[ :: Intermedium - Newsletter 10 March 2008

Federal Finance Minister, Lindsay Tanner is intent on cutting the Federal ICT budget as part of his quest to significantly reduce overall government spending. However there are indications that Tanner clearly understands the role of Federal Government purchasing as a key driver in the ICT market. This may moderate his approach.

During a recent speech to the National Press Club, Lindsay Tanner (Minister for Finance and Deregulation) specifically identified ICT spending as an area where cuts would be made. But in both his speech and subsequent comments, he has indicated that this is not to be a simple “slash and burn” exercise. It’s far more strategic.

Government cuts are being made in a two stage process. The first round began soon after the election with cuts to overall agency budgets and specific government programs. Announcements of additional savings measures are expected to continue past the May Budget.

But this is just the first round, involving easily identified savings. The real interest is in the shape of the stage 2 cuts, and their potential impact on the ICT market in general.

The Government has commenced a more detailed review of its ICT operations to identify areas where efficiencies can be achieved and savings made. In particular, the Government has confirmed its intention to move towards a more centrally lead approach to ICT procurement, leveraging government purchasing power to achieve both efficiencies and cost reductions.

But Lindsay Tanner is not just about cost savings. There are clear indications that he recognises that ICT is not just a cost centre, but a mechanism for delivering enhanced services to the public.

In addition, the Government recognises the key role of Federal Government procurement in the Australian ICT market. With annual ICT contracts to industry worth more $3 billion, the Federal Government market is huge, more than three times the size of NSW Government contracts.

Any drastic changes to the way the Federal Government buys ICT products and services could have a major impact on the market as a whole. A focus by the Government on ICT as a commodity, combined with aggressive cost cutting, could even lead to market failure across broader segments of the ICT market.

What does this mean for the future of the Federal ICT market?

While the Government has been quite open so far about its intentions, a number of questions arise about how this will impact the Federal ICT market:

What is the likely impact on tendering at an agency level during the next 12 months?
Are there likely to be further cuts in ICT spending? How much? How quickly?
Some market segments are likely to be more impacted than others. Who will be the winners and losers, amongst agencies and suppliers?
What will be the impact on the rules of tendering?

These and other questions will be addressed at Intermedium’s next breakfast briefing in Canberra:

Reading the signals from the first 100 days
Federal ICT Market Outlook
Canberra
18 March 2008

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