Speech by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
Thursday 4 September 2008
National Museum of Australia, Canberra
Good morning and welcome to the Institute of Public Administration Australia Breakfast.
One of the Rudd Government’s priorities is to improve government procurement outcomes by getting better value for money. Not only in terms of price, but also with regard to quality and service.
It is vital that we continue to develop and improve the ways in which government delivers services, while ensuring we provide the nation with the best possible value for money.
The Commonwealth’s approach to procurement, like its approach to running government more broadly, has over time moved between two diametrically opposed concepts. The first of these involves excessive centralisation, where a central ‘Minister for Paperclips’ oversees all procurement and tendering decisions.
The second concept, enthusiastically embraced by our predecessors, involves excessive decentralisation. Under this approach, agency heads are given a pile of money to spend as they wish, with little oversight, little coordination to secure value for money, and no eye to securing long term outcomes for the community.
Clearly, neither of these concepts is right. Excessive centralisation stifles innovation, entrepreneurship and flexibility. Excessive decentralisation wastes purchasing power and fails to secure the Commonwealth consistent and cost-effective procurement outcomes.
The approach I take does not accept that procurement must fall on either side of this dichotomy. There is obviously the need for agency heads to retain discretion to manage their agency in accordance with their business needs. But there is also a need to ensure the Commonwealth has the capability to centrally coordinate procurement where aggregating our buying power makes sense. There is also a need to ensure the Commonwealth has the capacity to manage big ticket procurements from purchase to implementation to service delivery.
We are pursuing these objectives through the multiple procurement reform processes I will elaborate today.
The Australian Government is one of the largest consumers of goods and services in this country. We believe that by consolidating our collective bargaining power we can improve the net result in terms of the value we get for the taxpayer dollar.
The waste that comes with excessive decentralisation is clear in the purchasing being undertaken today. In many areas, the Commonwealth is not receiving the best prices.
We are taking a measured approach to reviewing how the Australian Government purchases goods and services, including ICT and non ICT goods and services, with a view to harnessing the combined buying power of the Commonwealth to achieve better prices and consequently savings and efficiencies for both the Government and industry.
The Australian Government currently has approximately $10 billion in ICT assets and spends over $5 billion per annum on ICT encompassing procurement, maintenance, development and staff costs.
Individual agencies are making major IT purchases without consideration of the needs of other areas of government. This leads to duplication of equipment and systems, with different management and reporting practices. Prices for labour and materials can also increase as agencies compete against each other to complete projects.
The Rudd Government recognises the key role that ICT plays in effectively and efficiently delivering services to citizens.
My portfolio includes the Australian Government Information Management Office – AGIMO – the agency responsible for managing the federal government’s information technology requirements. As you are all aware, earlier this year I engaged Sir Peter Gershon to conduct a review of the Australian Government's use of Information and Communications Technology (ICT).
I asked Sir Peter Gershon to focus on both the effectiveness and the efficiency of the Government’s use and management of ICT. I also requested Sir Peter to develop a new model for spending and operating ICT systems in the Australian Government that found a balance between coordination across government on the one hand, and individual agency autonomy and flexibility on the other.
Sir Peter Gershon delivered his final report to the Rudd Government last week.
Many of you will be aware of Sir Peter’s background as an international expert on government efficiency, particularly his work for the Blair Government on public sector efficiency. He has a long association with the global ICT industry and an impressive track record at the most senior levels of both industry and government.
Sir Peter employed an evidence-based approach to the review. Detailed bilateral consultations were conducted with nine Australian Government agencies, selected as a cross-section of large, medium and small agencies.
The nine agencies selected for detailed bilateral consultations were:
These agencies included a mix of service delivery and policy responsibilities across a range of portfolios, with industry and key associations.
The review also sought written submissions from large and mid-sized agencies, selected industry bodies and suppliers on opportunities to increase the efficiency and effectiveness of the Government’s use of ICT.
Agencies provided information on areas such as how they prioritise and measure IT programs and their own capacity to deliver as well as highlighting areas of best practice that could be shared across government.
In addition to the agency consultation, the review also examined non-agency submissions, additional information on ICT investment plans and the breakdown of capital spend, as well as more detailed data on websites, workstations, Finance and HR systems, grants management systems, telecommunications, staffing and energy usage.
Sir Peter’s report includes key achievable recommendations on improving the effectiveness and efficiency of our application of ICT to service delivery. It outlines a staged plan for the implementation of the recommendations, covering administrative reform and cultural change within the Australian Public Service.
The Review will help inform the Government about whether it is getting the best value from its investment in ICT, and whether it has the right institutional arrangements in place to do so.
Over the coming months, the Rudd Government will review the final report and consider the recommendations and implementation plan Sir Peter has provided us.
Sir Peter’s recommendations involve a major program of both administrative reform and cultural change within the Australian Public Service. Sir Peter indicated that he was confident that the recommended actions and proposed changes can be successfully implemented over the next two to three years, and would result in substantial benefits to the Australian Government.
Sir Peter Gershon’s independent review was not merely a review of ICT procurement. The review is part of the broader ongoing reform agenda to improve the efficiency and effectiveness of the government’s current use of ICT, to determine whether the right arrangements are in place to maximise the return on our investments.
Procurement is being considered more broadly by my department under the Coordinated Procurement Contracting initiative.
Common sense tells us that we should be able to get a better deal using whole-of-government contracts. There are some goods and services that all or most agencies buy. Currently some are paying more than others for the same product. We want to put an end to that.
My department is developing a framework which aims to leverage the Commonwealth’s purchasing power and reduce administrative costs. In some areas, this will mean overarching contracts for agencies which strike a new balance between centralised and decentralised procurement and recognise lessons learnt in previous contracting.
And despite various press reports that indicate otherwise, there are no plans to establish a separate entity or office to manage this. Work underway in this area will remain a responsibility of my department.
We have initiated scoping studies into the following areas:
These areas are a mix of ICT and non ICT goods and services. The scoping studies themselves will further define the exact goods and services to be subjected to coordinated arrangements. The commencement of scoping studies will be staggered and some scoping studies will be more complex and take longer than others to complete.
The framework will apply to Australian Government departments and agencies that are subject to the Financial Management and Accountability Act 1997 (FMA Act). Agencies subject to the Commonwealth Authorities and Companies Act 1997 will be able to access coordinated contracts where appropriate. Where they are established, use of coordinated contracts will be mandated for FMA Act agencies.
Coordinated procurement contracting enables aggregation of government purchasing power to obtain better pricing arrangements and value for money outcomes. It will also provide for consistent and transparent purchasing practices and reduce the administrative cost of procurement for agencies and suppliers.
The Department of Finance and Deregulation is responsible for the implementation and management of the coordinated procurement framework. Finance will work closely with agencies and where practical will partner with agencies.
Where it makes sense to do so, Finance will seek other agencies to take lead roles to establish coordinated contracting arrangements with other major ICT suppliers as some agencies have significant procurement expertise and knowledge.
Finance is pursuing a series of collaborative whole-of-government purchasing arrangements or Volume Sourcing Arrangements (VSAs).
Defence is currently taking the lead in negotiating a whole-of-government arrangement with Microsoft for some of their products on behalf of the Government. IBM, Sun Microsystems, Oracle, CISCO and SAP have indicated interest.
Microsoft was selected as the first because of:
The Rudd Government does not intend to implement a ‘one-size-fits-all’ strategy for information technology purchases across all agencies. As I’ve said before, excessive centralisation is just as bad as excessive decentralisation.
The Rudd Government is committed to fostering competition and achieving savings. We are working towards coordinating arrangements to achieve the best results for agencies and industry in a number of areas.
One of which these areas is air travel. In February this year, we advised departments and agencies that they were required to use Virgin Blue and any other smaller airlines for at least 25 per cent of their total work-related travel on the Canberra-Sydney route.
Virgin Blue’s early service offerings have, as expected in a competitive market, been met with a fierce response from its rivals, with deeper discounting and the provision of more flights. As the market settles, the Government would expect use of smaller airlines to rise further and will therefore retain the 25 per cent target.
Larger agencies are required to report quarterly to my department on their use of smaller airlines on the Canberra-Sydney sector, and the first report, for the 1 April to 30 June 2008 period, has been provided. Individual agencies’ performance against the target will shortly be published on my department’s website.
The results for the period show that Virgin Blue’s entry into the sector has led to increased choice for agencies and better pricing, resulting in a sharper agency focus on value for money.
Based on figures to the end of July, agencies undertook 12 per cent of air travel on this route on smaller airlines.
Some agencies achieved a very high level of usage of smaller airlines, for example, the Department of Broadband, Communications and the Digital Economy reported 37 per cent and my department 31 per cent.
Other agencies such as the Department of Veterans' Affairs (1 per cent) and Centrelink (3 per cent) have some serious work to do to progress towards the target.
The re-introduction of competition on this route has also resulted in better service and lower prices, benefiting business, leisure travellers as well as government departments and agencies.
However, the wide discrepancy in agency by agency results - with only eight out of the 25 reporting agencies reporting they had met or exceeded the target - raises some serious concerns about the way agencies are using smaller airlines.
Officials are required to comply with Government policies and that includes complying with air travel requirements. Chief Executives' obligations to promote efficient, effective and ethical procurement outcomes, as required by section 44 of the FMA Act, involves doing so consistently with Government policies that may impact on procurement. This obligation is reinforced by the requirement in FMA Regulation 9 that Chief Executives and other approvers of public expenditure must be satisfied that the proposed expenditure is in accordance with the policies of the Government.
The objective of achieving better service and lower prices from Commonwealth travel and related services, including air travel, is one of the central areas being examined as part of coordinated procurement. This is a big job and it will take some time to properly assess what is possible. On the micro level, we will continue to publish on the web data on agency performance and keep pressure on departments to comply. Yesterday, the Secretary of my department raised the issue with departmental secretaries and reminded them of their need to comply with this government policy.
By introducing new ways for agencies to collaborate and improve service delivery, the Rudd Government intends to improve some of the inefficient practices of the past.
The Gershon review, the scoping studies and examples such as the Volume Sourcing Arrangements I covered today, are the first steps in a much larger project of reform.
Under a radically decentralised model, agencies can sometimes tend to look inward and not recognise the advantages of working together.
We need to change this mindset. We won’t need to return to the days of mandating centralisation. But we do need to demonstrate to agencies that collaboration and cooperation underpin effective and efficient service delivery.
From an ICT perspective, there has already been significant investment in developing services within agencies that can be successfully employed elsewhere in government. Frameworks and IT architecture have already been developed to improve the capability of agencies to confidently retain, manage, transfer and exchange information. We are seeking to build on these foundations.
Coordinated procurement represents a willingness to explore a new balance between centralised and decentralised procurement. The establishment of coordinated procurement arrangements is an ambitious initiative for the Australian Government and we are taking a sensible, measured approach.
We want to deliver overall savings to the Australian Government and, therefore, value for taxpayers. The challenge is in harnessing that buying power across a broad range of agencies with a diverse range of needs.
Thank you.
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