Govt and taxpayers are paying too much for IT

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There is more money to be made being a consultancy that specialises in preparing government tenders than in winning the business

By By Randal Jackson | Auckland | Monday, 2 April, 2007

There’s a view by some vendors that government agencies are paying as much as 40% over the odds for ICT services and software. The reason: the tendering process.

After the costly and politically embarrassing over-runs of INCIS in the 1990s, purchasing threshholds were set. For anything that cost $50,000, a government department had to go to tender. That has latterly been extended to $100,000.

The rules apply to all contracts for goods and services that exceed $100,000 or, in the case of construction projects, $10 million. This value is calculated by looking at the procurement cost over the term of the contract and means the purchasing agency has to forecast future purchases under a contract when considering exactly how much it is worth. Departments are expressly prohibited from splitting one procurement into different contracts to get around the threshhold.

The threshhold is way too low and that is costing the government — and taxpayers — money. Put simply, this is because of the cost to the vendor to respond. In some cases, it is only the Microsofts and IBMs that can afford to respond. They’re at the top end of the market, which often means the purchaser will pay top dollar.

In many cases, there is more money to be made being a consultancy that specialises in preparing government tenders than in winning the business. Consider that consultants justify their fees by preparing a large document, often at the RFI (request for information) stage. The cost of responding to such detail is high — it is, after all, a request for information and should not entail a full-blown response. And sometimes, it may be a fishing expedition. Then there’s the subsequent cost of responding to the RFP (request for proposal).

There’s a widely held belief that some tenders are a done-deal even before they are posted on GETS (the government electronic tenders site). In such cases, the departments concerned are merely going through the motions so they can say they have comparative bids.

One smaller vendor suggested to Computerworld that what might have been supplied at, say, $60,000 could cost the government as much as $200,000 after factoring in the cost of responding to the tender process. It would be interesting to know the number of responses received to tenders. There has been at least one case of a government department virtually begging the market to respond to its tender because only the incumbent had done so. It was felt by the other vendors that it was a done-deal.

This whole business of threshholds needs to be revisited and realistic levels set. ICT is expensive and a level of prudentialilty is needed. Choking the potential supplier channel by enforcing unreasonable threshholds is not the answer. Managers need to understand the difference between price and cost.

Footnote: The secret squirrel parts of government may be exempt from the tender threshholds for security reasons.