Both New South Wales and Victoria have had a change of government in the past year. It’s out with the old, and in with the new – but what does that mean for ICT spending? Freya Purnell and Nathan Luck report.
At the Victorian State elections in November 2010, the Brumby Labor government was defeated by the Liberal/ National Coalition, led by Ted Baillieu, while in March this year, the Keneally Labor government in New South Wales suffered a widely anticipated crushing defeat. While election years inevitably bring a loss of momentum during caretaker periods, a change of government also raises the issue of whether the new leadership will take a new approach to priorities and programs, and accordingly, if existing projects will be continued or turfed onto the scrap heap. We look at the indications from the new Victorian and New South Wales governments on what will stay and what will go in the ICT space.
The Victorian experience
In October last year, the previous government announced an ICT action plan worth $100 million, with the aim of creating ICT jobs and reinforcing its status as the IT hub of Australia.
However, the most recent Budget, handed down in May for 2011/12, delivered very little in the way of commitments to ICT projects. This continues a pattern established over the past few years, according to Dr Steve Hodgkinson, research director, IT – Asia Pacific for analyst firm Ovum, and former deputy CIO for the Victorian state government. “Over the last two budgets, there have been fewer major ICT investment commitments. We saw a high in about 2008 to 2010, when the value of the contracts peaked, and since then it’s been steadily declining,” says Hodgkinson.
“That’s on the back of major projects that are coming to an end or more recently being put on hold, and a drawing up of new commitments in the budgets to ICT-enabled transformation projects. So there is a dramatic slowdown coming in terms of the aggregate value of the Victorian state government’s ICT investment.”
According to Hodgkinson’s analysis, commitments to new ICT projects reached a peak in 2008/09 at around $500 million, but were cut back to a much lower level of around $80-90 million in last year’s budget. If analysed in terms of contracts rather than budget commitments, in 2009/10 the aggregate IT procurement peaked at around $850 million (including project and operational services such as outsourcing contracts), but Hodgkinson believes the numbers for the current year would be significantly lower.
This manifests in several ways – the first of which is that new ICT-enabled transformation projects are not being kicked off, and those that are already in progress have been placed under review or put on hold, including troubled projects such as public transport smartcard system myki, HealthSMART, the redevelopment of the police LEAP system and education’s Ultranet.
“It’s all part of a new government wanting to have a good look under the covers about their projects, their business value, and how they should be continued. But the processes of doing that have appeared not to have been very quick or decisive,” Hodgkinson says. “There are a lot of people sitting on their hands waiting, wondering what to do on all the major projects, and that in and of itself is leading to contractors not having their contracts renewed and decisions being put on hold.”
Another significant factor in the spending slowdown is the creation of CenITex, as a shared infrastructure services agency for many government departments. “We’re seeing a dramatic aggregation of most ‘business as usual’ operational IT expenditure into CenITex. The explicit goal of that is to leverage economies of scale and reduce duplication in order to cut costs and improve service levels, so that will also lead to a slowdown in the aggregate ICT procured,” Hodgkinson says.
This is motivated by budget pressures within the Victorian state government, as well as the government effectively ‘cleaning house’ before they decide “how they should treat ICT as a driver of productivity and reform”. In the wake of the Victorian budget, Ian Birks, chief executive of the Australian Information Industry Association (AIIA), told Computerworld Australia that while there did seem to be less spending on ICT than in previous budgets, the government was very focused on productivity improvement, which he felt would lead to increased ICT investment in time.
However, after a number of problematic projects, there is also a sense that some of the drivers of big IT projects have been switched off.
“The Victorian government is now more gun-shy than they were previously in the sense that they are less confident about the merits of big IT project investment,” he says. As the industry waits to hear from the government about how it plans to move forward, Hodgkinson says the climate is very similar to that in Canberra following the Gershon Review. While it is not clear when the wheels of motion will start again, he expects mobilisation of expenditure towards the end of 2011.
“My guess would be that we’re not going to see any big new ICT projects this year, because in the main it’s a phase of consolidation of the major projects that are already in flight, scaling some things back, cancelling things that are not deemed to be prudent and getting on with focusing on delivering the things that are already on the books,” Hodgkinson says.
The situation in NSW
During the NSW election campaign, Greg Pearce, shadow minister for financial management and the opposition’s spokesperson on ICT, criticised the former government for not using ICT effectively.
During a speech to the Australian Information Industry Association (AIIA) in Sydney late last year, Pearce reportedly said his view was that ICT “needs to be more front and centre for government, and that it’s a key driver for economic growth and productivity”. “The current contracting and tender processes are widely considered to be too costly, too slow, poorly designed, poorly specified, uncommercial and that’s a focus of mine,” Pearce said.
In a policy paper released prior to the election, Pearce also said he would establish and maintain a whole-ofgovernment ICT strategy, including reconsidering plans to consolidate existing data centre infrastructure in favour of a cloud computing and virtualisation strategy. The paper indicated he would also consider changes to government ICT procurement and information security standards as outlined in a report by the Auditor-General in 2010.
Despite these bold statements, the O’Farrell government has been taking a ‘steady as she goes’ approach, which is much better news for the industry than a series of knee-jerk reactions, according to Ovum research director, public sector, Kevin Noonan.
“It’s important to note that they haven’t come in on their first day and do a massive suspension of projects. Instead, they’ve taken a fairly careful approach in looking at the type of things that needed to change, and they are going about it in a reasonably systematic way,” he says. The groundwork for a new plan has also been underway for some time. For several years, according to Richard Wanden, account executive, NSW government for CSC, the shadow ministry has been actively soliciting ideas and listening to industry about what they could do to improve ICT utilisation.
Among the possibilities under consideration, according to Noonan, is consolidating the responsibility for IT together within the Department of Finance and Services. “Rather than simply making cuts, they’re really now searching for more effective ways of increasing productivity and doing business where savings will follow, rather than making savings the first objective, which sometimes has undesirable consequences,” Noonan says. “There’s only so much you can do with creeping incrementalism before it starts to cause problems with critical service delivery.”
NSW Premier Barry O’Farrell has also talked about consolidating the proliferation of websites and interactions across agencies, “so that not only is government more efficient in the way that it does its business but it’s also more sensible for the community”, Noonan says. “He is also talking about using mobile phone apps to do the serious business of government, not just be the icing on the cake. For example, it’s a simple step forward to put public transport timetables onto an iPhone, but it’s a much more fundamental change to tell the public where the ferry actually is at a given time.
“It’s about doing things differently and harvesting the savings, which can in fact bring more money for IT in the long run.”
Wanden says he would expect the NSW Government to embark on some transformational projects driven by customer-centric principles, drawing on some of the best practices from other jurisdictions overseas. “I think this government is open to that – in their position papers prior to the election, they were always saying that there had been under-investment, so they know they need to invest,” Wanden says.
He adds that these transformational plays need to be made across the whole of government. “You can’t just fix one part and not the others, and that implies purchasing in much larger volumes than we’ve ever been used to, such as 100,000 seat deals as a minimum,” Wanden says.
With a whole-of-government expenditure review currently underway, targeting $1 billion in savings per annum across the budget, some of the more lowrisk opportunities for transformational plays may be considered, resulting in savings accruing immediately. “My understanding is that they are looking to do a similar thing to the Gershon report, where they look to make permanent a number of contracts that they had. But I believe they will also think quite seriously about why they have all these contracts – is it that they can’t and shouldn’t try to do these things themselves, and should they be buying services on an outsourced basis?,” Wanden says.
According to Intermedium’s Budget IT tool, 45 new ICT projects were funded in the 2010/11 NSW State Budget, worth a total of $539 million over four years. With the next NSW Budget scheduled for September, in April Intermedium reported that ICT vendors would have to wait an extra three months before any new projects were funded, with others expected to face cuts. Among the projects expected to be under particular scrutiny were:
• a $7.19 million Technology and Infrastructure upgrade for the NSW Ambulance Services;
• the $11.4 million allocated to the Registry of Births, Deaths and Marriages ‘LifeLink’ project;
• $417.4 million to be spent on IT projects at Sydney Water Corporation; and
• projects worth $594 million at the Department of Health.
One of the major projects considered essential and therefore safe was the Learning Management and Business Reform project at the Department of Education and Communities (including components for an Enterprise Information Management System, the SAP-based Human Resources and Payroll Systems, and the Student Administration and Learning Management System), listed as being worth $243 million in the 2010/11 Budget. Two areas also expected to be on the priority list for government are security and cloud computing at the enterprise level.
“The Auditor-General of NSW’s report in October 2010 said number one, we don’t have a whole of government framework for security, and number two, we have no enforced standards. If you are looking at transformational programs in other areas of ICT, this is one of those areas which is a possibility,” Wanden says.
And for all levels of government, the enterprise cloud market is the area to watch in 2011, according to Noonan. “Local companies are speaking the language of government – service level agreements (SLAs), data sovereignty, and negotiating contracts,” Noonan says. “The opposite case has been a very big problem for government and we have already seen a number of government documents coming out raising concerns, particularly on data sovereignty issues. Any supplier needs to understand that typically the government sector has specific needs and sensitivities about client data, and a ‘one size fits all’ approach just won’t work.”
This article was first published in Inside SAP Winter 2011.
