Modern businesses are so reliant on computer technology that it has been suggested ‘software is eating the world’ ^[1].

Companies depend on IT not only to run their operations, but also to get a competitive advantage. Tesla, for example, is a software business ^[2] wrapped around an electric motor and a chassis, and logistics giant UPS uses advanced analytics to save hundreds of millions of dollars ^[3] by optimising delivery routes and identifying the most efficient ways to distribute packages.

These software and computing systems are just as critical in government as they are in business—or at least they should be. It’s been recognised that one of the key enablers of robust, resilient and responsive government services is cloud computing. The United States ^[4], United Kingdom ^[5] and Australia ^[6] all have cloud adoption or ‘cloud first’ strategies, and the US Department of Defense is spending up to US$10 billion on secure cloud infrastructure.

But in Australia there’s a problem. The recent review of the Australian public service ^[7] found that it was lagging behind comparable governments in making the transformation to delivering government services digitally. We haven’t fully taken advantage of cloud computing and the changes in culture and mindset that can flow from its adoption.

One self-imposed constraint has been the financial distinction between operating expenditure and capital expenditure. Government departments have considered it difficult to move spending from the capital-intensive model of dedicated hardware to the more operating-expenditure-intensive model of cloud computing.

ASPI sought comment on this issue from the government and Matt Yannopoulos, deputy secretary for budget and financial reporting at the Department of Finance, wrote:

The Australian Government assesses the need to fund ICT projects alongside all other objectives and policy priorities on its agenda. As with household budgets, the extent of funding is not unlimited, and therefore the government has to consider the individual merits of ICT projects that are proposed to be funded. Successful ICT proposals demonstrate that the investment is productivity-enhancing, necessary, well planned and implementable, and serves the needs of the Australian community.

ICT proposals that are brought forward for consideration should adhere to government rules and processes that ensure the proper use and management of public resources. This includes the Budget Process Operational Rules (BPORs), which facilitate the prioritisation of proposals and decision-making process in a formal and deliberate manner. Entities bringing forward proposals may find elements of the BPORs challenging, especially those entities that do not routinely engage in the budget process. However, the BPORs are designed to be flexible to support entities to achieve their business outcomes, while ensuring that there is an appropriate use of public funds.

Alongside the BPORs, the Australian Government operates a devolved procurement framework where discrete Commonwealth entities are responsible for undertaking their own procurement processes. The Department of Finance maintains the Commonwealth Procurement Framework, which includes the Commonwealth Procurement Rules (CPRs). The CPRs set out the basic rule set that applies to entity procurement activities, and are refreshed regularly to ensure that they remain relevant and able to assist entities to meet their business needs.

A core rule in the CPRs is achieving value for money. When considering value for money, the CPRs are clear that this is not solely based on price, and requires the consideration of a broad range of relevant financial and non-financial costs and benefits.

These rules and processes recognise that we live in a world where changing technologies shape the nature of the proposals that are developed. This is especially so within the ICT arena with the emergence of cloud technology. Proposals now that rely more on cloud technology can be heavier on operating expenditure than older ICT proposals, which were more capital intensive. For significant new proposals brought forward for government consideration, decision-makers (and the funding provision) are largely agnostic of the mix of capital and operating expenditure.

The BPORs facilitate entities to work with Finance so that it is not an onerous undertaking for them to seek a movement from capital to operating expenditure, where required, to support cloud service provision. Finance seeks to assist entities to work within the broader appropriations framework, instead of enforcing rules for their own sake, and in most circumstances there has not been an impediment to the movement of funds in this manner to meet an entity’s business requirements.

To further support entities’ ICT proposals that include cloud technology, the Digital Transformation Agency administers the Cloud Marketplace, which is a whole of Australian Government panel that is optional for use by all Commonwealth entities, and state and territory agencies. The Cloud Marketplace provides software as a service, platform as a service, infrastructure as a service, and specialist cloud-related professional services, such as consulting. Entities that use the Cloud Marketplace must conduct their procurements in a way that is not inconsistent with the Commonwealth Procurement Framework, including the CPRs.

Through these mechanisms of government, Finance supports the efficiency, scalability and appropriate pricing that the cloud can provide for efficient and effective government service delivery.

Yannopoulos makes it clear that government procurement rules are not the blockers of cloud computing that they are sometimes perceived to be. Government agencies must adopt new ways of doing business that don’t rely on outdated models of IT procurement, so they can provide faster, more nimble government services driven by continuous evolutionary improvement, rather than slow, irregular step changes driven by large, capital-intensive projects that take years to conceive and deliver.