[ :: Intermedium - Newsletter 17 December 2007

As we approach the end of an eventful year, we take a look back at what has happened in the Federal ICT market during this eventful year. We’ve covered most of the events in The Medium during the year, so we’ve provided links to the relevant articles.

In the Federal ICT Market Generally

1. Hot Federal ICT Market

The year started well, boosted by increased spending on a number of targeted ICT initiatives in the May budget. New programs and initiatives were expected to drive 5,000 additional Public Service positions as well as significant increases in contractors and outsourced service provision.

2. Election 2007

The “phony” election seemed to continue for most of the year, with speculation about the poll date the main topic of conversation for months. While there was some reluctance to spend as the election approached, particularly during the caretaker period, Intermedium research showed that it was business as usual for many agencies, particularly amongst the large Tier 1 agencies.

3. Federal Market Declines for the First Time in Years

Intermedium’s research for the 2006-07 financial year showed that the Federal Government ICT market declined by 8.5% compared with the previous year, after years of strong growth. This decline was almost entirely due to cutbacks in spending by Defence.

4. Skills Shortage

With a number of major projects underway at the same time, ICT skills were in short supply in the Canberra market. Intermedium research shows that the Federal Government labour hire market grew by 17% during the 2006-07 financial year. In the lead-up to the election, there was anecdotal evidence of a shift within agencies from contract to permanent positions.

5. Year of Mega Projects

It was the year that several mega projects dominated, sucking skills resources from the Canberra ICT market, including DIAC's Systems for People project and the ATO Change Program.

6. End of Sole Source Outsourcing

The break-up of Customs’ previous 5-year single supplier outsourcing deal with EDS, continued the trend of ending whole-of-agency infrastructure outsourcing deals. Customs was followed by ATO in what is seen as a trend towards selective outsourcing. While there is a trend away from these mega outsourcing deals, a large number of existing outsourcing arrangements are due to go to market in the next 18 months. Intermedium has identified existing outsourcing contracts worth more than $600m that are due to expire by mid 2009.

7. Other issues

New model contracts were introduced with version two of the SourceIT model contracts for simple procurement of information technology (IT)
IP policy changes were announced by the Federal Government in May
Greening of IT became an issue for the first time in government purchasing
Growth of demand for data centres accelerated, as evidenced by the announcement of a proposed mega data centre for Canberra

In Agency Land

1. The rise and fall of the Access card

The Access Card project commenced with a great deal of publicity and big budget projections. However after a number of very public difficulties and rising community concerns, the project gained the media title of “the troubled Access Card Project”. Soon after gaining government, Labor delivered on its election promise to kill the project. In the end, the project cost suppliers and the government millions of dollars.

2. Drop in ICT spending, but Defence is still king

There was a significant downturn in the Defence market during the 2006-7 financial year. While Defence’ share of the market declined (from almost 40% in 2005-06), this mega agency still represents almost one quarter of the Federal Government ICT market.

3. Defence stalls after review

The decline in Defence spending is largely a result of delays following criticism of Defence’ ICT environment and processes made in the Defence Management Review (April 2007). This was exacerbated by the long period without a permanent CIO.

In Supplier Land

1. The Rise and Rise of IBM

IBM’s dominance of the Federal Government ICT market continued in 2006-07. With $662m in new contracts during the financial year, IBM achieved contracts more than three times the value of its nearest competitor, Telstra. This was the result of major contracts including DIAC ($238m), Customs ($203m) and DVA ($90m).

2. Growth of Labour Hire Companies

Growth in the demand for skills was a boon to labour hire companies, with more of them moving into the top ranks of ICT suppliers. Intermedium's analysis shows 20 labour hire companies in the Top 100 suppliers in 2006-07 compared with 15 the previous year.

3. Top 100 Shows Winners and Losers

IBM retained its #1 position, and Telstra stayed at #2
Unisys rocketed 77 places to reach #3 ranking in 2006-07
Five Labour Hire companies achieved positions amongst the Top 25 ICT suppliers
SPT Telecommunications was not ranked in the Top 100 in 2005-06. In 2006-07 it came in at #17
Mincom was placed at #8 in 2006-07, compared with #31 the previous year