An unlevel playing field

For indigenous IT suppliers, it’s been an ongoing issue: why do state and federal government departments continue to favour multinationals when it comes to procuring IT contracts.

While the government has stated its desire to give local IT firms a bigger slice of contracts, some suppliers still feel big multinationals are being favoured.

While they acknowledge the government has recognised the importance of using home grown companies, however there’s still an underlying ‘cultural cringe’ in offering tenders to a local business.

Adrian DiMarco, CEO of Brisbane-based Technology One, believes there’s an unlevel playing feel between big name vendors and local business, which will continue for a long time.

“We are a local supplier of our own enterprise software product to local, state and federal departments. We compete with Oracle and SAP for blue chip customers,” he says.

“We understand the market and have found it very difficult on a state and federal level to sell our products to, especially to department in NSW and Victoria and SA. I know in these three states, panels were put in place many years ago to oversee tenders, and these panels only award business to major vendors,” he says.

DiMarco believes local government is a lot easier to deal with and are fairer when it comes to awarding developers with contracts. “State and federal government prefer big name vendors for the security of a brand name, where as local governments go with vendors that offer the best value for money, which tend to be local business as they also fit in with their budget” he says.

“Local companies are severely disadvantaged when it comes to competing with big name vendors for government tenders. They rarely have the financial resources for visibility, compared to IBM and Oracle. Even today the financial mite of vendors holds sway when it comes to government contracts,” says DiMarco.

He feels the government needs to stop leading with rhetoric and do something about what he says is an “unlevel playing field”, without necessarily awarding contracts to Australian only companies.

“I think the biggest issue is the cultural cringe associated with using local products for governments. We have outgrown our small business status, thanks to projects implementations overseas,” he says.

“At home we are always put on the shortlist for any government tender we go for and are never expected to win. When we do there’s always surprise associated with our win. That’s kind of mentality you have to deal with as a local business, don’t use local product because it’s local, do it because the product is good.”

DiMarco believes the government is only partially to blame for the ‘cultural cringe’ he believes that local companies don’t have the knowledge to market themselves.

“A lot of companies have fallen because even though they have great products they don’t know how to market themselves and get their products out there. Developing a great product is only the first phase, you then have to learn to cross the abyss and do it successfully.”

Peter Wigley, director of Open Systems a Canberra-based systems integrator, said although things are changing it is more difficult to grab government business these days than it was in the early to mid-1990s.

This was before out whole IT infrastructure outsourcing came out in a big way, he says. “Back then outsourcing came into full swing and we had to focus our core markets away from the government departments to the enterprise market. Otherwise we wouldn’t have survived,” says Wigley.

He believes the wheel has turned back to partial outsourcing of projects to local companies and government has become much more available to companies of our size and nature (SME).

“I think there was a cyclic push towards outsourcing everything. For a while that was what the government thought was the only way to go,” says Wigley.

“However departments have come to realise fully outsourcing their systems means they lose all corporate knowledge and the big vendors own the architecture and intellectual property.”

Wigley says the company has been around for around 16 years and it’s survived in this sector by not relying on being awarded government contracts. “Of the companies who were here when we started in the 90s, I can’t think of one that’s still here.

"We even made a conscience decision in 1995 not to focus on federal government work and then changed our policy back at the end of 1990s,” he says.

“My theory was as soon as we started seeing the outsourcing of IT projects to big name vendors, any work they passed onto SMBs were projects that fell off table. These were crumbs really not fit to eat. Many companies fell away because they couldn’t fulfil these types of contracts,” he says.

The problem with the federal government, Wigley says is like any “bureaucracy corporate or government, it needs to protect its own ass” and not expose themselves unknown companies.

“The federal government should trust local ICT companies to fulfil jobs, otherwise SMB companies won’t be able to grow. I don’t believe contracts should be warded just based on whether or not you are a local company, but it should be on grounds that project awards benefit everyone. Us smaller guys have to try much harder,” he says.

Another issue hurting local SMBs is the issue for Free Trade Agreement between the US and Australia, says Wigley.

“It’s much harder for local companies to take off in the US then the other way around. Especially if you have no government implementation experience, overseas companies aren’t will be very wary in dealing with you,” he says.

The Australian Government Information Management Office (AGIMO believes the Free Trade Agreement is a two-way agreement designed to break down trade barriers in both ways; US firms trading with Australia and Australian firms trading in the US.

“Some successful Australian firms that has benefited from this agreement includes Tower Software and Open Systems,’ says a spokesperson from Nairn’s office.
Technology One’s DiMarco says the company has achieved success overseas, through a lot of hard work and because of local government experience.

“Overseas governments aren’t going to look at a local company if their products aren’t considered to be up to scratch by their own government. I can’t imagine many companies succeeding in the US market without the local experience. If we didn’t have it we wouldn’t have gotten overseas work,” says DiMarco.

While local companies slug it out with the major vendors in the hopes of being awarded a government contract, some companies have gone through a different route and partnered up with major vendors to gain experience on government projects.

RuleBurst, an Australian owned software developer, was part of the IBM consortium which won a contract to implement a new management system worth $495 million over a four year period for the Department of Immigration and Multicultural Affairs.

Surend Dayal, CEO, RuleBurst said the Canberra-based business has had several government contracts and few state ones, since it opened for business in 1990.

“We worked on getting government business for ourselves for about ten years and recently we changed this by partnering with major vendors. Partly because it makes things easier and party because working with vendors gives us a scale to negotiate for federal contracts, which is a lot harder for smaller company to do by themselves,” he says.

“Even though we have good local technology, what helped us get noticed by our local government was obtaining work from the UK tax office, it should be the other way around,” he says.

Dayal believes there’s a perception that technology was invented and developed in the US. Government agencies are “adverse to risk because, no body got sacked for hiring IBM”, he says.

“Partnering with major vendors is worth it because the Free Trade policy is suppose to help us boom, but it’s really the other way around. While AusTrade is fantastic in helping local businesses overseas, there really needs to be same level of support in Australia,” Dayal says.

The battle local companies have with being awarded a federal and state contract is not insurmountable. However these local companies need to look hard at whether or not the risk is worth it because the Australian government’s ‘cultural cringe’ in relation to using local companies is becoming a thing of the past and is changing, albeit very slowly.

Industry advocates

Australian Computer Society CEO, Denis Farini, says the industry body has been advocating for a long time to give opportunities to SMEs in terms of developing the ICT industry. “The fact that you have a local government contract puts in a reasonable position for development overseas,” he says.

According to Farini, you can’t blame the government in certain circumstances for not offering a project to a local company, “but as long as they have a demonstrated track record, then the government should give advantage to local vendors”, he says.

A spokesperson from Nairn’s office responded by saying the government is committed to a policy that requires relevant agencies to source at least 10 percent of their purchases by value from SMEs.

“Data shows that the Government has consistently exceeded this target, with SMEs (including ICT SMEs) achieving more than 20 percent of the value of government contracts over the last five years”, says the spokesperson.

The Federal Government has developed a number of tools have been developed to assist business in tendering to government, including the ‘Selling to the Australian Government’ guidance booklet explaining how the government market works, and AusTender has identified all publicly available business opportunities.

The spokesperson says: “DCITA has also administered a policy for SME participation in government ICT procurements. This policy provides for levels of SME participation for contracts over $20 million. The policy provides for base SME levels of 10 per cent of hardware and 20 percent of software and services.”