Monday, 24 November 2008 12:55

Government devastates contractors, vendors and recruiters with Gershon approval

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The IT contracting and recruitment industries, as well IT vendors,already reeling from the economic downturn, have been dealt a devastating body blow by the Federal Government's decision to implement in full the recommendations of the recent Gershon Review. Contractor numbers will shrink by half and Government ICT spending will be slashed by more than half a billion over the next three years.

The review of Government ICT spending by Sir Peter Gershon, a former Chief Executive of the UK Treasury’s Office of Government Commerce, was released in mid-October to a highly nervous reception from the contracting and recruitment industries.

Two of the central tenets of the review was a drastic cut in IT spending and dramatic rationalisation of human resources within a very short period. Implementation of the recommendations will result in a cut of ICT contractor numbers in Canberra by half and slashing of $540 million of the Federal Giovernment ICT budget over the next three years.

The Rudd Government will argue that its razor gang approach will see leaner, more efficient Government agencies, with higher numbers of permanent skilled ICT staff and considerable savings for the taxpayer.

In practice, however, recruiters believe the Government will have a difficult time finding the necessary numbers of skilled ICT permanents to live and work in Canberra. Meanwhile ICT suppliers of products and services to the Government sector, already feeling the pinch, will see Federal agency budgets almost immediately slashed by 15%.

The result is likely to be a marked slowdown and with a good chance of a contraction in the Australian ICT industry over the next two years.
 
In a chilling message that will provide no comfort for Australian ICT industry players, Lindsay Tanner, Minister for Finance and Deregulation, said:
 
“The goal is to return efficiencies to the Budget and to reduce expenditure on ICT business-as-usual while freeing up money for service delivery capability.”

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The Government will establish a Ministerial ICT Committee as part of its new ICT razor gang approach.
 
The Government will reduce the number of ICT contractors by 50% phased in over 2009, 2010 and 2011.  This modifies the timeframe recommended in the review to align the schedule of reductions with other initiatives to build ICT capability within the Commonwealth.
 
ICT Review Teams will work with agencies to deliver reductions to agency “business as usual” ICT budgets, saving around $400 million annually once fully implemented. Half of these savings will be reinvested to improve agency ICT capability, according to the Government.
 
Lindsay Tanner said: “This savings exercise will be done in a way that does not impede service delivery to citizens and businesses. Reductions averaging 15% for larger agencies and 7.5% for mid-sized agencies are expected and achievable.”  
 
The staged roll out of the Review’s recommendation will commence immediately in line with the implementation strategy proposed by Sir Peter Gershon.

Recruitment service providers were hard to contact as this report went to press but yesterday Duncan Thomson, general manager of Finite IT Recruitment, one of Australia's largest IT people providers, told iTWire that it was doubtful whether the Government could achieve the Gershon recommendations quickly.

"I don't think in reality they'll be able to achieve their objectives soon, this initiative will need to be carefully thought through and detailed planning will need to be put in place.  This is bound to take some time to work through," Mr Thomson told iTWire.

"The Federal Government has always been a large user of contractors. Contracting has some clear advantages over permanent employment and not everyone will want to convert. The challenge of recruiting specialist IT permanent staff in Canberra is also quite tough. When we're staffing for the Federal Government, we're pulling people from all over the country."

Particularly hard hit will be IT recruiters that rely heavily on their contracting business. Australia's largest IT recruiter, Peoplebank, 11 months ago paid $100 million for rival recruiter Ambit, which derives 97% of its business from IT contracting with a strong focus on the Government sector.

While most members of the ICT industry had been expecting the Government to take on board some of the Gershon measures, few had been expecting it to swallow the recommendations hook, line and sinker. This latest action is likely to reinforce in the minds of many in the business community the increasing sense that the Rudd Government has little grasp of the long term implications of its actions and is simply engaging in populist policy making on the run.

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Stan Beer

Stan Beer assists with Digital Advertising installation and monitoring of advert performance. With 35 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications. Any previous news story submissions should be director to editor@itwire.com and advertising enquires to andrew.matler@itwire.com

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