IEAust: suppliers may charge government 'risk premium'

A lack of skills within some commonwealth agencies in the purchase of IT services has allowed industry to take advantage of the situation through premium pricing, a survey by the Institution of Engineers (IEAust) has revealed.

To quantify the financial cost and frequency of poor IT expertise within government purchasing, the IEAust surveyed both government IT contracting officers and private suppliers covering a median contract value of $1.5 million.

Nearly one third of government IT contracting officers surveyed rated their staff as below average or inadequate when it came to assessing the competencies of contractors.

As a result, 42 per cent of IT companies charge a risk premium, which averaged about 21 per cent, if they considered the government is not an 'informed buyer', according to the report.

IEAust CEO John Boshier said although the survey found most of the contracts were awarded on best value for money, respondents from government and industry believed these contracts 'did not always represent value'.

"Being an uninformed buyer of IT puts at risk the ability to select and justify the option which offers best value for money and to prevent unscrupulous contractors taking advantage of the buyer's lack of knowledge," Boshier said.

The survey indicated that nearly half the suppliers charge a hedge or premium that accounts for between five and 50 per cent of the final contract price, especially if customers appeared to not know what they wanted.

Boshier said the results of the survey confirm the concerns raised by the Humphry Review into IT Outsourcing that some agencies lacked sufficient in-house expertise to manage IT contracts.

As previously reported (CW, January 22, p5), the federal government is releasing a 'better practice guide' on managing IT outsourcing in the wake of damning reviews which found the initiative has been plagued by budget blowouts and unmet contractual arrangements.

Australian National Audit Office auditor general Patrick Bennett said public service staff do not have the skill sets required to achieve more effective outcomes.

"It is important for agencies to have the skills necessary to manage IT contracts and to manage the tender process to get the performance needed to be accountable to the government and the parliament," he said.

IEAust has recommended that government recognise the significance in IT contracting by undertaking an internal skills audit and to implement strategies to overcome any competency gaps.

It also recommends an IT Contracting Forum to facilitate job skills development for public servants involved in contracting.

A copy of the report is available at http://www.ieaust.org.au/issues/publications.html

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