The federal government's expenditure on information technology contractors has surged to $3.9 billion over the past financial year, tripling from $1.3 billion in 2019-20, according to data from the Department of Finance. This increase comes despite a longstanding policy aimed at reducing reliance on external contractors and strengthening the public service's in-house capabilities.
Spending surge contradicts policy goals
The sharp rise in contractor spending contradicts the government's stated objective to cap contractor use and build a more skilled public sector workforce. The policy, introduced in 2013, sought to limit contractor expenditure to 10% of total staffing costs. However, the latest figures show that IT contractor spending alone now represents a significant portion of the government's overall contractor bill, which reached $10.6 billion in 2022-23.
According to the Finance Department's annual report, the number of IT contractors employed by the federal government also increased, rising from 11,000 full-time equivalents in 2019-20 to over 18,000 in 2022-23. This growth has occurred across multiple departments, including Services Australia, the Australian Taxation Office, and the Department of Home Affairs.
Reasons for the increase
Officials attribute the surge to several factors, including the need for specialized skills in areas such as cybersecurity, cloud computing, and digital transformation projects. The COVID-19 pandemic also accelerated the demand for IT contractors as agencies rapidly expanded their online services. A spokesperson for the Finance Department said, “The government remains committed to building a sustainable public service workforce. However, in some cases, contractor expertise is necessary to deliver critical projects and maintain essential services.”
Critics argue that the reliance on contractors undermines efforts to develop internal expertise and leads to higher long-term costs. The Australian Public Service Commission has noted that contractor rates can be significantly higher than public servant salaries, with some IT contractors earning over $200,000 per year.
Impact on public service capability
The tripling of contractor spending has raised concerns about the erosion of in-house capabilities. A recent review by the Australian National Audit Office found that several departments lacked adequate strategies to transfer knowledge from contractors to permanent staff. This has resulted in a cycle of dependency on external providers for ongoing maintenance and upgrades.
The government has acknowledged the issue and announced a new framework to better manage contractor use, including stricter approval processes and a focus on outcomes. However, the latest figures suggest that reversing the trend will be challenging, given the scale of current projects and the competitive labor market for IT professionals.
Future outlook
With the federal budget under pressure, the government is expected to face increasing scrutiny over its contractor spending. The Finance Department has indicated that it will continue to monitor contractor numbers and costs, with a goal of reducing reliance over the medium term. Nevertheless, the immediate outlook suggests that IT contractor expenditure will remain high as major digital initiatives, such as the myGov overhaul and the National Disability Insurance Scheme (NDIS) platform upgrade, progress.
