In mid 2008, Sir Peter Gershon finalised a report into the efficiency and effectiveness of ICT in the Federal Government. That report was delivered to the Minister of Finance and responded to in late 2008. AGIMO was given a large role in the implementation of recommendations.

There is no doubt that the recommendations are good for the Government and promote operational efficiency across Agencies. The issues arise around the unintended consequences of action taken to implement the Gershon review, impacts of the global financial crisis and the required efficiency dividends from Agencies.

From 1997 through to 2007 the message from the Federal Government was clear. If the Private Sector could do the job then let them do it rather than employ Public Servants. Based on that, a large ICT focused industry developed in Canberra, accounting for at least 20% of the Private Sector employment in the ACT. Agencies were discouraged from employing permanent Public Servants. Now Gershon recommends the reverse in many ways.

The report makes no mention of the impact on the ICT services industry. As a result of the recommendation to employ contractors as Public Servants there has already been a noticeable reduction of work for people who were employed under the arrangements encouraged by the previous Government. There is a lot right about having Public Servants performing service delivery and technical roles that are ongoing and clearly defined. Issues arise around how it is implemented rather than the end result.

The amount of change to business related to this decision is in the order of $A300-500 million in the contracting businesses¹. AGIMO held two consultation sessions on 30 Jan and 2 Feb with “Industry”. Prior to this the consultation had been with a select group of industry associations. The questions asked and the answers given suggest that there are a lot of unexpected consequences of the way Agencies are reacting to the Gershon Report.

There seem to be significant issues with what appears to be Policy on the run and it is quite unclear what AGIMO and the Government want from the Private Sector and therefore small companies in particular are unsure what they should be doing. On the surface, things look grim. AGIMO says that there will be significant opportunities in the medium term (after September) but it is still unclear what those opportunities are for and who will be best placed to participate.

What is good Public Policy in this area? Are we happy to risk losing a significant talent pool? Why should we look beyond the immediate impacts (that appear to be minor)?

Issues

Displacement of staff due to the conversion of contractors to Public Servants might at first seem to be a small issue. If they are to be employed as Public Servants then they will have jobs and probably more security. The reality is more like this:

• Agencies are obliged to create a position for a staff member and fill it through the Public Service selection process. That can take from 3-8 months depending on the Agency.
• Most Agencies have a recruitment freeze (or planned reductions) on ICT staff because of the need to deliver the Efficiency Dividend
• Most Agencies are offering current contractors the chance to “convert” to non-ongoing employment. This means they need to apply for the position and should expect other people to compete with them for the position. Non-ongoing employment is essentially the same as contracting in that it is for a specified period of time and not permanent employment
• Ethical issues arise from this process because ICT business lines need to keep staff who are currently working on delivering important outcomes and yet they must conform to the merit selection process and choose the best candidate for the job. As a result you get job specifications that have highly detailed technical skill requirements that are clearly designed to give the incumbent a better chance
• Most contractors have long term lease and other arrangements in place as part of their contract. This was encouraged by the previous Government who wanted fewer Public Servants and more Private Enterprise
• Quite a few contractors are choosing not to apply for the role they currently have for reasons that include perceived income reduction, lack of desire to work as a Public Servant and preference for more certain future rather than apply for a non-ongoing position
• In some cases the existing contract has been terminated well before the position has been advertised and filled as a Public Service position
• AGIMO has chosen three Industry groups through which to consult. Australian Information Industry Association, Australian Industry Group and Australian Computer Society. AIIA represents the big end of town quite well but has a patchy record of supporting SMEs. AIG is a broader industry lobby group that has no particular tap into ICT SMEs. The ACS has its origins essentially as a more serious computer user club. None is deeply rooted in the ICT SME segment nor even the second or third tier of “large” service providers.

Business Impacts

Right now there are quite a few businesses in Canberra already reducing staff and some even closing their doors. There is not a high level of confidence in the industry at the moment. Some likely outcomes:

• Loss of a significant proportion of SME Consultancy firms in Canberra
• Loss of talent to other locations if consultants and service providers find it hard to gain suitable employment
• More SME businesses being sold to the larger players
• Loss of goodwill
• Unavailability of “peak load” resources when they are needed
• Reduced skill sets

Consulting

Consulting is a different thing to contracting. The FMA draws the distinction by requiring Agencies to report Consultancies and Contract staff separately. Consultancy has specified outcomes or outputs that must be achieved in order for the Consultant to be paid. Contract staff are employed to do a job and are predominantly paid based on ours worked and physical goods delivered.

Many Agencies are not drawing this distinction. Specialist staff are needed in small amounts irregularly by Agencies and it is unlikely that any single Agency will wish to employ someone full time to undertake the role. Still, there is a perception within Agency procurement areas that Consultants should be employed as non-ongoing staff within an agency rather than through a Consultancy. There is little difference to a specific Agency in financial terms; they get the temporary employee but that employee then has to find the next non-ongoing role. If they were employed through a Consultancy company, it is likely that they would be continuously employed and with potential efficiencies. Non-ongoing staff cannot be obliged to deliver specific outcomes, just to perform duties as specified for a certain time. The employment relationships means that they are simply employed or not and there is little scope to ensure that outcomes are achieved with non-ongoing staff in the way it is possible with Consultancies.

There is a very good case to not treat contracting and consultancy as the same thing.

Short and Longer Term Impacts

There seem to be significant differences in the way we might see long and short term impacts. Short term, the Government Agencies are finding it quite easy to attract applicants to take up offers of non-ongoing employment. The employment situation in Sydney, Melbourne and Brisbane is bad enough to ensure that highly skilled people will apply for anything that keeps them employed. This happened in a similar way in 1990-3 when there was a downturn (centred in the Finance Industry!) and again in 2001-03 after the Tech Wreck. Immediately the employment market in the major cities and internationally picked up the ACT faced a significant ICT skills shortage. At that time there was a strong presence of SME ICT providers in Canberra, building to a peak around 2007-8. Because of the Tax laws introduced at the time of the GST, a majority of contractors established companies to comply with Government requirements for $10 million of professional indemnity insurance, workers compensation and other administrative incentives to create company structures. Effectively this created a kind of “golden handcuff” that kept the owners of those companies in the ACT.

This large private sector was able to handle the peaks and troughs of work generated by Government initiatives and the rapid expansion of Government Online Services. Often hundreds of skilled resources were mobilised for projects within six weeks rather than the 3-4 months usually required for Government recruitment². The Private Sector effectively acted as a buffer for the peaks and troughs in workload.

This time things look like they might be different. If there is a sharp decline in the private sector within the ACT as a result of the Gershon Report then it is likely that the buffer effect will be reduced. Even large ICT service providers with big Government contracts have been forced to rationalise their resources because of the global crisis. If the private sector has not got the resilience to respond when it is needed then it will fall to Government Agencies to find the needed resources. Right now, the recruitment and workforce planning capability within Government Agencies is heading towards a reduction in staff and deep cuts to back office functions (ie ICT).

On the horizon we can see that there are very significant new demands for ICT support coming up. The very fact that $30+ billion of infrastructure spending is to commence in the next 18 months strongly suggests that there will be a need to do new things. Rarely do new initiatives NOT need ICT support.

In the absence of strong incentives to stay in Canberra, there is likely to be an exodus of skilled resources to other locations when the employment market improves elsewhere. These people have seen exactly how Government Agencies have behaved towards them recently and might not feel that much desire to re-enter business with them or remain long term employees when better opportunities arise.

What to do?

If any other industry segment had been subjected to as much of a change as the ICT Services (particularly contracting and consultancies) then it would have demanded some degree of structural adjustment or at least a plan to implement it in conjunction with the industry. Instead, things have happened behind closed doors and with the ICT industry being consulted through narrowly focused representation. Agencies have already acted on the report and yet companies are still left wondering what they should be telling staff. Stay with us or join the Public Service. When AGIMO is asked, there is no clear direction to be given.

A clear Public Policy that states what the Government (and Agency Heads) wants from the Private Sector, what changes in operating arrangements are desired, the desired involvement of SMEs and a plan for how this might be implemented would be nice. Then everyone can proceed knowing that they are investing in the right things for the right reasons.

Related articles

• Credit crunch brings switch from private to public sector jobs (guardian.co.uk)