Gershon Report: Metrics Gone Wild.

As the old saying goes the road to hell is paved with good intentions. The Rudd government in their infinite wisdom and lust for slashing government spending after election turned their eyes onto my bread and butter: IT. This lead to the creation of a report that can send chills down any IT contractor’s spine when you utter its name, the Gershon Report. Released on 16th of October last year it coincided with some of the worst hits to the world economy in recent times and this proved to be disastrous for people like me who make a living out of providing IT skills for an hourly rate. Whilst I have managed to sneak under the radar of the Gershon report for almost a year now I know that I am not a typical case, and in most cases the report has lead to an erosion in capability for the Australian government.

Whilst the Gershon report has been in full swing I have worked at 2 government agencies here in Canberra, the Australian Maritime Safety Authority and the Australian Trade Commission. Both of these agencies have very specific requirements for their infrastructure and as such find it hard to attract people with the expertise required when salaries and benefits of the public service are far below what is available in the private sector. The remedy for this is of course contractors, as whilst their salary is higher there are no costs associated in providing things like sick/annual leave, superannuation or insurance. Additionally it is usually easier to bring a contractor on board than a permanent employee, with turn around times measured in weeks instead of months. Both of these agencies had a stable contractor workforce that was working well for them, until Gershon cast its eyes on them.

This is what sounded the death knell for many contractors’ jobs in Canberra:

Reduce the total number of ICT contractors in use across FMA Act agencies by 50% over a 2-year period and increase the number of APS ICT staff. This should save the Government an estimated $100 million (across both BAU and project-related work).

The above recommendation was made on the basis of submissions from the 100 FMA agencies as well as meetings and a couple visits to the local data centers in Canberra. The figure then was derived from primarily financial figures, giving little to no heed to the actual needs of particular agencies and whether or not they could attract the people required with the standard APS pay structure. This then lead to an outrageous backlash which decimated the Canberra contractor market by around 30%. Whilst at first this may seem like a good idea since the agencies are following the recommendations of the report there’s an underlying issue that didn’t make the headlines.

Initially many government departments offered contractors what they considered equal opportunities as permanent employees. Unfortunately for most government agencies their pay scales are unable to cope with high level specialists in any area and hence use contractors. This is in part due to the ingrained mentality that once you’re above a certain pay grade in the public service you are required to have some management responsibilities as well, something which the specialists generally do not have and do not wish to take on. Therefore many of these offers were simply turned down, and contractors continued to work out their current contracts.

When renewal time came along there was a mixed reaction from the agencies. In a shock turn around any contractor that could not be directly linked to a project or capitalizable expense was not renewed. The remaining ones were usually offered a reduction in rate and a much shorter contract. As a result many contractors then decided to take their business elsewhere, with many of them leaving for greener pastures in the private sector away from Canberra. Not only did this then leave Canberra wanting in terms of skills require for IT related projects it also drained many agencies of their corporate knowledge. Any skill gap that required filling would also require a lengthy period of corporate knowledge transfer, which typically costs around 1~2 months worth of employee time.

The Gershon report wasn’t all about contractors however, there was also a keen focus on the efficient use of IT resources. Talk to any IT expert and they’ll tell you it’s not a good idea to run something at 100% of its capacity 100% of the time. You need to build in some fat and redundancy in order to ensure that the system operates as expected without any surprises. Unfortunately the Gershon report, which used numbers more than anything else, saw this as a lack of efficiency and required extensive proof that the tolerances built into large corporate systems were required. This flies in the face of the ITIL principals of capacity management which dictate that you should plan for future requirements and build systems as such. Thus any ITIL aligned agency was then told that they had to increase utilization of their resources, which in some cases was just not possible.

The report itself was a good idea however the nature of the report is far too general to be applicable to all agencies. Specifically the smaller agencies were hit particularly hard as there is less room for them to improve their IT expenditure and efficiency. The lack of intangible cost considerations also leads to questions of the reports applicability as we have already seen that there are numerous hidden costs in trying to apply some of the recommendations.

Personally though I have been lucky to be able to duck and weave my around the reports various swings at me. Initially I did this through proposing large capital projects that would provide tangible benefits to the business, which did eventually get implemented. More recently I’ve been targetting direct cost reductions which, whilst not part of my specialist skill set, help keep me in a job for the coming months. Don’t let anyone fool you into thinking that us contractors have it easy, especially the ones of us who are still doing well in these harsh conditions.

And no, this isn’t a call for sympathy 🙂

9 Comments

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  1. Rudd’s taken some good steps reducing the ideological and short-sighted reliance on contractors that emerged under the Howard Government. Contractors have been in essence a disaster for Government IT. They do fine work, but it is significantly more expensive for not much greater public benefit. Ideally most government IT work would be either outsourced, or done by permament employees who are significantly cheaper.
     
    The problem as you rightly note is that having tried to move away from contractors, the Government has failed to create any incentive to turn them into permament employees. Salaries are still down far too low for market conditions, and this has seen many move away. Having got rid of some of the bad they now need to enhance the good and return the public service to a desired career position for IT staff.

  2. Permanent employees are cheaper only when their skill set is comparable to that of contractor resources. You can not simply say that permanents are cheaper when they are not capable of performing the jobs that are required of them. This is the main source of discontent with contractors in that they are paid more to do the same job, when in fact the majority of work they do could not be done without them. Overall a contractor is no more expensive than a normal employee when things like superannuation, insurance and leave entitlements are considered. If a permanent and contractor have the same skillset they should cost the same overall, any disparity is the fault of the recruitment process.

    As someone who worked as an outsourcer and a contractor I can tell you now that the government is far better served by contractors than outsourcers. The current outsourcing arrangements for government organisations aren’t providing the benefits they initially sought to achieve. Customs dropped EDS as its main outsourcer because of these issues and other government departments would be well suited to do the same. The main issue with outsourcing is the lack of internal corporate knowledge of the outsourced functions. This leads to expensive and draw out transistion processes when it comes time to switch outsoucers, which has happened quite recently with a lot of large government contracts (DIAC and Defense just to name 2).

    You’ve basically proved my point with your second paragraph there. The contractors are expensive yet you want to increase the salaries of the permanents to entince them over? You can then see my point that if they want to attract and keep IT professionals that there is a market rate they need to attain and the idea that contractors as a rule are more expensive than their permanent counterparts is hogwash.

  3. Contractors are often more highly skilled and more knowledgable about latest technologies, however this does not mean they are always better for commonwealth work. Those skills also often come at a higher price tag (as you say in your post that public service pay scales can’t cope with them, but seemingly contradict in your response claiming overall costs are the same. Some are, but most arn’t and shouldnt be. Afterall contractors are running the risks, of course they’ll insist on a higher income to offset the insecurity of their positions. Any contractor on the same as the permament employee next to them is going for too cheap)

    Private industry needs the best and newest in order to outcompete others and thus make a profit. But the public service is there to deliver a service, either to the politicians or the public.  So whilst a lot of business’s need someone competent in Windows 7 9for example) today, the government only needs it when and if it provides a higher service than currently offered at a cheaper price than currently provided (including change over costs).

    I really admire most contractors, and admire them as Entrepreneurs and small business operators. But they are often a round peg to the square hole of government. Their skills and needs often differ from what the public needs, and the ideology that private = better does not always apply here (just as it doesnt for security, or ensuring universal service delivery in health and education).
    Whilst I think most things that can be privatised should be, (only basic wholesale infrastructure, along with provisions for universal coverage need be public), one notable example of the governments approach came to when IT services affected themselves. In 1996 the Howard Government with John Fahey as minister outsourced most Federal IT services. And they’ve remained ever since, with departments and agencies told to accept it, and often prohibited from competing against outside companies for tenders. Except for one area, by late 1997 IT that directly affected the politicians was brought back to public control because they demanded 100% uptime, and a flexibility that suited their needs (when a politician wants something at 3am, he gets it at 3am).

    Contractors offer the latest skills to deliver services better and quicker, but trade the insecurity of their position for a higher income and less corporate knowledge. Government needs to take advantage of new technology, whilst ensuring the basic delivery of a service at a pre-set cost (Budgets are pre-set for the year, and governments can’t/wont raise fees on users to compensate.)
    What I’m against is an ideological approach that says always public servants good, or always private industry good. We’ve had declining levels of quality in the public service over the last twenty years due to rigid ideological efforts. A public/private mix of service delivery is here to stay and to be welcomed, but it should be done on a case by case basis.
     

  4. Overall costs are generally the same (within about 10% or so) however the disparity in salaries is made up by the difference of indirect costs that don’t make up that final figure. Your typical APS deparment can scale their contractor pay as required but are usually constrained by their certified agreements when trying to pay above the rates it defines. Contracting is therefore the only way they can get the skills the require when the market is demanding a rate that their current pay scales can’t sustain.

    On government vs private industry I think you’re confused as for the most part large private corporations function much the same as government departments. Most private companies are far from the latest technology with the exception being those in the business of marketing and selling IT products. Technology can deliver a competetive advantage, however most companies view IT as a business cost and not a market advantage.

    I think you need to define your use of the word contractor, as the broad generalisations you are making are inapplicable to 90% of the situations I, as both a permanent and contracted member of the APS, have seen. I won’t even get into your strawman of healthcare and education.

    The government’s foray into outsourcing everything was a bad idea and was not a failing of the outsourcers. With the government having little experience in drawing up these contracts they found themselves high and dry when services that were assumed to be provided by these companies were not. From a personal view I believe the best value for any organisation whether public or private is to keep their IT in house as the benefits of having the nth degree of control over your enviornment cannot be overstated.

    I agree with your last two paragraphs entirely. The issue the government has with delivering services to the public isn’t due to the need to be all private or public, more the appropriate type of organisation is required for certain services. Contractors, when used properly, deliver capabilities to the government that they could not hope to achieve otherwise. They should be used to fill a temporary requirement, not in place of a permanent employee.

  5. “From a personal view I believe the best value for any organisation whether public or private is to keep their IT in house as the benefits of having the nth degree of control over your enviornment cannot be overstated.”

    Agreed. I think contractors can be useful to shake up the public service’s tendency for stasis, but can not replace the service as desired (what should be outsourced (like Commonwealth bank or Telstra) or turned into independent agencies (ASIC, ACCC) should be). 

    I’ve never had an issue with contractors as others on the left used to, I just don’t think they are particularly useful fit for what government is trying to do, and it was a massive waste of money and time for the previous government to induldge its ideology in such a fashion in IT. Experiment in a few places to see what happens, don’t revolutionise the place overnight on a whim.

    (p.s What strawman about health and education. May have been slightly off topic, but was used to make the general point that whilst I strongly support capitalist economies, in some key areas such as guaranteeing universal services like healthcare/education, a public element is needed. It can & should operate along side private industry, rather than as a monopoly, but the public option is necessary to fulfil those goals which the natural turn of the market will not). Do you oppose public delivery of health & education (as we have it in Australia at least) ? I wouldn’t expect so, but unsure how to read your comment.

  6. I think we’re in agreement that contractors have their place, but have unfortunately been misuse in their capacity of filling a temporary requirement or completing a project. I think that it comes down to the mentality that I encounter in any organisation of “get it in, get it working” and there’s little to no review upon completion. I knew a contractor that had been with an organisation for over 5 years, which just didn’t seem right to me.

    I really admire most contractors, and admire them as Entrepreneurs and small business operators. But they are often a round peg to the square hole of government. Their skills and needs often differ from what the public needs, and the ideology that private = better does not always apply here (just as it doesnt for security, or ensuring universal service delivery in health and education).

    The strawman I was referring to was the misrepresentation that I believed that private industry will always do something better than the government and using securit and healthcare as the example. I do believe that the government does many things quite well (of which you’ve outlined them all) and I don’t believe that the private industry should have its hands in any of these. I really wouldn’t want to be stuck in a healthcare system like America’s for instance.

  7. I do believe that the government does many things quite well (of which you’ve outlined them all) and I don’t believe that the private industry should have its hands in any of these. I really wouldn’t want to be stuck in a healthcare system like America’s for instance.”
    So do you think we should phase out private schools and hospitals in Australia in favor of a single public system ? or Happy with the mix? If so, why ?

  8. I believe everyone has a right to a certain level of health, education and welfare which the government should provide. Above that however, individuals who have the ability to pay for additional or preferential care should be allowed to do so. Before I looked into the issue I was against the private system as I believed it was to the detriment of the public system. When in reality the private healthcare system is a great augmentation to the public system, as it takes strain off the always crowded public hospitals and can also help those with non-critical but urgent conditions treatment much faster.

    The issue that comes from having an all public system would be a tradegy of the commons. The resources currently allocated for the public system are insufficient for us to abandon the mixed model. Additionally I’m not certain that this would be beneficial overall as history shows whenever you give people a resource they will use it to its limits. I can’t help but feel that an all public system would be under just as much strain as the current one, without the benefit of being able to pay your way through the queue if you wish.

    The argument is similar for education. As someone who was in both private and public schools I can attest that both systems provide adequate levels of education and neither should be abandodned for the other. Whilst I don’t see the point of many private schools I do believe that the ones with a special focus, music and the like, can provide a better environment for gifted individuals to develop their talents.

    In essence the government should be concerned with providing everyone a baseline from which they can grow. Above that however it is up to the individual to make the most of the opportunity that the government provides.

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