BC IT Outsourcing 2015/16

04 Aug 2016

It’s BC Public Accounts time again (calm down!), and in this year’s analysis of IT outsourcing we have a surprise result: total spending on IT contractors by the BC central government actually fell in the 2015/16 budget year.

The fall-off is almost entirely the result of a collapse of billings to the central government by IBM, though Deloitte had a small fall-off also.

Other IT contractors continued to bill heartily, including massive category leader HP Advanced Systems (HPAS) who billed a very respectable $163,499,787. For comparison, that’s more than was spent on the Ministries of Energy & Mines, Agriculture, Small Business, and International Trade, combined.

Since 2010, IBM’s billings to central government have fallen in four of the last six years, which leads me to a question: what’s the matter with Big Blue?

After further research, the answer is this: nothing at all. Big Blue is doing just fine.

It turns out that the fall off in IBM billing to central government has been more than offset by a massive increase in IBM billing to the Provincial Health Authorities. The Ministry of Health budget is huge, but much of it is spent by the Health Authorities, and the provincial public accounts only record transfers to the Authorities, they don’t keep track of who the Authorities spend with.

Fortunately, the Authorities also have to publish annual financial statements, and I have now input all that data into my summary sheets, through to 2015 (Health Authorities do not publish their detailed payments data until the fall, so I am one year behind until then). The results are, frankly, staggering…

When Health Authority spending is taken into acount, IBM revenue from the BC government has not fallen at all. It has instead been on an almost unbroken tear upwards, taking total government IT outsourcing spending to just under $700 million dollars in 2014/15.

A reasonable chunk of that billing over the last couple years has been on the PHSA/Vancouver Coastal Health electronic medical records project, a $1B+ firehose of cash that IBM has been slurping on heavily, though to little practical effect.

Since IBM was kicked off the project in mid-2015, we can expect their take to fall in the 2015/16 data, but much of the slack should be taken up by medical software vendor Cerner who have been given the prime contractor role on a no-bid, sole-source basis (I’m sure that will work out fine).

While entering the Health Authority data, I had the opportunity to learn a little about the ecosystem of local vendors who support the health sector. Unsurprisingly, there is little overlap between those companies and the ones I already know of who support central government in Victoria: smaller companies tend to be more specialized.

When you lump every local vendor together, central government and health authority, and plot them up, the result is… underwhelming.

While there has been a trending upwards of local IT contracting over time, it is dwarfed 10:1 by the dollars spent on the large international consultancies. HPAS alone takes in over three times what every local IT services firm in the province bills.

The moral of the story, I think, is: if you have money, you will spend money.

• As part of my research, I reviewed the school district financials and found very minimal spending on IT consulting: not enough to warrant the effort to enter all the data. School districts are just too poor to waste money on stupid IT consulting.

• On the flip side, I reviewed the ICBC 2015 list of vendors and found, in just one year, spending of:

  • $5,051,887 on Accenture
  • $23,944,563 on IBM
  • $3,177,241 on HP Advanced Solutions
  • $7,962,866 on Deloitte, and
  • $5,962,057 on Quartech Systems.

  On administrative operating costs of about $350M, that’s $46M of IT spend, over 18%. If you’ve got money, you’ll find a way to spend it. However, since ICBC is not a direct arm of government, I didn’t include their crazy spend in my totals.

Next year is hard to predict: IBM should have a fall-off; offset partially by Cerner, as they pause the EMR project before ramping back up again. HPAS should continue incremental growth. A wild card is the Natural Resources Permitting Project, which hasn’t truly hit its spending stride yet. If it gets going, I expect Deloitte will increase their billing substantially in 2016/17.

Until next year, happy billing BC!