Procurement reforms that capped tech contracts at $100 million broke the stranglehold of big conglomerates and large multinationals in Canberra and opened the door to smaller Australian companies securing more government work.
That’s the take of Michael North, the chief executive of Western Australian managed services provider Kinetic IT, which recently secured a $50 million deal with the Tax Office as part of its IT Strategic Sourcing Program.
Under the program, the agency is splitting three of its biggest technology contracts with DXC and Leidos into nine smaller, more module bundles in the biggest shakeup of its IT outsourcing in more than a decade.
Kinetic IT has been chosen as the lead Enterprise Service Management partner, with responsibility for onboarding and integrating the services of the new tech partners – which are yet to be named – across each of the nine bundles.
“Each of those new suppliers bring their own systems, so [it’s] a lot of integration work across each of the suppliers to get all the right insights and information everywhere,” Mr North told InnovationAus.com.
The Perth headquartered firm is no stranger to this type of work at the Commonwealth level, having been selected to provide service desk and service integration services to Defence in 2019 – it’s two most lucrative federal government deals, which now sit at $110.6 million and $56.2 million, respectively.
For Mr North, changes to the Commonwealth Procurement Rules, including capping IT contracts at $100 million- or three-years’ duration, in the lead up to the Defence procurement was a massive step towards breaking into a market that was dominated by multinational companies.
“The Defence arrangement came to market soon after the change to the Commonwealth procurement program, and those changes to the Commonwealth Procurement Rules, I think, have been fundamental in opening up the marketplace to organisations like Kinetic IT,” he said.
“In the past, some of those procurement arrangements definitely favored the big conglomerates and large multinationals.”
The procurement reforms were the result of the 2017 ICT procurement taskforce report, which found a culture of risk aversion in Canberra’s procurement made it difficult to get innovative solutions into government.
By capping IT contracts at $100 million- or three-years’ duration, with some exceptions, the then Turnbull government hoped SMEs would be able to bid for smaller components of work on larger projects – a major consideration in the ATO’s IT sourcing shake-up.
While one procurement expert and former senior executive at the Digital Transformation Agency is not convinced the 2017 report has led to any lasting change, Mr North said it opened the market to “more competition” and gave smaller suppliers “more opportunity to complete”.
“Those changes between 2017 and 2019 really opened it up. Rather than the one big contract to a big prime supplier, who would farm out the work to everyone else, it really gave the opportunity for each of those contracts to be let in a set size and scale,” he said.
Mr North was the Kinetic IT’s sixth employee when he joined the service desk in 1999 and became CEO in 2016. He said the Turnbull-era changes gave the company the “desire to come and play in the federal government market”.
“Prior to that, we hadn’t played in federal government, and it was those changes that allowed us to feel like we could compete better in a process that allowed Australian organisations to bring their specialties to bear,” he said.
Mr North also said that agencies were increasingly receptive to industry feedback about best practice at earlier stages of the procurement process, allowing the final approach to market – in the case of the ATO – to be “really easily consumable, easily understandable and very well structured”.
“For us in industry, if we get the chance to comment back on how we think arrangements are best structured to deliver successful outcomes, and then some of those get adopted by those agencies, it gives us a lot of faith that agencies are serious around changes and their both listening and considering their own requirements,” he said.
Mr North said the company had been “blessed by a really focused growth cycle”, chalking up 20 per cent year-on-year growth between 2000 and 2020, which he said set the company up to compete at the “larger layer”.
“It’s difficult to break through those early years. Sort of the zero to 250 is a really hard size for an organization in technology and then the next group of 250 up to about 750 is something that can come with real challenges as you try and expand,” he said.
Consisting of around 1,400 staff, more than half of which are based outside of WA, Kinetic IT is now one of the largest IT companies in the state, and there are plans to add another 100-odd staff over the next two years.
“We do expect both at a technology level and at a market level there’s a real opportunity for organisations like Kinetic IT [that are] Australian-owned, with a large sovereign workforce,” Mr North told InnovationAus.com.
“There’s definitely headwinds as far as the economics goes, but there’s also some real opportunity – geopolitical situations and the cyber risk definitely favor organisations with good experience.”
