Why is Victoria paying $3.1 million more for a covid Microsoft deal?

Victoria is the latest government to see a bump in the final cost of a covid contract after relying on an incumbent supplier.

It bought vaccine management software from Microsoft in January for a headline fee of $5.8 million. The final total, listed on the Buying for Victoria public tender website, came in at $9.1 million.

Microsoft did not respond to inquiries about why the final bill was $3.1 million higher. The Victoria Department of Health and Human Services Victoria said the details were commercial and therefore confidential.

The Microsoft deal was criticised when the platform was still not working by June and local rival for the contract, HotDoc, offered to provide an interim service.

Victoria had already spent $4 million on an IBM contact tracing system that it had to scrap, before bringing in Deloitte then Boston Consulting Group to rebuild it at a cost of $16 million.

Contributing to the high cost, low return of many covid contracts are emergency provisions that allowed governments to bypass public tenders, and a lack of expertise in a shrunken public sector that is dependent on consultants, according to the Community and Public Sector Union submission to a Senate inquiry into the capability of the Australian Public Service.

Federal government covid contracts issued since February 2020 now total $6 billion, According to data collected from AusTender by Wild Health. Some $63 million of contracts with the likes of Accenture, McKinsey and PWC that aren’t included on AusTender have been revealed in the media to date, as calculated by Wild Health.

But government procurement doesn’t have to be driven by politics and speed, says Melbourne Business School lecturer and former Victoria government advisor Dr Vivek Chaudhri, who suggests flipping the process on its head.

“Rather than awarding contracts to deliver a solution and picking company X to build a covid app, what we might want to do is reward the outcome,” he says.

“Leave the innovation to the innovators and reward on the basis of the innovation at the end, rather than reward on the expectation that you’ll be able to deliver.”

One emerging positive factor is the pandemic has also made Australia’s local, particularly tech, talent, more visible, Dr Chaudhri says.

For example, Western Australia company HealthEngine won the federal contract to supply covid vaccine booking software for GPs and pharmacies that don’t already have their own. Although, once again, the final bill ended $200,000 higher at $4 million and the procurement process wasn’t open.

A desire to be “seen to be doing something” and fear of making mistakes is driving pandemic procurement decisions in both federal and state health bureaucracies, according to Grattan Institute health economist Stephen Duckett.

“Cost is not an important political consideration,” he said. “You might end up with things being done quickly, and that serves a political need. Whereas more effective contracting is way better for the public but is not as good politically.”