Canberra opens up Microsoft licenses to new panel

Low-margin opportunity from June 2012.

The Australian Government has indicated it will open its whole-of-government sourcing arrangement with Microsoft to a wider pool of resellers at the conclusion of an exclusive arrangement with Data#3.

The Department of Finance has released a request for tender for a panel of “Large Account Resellers” (LAR) to take over the work from June 2012.

In January 2009, the Australian Government signed a Volume Sourcing Arrangement (VSA) with Microsoft Operations Pte Singapore. The Microsoft VSA was the first of the Australian Government’s Coordinated Procurement Contracting Framework Initiatives.

It offered pricing and licensing conditions for the supply of Microsoft products to agencies covered by the Financial Management and Accountability Act 1997 and goverbment organisations covered by the Commonwealth Authorities and Companies Act 1997 (excluding Government Business Enterprises like Australia Post and NBN Co).

The deal was hailed at the time as a win for both Microsoft and Government. In 2010-11, the Australian Government spent over $95 million on licences and software assurance through the volume source arrangement.

However the new RFT signals a desire for more competition with one or more LARs to be appointed to a panel of provider(s).

The RFT documents suggest successful panellists will enjoy high volumes on tight margins.

It requires prospective resellers to offer prices based on a "cost plus margin" arrangement for the acquisition of Microsoft products and services. The cost equates to the Channel Buy Price agreed between Finance or an Agency and Microsoft, whilst the margin equates to the consideration payable by the Agency to the LAR(s).

An example quoted in the RFT stated that a 1 percent margin would be typical.

"Finance negotiates with Microsoft to procure 10 copies of OfficeProPlus L+SA at a Channel Buy Price of $500 per unit. The Tenderer nominates a margin of 1% in Table 1. Finance pays the LAR $5,050, based on the following calculation (($500 x1.01) x 10 units) = $5,050."

Benchmarking, BAFOs, e-auctions and panel refreshes

Furthermore, panelists can expect to have their pricing benchmarked and anticipate further competition with each other.

After receiving a quotation, an agency may request that the contractor provide a best and final offer (BAFO) or “at any time” undertake an e-auction process to obtain quotes.

A new Head Agreement will set the the conditions for the e-auction process.

The documents also alert that Finance may test the market for any or all of the deliverables and engage additional panellists “…to determine if the performance of the contractor matches and the charges are competitive with, then current market prices and standards of delivery for similar Items.”

If the benchmarking shows that the charges are not priced competitively (e.g. more than five percent higher than the average price for charges for similar items), then the contractor will be required to resolve the issue within 90 days.

If no resolution is reached within 90 days, the charges (including the charges payable under any contract) will be “deemed to be reduced by the amount of the excess determined...”

While the successful LARs to panel can expect to do business over three years with three extension options of one year each, the RFT reinforces the competitive aspect by foreshadowing a refresh of the panel "from time to time".

Potential tenderers are invited to attend an industry briefing on 10 November before tenders close on 29 November. Agreements and contracts with successful LARs on the panel are expected by May 2012.

The Department of Finance and Data#3 have been contacted for comment. Data#3 was unaware of the announcement and has chosen to refrain from comment today.