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Feds issue vendor tricks manual

Feds issue vendor tricks manual

The federal government has quietly let loose its ICT sourcing guide for commonwealth departments and agencies in the biggest shake-up of government ICT procurement strategy since the damning Humphries report into whole of government IT outsourcing.

Published last week by the Australian Government Information Management Office (AGIMO), the 68-page tome stipulates best practice purchasing guidelines for all federally funded ICT acquisitions and investment.

Acting Australian government CIO John Grant told Computerworld the document gave government IT managers options for getting the right fit and value out of their ICT suppliers, and said he hoped it would close differences in expectations between client and vendors.

"Our hopes are that a lot of the myths and stories [about buying IT] that go around will be put to rest. These range from outsourcing is bad, which we know is not true…to outsourcing is good which we know is not true. There are a range of realities in changing a relationship," Grant said.

The document has also been backed by the two most critically influential public service IT committees - the Information Management Strategy Committee (IMSC) made up of departmental CEOs and its subordinate the Chief Information Officer Committee (CIOC).

Using a moderate tone, the document warns it is not “a policy document or a rulebook”. However, it pulls no punches in advocating all government ICT investment extract best possible value for money from vendors.

This includes recipes for everything from avoiding costly proprietary lock-ins to models for teaming up with other agencies to force volume discounts from suppliers.

On the latter, the terminology is Spartan on subtlety, with paradigms called “Big Brother” (piggybacking a bigger agency’s discount bargaining power) and “Swarm” (where smaller agencies join forces to collectively bargain a discount).

Another challenge to the comfort zone of vendors is the up-front approach to contract and relationship management. This includes advice on development and costing of a “termination strategy” for when products or services cease to be useful or fail to deliver value for money.

Agencies are urged to carefully consider and budget for the “real costs” of ICT supply contracts over the “perceived costs”… or those initially sold by vendors before extra charges bloat budgets.

“When developing a contract, agencies should refine their termination strategy to reduce the risk of incurring excessive costs at the end of a contract. Agencies that overlook the significance of termination costs can find themselves faced with no real alternative to renewing with their current vendor, because the costs of switching – materialising as one large cost at the end of the contract – may be too high.

"A conservative estimate is that the termination costs can easily reach between 15 and 60 percent of the annual invoice price… An agency that neglects to plan for this could end up on the left hand side, facing prohibitively high termination costs,” the document warns.

Meta Group's vice president for application delivery strategies, Michael Barnes, said the new guide should pay off for the government in avoiding cost blowouts.

"Part of the issue was that termination costs [were not calculated] up front, so the cost justification [for a given deal] was not sound," Barnes said, adding that the report showed a new "sophistication" in the way government did business with vendors.

Australian Taxation Office (ATO) CIO Bill Gibson also threw his weight behind the vendor-wrangling manual, saying the ATO's "Current sourcing strategy for ICT services reflects the contemporary principles outlined in the AGIMO document".

At a glance

Government's guide to good sourcing

* Defines three procurement models: Self Managed (in-house), Single Sourcing (single outsourcer) and Selective Sourcing (combination of vendors and in-house IT management).

* Defines a four-phase procurement lifecycle including best practices on pricing, contract negotiation and management and service levels.

* Vendors will be compelled to respond quickly, competently and economically to changes in public policy.

* Strong emphasis on determining true cost versus initial vendor price tags.

* Buyer beware checklists issued for every stage of the procurement lifecycle.

* Gives punitive tactics to expedite vendor divorce.

* Advocates alliances between agencies to force discounts.

* Warns vendors must be left enough margin to survive.

* Provides "economic diagnosis" tool to check the health of past and present deals.

* Provides compliance and governance checklists.

Compiled by AGIMO, Boston Consulting and Consulting Insights

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