What the election means for the thousands of Government IT contractors and the rest of the IT jobs market?

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For those, who don’t work with the Federal Government, I thought it might be interesting to provide some insight into how  IT contracting works for the Federal Government; and what a change of government will mean for the broader IT jobs marketing.

If the Coalition are returned for a 4th term, I would not expect any dramatic changes to the Federal Government’s approach to IT contracting. They’ve been in power for 9 years, so I don’t think I’m being overly controversial when predicting the status quo will continue.

However, if Labor form government, I would suggest we will see a few changes.

According to the RCSA Election Cheat Sheet:

“Labor has announced plans to cut Government consulting, contracting and labour hire spending by as much as $3 billion over four years if they win Government. They have committed that a Labor Government would only utilise non-permanent employment where it is essential.”


Federal Government Use of IT Contractors

Currently the federal government releases roles on a website called Digital Marketplace. It’s a simple process to register as a supplier and once approved, government departments invite you to submit candidates for various contracting vacancies.

They are very open with all of their data, they publish their key metrics, here. These include:

Spend: An average of $1.25 Billion a year
Proportion on IT Labour Hire: 73%
Volume: Average of 160 roles per month
Average rate: c $1400 per day inc gst
Length: Most roles released are for 12 months. Many have multiple 12-month extensions stipulated.

This all adds up to thousands of IT contractors working through the scheme plus thousands more employed via consulting companies.


So can Labor turn off the tap?

If a government is successful in any move away from contracting, it will need one of two things to happen. It will either rely on the willingness of contractors to move from day rates to salaried employment directly with the government, or they need to find a new source of skilled labour.

In 2008, the Gershon review recommended that the federal government “reduce the total number of ICT contractors in use … by 50% over a 2-year period and increase the number of APS ICT staff’. Some short term savings were made but havoc ensued at some agencies attempting to implement the findings and contractor numbers eventually bounced back.

Contract VS. Perm – $$

A key challenge is that the contractors earn great money. With an average rate to the government of c. $1400 per day inc GST,  the average a contractor on a government project is currently earning between $1000 and $1100 per day inclusive of super (gross annual income of  $240,000 a year inc super). If we compare that to the permanent pay scale for the public service, an APS 6 employee, which is the top non-executive level, earns around $100k plus super.

Even the higher mid-level executive roles, EL1 and EL2, only earn $120k to $160k.

For reference, here is the ATO’s current internal salary guide: Attachments | Australian Taxation Office (ato.gov.au)

For contractors, it would be a massive drop in money, obviously traded off against more security. They would need to make a choice between accepting a low-ball offer or moving to the private sector, which is still crying out for talent.


Plan B: Let’s hire some fresh faces

Nearly all government contractors need to be Australian citizens in order to gain required security clearances. And commonly they need to already have a security clearance (Baseline, NV1, NV2 etc) to commence work with access to the government’s most sensitive data (think Defence, ASIO etc.) We know there is a broad-based talent shortage across the IT sector but unlike the private sector, the government can’t augment supply with immigrant labour due to these clearance requirements. It’s kind of a closed shop; there is no ready alternate supply of skills. In comparison, the skilled labour force has a plan B, the private sector.

So, what does all this mean if we see a Labor government? It’s clear it will attempt to limit spending on IT contractors, and will play hard ball in the short to medium term. This may well have some positive effects on the rest of the IT contract labour market as it should free up supply. However, if the government fails to secure enough workers to deliver key projects, they are likely to outsource the work to vendors… who will probably employ a lot of contractors.

Time will tell.