Back in 2001, Australia’s smaller technology providers felt discouraged from competing for government business. InterData’s May 2005 Canberra report shows that some 20 Commonwealth suppliers signed $656 million in deals alone in the first third of this year. EDS, CSC and Accenture comprised 80 percent of that.
Yet, despite an environment that has become tougher on all service providers, smaller Aussie partners can still do well selling to government. A look at government’s AusTender website reveals a litany of familiar names, such as KAZ Technology Services and Corporate Express.
Some are winning smaller contracts worth tens of thousands of dollars, but others are partnering experienced multinationals such as EDS and CSC in large, long-term outsourcing deals that offer recurring revenue for years.
The turn of the century saw many SMBs feeling inhibited by government’s tendering process. Commentators complained there was not enough transparency in government IT outsourcing tenders, and “commercial confidentiality” was being used as an excuse.
Things have definitely improved. Rita Arrigo, government business development manager at Victoria-based web development and services firm WDG, has an encouraging tale to tell. “[Government business] is going very well,” she says. “We’ve had a lot of success in a few different areas.”
Nine-year-old WDG has been on a panel for supply of internet services -- such as advanced search engine technology -- to the Victorian Government since mid 2004, but has netted about 10 government deals over the years, including for Victoria’s Department of the Premier, Cabinet and Department of Human Services.
Arrigo says getting on a panel is critical and channel players must be prepared to put themselves forward as thought leaders and experts in their field, with something unique to offer government CIOs. “We’re the largest specialist web provider and that works for us,” she says.
Etiquette and probity abound, which can make creativity tricky. But governments have become more focused on what solutions they need. That makes it easier to fulfil their needs, she says.
WDG sees government business as key to its continuing growth for at least the next few years. “It’s mainly by working with panels and being able to provide leadership in key contracts with state government,” Arrigo says.
“It’s more about really positioning ourselves to provide customer focus.”
Web presence, workflow, search engines, database reworks and builds: there’s no end to the possibilities offered by government. A few years ago, what WDG does would sound too obscure to be a runner. Today, WDG has more than doubled in size in two years, partly organically and partly by acquisition, and government sales have been a big contributor.
What channel players need to do is get creative and offer real technologies and services that genuinely make a difference, not only to the bottom line but to practices, processes and performance. “[Also] I think definitely the government sales process is a lot longer. A lot more investment needs to be made in pre-sales,” Arrigo says. “And commitment to the long-term process.”
Cornel Ung, chairman of all-Australian boxbuilder Optima Technology Solutions, agrees with many of Arrigo’s comments. “We are doing pretty good. In Federal Government, we are on the panel of Defence contracts and an endorsed supplier,” he says. “We do a lot of state government stuff too.”
Ung says adding value is all-important, especially for a hardware supplier like Optima, which is focusing more on developing and supplying services -- such as IT support, deployment and installation -- in its state deals, some of which can involve 5000 seats. “And third-party procurement as well,” he adds.
He points out that local companies have the inestimable advantage of being on the spot, as it were, when government needs them. Optima works that fact for maximum effect and pays special attention to service level agreements (SLAs).
“I think that is a very good opportunity for local companies,” Ung says. “I think they got burnt in the past by multinationals that failed to provide SLAs and quality.”
Government is requesting more and better security features for every aspect of the deal, and the IT infrastructure involved, he adds. So a successful government business must increasingly appeal in that area as well.
Algerian writer Albert Camus famously said a government by definition has no conscience, although sometimes it has a policy. Despite Optima’s undoubted success in the government bidding wars, Ung feels strongly that government might do better for local companies than simply providing a level playing field.
Free market rhetoric notwithstanding, government should be able to think of ways to help local IT providers that don’t provoke accusations of unfair practices from multinational rivals, he suggests. “From my point of view, it is hard to do business with government because they make so many requirements for the local company but haven’t given any benefits or advantages to the local guy,” Ung says.
Recent Australian Government reports on the benefits of IT to government seem to indicate that a higher wave of government IT deals may continue. And government spends more on IT than any other group of bodies. Market researcher Gartner reported that the public sector’s IT spend across the Asia-Pacific region also grew 33 percent in the 2003-04 year, faster than any other sector.
Government employees (bureaucrats) like to solve problems. If there are no problems handily available, they will create their own.
– George van Valkenberg,
19th century US politician
Government departments and agencies were for years grouped into clusters that negotiated with preferred suppliers. However, a recent trend is for each agency and department to negotiate its own arrangements -- multiplying the possible overall number of deals.
Senator Eric Abetz, special minister of state in the Federal Government, says electronic procurement systems, for example, offer proven gains for transparency and efficiency, in line with modern beliefs in public sector accountability.
“Despite different approaches, motivations and situations of the e-procurement systems studied, a common theme was that, when implemented well, e-procurement delivers transparent, well controlled and documented procurement processes,” he says.
Government research showed that “end-to-end” information on purchasing, transaction costs and supplier relationships helps to manage a public agency’s total spend, Abetz says.
In March, the government started reviewing its ICT contract arrangements, with a view to cutting costs for suppliers and government alike by simplifying the purchasing process. That sounds like good news for all those hoping for a sweeter slab of business. “We will deliver a consistent, comprehensive set of procurement arrangements, including contractual agreements, founded on best practice,” Abetz promises.
Meanwhile, open source and open source-derived software was being seen as more viable in government. The Federal Government released a guide in April that outlines the potential of open source software in Australian government agencies, Abetz says.
Open source software is seen as an affordable and efficient option. For example, the government has produced a “white-branded” content management system, dubbed MySource Matrix, and promotes it heavily to its agencies and departments. “The government is committed to greater sharing and reuse of technology to get greater value for money from its IT investment,” Abetz says.
Con Zymaris, managing director at Victorian Linux, Unix and TCP/IP networking services provider Cybersource, argues that the open government swing towards open source creates a new route to government deals for local service providers.
“A number of [government] organisations are looking at open source,” Zymaris says. “Look at the federal level. They’re moving faster than what’s happening in the corporate space.”
Service providers should strike while the iron is hot, he suggests. Open source’s accessibility can mean easier continuity for government deals, because non-proprietary software can more easily be managed by different service providers.
That means government may be less leery of small providers that cannot promise the same fiscal stability or guarantees of long-term support that a CSC or IBM can, Zymaris says.
“This is the time to be an Australian ISV, solutions or service provider. We’re starting to get a lot more action from government,” he says. Cybersource has found thin client-type offerings particularly popular. Government is like other large organisations -- agencies may have thousands of PCs but most of them do not do very much. Some 80 percent functionality can be more than enough, Zymaris argues.
“Providing total lockdown, very simplified desktops -- this is of great interest to a number of government agencies, like remand centres and prisons,” he says. He warns that it can be hard to get the ball rolling, though. The trick for small channel players is to persevere and nut out the niches that need solutions or services and tailor something specific, Zymaris says.
There is still, however, a thorn in the side of Cybersource’s bullish analysis -- that the state education departments tend to go straight to Microsoft and offer mega-bucks for an all-encompassing software deal.
“If they need 1000 new printers, they go off to tender. They then need desktop software, operating systems, file print, office suites, but that does not go out to tender,” Zymaris points out.
Companies like Microsoft win “hundreds of millions” in such deals but local providers do not get a look in. Yet open source providers could -- if they could figure out how -- do the same thing for those education departments for maybe $20 million, Zymaris suggests. “It’s a big problem. Government should start looking at alternatives there,” Zymaris says.
A patriot must always be ready to defend his country against his government.
– Edward Abbey (1927–1989)
US author
Mike Smith, government account executive at EDS, says the moves to whole-of-government outsourcing, coupled with a drive for greater efficiency and accountability, has been both good and bad for prospective IT providers.
The Humphrey report put agencies back in control and the furore over outsourcing in general has died down, freeing up providers and government to fashion the best possible deals. Agencies in transformation often need IT companies to assist, and EDS -- among others -- has taken advantage of that, Smith says.
Contracts have got more outcome-based too, Smith adds, which is surely a good thing. “With the standard input-based contracts, the supplier would come in and say, 'I’ve delivered three truckloads of widgets’, and they’d say, ‘No, we wanted only two of that kind and one of the other’,” he says.
Smith warns also that government really does not have the same values as private industry, since profit is not what it is about. EDS gets a cultural fit by hiring lots of former government employees, he says.
Smaller providers are welcomed as partners for one or many deals, and should directly approach the larger partner. That helps them get around the resourcing and cashflow problems that tend to count against small companies in complex, long-winded government pre-sales, Smith says.
“Try to identify a niche that most probably is not being fully satisfied,” he says.
Large providers like EDS cannot be all things to all people, and are keen to meet partners that can help them better fulfil their customers’ needs. “We’re working effectively with a large number of service providers,” Smith says. “And we have programs to help SMBs.”
Smaller providers should also work to be more professional in their dealings with customers and partners. Some have lacked a little attention to detail in their approach, Smith says.
Mike Shove, chief executive at CSC Australia, wants partners too. CSC attacks government sales by working hard with its current contracts. Rule one is to hang on to what you already have, and then you can look at winning new deals. Put in deliverable milestones that help agencies see how you are performing, for example. “And we keep going back and saying, ‘Is this what you meant?’,” he says.
If it means working harder to prove you are still competitive with what else is on the market, so be it. Track record is all-important in government, Shove suggests.
That said, CSC is seeing more project-based activity now too, from agencies such as Centrelink and the Department of Foreign Affairs, and for SAP-related offerings.
Wireless networking is getting big too, Shove says. “But it ebbs and flows. Outsourcing is alive and well, pretty much all selective sourcing.”
Chris Cohen, delivery executive at Volante Group, concentrates on Federal Government deals, which account for some 10 percent of Volante’s work. He says the value of many contracts has started to rise.
“About 50 percent of our contracts are less than $10,000, but that’s just 3 percent of our overall take. Less than 1 percent [of contracts] accounts for 54 percent,” Cohen says.
That said, he tips consolidation, with “fewer real players” in the market. Small companies should therefore mitigate the risk by partnering with the market leaders. “I think there will be a greater degree of collaboration,” Cohen suggests.
Jane Lancsar, national managed services delivery manager at Volante, says service providers must remember that successful business is always about serving the customer. If you don’t do that well, you will fail whether you are targeting the public or private sector. Be consistent yet flexible, and work hard to understand your customer’s needs, Lancsar says.
One successful partnership has been between global business intelligence software vendor Cognos and local service provider Pelion. David Merchant, marketing director at Cognos, reckons local providers in particular are favoured somewhat in government deals.
Like Optima’s Ung, he points to the advantage of knowing everything will be available in the correct country.
Local partners are absolutely critical for Cognos, which, as a result, can boast 25 percent of its Australian business has come from government work. There are things Cognos just cannot do without help, Merchant adds.
He advises providers to remember that government – even more than corporations -- is all about relationships. Yet staff change often and pre-sales procedures take many months, meaning further new relationships must be formed and cemented in the course of winning a deal. All suppliers can do is take a deep breath and go over everything again. Remember, too, that the original person will likely reappear in another government agency -- providing a lever for future opportunities, Merchant says.
“It’s all well worth the effort,” Merchant says. John Twomey, managing director at Pelion, says his company has been slowly building up its government portfolio for about four years. About 50 percent of Pelion’s work is government-based.
Twomey has worked on government deals in Ireland and the UK before coming to Australia. If anything, the Australian Government is keener on supporting local suppliers than in those nations, he says. “But there are the same kinds of hurdles.”
For governments, it is all about risk. So they must take longer and consider more carefully what they do before agreeing on a deal. If things go wrong, the risk of it being plastered all over the news media is also higher, he adds. The IT provider that understands that may do very well.
Twomey says Cognos has leading products and larger sales and marketing teams. Pelion offered its government expertise track record, cost-effective services and desire to build long-term relationships with the customer.
“The benefit of this partnership is we are sharing the cost of sale -- which is high for government -- and contributing our respective strengths,” he says.Sudhir Mathur, Australia and New Zealand country manager at Zensar Technologies, agrees the opportunities are definitely there for smaller providers. Zensar itself often partners its major shareholder Fujitsu Services, primarily with state government.
Zensar has built up success in government from its Australian office, which only opened in 1998. “It’s been quite successful,” he says.
Mathur says .NET and J2EE solutions are proving popular, as are migrations from legacy systems such as COBOL.
Generally, Zensar does application work -- developing and supporting applications -- for specific projects. System integrator Fujitsu helps with its software consulting framework that can be carried forward from deal to deal.
Other companies -- whether software, hardware or services-based -- are heartened by current conditions and are seeking to do more work with government.
Charles Assaf, managing director at telecommunications integrator Nexon Asia- Pacific, says Nexon is expanding nationally with an eye to government departments in particular. “Government departments are looking for top technical people and it is more than doable with our technical team,” he says.
Nexon has just bought $150 million telecommunications group Heyday, partly for the boost it can bring to Nexon’s technical staff skill set, he says.
Longer term, Nexon expects telecommunications managed services to give it that edge in public sector agency deals, Assaf suggests.
David Watt, a government business executive at IBM Global Services, says IBM also works with resellers or sub-contractors much of the time. “And there are sometimes sub-contractors to our business partners as well,” he says. Partners can be large or small. “We have a fairly large system integrator working on a project,” Watt adds.
“But it’s like winning business from any organisation. You’ve got to understand their needs. You’ve got to provide value for money. You’ve got to understand who their clients are and what their clients want as well.”
Meanwhile, the future could see more global opportunities for government sales. Recent Free Trade Agreements (FTAs) -- such as the one signed recently with the US -- are in theory reciprocal. Depending on how the FTA plays out in practice, resellers may well benefit.
WDG’s Arrigo says she has not seen any opportunities flowing down from the US FTA so far. However, the company will watch with interest, because it is already “aggressively” targeting South-East Asia and working with Austrade and other export bodies to figure out ways to market overseas.
“I actually think Australia would be a leader in that,” Arrigo says. “Already, in Victoria we see they are becoming a lot more open to patent intellectual property. I don’t know about other states.”
There is a down side, too. Arrigo says issues about ownership of intellectual property can mar a deal. Intellectual property ownership can be “a real issue” in deals overseas, whether with governments or otherwise, she says.
But Australian companies can still stand to gain. Solutions developed for the Victorian Government can then be taken overseas. “That’s a significant opportunity for our guys long term,” Arrigo says.
EDC’s Smith says the FTA proved a major glitch for government procurement, creating issues for agencies’ decision-making on supply. “The agencies were releasing large numbers of panel contracts to try and get around some of the issues presented,” he says.
“My understanding of the FTA in panel contracts, for instance, is that basically a requirement for work to be tendered, yet government agencies have to do these things quickly sometimes,” Smith says.
‘They had to reorganise themselves very quickly,’ he says.
Nineteenth century New York politician George van Valkenberg said humans exist to create problems. What government and bureaucrats tend to do is magnify normal human problems by 100. IT contracts with government -- whether state or federal -- must try to solve this phenomenon. The results, all agree, are worth the effort.
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