Incompetence as virtue
The traditionally staid Institution of Engineers Australia has identified a trend in government: once you get rid of people with specialist technical skills, you make mistakes which could have been avoided.This is bad news for both the current Coalition federal government and the Labor opposition, both committed to massive outsourcing of key areas of technical knowledge based on the claim that it provides substantial savings.
Outsourcing was well and truly in place by the time of Labor's federal election defeat in 1996. In the information technology (IT) field, Labor had identified $1 billion in savings, which it planned to make over five years. The alternative Coalition policy was to make the savings in three years.
The claimed potential $1 billion in savings was based on one submission to a review of IT expenditure in the early 1990s. This was then loudly proclaimed as fact. Ironically, the release of the review's report coincided with a downturn in IT expenditure of hundreds of millions of dollars a year, so according to one view the savings were actually achieved almost immediately, by simply spending less.
IT services can be, and year after year are, delivered more cheaply by applying new technologies and methods. So, when a potential outsourcer promises to deliver existing services more cheaply, they are just announcing what will happen in any case.
Despite this, the cost of IT services constantly rise because of rising expectations for information technology reducing jobs and costs. In the government arena this means that the cost of providing a particular service may fall each year, but more and more services are demanded.
Based on its pre-1996 election promises, and the desire to hand over profitable enterprises to its big business friends, the federal government continues its search for the $1 billion saving. It even has an agency devoted to this, the Office of Asset Sales and Information Technology Outsourcing (OASITO).
The health sector is a case in point. For months, the IT departments of health and aged care and the Health Insurance Commission were decimated as many dozens of staff were forced to spend thousands of hours taking part in OASITO activities. Three companies, IBM, EDS and CSC submitted tenders for the deal worth hundreds of millions of dollars. Everyone knew it was IBM's turn to win.
Keeping the services in-house was not an option, even if it could be proven cheaper. Once the evaluation was completed, the whole process was held up while the government cooked the books to add an extra few tens of millions to the alleged savings from the deal.
In practice, these deals probably add 30-50% to the cost paid by the government for information technology, although commercial confidentiality will prevent real figures emerging. While the government continues to claim to be delighted at the pretended savings, the outsourcing industry itself changed tack a couple of years ago and stopped mentioning cost savings. Instead, it started to focus on less measurable benefits.
The outsourcers' business model is to take over services for some organisation, get rid of a chunk of the staff and then get the rest to do the same amount of work. What actually happens is that as soon as IT staff get wind of outsourcing, those with the most marketable skills leave. These tend to include the top technical specialists. So EDS, which won the South Australian government contract that began the Australian outsourcing trend, has to hire contractors to meet its basic contract obligations.
Outsourcing or not, they still need to find workers to do the work.
By Greg Harris