NSW $12bil purchasing under microscope

By Julian Bajkowski

New South Wales Commerce Minister, Greg Pearce has singled out the telecommunications and legal services sectors as ripe for sweeping procurement reforms as the O’Farrell government tries to significantly decentralise government purchasing worth $12.7 billion a year.

The nomination of the two sectors as big ticket targets for the government signals the start of much anticipated moves to break-up government-wide buying deals for the state bureaucracy which sought to extract discounts by aggregating purchasing volumes.

While the deals simplified procurement outcomes by limiting the range of suppliers – sometimes to just a single vendor – they also attracted trenchant criticism from industry because of restricted access to the government market.

A core risk in centralised procurement models is that the buyer can potentially become the subject of a ‘lock-in’ by suppliers who hold substantial market power, thereby diminishing natural competition and innovation that would otherwise be present.

In late July 2012, Pearce hailed the first meeting of the NSW government’s new ‘procurement leadership group’ as evidence that purchasing reforms made it easier for small and medium size businesses to bid for NSW government contracts.

“We have relieved suppliers of the costly burden of management fees in new contracts and have started to cut through the red tape,” Pearce said.

“The leadership group reports to the NSW Procurement Board, which replaced the former State Contracts Control Board.”

However while telecommunications and legal services have been tapped as definite targets, the NSW government still faces big challenges in bringing competitive reforms to purchasing areas including information technology and software.

A crucial issue for agencies looking to change vendors for enterprise software – like financials packages, databases and payroll applications – is the high degree of difficulty and cost often experienced when migrating data and functionality from one supplier to another.

The NSW Government remains a heavy user of products from US$150 billion database giant Oracle Corporation that has over the past decade bought out competitors including human resources software house PeopleSoft and Sun Microsystems, the developer of Java software platform.

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