ATO shaves $4m off IT contractor panel

The Australian Tax Office expects to save $4 million annually from a reformed IT contractor panel that will introduce a new fee structure, two-tiered approach and performance targets for suppliers.

The ATO has spent the better part of this year working on how it could achieve better value for money and cut down on admin from its IT contractor panel arrangement, and will today take its new approach to the market for applications.

The 10 year-old panel - on which the ATO spends between $36 million and $40 million annually - at its height counted 48 members, including the likes of Data#3, Deloitte, Fujitsu, UXC, Oakton, and PricewaterhouseCoopers.

The panel had become out of step with industry trends and administratively burdensome for ATO staff, resulting in the tax office earlier this year embarking on a reform project designed to reap it better value for money.

That effort saw the panel initially reduced to 28 in July, and from today will require all IT contractors to re-pitch for the agency’s business and a spot on an even slimmer panel.

The ATO’s new approach strives for ongoing cost reductions, better contractor performance, and greater procurement accountability and transparency - as well as making it more simple for industry participants.

The panel will offer applicants the choice of two tiers - tier one, which will only be available to five large IT service providers with broad skill sets; and tier two, which will be open to an undetermined number of specialist providers to address niche requirements.

The tier two specialist providers will be contracted based on demand. The ATO will be specifically after those with skills in Teradata, Siebel, IBM Stirling and Cognos, penetration testing, virtualisation, application services and monitoring, among others.

Tier one suppliers will be offered a spot for an initial three years with two possible one year extensions, while tier two contractors will be offered one year with four possible one year extensions.

The panel is expected to commence operation mid next-year as the existing panel expires, and applications are now open.

“We thought ‘well we’ve got a rather cumbersome and probably more scatter-gun contractor panel arrangement’,” ATO CIO Bill Gibson told iTnews.

“At one stage the panel was operating with 48 members, and that was getting difficult for us to manage - and it was hard for industry to operate with any confidence that they would get work and opportunities from the ATO.”

While the ATO’s July efforts to slim down the panel streamlined it somewhat and took away some of the administrative burden, it didn’t quite go far enough - and it more importantly didn’t change existing work practices.

The ATO then turned its sights on how to restructure its approach to contractor fees in order to shave some cash off the $36 million it spent on the panel last year.

ATO IT contractors will now be paid a single fee for a candidate - what Gibson likes to call a “placement fee”. It replaces the previous payment structure based on a fixed percentage of an hourly fee for the length of the contract.

“In the past we found that we ended up paying in perpetuity various fees, and that for contracts that go longer than six, nine, 12 months, we weren't really getting value for money. So we’ve introduced a different fee structure,” he said.

“I like to think of it as a placement fee, and that’s something that we would happily pay upfront for 12 months, and then if anything goes post-12 months, we will look for reduced management fees or extended tenure.

“[That also extends] to when the ATO refers a candidate to another agency - we are not going to pay what has been in the past quite significant management fees.”

The new panel will also see ATO IT contractors required to meet KPIs when completing their contracts - something IT procurement reform project manager Chris Scullin said would ensure the ATO got the best performance from the contract.

“That’s quite new for government, most times agencies step away once they’ve placed the candidate," he said.

The panel arrangement will be managed through a new, software-as-a-service based vendor management system, which will replace the numerous Excel spreadsheets that until now had been used to manage visibility of contractor rates. 

It will allow the ATO to monitor individual vendor performances against the defined KPIs, compare performance and benchmarks against other panel members; and monitor spend by vendor, project or contractor, as well as by hiring manager and ATO business unit.

The system will also allow ATO procurement managers to compare contractor rates with market rates, based on skillset and geography.

The ATO expects to award a contract for the vendor management system next week.