EXCLUSIVE - Public sector ICT procurement in the era of cloud computing and managed services
As Information and Communication Technology (ICT) evolves, so does the process of procurement and deployment of technology, for organisations, large and small, Government is no exception.
OpenGov had the opportunity to interview Mr. Jag Rewal (above), Director, Whole of Victoria Government Technology Procurement Group within the Department of Premier and Cabinet. Mr Rewal has extensive and diversified ICT sourcing and procurement experience in a range of industries including information technology, consulting, automotive, financial services, mining & resources and the public sector. Prior to his current role, Mr Rewal held executive leadership roles, for companies including BHP Billiton, Standard Chartered Bank, PricewaterhouseCoopers and IBM.
Mr. Rewal not only spoke about the ICT procurement process in the Victorian government but also shared views and insights on current trends in ICT procurement, such as the shift to the cloud and manged services and the attendant opportunities and challenges.
He talked about the constraints on government, which often result in reactive adoption of new technology and discussed the simplification of procurement processes and expanding opportunities for SMEs.
Could you describe your role as Director, ICT Procurement for the Whole of Victoria Government? What is the scope of your responsibilities? In this role, I am responsible for implementation and management of State Purchase Contracts for ICT products and Services.
State purchase contracts (SPCs) are standing offer agreements for Victorian government common use goods and services, which are established when value for money can best be achieved through aggregating demand across multiple government agencies. This encompasses a range of services broadly classified under the category of Hardware & Infrastructure, Software and Telecommunications.
I am also responsible for the "eServices" Register, which is the mandated eProcurement process for use by public sector agencies for the procurement of ICT services. These SPCs traditionally cover major ICT software vendors, such as Microsoft, Oracle, IBM, VMware and hardware suppliers including Dell, Lenovo, HP and Acer. How does ICT procurement affect the internal operations of the government agencies and delivery of public services? Government is a major user of ICT and hence there is a significant investment undertaken; accordingly there is substantial procurement of such products and services undertaken by government.
Government procurement processes are generally onerous due to the high level of probity and governance. With establishment of SPCs, the Whole of Government ICT Procurement team undertakes this rigorous (and onerous) process on behalf of government agencies, thereby making it easier for them to procure.
With an SPC there is an established contract and pre-negotiated commercial terms, hence the agency is able to procure such services without having to go through individual negotiations and delays. Effectively, use of SPC exempts the agency from having to perform an independent procurement. In order to establish a SPC it requires (as a minimum) approval from the Victorian Government Purchasing Board and a Minister.
Can you tell us about major ongoing projects and initiatives? What are their objectives and timelines? We have just concluded a major procurement in the establishment of telecommunication panels to provides services for Data, Voice, Mobile, Internet and Unified Communications. Current annual spend across government users for these services is $160 million per annum resulting in a contract value across these services to over $500 million. We have also just concluded a procedural renewal of our Microsoft Enterprise Agreement with Microsoft. To what extent is the ICT procurement process in the Victoria Government centralised or driven by individual departments/agencies? Procurement activity is performed by individual departments using their own internal policies and governance in compliance with the Victorian Government Purchasing Board.
However, procurement for commonly used products and services are centrally negotiated and managed on behalf of departments by Department of Premier and Cabinet for ICT services and Department of Treasury and Finance for all other services. Departments then procure through these framework arrangements. The SPC concept is mandated for core government departments and discretionary of outer department agencies (i.e. local councils and not for profit organisations). How do you keep government abreast with rapidly evolving ICT technologies?
Government is kept abreast with rapidly changing technologies through vendor lobbying and proactive understanding of proposed technologies through conference and industry events. In instances, such new technologies are imposed on us as current products and processes are gradually phased out by suppliers. What are the most common drivers for decisions to upgrade or replace systems and processes, either at an agency or a whole-of-government level?
Government has to go through a long cycle in the procurement and implementation of ICT technologies. As such, the key drivers to upgrade or replace systems is generally based on changing business requirements or significant changes in technology that cannot be addressed by current systems.
For instance, many departments in the Victorian State Government are still using early versions of Oracle software for its ERP systems. This software is no longer supported and hence imposes significant risk in terms of support and security patches. In view that current software applications are only offered in the Cloud, these Departments have little choice but to adopt the new Cloud based services.
Similarly, many Departments are using earlier versions of the Windows operating system which will no longer be compatible with the new Intel chipsets. Accordingly, theses departments are being forced into adopting newer technologies. Unfortunately, most government departments have limited funding, hence the adoption of new technology is performed in a reactive manner. Technology is changing rapidly, whereas the processes for government to keep up with this change is slow due to the long lead time in implementing processes, securing funding and undertaking the procurement activity. What are the current trends in ICT procurement that you see in the public sector in Australia and outside? The biggest current trend in ICT in public sector (and the market in general) is the transition away from purchase of capital equipment to use of managed services. Cloud computing is the most obvious example in this regard, whereby a totally scalable solution is provided by a single vendor on demand.
This differs significantly from the traditional approach from capital intensive investments in Data Centres, purchase of Server, Software licensing and associated administration.
As a general analogy, this is similar to the use of utilities such as electric and water, whereby you use and pay for what is required at will rather than investment and management of such infrastructure. Many products are now only available through a Cloud environment. What is the impact of these trends on strategies, operations and costs? There are significant challenges in the use of such managed services particularly in a Cloud environment. There are internal financial challenges in the transition of funds from Capital to Operational costs.
Cloud computing imposes significant challenges in relation to Data and Information security, sovereignty issues and loss of control. From a procurement perspective, there is increased reliance in the use of dominant or monopolistic vendors.
Currently, even though there is some domination from monopolistic vendors, it is restricted to a limited scope. Microsoft for example, is now offering the office products (Office 365) via the Cloud. The consequence of such use is not only the transition of the current Office software license to the Cloud but also the associated infrastructure (data centre, servers and management) to Microsoft. Which means the amount of spend and reliance with Microsoft will increase significantly at detriment to other vendors.
What do you think can be done to expand government procurement to a larger field of vendors and possibly increase participation of SMEs?
Government procurement processes are onerous and require significant investment form the vendor to respond in terms of effort and actual cost (e.g. legal costs in review of contracts). This can be addressed by simplifying the procurement process.
Procurement processes can be simplified by the amount of information that is required from the supplier - either by focusing on the specific information required or by conducting a phased procurement approach whereby only suppliers that progress to the next round will be required to provide incremental information.
There can also be processes implemented to reuse information previously supplied, so that vendors do not need to duplicate efforts on every occasion.
Government has a tendency to impose extensive and onerous contracts which take up a significant amount of time and expense on individual vendors. Having a simplified contract that is likely to be more acceptable to industry will save a lot of time and cost to both the vendor and government.
All the above listed activities, enhance opportunities, particularly for SMEs. In addition, SME involvement can be enhanced by breaking down the procurement to smaller distinct units which allows for mitigation of risk and inclusion of smaller enterprises. Use of procurement systems also enables suppliers to respond with the required information online. This also saves time and cost for Government in terms of evaluation and probity. Procurement systems also allow the means for opening up the opportunity to a wider market (potentially regionally and globally), which can be further enhanced in the use of supplier marketplaces.