Costello says Qld should sell IT services units


news A landmark report into the Queensland Government’s financial position penned by Howard-era Treasurer Peter Costello has recommended the state government consider selling off its IT shared services unit, as there was no guarantee they could provide IT services to the government efficiently.

The interim report was put together by the Queensland Commission of Audit, which was set up by Queensland’s new LNP Government after it took power several months ago. The commission is chaired by Costello, with commissioners Doug McTaggart, a leading executive in the financial services sector, and Professor Sandra Harding, vice chancellor and president of James Cook University.

New Queensland Premier Campbell Newman asked the commission to report on the Queensland Government’s current and forecast financial position, and to make recommendations on strengthening Queensland’s economy, restoring its financial position, and ensuring value for money in the delivery of frontline services.

Among other conclusions, Costello and his commissioners pointed out that the state “continues to operate commercial business operations in direct competition with private businesses operating in open and competitive private markets”. “These government businesses are providing services principally to internal government clients,” the report stated, “and there is no justification as to why these services cannot be sourced directly from commercial private operators.”

Amongst the government business units cited as examples in the report were CITEC and Queensland Shared Services.

CITEC sits within the current Department of Science, Information Technology, Innovation and the Arts, with its core business being to deliver centralised IT services to departments and agencies on a user pays basis. However, over the past several years it has several times come under heavy fire from Queensland’s Auditor-General for not being able to deliver large technology infrastructure projects on time. For example, in June 2010 an audit report found that both the ICT Consolidation Program (ICTC) and the Identity, Directory and Email Services (IDES) project, both managed by CITEC, had substantially blown its timeframe.

The ICTC was a project established after the state’s Service Delivery and Performance Commission handed down a report on ICT Governance in the state government in October 2006. Its aim was to establish a whole of government consolidation of CBD datacentres, networks and infrastructure services. It was initially managed by the state’s Office of the CIO, but then transitioned to be managed by government IT services provider CITEC in September 2009. In mid-2010 it was slated to be implemented by October 2011. As at January 2010, there was “no method of identifying, recording, tracking and reporting demonstratable financial benefits” for the program.

The next project examined by the Auditor-General, IDES, had the aim of delivering a whole of govrnment email, identity management and authentication service, to be based on Microsoft Exchange and administered by CITEC and with a budget of $252 million over ten years. But again, it has suffered problems. The project was expected to transition all existing agencies using Microsoft Exchange onto the new whole of government platform by December 2009 — 24 months after the project was initiated. But the date was extended to June 2011, after delays were experienced.

The implementation phase plan was originally expected to be completed and approved by December 2008, the report stated. “However, actual delivery of this milestone occurred on 18 September 2009.” In December 2011, the Courier-Mail newspaper revealed that the Queensland Government had spent $46 million on the platform, despite it catering at that point to just 2,000 accounts.

Costello’s report noted that CITEC was expected to record an operating deficit of about $26.4 million this financial year, with further deficits expected in succeeding years. “These financial difficulties relate to changes in its business model, and difficulties in the implementation of whole – of – government information technology initiatives,” the report stated.

Queensland Shared Services was established in mid-2011, from IT shared services agency and a separate, non-IT agency, the Shared Service Agency. It aims to deploy common IT functions such as finance and payroll systems across the state’s public sector, but has similarly suffered problems with implementation.

Costello’s report stated in general regarding the IT shared services units:

“There is a range of internal user charging regimes in place to support the funding arrangements for commercial business units. The main objectives of these regimes are to make the costs of services transparent and to provide incentives for departments to manage demand for such services. There are various issues with the effectiveness of these user charging models and their application to support the viability of commercial business units.

“Where the use of services is mandated, there is no opportunity to compare prices in the open market, and hence any scope to achieve cost savings is lost. Concern has been expressed by agencies as to the cost -efficiency of prices set by the centralised service providers (particularly in the absence of effective benchmarking), and the level of price transparency achieved.

Internal overheads associated with user charging regimes also add significant cost to overall service delivery costs. For example, the service providers need to have detailed costing, invoicing and receivable processes and systems in place. Similarly, agencies have resourcing requirements placed upon them to manage the charging regime at the client end. Given that agencies are individually registered for GST, user charging also results in some leakage of revenue to the Australian Government where agencies cannot claim the full input tax credits or there are processing time inconsistencies between departments.

The user-charging models also encourage a focus on cost rather than value, resulting in an absence of incentive on the service provider to provide the service to the desired standard. In the case of the commercialised business units within the Department of Housing and Public Works, there are no service level agreements between agencies and the service provider, thus the agencies have no input into the performance standards. With the shared services initiative, service level agreements are in place however, the agencies have no mechanism for enforcing the performance standards.

There are questions as to the viability of some commercial business units, the value for money which they provide to clients, and the implications for the State’s financial position. The Commission proposes to address these issues in further detail in its subsequent reports.”

Other states such as Victoria and Western Australia have also suffered extensive problems with similar IT shared services rollouts in recent years. In November last year, following the revelation that almost every major IT project the Victorian Government had undertaken over a five-year period had run late and over budget, Queensland-based analyst firm Longhaus said state governments should look to the private sector to solve their IT problems — not to IT shared services divisions.

At the time, Longhaus managing director Peter Carr said that with an rough estimate of 500,000 to 600,000 IT professionals in Australia, and something like 130,000 along being contractors, it is unlikely that enough skilled labor exists for state governments to competently run their own on-shore IT service delivery centres at cost levels which they can afford to pay. Gartner distinguished analyst Andrea Di Maio expressed similar sentiments in a blog post at around the same time. He wrote:

“… it appears that shared services are having a hard time. Queensland, Western Australia, South Australia, Victoria have all had their fair share of issues with shared services, and this is happening quite consistently in other parts of the world.

There is no doubt that duplication of services and spending across different government agencies makes little sense. But experience shows that there is insufficient attention to the governance aspects (agencies want to have a say in how the shared services are structured) and – more recently – to technology evolution that is making some of the technology that is being targeted through shared services more and more commoditised.

The challenge is no longer to put one organisation in charge of delivering shared services, but to look at how to support agencies in efficiently buying the same service from external service providers.”

I am strongly of the view that the once-hyped IT shared services paradigm is virtually dead in Australia’s public sector and should be abandoned. I would support a recommendation by the Queensland Commission of Audit that the state’s internal IT services units be privatised or sold off to commercial IT services firms.


  1. Government run services, outsourced services, desktop processor, mainframe terminal… all these things go in circles and always will.

    Govt run projects run late or go over budget? Irrelevant. The same thing would happen if private companies were involved in the implementation. Private or public, doesn’t make a difference once the projects become overly large and wishy washy in their requirements.

    Even projects that *should* have some pretty solid outcomes tend toward farce. Look at the Aus Seasprite helicopters that aren’t. Or the recent US tactical radio program as per

    I submit the entire last paragraph quoted from Andrea Di Maio is meaningless, as the services do not exist in any real way – they cannot just be picked up, rolled out and plugged in.

    Govt run services? Crack the big end of the egg.
    Private corp run services? Crack the little end of the egg.

    Does it matter either way?

  2. Costello is a such a one trick pony. Qld state govt is paying him thousands of dollars a day to tell them to sell assets, raise taxes and blame the previous govt.

    And as govt run IT projects running late and over budget – well they got the private IT sectors to do the new billing system for Qld health, how’s that working out for them?

    • Reading Costello’s report, there is indeed a certain element of blame attached to the previous government that I don’t think particularly needs to be in there. It’s clear the author has a certain political persuasion.

      That doesn’t mean I don’t agree with his conclusions, however; in general, although arrogantly put, they are sound.

  3. I’ve noticed that when IT services are sold (or outsourced), services go down, and costs go up.

    Costello is 5 years behind the times, IT outsourcing has failed and progressive governments are starting to go back in house.

    Typical liberal party stuff – sell off government assets to their mates (with a bit in the pocket for themselves of course) with guarantees of mega profits, for which tax payers end up paying. Mind you the labour party here is SA are doing much the same.

    • “IT outsourcing has failed and progressive governments are starting to go back in house.”

      Actually, in reality it’s pretty much the reverse. Governments are currently looking increasingly to the private sector for IT solutions and services, rather than in-house. I’m not sure where you’re getting your information from, but it doesn’t reflect what’s happening in state governments around Australia. In the Federal Government, maybe, particularly at DHS.

      • I wasn’t specifically referring to Australian governments (the trend in the US seems to be shifting back in-house).
        Here in SA, since the State Government EDS outsourcing fiasco, more and more IT staff are being brought back in house – particularly in Government Agencies, currently mostly contract staff though. Employment agencies I deal with have confirmed this.

        • “the trend in the US seems to be shifting back in-house” Are the local US based staff now earning the same payrates as before though? My understanding is the golden goose payrates have evaporated (other than in Australia) and indeed come down significantly in certain industries. This may mean that these local US based companies/contractors have become more price competitive as a result.

          Another point is that there is a very high xenophobic viewpoint out there. I found such comments on US based industry forums in particular to be a magnitude of levels higher than what I’ve experienced in personal contacts in Australia. It is not an exageration that anyone submitting a question with an Indian name is not responded to quickly and, moreso, if the question relates to a novice who clearly has no experience on the platform, then no-one seems to want to tell them how to use it.

  4. Having worked in both in outsoruced and insourced environments. I agree that generally the Insourced support is better. Not necessarily cheaper tho, certainly not in government.

    I know good people who work at the QLD Govt run IT departments. But I also know plenty of idiots.

    As to the IT projects being screwed up by the private sector. before you say that, you need to look at what the Govt org has actually asked for. 9 times out of 10, they have done little to know proper business analysis, or if they have the management have outright ignored it(which is just as likely), they have lots of feature creep issues, and they happily go the quick fix instead of doing it right.

    I have personal experience of a system that was an “EXAMPLE” of what could be done, that the government said, yep we’ll take that. As a result you could search for an individual based on their price. that particular system caused an increase in staff turnover (it affected how they were paid) of about 3-400% per year.

    So in the case, despite my professional opinion that outsourcing increases total cost to business overall, I think dumping the govt run IT departments may be a posistive. Even tho it will increase competition against me.

    • I think the problem is that right now, Australian State Governments cannot get the manpower at the right price to be able to do insourced support themselves. Outsourcing is more a necessity than a choice. That’s the point Longhaus has been making.

      A particular problem is that government usually wants everything kept on-shore. This is a limitation the private sector doesn’t have.

      With respect to projects, I agree completely with you that much of the problem with public sector IT project failure relates to the initial setup of the project — the requirements definition and so on. Governments should focus on implementing stellar IT governance, in my opinion, and then let the private sector handle the implementation. Audit report after audit report has found problems with requirements definition and governance.

      • The eastern states perhaps should be looking to SA for recruits. Except for government contracts, IT employment opportunities here have been very slim since the call centers went off shore, banks down sized IT, and a few large companies went bust.

  5. If the Qld Shared Services are so poor, who in their right mind would purchase them? It’s kind of like saying that this house is a real dump, and the govt. should sell it off to be rid of it. Would you get a good price? Doubt it.

    With the pay on offer in Qld Govt it is no wonder that highly competent and skilled people are a little scarce. If you’re good, why work for peanuts. There’s a reason that most of the ‘unemployable’ people I know with jobs are in the Qld public service.

    • Dave – the most likely benefit to a purchase of shared services provider would be more around obtaining assets at a (potentially) great price. Networking and storage hardware tends to last a while at the very least, and if they pick up a few ‘good’ IT people, so much the better.

      That’s the potential value proposition, anyway. The possibility of being required to keep carrying the service ‘as is’ might scare off prospective buyers that could genuinely deliver good services. It all really depends on if they expect to make a profit off government, or just go for the ‘prestige’ and covering costs (which is perhaps the smarter path).

      It would seem that it’s ‘normal’ for a Lib government to sell off assets for short-term capital gain, so the report shouldn’t be too surprising. That said, grats to Renai for successfully navigating the report without dying of boredom – I know I wouldn’t want to :-)

  6. I’ve got 10 bucks. You wouldn’t want to pay more. Note that while QSS is nominally a profit centre, it is actually a cost centre as any shortfall is provided by Treasury or foisted on the Departments’ as increased charges the following year. And the Departments have no choice but to pay up.

    Now think about the Queensland Health Payroll disaster. What would have changed if that was implemented by a private sector provider? Would the scope have changed (in particular, trying to do all of payroll, time scheduling and recording, changing the HR processes and centralising it all in Brisbane at once)? No, because that was Queensland Health’s decision.

    Would the Management of Change been any better? No, because that was also Queensland Health’s task. They just didn’t do it.

    Would the architecture have been different? Probably not, because any outsource provider would have to use the existing QSS and QH personnel – they are the only ones who understand the extremely complex pay scheme (24,000 different ways to get paid). Note also that it was outsourced to IBM implement the system.

    Would they have gone live without parallel testing? Probably, because it was the same executives in QH and Corptech making the decision.

    So, the four main causes of the disaster would have remained. But of course, the outsourcer would have to add his margin, so it would have been a tad more expensive.

    Does the Queensland Government have the expertise to successfully outsource IT? Not unless a magic wand has been waved. They messed up de-centralised IT. They messed up centralised IT. They’re almost certain to make a mess of outsourcing.

    There are no easy answers to this problem. Mind you, flogging CITEC to some toe-cutter style service provider would be something to watch. I doubt there would be too many people left with jobs on Edward St at the end of the exercise.

    • We are so doomed here at 317, favourite employees have been saved, we “the remaining” left in darkness and waiting for the infamous tap on the shoulder!!

  7. Hmmm, a lot of IT speak and still no comment around the end stakeholder getting needs met, surely if we start with the end in mind we can then have a reasoned debate. A simple understanding of complexity versus capability usually dictates how to source and govern the delivery of IT, but for me it’s all about meeting users needs, and these are never locked down in Government. Thankfully this means plenty of opportunities going forward as requirements change without consideration of value, and ineffective governance prevails!

    • Hmm,
      define stakeholder in this instance? “Government”, “The Public”, “The Tax Payer”, “The Department”, “An Agency”, “A Government Employee”, “A Manager”, “A Supplier”, “The Unions”,…

      Therein lies the problem. They have many requirements at cross purposes. The previous government and the senior government executives completely failed to find a way through the various competing demands to deliver a reasonable outcome. Will this government be able to do any better? You’ve got to hope.

  8. Until Ministers, and their respective DG’s take responsibility and ownership of risk (and governance) projects will continue to fail. These jokers put less thought and effort into governing a multi million dollar project than they do into a bathroom renovation for their home….why….they have no skin in the game and face no repurcussions from accepting the risks. Until full accountability exists for mismanagement of risk nothing will change.

  9. I have been doing this for 17 years now, and in that time 8 years has been spent in government where I have been involved in some large tender processes including some of those at Education and WA health.

    “Shared services platforms” will never work, I think the first poster summed that up pretty well. There’s too many integration issues with the various agencies involved, which is never factored into the cost. Cultural change also plays a significant role in these projects failing, people are generally against changing their existing processes.

    I can’t speak for the QLD agency but here in WA shared services was very much run by the private sector, and they failed to deliver while consuming substantial amounts of tax payers money. Outsourcing the entire agency would make little difference when it’s already outsourced, simply with the title of a government agency. It would be nice if the general population understood this important fact, the private sector is already failing you.

    Over the past eight years I have seen further privatisation of government services to the point there’s little left that isn’t privatised. In every case the level of service has dropped and the costs have increased substantially, in most cases over 20x of the original cost of providing that service by in-house staff.

    If you removed the ability for politicians to make decisions on industries they know little about then we might see some progression, unfortunately every election especially at the state level they like to change everything the previous government set out to do.

    As for the pay comments, I make a little over $100k a year as a government employee, I made twice as much in 2003 as a contractor. Over the past two years I have been offered three jobs in the private sector with the lowest offer being $180k per year. My choice to work in government was made for lifestyle reasons not due to me being incompetent.

    The next big push for government is to outsource your private data into the “cloud” in locations such as India and China.

    • Jason, your experiences in WA parallel mine here in SA. I have 30 years experience in the IT industry.

      With outsourcing, costs invariably go up and services go down, assuming of course that the in-house crew weren’t completely incompetent.

      This push to use the cloud, if fraught with danger, with risks to user’s data and security concerns for the organizations internal network, and perhaps the most important problem with outsourcing – the lots of skills within the organization (and Australia).

      And we think we are the smart country!

  10. Its all down to requirements. If you require a simple communications system like email then do what the Universities do and move everyone onto GMail or a local equivalent if you are worried about where the data is stored. Great economy of scale which offers large cost savings.

    If your requirements are very custom and change often (think state gov legislation) then you have to build your own software. Try buying a child protection system that is state or even city specific from a vendor such as IBM or Microsoft. Good luck with that.

    Outsourcing software development to places like India is a false economy as the requirements often become mangled between the business and the dev team.

    Remember the WWII example of “Send reinforcements we are going to advance” becoming “Send three and six pence, we are going to a dance”.

    This results in the end system being nothing like what the business asked for and a huge amount of money ends up wasted. Subsequent project are then often moved in house until a new set of managers try to become heroes by thinking they will save money by outsourcing again. And so the outsourcing wheel turns and turns.

    As for the golden goose salaries that IT professionals earn. Well unlike the specialist medical colleges that restrict the number of specialists trained, IT jobs often don’t even require a Uni degree with degrees from TAFEs and Private trainers freely available. It’s just the long hours, tight deadlines, etc may not be everyone’s cup of tea.

    As for outsourcing in general, where does this stop.

    Teachers: Indian tutoring companies are now offering one on one tutoring over the internet. Mainly targeted at the UK market.

    Law: US Companies are already outsourcing a lot of back end legal work to India.

    Call Centers: Try ringing Telstra customer support sometime.

    Aircraft Maintenance: Being shifted to workshops in Asia such as Singapore (CASA, what’s that?)

    There are probably more examples that I am not aware of as companies generally try to keep this quiet. I rang Microsoft support one day and was talking to a guy with a Spanish accent who kept thinking that I was in a US time zone. When I asked where he was he refused to say citing “Security Reasons”.

    So before everyone starts citing efficiency, cost, etc for outsourcing every service they can ask yourself this. What jobs will be available for my kids when they leave school?

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