Your comments on the ICT services panel discussion paper

Author: 
John Sheridan - CIO & CISO
Category: 
The Department of Finance Archive

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I’d like to begin by thanking all of you who have made comments on the ICT services panel discussion paper so far – whether on the blog, in separate emails or via the media or other means. We were very keen to get a good discussion going on this important subject and we seem to have succeeded. There is still plenty of time to get involved so, if you have something to add, from the industry, academic, individual or industry perspective, please do so.

Rather than addressing a separate reply to each response, I have included my thoughts in this single, larger post. Of course, this is not the last word on the issues and continued discussion is most welcome.

Let me turn first to the question of funding and fees as it seems to have attracted most attention. The theory behind this part of the proposal is that the cost of a changed system should be neutral. This requires that the direct administrative costs be recovered. All our coordinated procurements share this foundation. The proposal contained two components of cost recovery – a ‘user fee’ for agencies paid each time an agency uses the panel for a procurement, and an annual subscription for suppliers to be members of the panel. For agencies, the user fee would reflect the fact that the new arrangements would be cheaper than those that currently apply and thus represent a saving – some of which can fund the administration and the remainder be retained by agencies.

As regards suppliers, the thesis is that their costs would be significantly reduced by not having to join a large number of panels and by not having to go through full tender processes to compete for work. More positively, they would receive lead indicators of market activity through the advertising of all requests for quotations and the ability to bid for work within their capabilities rather than having to wait to be asked. In summary, suppliers’ costs would be lowered and they would get more for their money.

That some funding would be required seems to be accepted by most commenters. A strong case has been made for an alternative of collecting ‘success fees’ from suppliers that are selected for an activity. This has some obvious attractions and is similar in concept to the ‘click charges’ on some of the other coordinated procurements. However, as such fees would be directly included in the calculations for the quote by the supplier, there is little difference between such a mechanism and a user fee for agencies. If this approach were to be adopted, a single user fee, payable by agencies, would probably be preferable.

One aspect of the subscription model was that the cost, while modest (around $2000 was mooted), would discourage ‘fly by night’ operators from joining the panel. Comments, both on the blog and in discussions with industry, seem to suggest that this is not a significant risk.

Further comments on fee structures would be most welcome before the comments close.

The next most discussed aspect has been the use of an e-auction or similar mechanism to get the best prices from suppliers and initially sort/order the quotes. The discussion centres on the potential for quality and innovation to be sacrificed for lower prices, driven via the auction process. Remembering that the principle of value for money remains prime, the potential increased number of bids likely to arise from wider advertising of opportunities requires management. This is the basis of the e-auction approach – an initial ordering of quotes to enable agency buyers to select a short list of suppliers to examine in detail. Several points are worth considering here. Firstly, agencies don’t have to consider all quotes in the same detail. Most agencies only require three quotes for activities less than $80,000. Commonly, most would only seek three quotes. Under this proposal, they could choose the three cheapest, or discard the outliers and chose three from the middle, or any other method they preferred. While it is true that some suppliers might be concerned that they are submitting quotes with no hope of success, it is a moot point that this is preferable to not knowing of the opportunity in the first place.

We’ve had some very useful discussions with a representative group of suppliers from the ACT CollabIT group. One of their suggestions was to conduct not so much of an auction but rather publish online (anonymously) the mean and median amounts from the submitted quotes and let suppliers make a series of offers with this information in mind over a limited period of time, keeping the resultant changes in the mean and median updated live. This might tend to discourage suppliers from deliberately undercutting the competition and make it obvious if they were ‘loss-leading’.

The group were also of the view that, even below $80,000, such activities are not commoditised and that, consequently, any form of quantitative comparison was fraught with risk. While this may well be correct, agencies make comparative value decisions now, and include price in their considerations. This isn’t so much a new concept as a more obvious recognition of the reality.

Other ideas in this area are also encouraged.

Finally, the issue of evaluation of suppliers received some attention. The challenge for agency procurement officials is to validate the claims of prospective suppliers when considering their submissions. Referee checks are an option but not many suppliers offer anything but glowing references. Perhaps the answer is a more comprehensive listing of previous similar work with the agency free to select which customers they’ll seek references from?

Do you have other ideas?Please submit them if you do.

In summary, the most significant issues appear to be:

  • How to fund any new mechanism?
  • How to simply and openly manage short listing of increased numbers of quotes for activities under $80,000?
  • How to monitor supplier performance and history in a fair and comprehensive manner?

Comments for this post were to close on 21 January 2011. Recognising that we are still receiving comments and have a significant number of responses to a briefing on the subject, we will keep comments open until the morning of 27 January 2011.

Thank you for your attention and comments to date. Remember, if you don’t want to comment on the blog, you can email us directly.

Comments (4)

In the private sector we tend to see clients and suppliers look to achieve longer term partnerships whereby stronger trust links can be developed and the capabilities of clients and suppliers can grow in unison. One clear advantage from a strong long term client/supplier relationship is that the cost of governance can be substantially reduced...in fact probably inversely proportional to the trust in the relationship.

No doubt the same could apply to the public sector. On the surface one could view the proposed schemes as disruptive to the creation of long term mutually beneficial business relationships. Third party managed panels potentially place another level of bureaucracy in the way of developing such relationships. What methods are being considered to mediate such risks?

I'd like to echo Laurence's point.

One of the things I miss strongly from the private sector was the capability to build a relationship with a supplier over time, have them understand your business and better meet your needs.

These relationships result in value for money as each new project doesn't require the time, effort and resource consumption of a tender process or supplier education process. Results are delivered faster and to specification more easily with less revisions and alterations.

The current government process has always involved enormous hidden costs - beyond the price of the vendor's work is the cost of government employees and the leakage of knowledge once a contract ends and a well educated vendor walks away.

I would like to see these hidden staff and resourcing costs considered more closely when modelling the relative merits of tendering approaches.

A comment about the Common Operating Environment from this post has been moved to a new post about the relevant issues.

Comments on this post are now closed. Any further comments can be sent to ictprocurement@finance.gov.au.

Last updated: 28 July 2016