Published by Next, June 18 2002

When it comes to information technology, government is Australia's biggest spender. The most recent Australian Bureau of Statistics figures show that in the 1999-2000 financial year, federal, state and local governments spent $4.3 billion on IT, not including capital expenditure or education spending.

The government IT market is dominated by federal departments and agencies, responsible for 47 per cent of total expenditure. State governments accounted for another 45 per cent, while local councils made up just 8 per cent. Yet even that small piece of the pie is worth more than $200 million a year in potential business.

As the dominant customers for IT in Australia, government agencies should be able to exploit their immense buying power to ensure the best-value services are delivered to taxpayers.

Companies that sell to government agree that both departments and vendors are aware of the power of the government dollar.

"It's a very competitive sector," says John Grant, chief executive of listed IT company Data#3.

"Government, by its very nature, is chartered to spend its citizens' money wisely. Price is a clear criteria."

Tony Whigham, director of sales for Dimension Data, adds: "They can easily command contracts of $70 million or $80 million - bigger than most corporates. But economies of scale only go so far."

There is general agreement that government bodies have cast aside their reputation as being procedurally driven and have educated themselves to make intelligent technology choices. "They're pretty up to speed on the technology, and they have more resources (to do that) than commercial organisations of similar sizes," says Gregg Rowley, managing director for data security company eSign.

"We've got very mature and sophisticated buyers in government," says Lynette Clunies-Ross of IBM Australia.

"They're a lot more technology savvy."

Whigham agrees: "Government agencies buy as astutely as the commercial sector."

Government is viewed as leading private enterprise in some technology areas, especially business-to-business transactions and data security. There is also a common perception that government agencies are moving towards value considerations rather than simply seeking the cheapest deal.

Industry development? Despite not having to pay for presale freebies, vendors agree that the cost of wooing government buyers is high because of the intensive tendering processes involved. "It's very expensive to bid for government contracts. The presale dollars are very high," says Grant. That can be a particular problem for small companies. "I don't think they're aware of how their decisions impact in a cash flow sense," says Bewick. "The timeframes and the cost of tendering can be a real problem. Even if we win a tender, it could be eight months or more before we see any money." Grant, who heads the Queensland Government's IT advisory board, estimates that 60% of IT work in Queensland is government-driven, which means the choices it makes can directly affect thousands of jobs. "It is quite a complex issue that has the attention of government. At the end of the day, there's a compromise between better value for its citizens through its purchases and the need for industry development, and there always will be." "Sometimes there's a clash between their probity requirements and their intention to develop the industry," says Bewick. "It isn't as easy for the government to do industry development as SMEs like to think."

"Value for money is more important than price as such," says Clunies-Ross.

However, the distinction is not always realised in practice.

"Value for money is the single biggest thing government will push for, but that normally translates into the cheapest price," says Andrew Bewick, federal manager for security services provider 90East.

Power can also be exercised in more subtle ways than forcing price competition via tender. For instance, many Commonwealth contracts allow the government to exit at any point of its choosing. "They can say 'We don't like you any more, we don't have to give you a reason, you're out' and you just have to wear it," says Bewick.

Vendors point to major differences when selling to local councils rather than larger state and federal departments. "Local governments are less sophisticated and have smaller budgets," says Rowley. "They tend not to be so innovative. Federal and big state agencies have many more resources."

On the plus side, local councils are less reliant on the extensive networking which characterises federal and state government sales. "We've found that we've been able to compete in local government more like private enterprise," says Grant. "It's easier to get the business without knowing everyone involved."

So how do you go about getting to know everyone involved? While the image of potential clients being wooed with expensive dinners and foreign travel is a persistent one, the reality is rather more prosaic. Concerns over probity mean that many government agencies not only turn down all gifts, but even refuse to talk to vendor representatives when tenders are active.

"As part of our relationship marketing, we do have social contacts with government, but there are clear limits that everyone is aware of," says Grant. "If there's a big contract coming up, you don't ask the IT head out for dinner."

"The informal meetings and discussions and relationships are very important, but you don't do it by going to the Sunshine Coast for the weekend," says Bewick.

Sometimes the process is taken to extremes, with tenderers not allowed to ask questions unless they agree to have both the question and answer made available to all other applicants, which means risking a loss of competitive advantage.

"In some departments, they even say, 'We think we might be putting out a tender at some point in the future, so we'd better not chat'," says Adrian Rudman, general manager Australia for information management software developer Objective.

Self-protection is an important factor. "There is a significant onus for people to keep their noses very clean," says Grant. Rudman concurs: "They are just very concerned about their personal accountability."

While such approaches ensure that accusations of bribery and corruption are minimised, some believe that they ultimately work against getting the best deal for taxpayers.

"It's very easy to throw stones, but the government marketplace is becoming more and more difficult to deal with," says Rudman. "They have focused on probity to the point where they do themselves a disservice. They're not taking the opportunity to really understand the difference between solutions."

"They apply the same rules to buying witches hats or a $10 million software implementation. That's probably the thing to change. They aren't spending enough time with the suppliers to make good decisions. They're so concerned about probity, they spend more time auditing the process of making the decision than actually making the decision."

Others agree that government bodies tend to pick less innovative solutions to minimise risk. "Governments are by their nature risk averse and risk mitigating," says Grant. "They have to be to some extent, but sometimes that goes over the edge and makes the outcomes more expensive than they need to be."