achievement. Agencies advised that the nature of the contracts afforded little or no opportunity for SME subcontracting.
  • Three contracts (from $22 million to $1.8 billion, see contracts 6, 9 and 11 below) reported SME participation rates between 16 per cent and 27 per cent.

SME participation rates in 2004–05 (11 contracts over $20 million)

  1. Cluster 3—Department of Immigration and Multicultural Affairs (DIMA), Australian Electoral Commission and Intellectual Property (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 to include SME levels consistent with the new 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 specifically provides for an SME participation level of 11.8 per cent and in 2004–05 CSC achieved a level of 12.2 per cent.
  2. 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 negotiation of 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 new policy, is 20 per cent as the contract is for the provision of software and services only. While the contract does not specify any SME participation levels, IBM achieved an SME participation level of 1.5 per cent in 2004–05.
  3. Australian Taxation Office (ATO). A three year $41 million contract was signed with Dimension Data in 2002 for the provision of Microsoft software to the ATO. The applicable level of SME participation for this contract, under the policy, is 20 per cent. However, no SME participation was achieved in 2004–05.
  4. 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 around $111 million, resulting in 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 is 20 per cent. The contract does not specify any SME participation level, so none was achieved in 2004–05.
  5. Bureau of Meteorology. A four year $24 million supercomputer acquisition contract was signed with NEC Computers 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, no SME component was included. 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.
  6. ATO. A four year $1.8 billion extension to the ATO's previous IT services contract with EDS was signed in 2003 and is scheduled to carry through to 2008. The applicable level of SME participation for this contract, under the policy, is 20 per cent. While the agency advises that the contract does not specify any SME participation levels, EDS achieved an SME participation level of 20.8 per cent during 2004–05.
  7. & 8. ATO. The agency entered into two contracts for three years, in April 2004, for voice telecommunications services for $24.4 million and $41.7 million, respectively. The applicable level of SME participation for these contracts, under the policy, is 20 per cent. Both were judged by the ATO to have little or no scope for SME involvement. Due to this, both contracts were exempted from compliance.
  1. ATO. A three year $22 million contract was signed with IBM in June 2004 for software and services. The applicable level of SME participation under the policy is 20 per cent, and this target was specified in the contract. IBM achieved a 27 per cent SME participation level in 2004–05.
  2. Australian Customs Service. A three year $196.4 million contract renewal was signed with EDS in August 2004. The indicative SME participation level is 13.5 per cent. The agency advises that no minimum SME participation levels were specified owing to the specialised nature of the contract. The contractor was exempted from meeting any specific SME target and no SME participation was recorded for 2004–05.
  3. ATO. A five year $230 million contract was signed with Accenture in December 2004. The applicable level of SME participation is 18.3 per cent. ATO included an overall SME target of 17 per cent in the contract and Accenture achieved an SME participation level of 16 per cent in 2004–05.

ICT Industry Branch
Department of Communications, Information Technology and the Arts

May 2006

 
Document ID: 55924 | Last modified: 5 February 2008, 5:12pm